Lawmakers question drop in coal severance tax revenues

From the Legislative Research Commission:

FRANKFORT— A decrease in the state’s coal severance tax revenues this fiscal year will likely require prioritization of some coal severance projects funded in the 2013-2014 state budget, a state legislative committee heard today.  

The state’s single county coal project fund will feel the biggest impact, according to Department for Local Government Commissioner Tony Wilder, whose agency administers coal severance project funds for Kentucky’s single and multi county coal projects. Wilder said 27 of the 35 coal counties eligible for coal severance project funding are expected to be short the money needed to fund single county coal projects approved for their county in the current state budget.  

“It’s going to be an exercise in prioritizing,” Wilder told the committee. 

 Projected coal severance tax revenues for fiscal year 2013 are expected to be reduced by $88.3 million due to a slowdown in Kentucky’s coal markets, state budget and other officials told the Interim Joint Committee on Natural Resources and Environment. That will impact resources available for single- and multi-county coal projects by $20.7 million and $10.3 million respectively, said Deputy State Budget Director John Hicks.

 While the total amount of approved single county coal projects for fiscal year 2013 is $64.3 million, state officials said funding available to move the projects forward will be affected by new fiscal projections indicating resources will be $20.7 million less than the $79.3 million in single county resources enacted by the 2012 Kentucky General Assembly.

 As for multi-county project funds, Hicks said there is an estimated $23.1 million available in fiscal year 2013 for those projects and around $22 million obligated. “So we’ll watch that very closely,” he told lawmakers.

 Lawmakers expressed concern about the difference between funding that was allocated for the projects and the new projections. Some asked state budget officials to explain why the official revenue estimates on which the 2013-2014 biennial budget was based were inaccurate.

 “We want to answer the big question: How were the numbers so wrong?” said committee co-chair Sen. Brandon Smith, R-Hazard. “We thought we had this money coming in, and we didn’t.”

“We want you to help us navigate our way out of this,” he said.

Greg Harkenrider with the State Budget Office said four of the past five years have logged “all- time records” for coal severance tax revenue in Kentucky. But the revenue forecast logged in Dec. 2011 by the state’s revenue forecasting panel, the Consensus Forecasting Group, for coal severance tax receipts did not hold after a strong first half of fiscal year 2012, he said.

“We knew that the long-term trend had to flatten,” said Harkenrider. “We’re hoping that coal prices inch up…”