Written by: Dan Radmacher
February 22, 2012
The West Virginia Center on Budget & Policy has backed up its long-time call for an increased severance tax to pay a long-term economic development and diversification fund with a detailed report released last month.
The study found that a one percent increase in the severance has on coal and natural gas would enable a Economic Diversification Trust Fund to pay out $583 million in interest payments through 2025 that could be put to use improving and diversifying West Virginia’s economy. Through 2035, more than $2 billion could be allocated.
If properly run, the permanent fund would contain more than $3.7 billion by 2035, and would provide a permanent source of revenue for West Virginia.
If money for the fund were split between improving West Virginia’s education system and infrastructure, it could play a key role in creating the conditions that will allow West Virginia’s economy to thrive even as coal production plummets – a day that government forecasts say is coming sooner rather than later.
West Virginia should have started such a fund decades ago, but it’s not too late. As the report notes, there are several successful examples of states that have created similar funds.
The severance tax hike makes this proposal a tough sell for many West Virginia lawmakers. Some similar ideas are floating around that don’t include a tax hike, and thus wouldn’t generate nearly as much money. Senate President Jeff Kessler proposed establishing a West Virginia Future Fund using a portion of severance tax proceeds from Marcellus Shale gas production.
This proposal would leave the money untouched for 20 years and, even then, it would generate a far smaller balance – $1.5 billion in 2035 compared to $3.7 billion for the Economic Diversification Trust Fund. In other words, the Future Fund would have less money in it at the end of 20 years than the diversification fund would pay out over the same period of time.
Coal has left West Virginia with many unfortunate legacies: a crippled economy, a spoiled environment, a corrupted political system, to name just a few. This proposal would allow for one more legacy from coal, a positive one: A fund dedicated to improving the economy of the state and the lives of its residents that, if managed properly, would pay dividends in perpetuity.
The citizens of West Virginia should be demanding the establishment of this fund immediately.