ALL OF OUR EGGS IN ONE BASKET?
An update on the decline of Central Appalachian coal
and increasing budget woes in West Virginia
Evan Hansen, Joseph James, Jerry Coleman
January 6, 2016
Downstream Strategies
295 High Street, Suite 3
Morgantown, WV 26505
www.downstreamstrategies.com

Introduction
For many years, both private and government forecasts have predicted sharp declines in Central Appalachian and West
Virginia coal production (McIlmoil and Hansen, 2010; McIlmoil et al., 2013; Lego and Deskins, 2015; Risch and Shand,
2015).1 In recent years, these declines have occurred, largely as predicted, and southern West Virginia has been hit
particularly hard. Headlines tell stories of miners losing their jobs, mines closing, companies filing for bankruptcy, and
decreases in severance tax revenues—all of which have significant impacts on local economies. For example, Boone
County plans to end free trash removal (Maher and Frosch, 2015), and Monongalia County instituted a hiring freeze and
cut funding for nonprofits (Farrell, 2016). At the state level, Governor Tomblin announced a 4% across-the-board budget
cut in October 2015, due primarily to declines in coal severance tax revenues (Office of the Governor, 2015).
In this white paper, we present five key charts that update the story of the decline of Central Appalachian coal, with a
particular focus on West Virginia.

The Central Appalachian coal basin includes the southern West Virginia counties of Boone, Clay, Fayette, Greenbrier, Kanawha, Lincoln, Logan, McDowell, Mercer, Mingo, Nicholas,
Raleigh, Wayne, and Wyoming counties. It also includes counties in eastern Kentucky, southwestern Virginia, and Tennessee.
1

 The U.S. Department of Energy
makes projections of
production by coal basin,
including for the Central
Appalachian basin. Starting in
the mid-2000s, projections have
generally predicted steeper
declines in coal production
than did earlier projections.
While these projections suggest
that coal extraction will
continue to be a significant
industry in Central Appalachia,
they also forecast that
production levels will stay low
and not return to the peaks of
the 1990s.

1. For years, we have known that Central
Appalachian coal production was going
to decrease dramatically. And it has.

Actual and projected coal production in Central Appalachia

Future demand for Central
Appalachian coal will likely
continue to decline—primarily
due to the increasing cost of
mining thinner, harder-toaccess coal seams and
competition from cheaper
natural gas, renewable energy,
and energy efficiency
improvements at homes and
businesses. Future
environmental regulations on
coal mines and power plants,
such as the federal Clean
Power Plan, may further reduce
demand for West Virginia coal.
Sources: Projections from various EIA Annual Energy Outlooks. Actual production from EIA (2015a and b). Note:
2015 production data is for the 12 months ending in September 2015.

 The southern West Virginia
coalfields are located in the
Central Appalachian coal
basin, while the northern West
Virginia coalfields are in the
Northern Appalachian basin.
Coal production in West
Virginia’s southern counties has
dropped significantly since the
1990s, in line with production
across the entire Central
Appalachian basin. In contrast,
coal production in the state’s
northern counties remains
relatively stable.

2. Coal production is falling fast in
southern West Virginia, but staying stable
in northern West Virginia. This is
significantly impacting coal-dependent
communities in southern West Virginia.
Coal production in southern and northern West Virginia

Many counties and
municipalities in southern West
Virginia lack economic diversity,
which would provide resilience
against downturns in a single
industry. Undiversified
economies are especially
susceptible to further declines in
coal mining activity.

Sources: 1990-2013 production from various EIA Annual Coal Reports. 2014 production from Lego and Deskins
(2015).

 While coal still provides the
largest component of
severance tax revenues, sharp
declines in coal-generated
severance tax revenues since
2012 have only been balanced
in part by increases from natural
gas extraction.
In the three years since coal
severance tax revenues started
to decline, only in 2014 did the
increase in natural gas
severance taxes more than
offset the decrease in coal
severance taxes.

3. This is a statewide issue. Severance tax
revenues from the coal industry are
declining, and increased revenues from
the natural gas industry have not fully
made up the difference.
Severance tax revenues from coal, natural gas, and other sources

Sources: Federation of Tax Administrators (2014) and West Virginia Department of Revenue (2015). Note: Years
are fiscal years. Severance tax revenues include General Revenue Fund and other revenues.

 Overall, severance tax receipts
to the General Revenue Fund
have plateaued in recent
years—at 10-12% of the budget.
Since 2011, however, coal
severance taxes have
decreased significantly. This
raises significant concerns for
the future should gas and coal
prices remain soft, or should
increases in gas severance tax
receipts fail to keep pace with
predicted declines in coal
severance tax receipts.

4. The General Revenue Fund relies
heavily on severance tax revenues.

Percent of General Revenue Fund budget from severance taxes

Relying on severance taxes to
fund such a substantial portion
of the General Revenue Fund
places state services at risk not
only to declines in coal
production, but also to declines
in coal prices.

Sources: West Virginia State Budget Office (2015), Federation of Tax Administrators (2014), and West Virginia
Department of Revenue (2015). Note: Years are fiscal years. Total severance taxes include those generated
from coal, natural gas, and other resources.

 Throughout the 2000s, actual
severance tax receipts always
satisfied the budget.2 In fiscal
years 2013 and 2015, however,
receipts did not meet budgets.
During the first five months of
fiscal year 2016, receipts only
totaled 49% of the amount
budgeted for these five months.
Clearly, the impacts of declines
in coal production, together
with low coal and natural gas
prices, are being felt. This
severance tax revenue shortfall
is the main reason why
Governor Tomblin announced a
4% across-the-board budget
cut (Office of the Governor,
2015), which will result in cuts in
government services across
West Virginia.

5. Recent budgets have overestimated
expected revenues from severance
taxes, including the first three months of
fiscal year 2016.
Ratio of collected versus budgeted severance tax revenues

Source: West Virginia State Budget Office (2015). Note: Years are fiscal years.
The exception is fiscal year 2007, when 99% of
budgeted severance tax receipts were collected.
2

 Conclusion
For years, we have known that coal production was likely to drop significantly in southern West Virginia, and that coal
production will likely continue to decline in the future. Now that these projections are coming true, the state is grappling
with fewer jobs, bankrupt companies, and declining severance tax revenues.
Together, these present unprecedented challenges not just for southern West Virginia counties, but also for the state as a
whole.
New approaches are needed.

References
Energy Information Administration (EIA). 2015a. Table 68. Coal production by region and type. Annual Energy Outlook 2015.
http://www.eia.gov/forecasts/aeo/supplement/suptab_139.xlsx
_______________. 2015b. Coal News and Markets. U.S. Regional Monthly Coal production, October 2014 through September 2015.
http://www.eia.gov/coal/news_markets/eastern_prod.cfm
Farrell, Nick. 2016. Roads, Revenue Top Wish List for Monongalia County in 2016. WBOY. Jan 1. http://www.wboy.com/story/30867420/roadsrevenue-top-wish-list-for-monongalia-county-in-2016
Federation of Tax Administrators. 2014. West Virginia Severance Taxes. http://www.taxadmin.org/fta/severance/statutes/wv_statutes.pdf
Lego, Brian and John Deskins. 2015. Coal Production in WV: 2015-2035. Bureau of Business and Economic Research, WVU College of Business and
Economics. http://be.wvu.edu/bber/pdfs/BBER-2015-03.pdf
Maher, Kris and Dan Frosch. 2015. Coal Downturn Hammers Budgets in West Virginia and Wyoming. The Wall Street Journal. Dec 22.
http://www.wsj.com/articles/coal-downturn-hammers-budgets-in-west-virginia-and-wyoming-1450822015
McIlmoil, Rory and Evan Hansen. 2010. The decline of Central Appalachian coal and the need for economic diversification. Thinking Downstream:
White Paper #1. Morgantown, West Virginia: Downstream Strategies. Jan 19.
http://www.downstreamstrategies.com/documents/reports_publication/DownstreamStrategies-DeclineOfCentralAppalachianCoalFINAL-1-19-10.pdf
McIlmoil, Rory, Evan Hansen, Nathan Askins, and Meghan Betcher. 2013. The Continuing Decline in Demand for Central Appalachian Coal:
Market and Regulatory Influences. Morgantown, West Virginia: Downstream Strategies. May 14.
http://www.downstreamstrategies.com/documents/reports_publication/the-continuing-decline-in-demand-for-capp-coal.pdf
Office of the Governor. 2015. Governor Tomblin Announces Reduction in Fiscal 2016 Budget. October 5.
http://www.governor.wv.gov/media/pressreleases/2015/Pages/Governor-Tomblin-Announces-Reduction-in-Fiscal-2016-Budget.aspx
Risch, Christine and Jennifer Shand. 2015. Consensus Coal Production Forecast for West Virginia: 2015. Center for Business and Economic
Research, Marshall University. http://www.marshall.edu/cber/docs/2015_WV_Coal_Consensus_Forecast.pdf
West Virginia Department of Revenue. 2015. Joint Select Committee on Tax Reform Severance Taxes & Property Tax.
http://www.legis.state.wv.us/legisdocs/2015/committee/interim/TAX/TAX_20150914092541.pdf
West Virginia State Budget Office. 2015. Monthly Revenue and Cash Flow Reports, General Revenue Fund.
http://www.budget.wv.gov/reportsandcharts/revenuereports/Pages/default.aspx