The war in Ukraine and COVID-19 pandemic toppled recent global energy trends. Coal consumption bounced back worldwide by at least 6% in 2021. Due to soaring prices and abrupt natural gas supply disruptions, coal demand is predicted to reach a 10-year high this year.
While the Commonwealth has been steadily transitioning away from a reliance on coal, these abrupt changes in global energy demand presents an unforeseen opportunity.
Kentucky towns and counties will receive a once-in-a-lifetime coal severance windfall as a result. But despite this temporary boon, other energy sources are likely to continue dominating global markets over the long term. We can’t count on sustained coal industry growth beyond 2022.
It’s up to our leadership to make the most of this opportunity.
Since it’s unlikely such a significant increase in coal severance funding will come through again, it’s in our communities’ best interest to use it strategically. Local leaders must invest these funds in programs with the potential to yield long-term benefits.
If we do, our region will take meaningful steps towards economic stabilization, improved population retention, and enhanced resident well-being.
SOAR is offering actionable recommendations to use this year’s coal severance windfall to maximum effect. Let’s review them step by step — plus a case study from an Eastern Kentucky town making successful economic development investments.
Coal severance tax: Then and now
Introduced in 1972, the coal severance tax returns 4.5% of gross coal industry revenues to coal communities. This tax is an acknowledgment of the historical ups and downs of mining and production activity, which at times could be volatile. The original purpose of setting these funds aside was to help coal communities navigate the off-seasons, layoffs, and other disruptions that resulted in severe economic distress.
30% of local coal severance tax revenues fund the Local Government Economic Assistance Fund (LGEAF). The LGEAF is supposed to support an array of projects and programs associated with community enhancement. Eligible categories include economic development, workforce training, public safety, environmental protection, public transit, health, recreation, libraries, and social services.
The Local Government Economic Development Fund (LGEDF) counts on 70% of local coal severance tax revenues. The LGEDF is meant to cultivate new industry activity in Eastern Kentucky. It does so through grant programs that aim to attract new manufacturing and service industries to the region. In some instances, those grants also serve the expansion of existing local businesses.
These programs have seen declining budgets for almost a decade. Coal severance tax revenue has been declining ever since 2012, which had reached nearly $300 million that year.
It only makes sense when you look at Kentucky coal employment figures. In 2007, coal employed 16,000 Kentuckians. In 2020, that figure shrank to 6,000, trending towards further losses. Eastern Kentucky accounted for just 2,266 of those jobs. As a result, most residents won’t be able to capitalize on the positive impacts of temporarily increased demand.
This is exactly why Eastern Kentucky can’t count on these funds again in the future. Instead, leaders have to consider the options carefully. Which investments will maximize the benefits to Eastern Kentuckians over the long run?
Strategically investing your coal severance windfall
Since coal severance tax funds are highly variable, declining, and impossible to predict each year, borrowers run the risk of defaulting on their long-term debt obligations.
Instead, local leaders must look at the original purpose of these funds and rethink what it means to invest in economic diversification.
By treating this windfall as a one-time infusion of cash, the question is how its value can be expanded to have a broader impact.
Manchester, KY, is one such town that has made the right strategic decisions with limited resources. They’ve made investments that:
- Brought a strategic hire into the town’s staff, whose primary job is to expand the scope of economic development opportunities
- Unite private, public, and nonprofit interest, funds, and resources
- Develop strategy, implement action plans, and seek outside funding
SOAR recommends Eastern Kentucky leaders adopt this focused strategy — making any necessary adaptations to meet the unique needs of their towns and counties.
Let’s take a look at how Manchester is creating real change through targeted investments in economic development.
Case study: Manchester, KY
The leaders in Manchester, KY, have a vision: to multiply the impact of their limited funds several times over.
Instead of using windfalls to invest in one-off projects, they use funds to increase the available brainpower of municipal staff.
Manchester invested in a new hire whose role is to develop strategy and implement action plans for economic development. Perhaps most importantly, this person’s job is also to seek out the necessary funding to make these action plans possible — and multiply the impact of the original investment in their position several times over.
This position leads working groups to carry out a comprehensive strategic plan for Manchester. Broadband, transformational employment, oral health, downtown revitalization, and tourism are the plan’s 5 areas of focus.
Manchester has reported impressive outcomes to date:
- Broadband working group:
- 152 total remote jobs created in Clay County since Oct 2019.
- Gig Certified City through Smart Rural Communities through the work of the SOAR Manchester Broadband Committee.
- Remote work:
- Over 150 people employed remotely in Clay County through Teleworks USA since 2019.
- Transformational employment working group:
- Over 120 people in recovery placed in employment opportunities since 2020.
- Downtown revitalization group:
- Won nearly $3 million in grant funding since 2020 through capacity building.
- Oral health working group:
- Redbird Mission and University of Louisville dental school 3D-printed dentures for community members in need.
These outcomes may not have been possible had Manchester invested its funds in projects or one-off purchases without long-term sustainability plans. Instead, the town has managed to harness its additional brainpower via its strategic hire and their working groups to make a measurable difference in the lives of residents.
Building resilient Eastern Kentucky communities starts with you
Strategic investments in economic development will look different for every town and county. SOAR highlighted this particular example because Manchester has realized strong outcomes through careful investments guided by its strategic plan.
As you’re deciding how to invest your next round of coal severance funding, SOAR can help you make the most of this once-in-a-lifetime windfall.
Take a look at our key resources for local government leaders:
- Blueprint for Appalachia to develop a focused strategic plan
- Broadband resources to expand internet connectivity
- Funding resources to apply for grants
- Fiber board formation advice
- Tourism eBook to build a new revenue stream for your town
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