 |
||
|
||
|
Executive Summary: Study Context and Purpose Coal mining is the major industry in Virginia's far southwestern counties. Coal transportation supports employment in other parts of the state. In 1995, the Virginia General Assembly passed, and the Governor signed, legislation establishing the Virginia Coalfield Employment Enhancement Tas Credit. This tax credit applies to coal produced from mines located within the state's borders. The tax credit is intended as a means of maintaining coal-related employment in the coalfield counties and other parts of the state. The Virginia Coal and Energy Commission is considering proposals that would modify the current tax credit. The current legislation establishes a production tax credit of $0.25 per ton for surface-mined coal, $0.60 for coal produced in deep mines with seam thicknesses under 33 inches and $0.50 per ton for other deep-mined coal. The current tax credit will be available to coal producers with a three-year delay, and only if the state runs a revenue surplus which exceeds projections during the intervening fiscal year. The Coal and Energy Commission has voted to recommend removal of the revenue surplus contingency and three-year-delay provisions from the current legislation. This report contains results of a study of the Coalfield Employment Enhancement Tax Credit's effect on export coal businesses at the Port of Hampton Roads. The study addresses this topic within the context of the tax credit's effect on the state as a whole. The study also addresses the effects of alternative tax creditsd under consideration by the Coal and Energy Commission. Study Methods The study addresses four separate production tax-credit alternatives: the current tax credit; and non-delayed, non-contingent credits at the current level, double the current level, and triple the current level. The study was conducted by obtaining coal-production projections from Virginia coal-mining firms, and by using an economic impact model to estimate economic effects of projected tax-credit-induced production changes. Economic impact estimates consider the direct, indirect, and induced effects of in-state coal production and coal transportation activity. We relied upon the Virginia coal industry to supply information on the tax credits' effect on coal production because current production and investment plans of mining firms will have a major impact on future production; within the short time frame and limited resources available for conducting this study, no other approach seemed feasible. Tax-credit effects on coal export businesses at the Port of Hampton Roads were estimated based on additional Port tonnages likely to be generated by the tax credit. If a tax credit were to cause Virginia producers to increase Port tonnages by displacing tonnages currently shipped through the Port by out-of-state producers, no net benefit to the Port would occur. Projected economic effects are attributed to the tax credit only where tonnages handled by the Port are expected to increase as a direct result of the tax credit. Tax credit effects on in-state rail transport are estimated similarly. Projected effects are estimates, not precise quantities. Study results do not consider potential resumption of activity at the Westmoreland Coal facility in Wise County which ceased operations earlier this year. Findings: Current Market Trends Data obtained from Viginia coal-industry sources indicate that a substantial decline in Virginia coal production is likely to occur over the next decade if current market trends continue. Without an increased tax credit or some other major market change, the cumulative industry expectation is a decline in Virginia coal production from 38.8 million tons in 1994 to approximately 32 million tons in the year 2000, 30 percent below 1990's record level. Such a production decline would crrespond to a loss of about 5000 jobs (15 percent) from estimated 1994 statewide levels; this figure would include a loss of approximately 50 jobs (4 percent) from estimated 1994 levels in coal-related businesses at the Port. While these estimates do not consider potential resumption of activity at the Westmoreland facility, several other firms were unable to state with certainty that operations will continue throughout the forecast period. Representatives of Virginia coal-mining firms attribute projected production declines to high mining costs caused by Virginia's difficult mining conditions. This projection of declining Virginia production is consistent with expectations of parties engaged in Appalachian coal businesses that do not operate Virginia mines. U.S. Department of Energy data show that reserves are depleted to a greater extent, and average mine labor productivity is lower, in Virginia than in neighboring coal-mining states. Reserve depletion could be expected to cause, and low mining productivity to result from, difficult mining conditions. Findings: Projected Effects of Current Tax Credit Without the tax credits, Virginia coal production is expected to decline to about 32 million tons by the year 2000. The current tax credit is expected to have little, if any, impact on this production decline. Virginia coal producer projections, compiled during this study, indicate that the current tax credit will cost the state between 12 and 15 million dollars annually from 1999 through 2005. Such a tax credit is expected to provide some benefit. However, coal producers were unable to provide information that would enable those benefits to be quantified. The three-year delay and revenue-surplus contingency conditions were cited as factors which prevent the current tax credit from having a quantifiable influence on mine-planning and coal-marketing decisions. Benefits of the current credit are expected to be relatively minor in magnitued, compared to the benefits likely to result from a non-delayed, non-contingent tax credit. Findings: Projected Effects of Non-Delayed, Non-Contingent Tax Credits A production tax credit would have a greater effect if the three-year delay and revenue-surplus contingency clauses were removed from the legislation. A non-delayed, non-contingent tax credit at the current level would be expected to have a modest beneficial effect on coal production, while an non-delayed, non-contingent tax credit at double current levels would be expected to retain production levels comparable to the projected 1995 figure through the year 2000. If such a tax credit were administered at triple current levels, modest production increases from 1995 forecast levels would be expected through the year 2000. For all three non-delayed, non-contingent credits: costs to the state would be greatest in 1996 and 1997 while benefits would be greatest in subsequent years. If a non-delayed, non-contingent tax credit were established at the current credit level ($0.25 per ton for surface mine coal, $0.60 per ton for deep-mine seams less than 33 inches in thickness, $0.50 per ton for other deep-mine coal), it would help to assure that mining firms' current coal-production and mine employment projections are attained. Coal producers also expect such a credit would result in several thousand tons of additional coal production annually. A non-delayed, non-contingent tax credit at the current level would cost between 13 and 15 million dollars annually in foregone tax revenuse. The foregone revenue estimate considers the state and local taxes that would be generated by coal production induced by the tax credit (production over and above current expectations, "incremental coal production"), and the cumulative per-ton costs of the credit ("gross costs") that would be incurred by the state treasury. Such a credit would help to retain jobs mining and transporting Virginia coal. Such a credit would also generate several hundred additional jobs, statewide. If non-delayed, non-contingent production tax credits were available at double current levels, production would be expected to remain at levels close to 37 million tons annually through the year 2000, only slighly below the 38.8 million tons produced in 1994. Such a credit would cost the state approximately 27 million dollars in foregone tax revenues in 1996; this annual foregone-revenue cost would decline to approximately 15 million dollars by the year 2000. Foregone tax revenues would average 20 million dollars annually over the 1996-2000 period. Benefits resulting from such a credit would include an average of 2000 additional jobsd, statewide, over the 1996-2000 perdiod. Near the turn of the century, such a tax credit would generate close to 3000 additional jobs, statewide. In non-delayed, non-contingent production tax credits were available at triple current levels, annual production levels of 38 to 39 million tons could be expected over the 1998-2000 period; these levels compare favorably to 1994's 38.8 million ton production. Such a tax credit would cost the state an average of $32 million per year in foregone tax revenues while generating an average of 3000 additional jobs over the 1998-2000 period, including over 4000 near the end of this period. Projections through the year 2000 are considered to be more reliable than projections beyond the year 2000. Data provided to this study indicate that, without the tax credit, production is expected to decline beyond the year 2000 at a rate consistent with apparent longer term trends; tax credits are expected to reduce the rate of production decline. Projected effects of the tax-credit beyond the year 2000 may underestimate actual effects because this period lies beyond the realm of reasonable planning; therefor, it is difficult to state what effects a tax credit might or might not have. Because the tax credits as proposed will not be indexed to inflation, both their gross cost to the state and their effectiveness are likely to decrease with time. Findings: Projected Effects on Coal-Export Businesses at the Port of Hampton Roads The current production tax credit is not expected to have a substantive impact, either positive or negative, on employment at the Port. It is possible that the current tax credit could result in a small number of additional jobs at the Port, but information obtained during this study does not allow any such effect to be quantified. The current tax credit would be very unlikely to have any negative impact on employment in coal-related businesses at the Port. A non-delayed, non-contingent production tax-credit is expected to have a positive impact on employment in coal-related businesses at the Port. A non-delayed, non-contingent tax credit at the current level ($0.25 per ton for surface mine coal, $0.60 per ton for deep-mine seams less than 33 inches in thickness, $0.50 per ton for other deep-mine coal) would be likely to produce 5 to 10 additional jobs in coal-export businesses at the Port through the year 2000. A non-delayed, non-contingent tax credit administered at double the current level would be expected to produce 30 to 45 additional jobs in coal-export businesses at the Port over the 1998- 2000 period, while such a tax credit administered at triple the current level would be expected to produce 80 to 100 additional jobs at the Port over the same period. A non-delayed, non-contingent coal-production tax credit would be unlikely to have any negative effects on employment in coal-export businesses at the Port. |
Home | VEPT | News | Publications | Current Projects and Planned Events | Technology Transfer
Energy Data | Current Personnel | Advisory Board | Sponsors and Partners | Links | Contact Information
© 2000, Virginia Center for Coal and Energy Research