Citing costs of pandemic, coal companies asks Congress to reduce coal tax that pays black-lung benefits

Citing the economic cost of the coronavirus pandemic, coal companies are asking Congress to let them pay less of the excise tax that pays for miners' black-lung benefits. The move would force the Black Lung Disability Trust Fund, a Labor Department program already about $4 billion in debt to the Treasury, to borrow more money from the federal government to remain solvent, Will Englund reports for The Washington Post. The fund borrowed $1.9 billion in fiscal year 2019 alone.

"The National Mining Association asked Congress last month for a 55 percent cut in the excise tax for the trust fund, and a suspension of another fee that pays to clean up abandoned mines," Englund reports. "Altogether the operators say they could save about $220 million. While the level of taxation to back the fund has fluctuated sharply over the past two years, it currently stands at $1.10 for every ton of coal mined underground and 55 cents for surface coal."

The fund pays for benefits for 25,000 coal miners, and coal industry lobbyists have long sought to reduce their obligation to pay for such benefits, either by seeking cuts to the excise tax or by making it more difficult for miners to be diagnosed with black-lung disease. "Wes Addington, director of the Appalachian Citizens Law Center in Whitesburg, Ky., . . .said that the push would allow the industry to shed liability for a lung disease it caused," Englund reports.

Coal-company bankruptcies have already shifted about $865 million in liability for black-lung disability claims to federal taxpayers in recent years, according to a recent report from the Government Accountability Office.

Oil and gas boom helps most local governments but some very rural areas struggle to keep up

The oil and gas boom has helped most local governments in the U.S., but some in very rural areas "have struggled to keep pace with rapid industry growth," says a news release about research from Duke University.

"The shale revolution has created a variety of opportunities and challenges for local governments," said Richard Newell, a professor of energy and environmental economics. His team traveled to 21 oil- and gas-producing regions in 16 states to interview more than 200 local officials and look at government finances.

While oil and gas activity generated local property taxes, state severance and sales taxes and other revenues, "industry truck traffic can cause substantial damage to local roads, and population growth can strain government services such as police, fire and emergency services," the release says. "In regions experiencing the most rapid growth (such as parts of North Dakota, Texas and Colorado), city governments have spent hundreds of millions of dollars upgrading water and wastewater infrastructure to serve their growing populations."

The recent downturn in gas and oil prices "can create substantial financial challenges for regions where the oil and gas industry is a central part of the economy. In Alaska and North Dakota, for example, a prolonged slump in oil prices could lead to longer-term fiscal challenges for state and local governments." Newell's associate, Daniel Raimi, said, "Looking forward, local governments that have become heavily dependent on the oil and gas industry may look to diversify their economies."

The study is part of a three-year Shale Public Finance project funded by the Alfred P. Sloan Foundation. The reports were released at a May 18 workshop on the local impacts of oil and gas development. To see a webcast of the workshop go to www.rff.org/live. For more on the project, including previous reports and an interactive map of findings, see http://energy.duke.edu/shalepublicfinance.

Reduced severance taxes hurting Kentucky coal communities, would do the same in West Virginia

A decline in Central Appalachian coal production has reduced severance taxes in Kentucky and has coal officials in West Virgina asking for a reduction of the severance tax there. Kentucky officials in Kentucky say the fall in severance taxes has negatively impacted coal counties, and West Virginia officials expressed fear that the same will happen in the Mountain State.

Coal-county judge-executives in Kentucky told the House budget committee this week that a reduction in severance-tax dollars going to the state, half of which is rebated to counties according to production, is stretching already tight state and local budgets even further, Anna Bauman reports for the Kentucky Center for Economic Policy. "In 2015, coal severance tax receipts were just 62 percent of what they were at their peak in 2009, and the forecast for the biennium estimates that in 2018, they’ll be down $185 million from 2009 receipts."

Officials said "the consequences of declining funds have included: Layoffs and bans on overtime; shuttered community centers and recycling centers; higher sanitation bills and 911 fees; drastically reduced meals to senior citizens; and federal dollars left on the table due to constrained local funds," Bauman writes. The judges testified that "too little revenue will jeopardize their ability to fulfill state-mandated duties including sanitation, parks, county jails, animal control and fire and rescue." Kentucky has seen coal production drop 54 percent since 2011, according to the Department of Energy Development and Independence.

A study commissioned by the West Virginia Coal Association said "slashing the state’s coal severance tax from 5 percent to 2 percent would save 1,864 jobs," Daniel Tyson reports for The Register Herald in Beckley. "Those numbers include 464 direct coal mining jobs, 345 direct transportation jobs, 490 jobs indirectly in the supply industry and 565 induced jobs created by household spending of wages. ... The report also states the reduction in severance taxes would bring state mining production numbers up to 2013 levels, about $362 million of additional coal output."

"The West Virginia Department of Revenue estimates a 3 percent reduction would ax in excess of $100 million annually from the state’s coffers," Tyson writes. "That is not feasible at a time when the West Virginia is facing a budget shortfall of more than $350 million. Lalena Price, communication’s director for the department, told Tyson, “At a time when the state is already dealing with financial difficulties, that’s not something we’re able to consider at this time." Local officials were more blunt, saying a reduction of severance taxes would be devastating to the economic outlook.

Spending bill has $90 million in funding for Appalachian coalfield, guts country-labeling law

"Congressional leaders unveiled a $1.15 trillion fiscal 2016 spending bill overnight" that includes $90 million in abandoned-coal-mine funding for Appalachian states hit hard by the mining downturn,  Manuel Quiñones, Geof Koss and Phil Taylor report for Environment & Energy News. "House Appropriations Chairman Hal Rogers' (R-Ky.) original proposal was $30 million. The provision is meant to be a rolled-back version of a White House proposal to speed up the release of $1 billion from the abandoned-coal-mine reclamation fund. Another section of the omnibus includes $19 million in aid for dislocated coal-mine and power-plant workers."

The Abandoned Mine Land Fund has nearly $2.5 billion, accumulated over the years in fees paid by coal companies but not spent because most abandoned mines have been reclaimed. President Obama had proposed spending $1 billion over five years to keep his promise to help areas that are economically distressed because of his anti-coal policies. When the plan stalled in Congress, local communities in the Central Appalachian coalfield began asking for its passage.

"Negotiators kept an existing provision prohibiting the administration from changing the definition of 'fill material' under the Clean Water Act, a move that could restrict mining," reports E&E News. "The omnibus spending bill also includes a provision rolling back the Obama administration's moves to limit financing for overseas coal-fired power plants. The deal directs $160 million to boost demonstration projects aimed at commercializing technology to capture and reuse carbon emissions from power plants."

Also in the bill "payments in lieu of taxes (PILT), a program that compensates rural counties with large blocks of tax-exempt federal lands, would receive $452 million, marking the second straight year the program has been funded through the appropriations process," reports E&E News. "While PILT is a relief for Western counties, its inclusion in the omnibus bill comes at the expense of other Interior, Forest Service and EPA investments. It used to be funded through mandatory dollars."

Also included is a three-year re-authorization of the Land and Water Conservation Fund, funding the program for $450 million in fiscal 2016, a significant increase over the current level of just over $300 million, reports E&E News. Legislation also "includes increases for fossil fuel and nuclear research and development, including $632 million for coal, oil and natural gas."

The bill’s country-of-origin labeling (COOL) "provision would gut a law that was first enacted as part of the 2002 farm bill," reports Agri-Pulse. "In a small victory for supporters of the COOL law, the spending bill would leave in place the labeling requirements for chicken, while eliminating the rules for beef and pork. Those were the two commodities at the center of the WTO case in which Canada and Mexico recently won approval to impose more than $1 billion in retaliatory tariffs against U.S. exports."

"The bill also won’t stop the Obama administration from enforcing its new 'waters of the United States' (WOTUS) rule if a court stay is lifted," reports Agri-Pulse. "The WOTUS rider was a top priority for many farm groups and developers, who said the rider was needed as insurance should the courts allow the administration to start enforcing the rule, which re-defines the jurisdiction of the Clean Water Act. However, the White House strongly resisted including it, lawmakers said." Agri-Pulse is subscription-only but offers a four-week free trial.

Senate Minority Leader Harry Reid (D-Nev.) "said the final sticking point Tuesday was Republicans' demand to lift a 40-year ban on the export of U.S. crude oil," Erin Kelly reports for USA Today. "Democrats agreed to lift the ban but only after they apparently won a five-year extension of tax credits for wind and solar energy. They also beat back Republican efforts to derail President Obama's clean air and climate change regulations."

The bill also includes "provisions to ensure reimbursement policies don't change for mammograms and to exempt some rural long-term care hospitals from a billing change related to treating severe wounds," Erin Mershon reports for Politico. The House is expected to vote on the spending bill on Friday.

Decline of coal severance taxes hurting local economies in Central Appalachia

Central Appalachian communities that have seen a decrease in coal production and mine closings—blamed on tougher environmental regulations and cheaper natural gas—are also seeing a reduction of severance taxes from coal companies, creating financial woes for many towns and counties, Margaret Newkirk, Tim Loh and Mario Parker report for Bloomberg.

In Eastern Kentucky’s Letcher County, "emergency response time for sheriff’s deputies averages an hour, up from 30 minutes a year ago," reports Bloomberg. "Martin County, also in Eastern Kentucky, couldn’t afford to open its public swimming pool this summer. West Virginia’s Boone County, once the richest in the state, is considering ending free garbage pickup." Kelly Callaham, judge-executive of Martin County, said the county budget dropped from $8.5 million to $7 million over the past three years. Callahan told Bloomberg, “It’s just been devastating to us. You take a million and a half out of a budget that size, it’s a disaster.” (Bloomberg graphic)

That's the same tune many towns and counties are singing. "The Appalachian Regional Commission, a federal-state economic development organization, classifies 93 of 420 counties as distressed," reports Bloomberg. "Many of them are in Central Appalachia, which straddles Kentucky, Tennessee, Virginia and West Virginia."

"The region has been mined for two centuries, and the cheapest and best coal has been dug up," reports Bloomberg. "The remaining seams are lower quality and more expensive to mine. Many utilities have replaced Appalachian coal with cheaper fuel from Illinois and the Powder River basin in Wyoming and Montana, or switched to burning natural gas. Coal’s share of electricity generation in the U.S. will fall to 35 percent this year, from 50 percent a decade ago, according to the U.S. Energy Information Administration. Coal production is expected to fall to less than 914 million tons, the lowest in 29 years. The number of active pits in the U.S. has plunged 39 percent from the end of 2005 through June 2015."

Loss of severance taxes, which "mining companies pay into state coffers based on the value of coal tonnage taken from the earth," has been evident, with Kentucky counties getting $23.4 million in 2015, down from $62 million five years ago, Bloomberg reports. Boone County received $2 million this year, down from $6 million in 2011. Letcher County’s quarterly severance checks dropped to $200,000, from about $700,000 two years ago, forcing the sheriff’s office to lay off employees so it could make its pension payments. Jim Ward, the county’s top official, told Bloomberg, “You take all of that money out of our budgets, and what do you expect us to do?”

Things have gotten so bad that about a dozen of these towns and counties—which are mostly pro Republican and anti President Obama—have asked Republican leaders to get behind the president's Power + Plan to spend $1 billion over five years in an effort to help areas hurt by a sharp downturn in coal jobs. (Read more)

Ky. high court: Gas firms can't deduct severance tax from royalties; has implications for other states

Natural-gas producers in Kentucky can't deduct severance taxes from landowners' royalties unless the lease between the parties allows them to do so, the state's highest court ruled Thursday.

"Gas industry supporters argued that applying all the severance tax to producers would hurt small producers," Bruce Schriener reports for The Associated Press. A majority of the Kentucky Supreme Court rejected that argument, alluding to past legal and political battles involving the coal industry, mainly in Eastern Kentucky. "This time-worn tactic has been used by mineral producers for over a century to plague this embattled region of our commonwealth," Justice Bill Cunningham of Western Kentucky wrote for the five-member majority.

The dissenting opinion by Justice Lisabeth Hughes Abramson of Louisville, joined by Chief Justice John Minton of Bowling Green, "said natural-gas processors should be able to deduct the portion of the tax attributable to post-production costs when calculating royalties, but they may not deduct the portion of the tax attributable to extracting the gas," Schreiner reports.

The case arose when EQT Production Co. deducted the tax from its standard 1/8 royalty and Appalachian Land Co. sued. "At issue was the fact that natural gas is not sold at the wellhead," Joe Fisher writes for NGI's Shale Daily. "The deduction of post-production costs from royalty calculations has been an issue in Pennsylvania, where landowners have lobbied lawmakers for more protections on royalties."

Decline of jobs and decrease of coal tax revenue leading to public employee layoffs in West Virginia

West Virginia's decline in coal jobs is resulting in mass layoffs for public employees in rural counties, David Gutman reports for the Charleston Gazette. Boone County laid off 11 part-time public employees in December 2014. Nicholas County announced in March it was laying off 24 employees, and another 30 were asked to take pay cuts. And last week, Mingo County laid off 12 employees, cut hours for four more and increased the share of health premiums employees must pay.

The one area these and other counties point to is a loss of coal severance taxes, Gutman writes. "In 2012, coal severance taxes brought in more than $530 million, about double the take of a decade ago, the result of higher coal prices. But 2012 turned out to be the zenith. Last year brought in about $407 million in coal severance tax money, and this fiscal year, which ends in June, overall severance tax collection (which includes oil and gas) is nearly $50 million below expectations."

Eleven of the state's 28 coal producing counties saw severance tax revenue from 2010 to 2014, but most of those counties are located in the northern part of the state, Gutman writes. Gas revenue is expected to decline in the next few years because wells are producing more gas than they can sell, and "coal production in Southern West Virginia isn’t likely to rebound anytime soon either, the result of a natural gas glut, depleted seams and environmental regulations."

Boone County lost $3 million in coal severance tax from 2010 to 2015, Gutman writes. Mingo County has dropped from $1.7 million five years ago to an expected $800,000 this year. Webster County’s coal severance revenue fell 57 percent from fiscal year 2010 to 2014. Fayette County’s coal severance revenue is down 20 percent since 2010, and nearly 50 percent since it peaked in 2012. Wyoming County’s coal severance is up since 2010 but down $200,000 since peaking in 2012. Raleigh County has lost 25 percent of the coal severance money it had in 2010. (Read more)

Severance taxes in E. Ky. drop with coal output

Coal's popularity as an energy source decreased sharply last year as natural gas became more plentiful and cheaper, and because of increased federal regulations requiring costly upgrades to coal-fired power plants. The decline in production has forced mine closures and layoffs in the Central Appalachian coalfields, and some Eastern Kentucky counties are dealing with million-dollar budget shortfalls as the amount of coal severance tax they receive is dropping.(Lexington Herald-Leader photo: Arch Coal processing facility in Knott County)

 Kentucky shares its severance taxes with local governments in producing areas. Statewide coal tax receipts fell 19 percent in the final quarter of last year, and an additional 19.1 percent over the next three months, according to the Governor's Office for Economic Analysis. Some counties could be forced to make layoffs and tax increases as a result, Bill Estep and John Cheves of the Lexington Herald-Leader report. The Knott County Fiscal Court formed a committee last week to suggest about how to deal with the county's projected $1.2 million loss in budgeted coal-severance money. Adjoining Letcher County has cut overtime for county employees and has placed a hold on spending to manage a $1 million shortfall. Estep and Cheves report that in the 10 Eastern Kentucky counties that produced the most coal in 2011, production was down in 2012 by 29 percent, with the drop being steeper in some counties, including Martin, Knott and Letcher. (Read more)

Regional network suggests Appalachian coal states put some severance tax dollars into endowments

A coalition of citizens' groups in Central Appalachia is recommending that Eastern coal states follow the example of their Western counterparts and put part of their severance-tax revenue into endowments that would permanently provide earnings to help their regional economies. Seven states in the West "use severance taxes to create permanent trust funds that can help state economies in the future," reports Paul J. Nyden for the Sunday Gazette-Mail in Charleston, W.Va. "Many of those funds add up to billions of dollars."

A study by the Central Appalachia Regional Network notes that severance taxes represent a significant portion of state government income in two Central Appalachian states: nearly 9 percent of state revenues in West Virginia and 3.3 percent in Kentucky. In four other states covered by the group -- Maryland, Ohio, Tennessee and Virginia -- severance taxes generate less than one-tenth of 1 percent of the states' total revenues.

CARN, a diverse group of regional organizations assembled and funded by the W.K Kellogg Foundation, proposed that a minimum of 1 percent of all severance taxes be placed into permanent endowments in each state. "This would not only help these states meet many of their economic challenges but ensure that future generations benefit from the mineral wealth that is in their communities," said Ted Boettner, executive director of the West Virginia Center on Budget and Policy. The CARN study is available here.

The Kentucky-based Mountain Association for Community Economic Development, which is not part of CARN, earlier this year suggested a similar plan financed by an increase in the severance tax. If Kentucky raised the tax to 5.5 percent from 4.5 percent, it could create more than $700 million in a fund by 2035, MACED said.

As coal output falls, officials worry about severance-tax money, but Ky. scholarship idea stays afloat

Officials in Appalachian states are worried that they won't receive as much money from coal severance taxes as expected because of the predicted decline in Central Appalachian coal production, but that hasn't stopped some Kentucky officials from proposing that severance-tax money be used to pay for scholarships to colleges in the region.

Severance taxes have long been a source of consistent funding for coal-producing counties, but "with so many coal companies citing lower levels of coal sales than in years past, the amount of coal severance tax collected could be lower than normal," Bailey Richards of the Hazard Herald reports. According to the U.S. Energy Information Administration, coal production for March 2012 was "down by almost 15 percent from the past two years," Richards writes. General tax collections in West Virginia were below the initial estimate for the second consecutive month, in part because it received $16 million less in coal severance funding, The Associated Press reports.

In Western Kentucky, which has part of the separate Illinois Basin coalfield, officials in Henderson say they won't be able to complete local community improvement projects if there's a decline in severance-tax funds, reports Frank Boyett of The Gleaner.

A plan to use Kentucky severance-tax dollars for college scholarships in all coal-producing counties died in the legislature this year, the University of Pikeville and the University of the Cumberlands are trying to keep the idea alive administratively for Eastern Kentucky, the Lexington Herald-Leader reports. The schools are "vying for Gov. Steve Beshear's approval through the Department for Local Government, which distributes grants funded by coal severance money," Blackford writes.

UPike President Paul Patton, a former governor, and House Speaker Greg Stumbo originally proposed adding the school to the state system; the scholarship idea was a fallback plan. However, the plans conflict; only nine counties would benefit from the proposal of UPike, which is in the state's easternmost county, while 25 would be covered by the plan of Cumberlands, which is in Williamsburg along Interstate 75 near the Tennessee border. (Read more)

W.Va. group calls for raising severance tax 20% to create fund for the time when coal runs out

The West Virginia Center for Budget and Policy has asked lawmakers to add 1 percentage point to the 5 percent severance tax on coal and natural gas and put the extra money in a long-term trust fund "to prepare our state for the day the coal and natural gas run out," reports The Charleston Gazette's Ken Ward Jr. The fund could be used for a variety of economic development efforts, including early childhood education, college grants to workforce training and infrastructure improvements. Similar programs exist in Alaska, Montana, New Mexico, North Dakota, Utah and Wyoming, Ward notes.

The policy center released a report saying that without a permanent trust fund, "The economic benefit from the natural resources extraction will decline along with the natural resources themselves," and "West Virginia is one of the least economically diverse states in the nation and relies heavily on its natural resources for revenue." If such a program had been created in 1980, the center says, the state would have a trust fund with assets of almost $1.9 billion. If a trust were started now, it would contain an estimated $5.8 billion by 2035. (Read more)

Ward doesn't speculate on the prospects for a higher severance tax, but Charleston Daily Mail Business Editor George Hohmann mentions that the legislature is already considering a much more modest planning-ahead idea from Gov. Earl Ray Tomblin that wouldn't raise taxes, "an infrastructure reserve fund. It would receive a portion of the state's rainy-day fund and would help pay for road improvements, growing Medicaid expenses and water and sewer projects." (Read more)

GOP hopefuls 'all over the map' on ethanol

National Public Radio reported several days ago that former Minnesota Gov. Tim Pawlenty's support for phasing out federal energy subsidies suggested a sea change in attiudes toward the tax break for ethanol, a big topic in Iowa, where Pawlenty and other Republicans seek the first presidential votes. But now Politico reports, "The declared and potential presidential candidates are all over the map — and by no means fleeing en masse from their traditional support for subsidies."

Ethanol is “kind of a marker for a broader assessment of somebody’s view of the type of role governments should play,” Michael Franc, vice president for government studies at the Heritage Foundation, told reporter Darren Goode. “Every state has its version of ethanol.” Several GOP candidates, incuding supposed front-runner Mitt Romney, say they still support the ethanol tax credit; former Utah Gov. Jon Huntsman, who plans to enter the race soon, says he won't compete for Iowa caucus votes because "he doesn't believe in 'subsidies that prop up corn, soybeans and ethanol'," Goode reports.

Failure of steep severance tax in Pennsylvania leaves it only major gas state with no such levy

Pennsylvania remains the only state among the nation’s 15 top natural-gas producers not to impose a severance tax on the industry after Gov. Ed Rendell declared the bill dead Thursday," reports Eric Boehm of the Pennsylvania Independent.

Rendell pointed to drilling in the Marcellus Shale formation as he proposed the tax, which would have been the nation's highest on gas. Republican leaders of the state Senate called for a much lower rate. "Rendell and House Democrats said the lower proposal was a gift to the industry" and bad for property owners, Boehm reports. "Attempts by the governor to bring the two sides together over the last few weeks failed."

Rendell leaves office at the end of the year. The Republican nominee, Tom Corbett, "has repeatedly stated his opposition to a severance tax," Boehm notes. "His Democratic opponent, Dan Onorato, said he did not agree with the severance tax passed by the state House, but he would support a reasonable tax on the industry." (Read more

Gas company ordered to build $11.8 million water pipeline to 18 homes in rural Pennsylvania

The Pennsylvania Department of Environmental Protection has ordered Cabot Oil & Gas Corp., a company drilling in the Marcellus Shale formation, to build a $11.8 million pipeline to deliver water to 18 rural residences whose household wells are contaminated by natural gas, Andrew Maykuth reports for The Philadelphia Inquirer.

The disagreement between residents of Dimock Township and the drilling company are so volatile that company crews travel with uniformed escorts after a Dimock resident drew a handgun on a company employee. Cabot chief executive officer Dan O. Dinges  responded that the state has "taken the position that the only acceptable solution to water-supply issues in the area is a wasteful and environmentally disruptive community pipeline," reports Maykuth. Dinges also said "his company was willing to drill new state-of-the-art water wells for residents, or to install in-house water-treatment systems that are commonly used in other areas where well water becomes contaminated," the Inquirer reports. "But the residents, who have sued Cabot, objected to those solutions because they do not trust any water from their aquifer." The conflict is escalating just as the Pennsylvania legislature is engaged in a fierce debate about establishing a production tax on natural gas. (Read more)

Ky. needs more tax revenue, but is coal off limits?

Kentucky, like many states, is facing a large budget shortfall in the upcoming fiscal year. While the state has been willing to raise taxes on signatue industries like tobacco and alcohol, and make cuts in education, raising taxes on coal appears to be off limits. Kentucky's coal severance tax rate and mine-permit fees have not changed in 30 years and some see raising those taxes as a way to help with the state's budget crisis.

"Tobacco and alcohol taxes jumped again just this year, and the cost of getting a driver's license rose from $1 to $12 over the last three decades," reports John Cheves of the Lexington Herald-Leader. "But coal still pays rates that were established in the disco era." Other coal-producing states are considering raising some taxes on the coal industry. "Tennessee lawmakers, for instance, sent a bill to their governor April 24 hiking that state's coal severance tax from 20 cents a ton to $1 a ton over four years," writes Cheves.

Coal advocates argue that raising taxes on coal could cost jobs and hurt rural economies that depend heavily on mining. "If you try to raise the severance tax, we'll squeal," said Bill Caylor, Kentucky Coal Association president. "Coal's squeals are hard to ignore in Frankfort," adds Cheves. "The coal industry spent more than $1 million on state political donations in recent years and $255,145 to lobby the last two legislative sessions."

Some urban lawmakers have argued that now is the time to revisit the coal severance tax rate, set in 1978 at 4.5 percent, and mine permit fees, set in 1982 at $375 per application plus $75 an acre. The state Division of Mine Permits collected $1.6 million last year , but its operational budget last year was $8.6 million. (Read more)

Debate over Kentucky's tobacco and alcohol taxes reopens the state's rural-urban divide

A split between rural and urban legislators threatens a deal to raise tobacco and alcohol taxes in Kentucky, which has one of the highest state smoking rates and produces 40 percent of the nation's liquor. (UPDATE: The bill passed the state House this afternoon, 66-34. UPDATE, Feb. 12: After a 9-7 committee vote today, the bill is set for a Senate floor vote Friday. UPDATE, Feb. 13: The Senate passed the bill 24-12. In the end, adding the alcohol tax gained rural votes that offset the loss of urban votes.)

Democratic Gov. Steve Beshear proposed raising the cigarette tax 70 cents to $1 a pack, and doubling taxes on other tobacco products, as part of a plan to balance the state's recession-starved budget. The plan drew fire from rural and Republican lawmakers, many of them from border areas, which get a boost in retail sales because Kentucky's cigarette tax is one of the lowest. Many of those areas have voted to maintain Prohibition, and some of their "dry" voters said that if taxes on tobacco were raised, levies on alcoholic beverages should be too -- even though Kentucky already has relatively high alcohol taxes.

So, Beshear and leaders of the Democratic-controlled House and Republican-controlled Senate agreed to a 30-cent increase on cigarettes and applying the 6 percent sales tax to packaged alcoholic beverages, now free of sales tax. That drew objections from urban legislators, who said it was another example of rural areas benefiting from taxes paid by their city cousins. "Some urban legislators who normally would vote for any tax increase are saying no to an increase they consider an inadequate fix and overly burdensome to their constituents," Larry Dale Keeling writes in the Lexington Herald-Leader.

One Louisville lawmaker went so far as to introduce an amendment to require alcohol taxes to be spent only in counties where the sale of alcohol is legal. Keeing says that was "a takeoff on the coal severance tax," about half of which is spent in coal counties. The bill is scheduled for a House floor vote today. (Read more) For a map of wet, dry and so-called "moist" jurisdictions in Kentucky, click here.

Calif. town gives 'mini-bailout' to ailing car dealers

The declining auto industry has meant dire times for many car dealerships, especially those in smaller cities with less sales volume. The lack of big-ticket sales has had a big impact on towns that depend on sales taxes. In Victorville, Calif., which has no property tax, motor-vehicle sales accounted for half the sales tax revenue, reports Rico Gagliano of Marketplace.

Victorville's response was to loan $200,000 to local dealerships that could no longer get loans. "Call it a mini-bailout," Gagliano says. "Automotive News says towns everywhere may have similar decisions to make." Many had assumed that the big three American automakers would "extend credit to struggling dealerships, using money they got from their federal bailout," adds Gagliano. Thus far that has not been the case. Hat tip to Al Tompkins of the Poynter Institute for this item. (Read more)

Several horse issues will face the new Congress

With the start of the 111th Congress, many in the horse industry are wondering what steps the lawmakers will take on equine issues. The new Congress faces issues ranging from economics, with a bill to lengthen the holding period for capital gains tax, to immigration, which is a major concern in an industry which depends on foreign workers.

Animal welfare laws are also anticipated to return as a major issue this session, as well as questions of federal land use rights. But a Democrat-majority does not necessarily signal where legislators will fall on specific votes. "For the most part, issues affecting the horse industry are not partisan," American Horse Council president Jay Hickey told The Northwest Horse Source. "Like most industries, our legislative concerns don't clearly split along party lines." (Read more)

In Farm Bill debate, extra money for rural development vanishes; deadline may be extended

Rural development can work wonders for small communities, but the new Farm Bill won't be putting any more money into the cause. While earlier versions of the bill raised rural development funding by as much as $400 million, the latest have removed any such increase. That's because "Rural development advocates have not been able to speak with a loud and insistent enough voice to become anything more than mice jumping up and down squeaking, 'Me, too, me too,' as the farm bill elephants dance," writes Jason Gray in the Daily Yonder.

Gray explains that those competing interests — such as a crop subsidies or a new disaster aid program — managed to keep the attention of Congress and its funding. "I suspect that the rural development mouse will never become an elephant in its own right until Congress understands that effective rural development programs benefit both rural communities and the nation’s fiscal bottom line," Gray writes. "We’re caught in a cycle: We can’t reduce funding for the programs that treat the symptoms of poverty, such as hunger — which means the country doesn’t have the money to fund development that might alleviate the causes of poverty."

Gray does note some "good news" in the House and Senate versions, such as the $150 million in funding for socially disadvantaged farmers and those just starting out as farmers. Of that $150 million, $100 million is slated for the Pigford settlement, which arose out of the U.S. Department of Agriculture's admission that it had discriminated against African-American farmers. Grayt is research and policy director of the Southern Rural Development Initiative. (Read more)

Meanwhile, the House voted today to extend the 2002 Farm Bill another week to give lawmakers more time to finish the next one, but the Bush administration "is threatening to block an extension ... unless lawmakers meet its demands for changes in policy and avoids raising revenue to increase spending," reports Philip Brasher of the Des Moines Register. Friday is expiration date for existing programs. "It seems every time Congress advances this Farm Bill, the White House has to throw up another obstacle to the bill's completion," Sen. Tom Harkin, D-Iowa, told Brasher. "It's like we've pulled up in the combine for harvest, only to see a big boulder in the middle of the field setting us back." (Read more)

The Senate is expected to follow the House's lead, reports Peter Shinn of Brownfield Network. House Ag Committee Chairman Collin Peterson, D-Minn., told Shinn he expected "to have these things wrapped up by the 25th," and President Bush could have the bill on his desk by May 9. (Read more)

Bush makes direct threat to veto Farm Bill as it is

Following signals from the White House and the Department of Agriculture that President Bush would veto any Farm Bill he does not like, Bush confirmed that threat today himself. “I’m confident we can come together to get a good farm bill, but if Congress sends me legislation that raises taxes or (does) not make needed reforms, I’m going to veto it,” Bush said during a ceremony to swear in the new agriculture secretary, Ed Schafer.

The administration objects to the inclusion of tax language in the bill and wants tighter limits on crop subsidies. "The administration wants the income eligibility limit for subsidy recipients lowered from $2.5 million to $200,000 a year," reports Philip Brasher of the Des Moines Register. "Individuals with incomes over $200,000 don’t need farm subsidies, administration officials say. Farm groups say that is too restrictive. Democrats say the veto threat is delaying enactment of a new Farm Bill." (Read more)

Jeff Caldwell of Agriculture Online points out that if a new bill is not passed by March 15, by law the farm program would return to the 1949 Farm Bill, or "permanent law." (Read more)

Bush used the ceremony to highlight other key agriculture issues, reports Peter Shinn of the Brownfield Network. He mentioned opening foreign markets for American beef, and he talked about renewable fuels, which he did not specifically mention during his State of the Union address. "We recognize that farmers also have the potential to help our nation solve one of the greatest challenges, and that is our dependence on foreign oil," Bush said. "I'd much rather our farmers be growing energy than trying to buy it from other parts of the world, so we will continue to work on - for renewable fuels, including a new generation of ethanol and biodiesel." (Read more)