Report recommends scrapping Virginia’s coal tax incentives

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RICHMOND, Va. (WJHL) — A new report claims that Virginia’s tax incentives for the coal industry are no longer relevant and recommends state legislators eliminate them. It also questions the effectiveness of an organization created to promote economic development in the state’s coal-producing counties.

The Joint Legislative Audit and Review Commission’s (JLARC) report to Gov. Ralph Northam and the General Assembly examines Virginia’s infrastructure and regional economic development incentives.

That includes the state’s two coal tax credits: the Coalfield Employment Enhancement Tax Credit and the Coal Employment and Production Incentive Tax Credit. The first provides a tax credit to mining companies while the second provides a tax credit to power companies for using Virginia-mined coal.

According to the report, coal and power companies saved $291.5 million in income taxes between fiscal years 2010 and 2018 thanks to the coal tax credits. JLARC, which is comprised of 10 Democratic and four Republican state lawmakers, said the Coalfield Tax Credit is the state’s second-largest incentive program in terms of spending and the largest among those included in the report.

But according to the JLARC, the tax credit for coal companies is no longer needed because Virginia coal production is now competitive with nearby states and the electricity generator tax credit is no longer needed because all but one of the state’s existing coal-fired power plants will close by 2025.

The Virginia Clean Economy Act of 2020 requires the retirement of all coal-fired power plants by the end of 2024 unless they are located in the coalfield region. That means Dominion Energy’s Virginia City Hybrid Energy Center in St. Paul, which burns both coal and biomass, will be the only plant spared.

According to the JLARC report, despite being among Virginia’s largest incentive programs, the coal tax credits provide “negligible” economic benefits. The report claims the credits actually hurt the state economy.

Unlike most other incentives evaluated so far in this series, the coal tax credits do not generate additional activity for the Virginia economy, adjusting for the opportunity cost of increasing taxes to pay for the credits. This occurs because any additional activity such as jobs induced by the credits is eroded by the reduction in economic activity that occurs because of tax increases to pay for the credits. It is estimated that the Virginia economy lost 35 jobs, $21 million in Virginia GDP, and $5 million in personal income because of the credits (Table 1-2).

JLARC report

The report also questions the effectiveness of the VCEDA, the Virginia Coalfield Economic Development Authority, which was created in 1988 to diversify the economy in Virginia’s coal-producing counties.

The JLARC report says the economic benefits and return in state revenue generated by VCEDA are “negligible.”

Jonathan Belcher, VCEDA’s executive director, says the report only considered a few of the projects the organization has funded.

“With all due respect to JLARC, it appears to us that the JLARC report only considered 10 of the 447 projects that VCEDA has funded and been involved with, so based on that fact alone we do not understand how they could have made that statement concerning VCEDA,” Belcher said in a statement. “We were not given any opportunity to comment on the report, so we would have pointed that out if we had.”

According to the report, refunded coal tax credit revenue made up one-third of VCEDA’s total revenue between fiscal years 2010 and 2018 with the rest coming from local severance taxes. As the report points out, killing Virginia’s coal tax credits would eliminate a major revenue source for VCEDA.

Belcher says only 10 of the 477 projects VCEDA funded were from coal tax credit funds.

“The vast majority of VCEDA projects are funded from local coal and gas severance taxes, so by leaving those out and only focusing on 10 that were approved from coal tax credits, we just do not understand how they came to the conclusions they did,” Belcher said. “On the other hand, several other studies, which were more comprehensive in scope, including one by Virginia Tech which JLARC did not reference, came to the opposite conclusion. I firmly believe that VCEDA has done more for the economic development of the Virginia coalfields than any other group, and in the end everyone will see that.”

State legislators across Southwest Virginia also take issue with the report.

Republican Del. Terry Kilgore says JLARC did not consider the economic impact of coal industry jobs, not just in Southwest Virginia but in other parts of the state as well, like in Norfolk, where coal is exported at the Port of Virginia.

“I think they’re missing one point of the coal tax credit is to keep and retain jobs in far Southwest Virginia. It does definitely keep and retain jobs in far Southwest Virginia,” Kilgore said. “We’ve witnessed coal jobs go down, but we are steady right now in keeping some of those coal jobs, so I think we have to give credit where credit is due. But also, we’ve got to look at other jobs it supports across the state and I still do not believe they are doing that.”

He also defended the VCEDA.

“They do good work in Southwest Virginia, closing deals and helping companies get to Southwest Virginia and keeping companies that are here from going elsewhere,” Kilgore said. “I think over the years VCEDA has done a great job as far as creating and retaining those jobs. And I think it’s something we need to keep here, because otherwise, it just goes into a big pot in Richmond and getting that money back down to Southwest Virginia is going to be very hard.”

“This is something we did years ago, that our southwest delegation did years ago: set up the VCEDA, set up the coal tax credit and other things to specifically target Southwest Virginia and some of the struggles we have in economic development.”

Kilgore says he and his fellow lawmakers from Southwest Virginia will send a letter to JLARC encouraging members to modify their report and include more information.

Sen. Ben Chafin calls on Democratic Gov. Northam to continue to support the recently modified coal tax credits.

“Governor Northam supported renewing the coal tax credits by signing legislation into law in May 2018. The legislation changed the emphasis of the credits to the production of metallurgical coal, which is used to make steel,” Chafin said. “That legislation had bipartisan support. I hope the governor and members of the General Assembly who supported the legislation will not turn their back on an economically struggling Southwest Virginia just because JLARC has a newly appointed Democratic majority.”

News Channel 11 reached out to Northam’s office for comment on the JLARC report but hasn’t received a response.

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