According to the Kentucky Office of the State Budget Director, nearly all tax revenues fell in May, with the state’s General Fund receipts falling 8.1 percent and Road Fund receipts falling 33.4 percent.
However, few of the revenues, according to data released by the OSBD, fell as sharply as coal severance, which one industry official said this week is the result of a “perfect storm of factors.”
According to the OSBD, in May, coal severance receipts fell to $4.2 million, representing a 52.5 percent decrease over the amount collected in May 2019. The overall coal severance, the data shows, is down 32.5 percent for the fiscal year, coming in at nearly $56.5 million, compared to the $83.7 million collected at the same time last year.
Kentucky Coal Association President Tyler White said on June 11 that it’s not just one factor that’s causing the downturn in the industry, but multiple factors.
“It’s not just market-related,” he said. “It’s non-market related.”
Non-market-related factors have typically referred, White said, to the government regulations such as those passed by the U.S. Environmental Protection Agency, many of which are still a factor for the industry. However, the COVID-19 pandemic has added another layer onto that, he said, as regulations affected both the coal industry directly and indirectly as electrical users, such as manufacturers, have idled or reduced usage.
“When we send a workforce home in America, and we’re not utilizing our factories or we don’t have the same electricity demand that we once had, it’s going to be devastating to our energy needs, especially in regards to coal,” he said.
In the area of market factors, natural gas, he said, costs less than $2, which is difficult to compete with, and government policy incentivizing solar and wind power sometimes result in those forms of energy bearing a negative cost.
“When you put all those together, you don’t have the demand that we would normally have because, frankly, our economy is not up and running,” he said.
White said policy makers, from governing entities to state and federal officials, need to make sure they’re understanding the role of a base load power and what that means for the security of the power grid and not entirely ignore the need for coal.
“We need to be focusing long-term,” he said, which includes considering the potential volatility of natural gas prices, as well as volatility in the production of other forms of power, such as wind and solar. Coal, he said, is the “back stop” for all those types of power and remains important.
In the short term, White said, people need to “brace,” as the industry continues to weather the storm. But, he said, the programs and projects being proposed to bring more power online through methods such as wind and solar are adding supply where there isn’t demand.
“Why would we put more supply on?” he said. “Why would we build more capacity when we’re not utilizing what we currently have?”
White said a lot of factors will determine what happens next in the coal industry.
While the coal severance tax collection was negative, State Budget Director John Hicks noted in a statement that the General Fund revenues were better than expected in May, due to an unanticipated 12.4 percent increase in the individual income tax.
“Income tax withholding receipts were buttressed by unemployment insurance payments, defying economic expectations by increasing 8.0 percent following a 7.5 percent decline in April,” he said. “Many of the beneficiaries of unemployment insurance elect to have withholding deducted from their weekly payments. A lower level of income tax refunds also contributed to the increase from last May, likely a result of the change in the filing deadline from April 15 to July 15.
“Sales tax receipts were down by 10.9 percent which was better than the (Consensus Forecasting Group) expected in their recent revenue estimate which predicted a 26 percent decline for May and June combined,” he continued. “Business taxes declined significantly, continuing a trend seen throughout the fiscal year.”