What the West Virginia Department of Revenue could not provide, Arch Coal could.
Namely, how much a tax break given to coal companies in this year's legislative session can cost the state.
In this case, about $10 million a year for 10 years. And that's just one company. Granted, it's a tax break on a big investment, but we now have numbers that would have been nice to have had before lawmakers voted.
This year the Legislature approved two pieces of legislation granting tax breaks to the coal industry. House Bill 3142 reduces the severance tax for two years on coal that is used in power plants. The tax will go from 5 percent to 3 percent. The second bill, HB 3144, also known as the North Central Appalachian Coal Severance Tax Rebate Act, creates a 35% investment tax credit for the coal industry in a form of a tax rebate that would offset up to 80 percent of the coal company's coal severance tax liability.
Before the Legislature voted, the Department of Revenue was asked, as usual, to provide a fiscal note of how much revenue the tax break would cost the state treasury.
"We are unable to provide an accurate estimate of cost associated with the provisions of this bill," the department responded, noting the cyclical nature of the coal industry.
But Arch Coal has calculated how much it will save in severance taxes thanks to the new rebate program.
On Feb. 14, Arch Coal announced it will invest $360 million to $390 million to develop its new Leer South mining complex in Barbour County. The new operation could begin production in late 2021 with about 600 miners. With current market conditions, Arch expects to recover its capital investment in about 18 months once it reaches full production.
Coal from Leer South is the type used to make coke, which is used in making steel. Arch noted the benefits of the rebate program in its quarterly earnings report issued April 23.
"Arch believes this new law could result in severance tax rebates at Leer South totaling more than $100 million on an undiscounted basis over the course of the mine's first 10 years of operation, based on the company's current market outlook," Arch reported. The news release quoted Paul A. Lang, Arch's president and chief operating officer, saying, "We applaud the Governor and legislature for passing this impactful and pro-investment legislation. We expect this new law to factor significantly in our ongoing evaluation of further investment opportunities on our 200-million-ton Leer reserve base."
Most legislators from Cabell and Wayne counties voted for HB 3144. Among them was Delegate Daniel Linville, R-Cabell. In floor debate, Linville said coal companies haven't been eligible for what he called "sweetheart deals" from the federal government in the form of tax credits and incentives for renewable energy producers.
Statewide, what is the fiscal impact of HB 3144? This budget year, which ends June 30, the state expects to collect $424 million in severance taxes. Collections so far are 4 percent over estimates. Averaging Arch's savings at Leer over 10 years, the $10 million rebates it gets is slightly less than 2.4 percent of the estimated collections for this year.
We'll have to wait and see if the state and the people who rely on services funded by severance taxes really benefit from reducing Arch Coal's tax burden by $100 million over 10 years. Or, to put it another way, reduces its cost of starting up Leer South by nearly 25 percent.