Wildfires, Declining Coal Revenue Busting Montana’s Budget

High-voltage electrical lines run from coal-fired generating plants in Colstrip, Montana. (Photo: David Reese)

(CN) – A thick haze of smoke hangs over the town of Seeley Lake in western Montana this week, where wildfires have forced people to evacuate their homes.

Some 600 miles away, clouds of steam can be seen rising from the tall cement columns of the Colstrip electric generating facility, which burns coal to produce electric power. The two scenarios – severe wildfire and a coal-fired electrical plant – are hundreds of miles apart, but they are inextricably linked in Montana.

Three years of declining revenues from coal mining in eastern Montana have left the state budget in tough shape. In June, Montana budget officials said state agencies would have to find ways to trim some $93 million from their budgets.

Coal’s decline in Montana has contributed to the state’s struggling budget, and in a year when forest fires are their worst in decades the money is running tight for firefighting. Wildfires have burned more than 550 square miles of forests and prairies, and the Lodgepole Fire, the largest wildfire in Montana, has burned nearly 300,000 acres, according to federal figures.

At the end of June there was only $12 million remaining of Montana’s $63 million firefighting fund, and the state was spending that at a rate of $1.5 million a day, according to Montana Department of Natural Resources and Conservation director John Tubbs.

“We will use up the remaining balance in fairly short order,” he said.

The Federal Emergency Management Agency recently accepted Montana’s appeal for financial help after initially denying the state’s request for funds to help fight the Lodgepole Complex fire.

Among coal-producing states in the nation, Montana is not alone its revenue woes.

Wyoming, too, is facing budget shortfalls from declining coal revenues. State and local governments receive coal revenues through the Wyoming’s mineral severance taxes, federal mineral royalties, sales taxes with purchase of equipment, supplies and services, coal lease bonuses, and property taxes. All contribute to what Wyoming receives from coal mining, according to Wenlin Liu, the state’s chief economist.

Liu said in an interview that about two-thirds of Wyoming’s general fund revenue is from the mineral extraction industry, and about 20 percent of Wyoming’s budget comes directly from coal mining.

The revenue picture looks even more bleak down the road.

Steam rises from coal-fired electrical generating plants at Colstrip, Montana. Two of the plants are slated to close in 2022 due to a lawsuit from environmental groups. (Photo: David Reese)

While coal prices are expected to be relatively stable, production is forecast to decline, from about 300 million tons in 2016 to 280 million tons in 2020, Liu said.

Wyoming’s coal lease bonus payment, which is set aside for the state’s new school construction and was $219 million in 2016, is projected to be zero by 2019 if there are no more new lease sales, Liu said.

Coal revenue for Wyoming has been gradually declining since 2011. Liu said the state’s mineral severance taxes from coal was $294.3 million in fiscal year 2011, and fell to $217.8 million in fiscal year 2016. The assessed valuation for coal mining production was $4.3 billion in 2011, but dropped to $2.9 billion in 2016, Liu said.

Coal mining traditionally has been one of Montana’s strongest corporate sectors. But the decline in coal revenues has forced Montana to cut money from school and social programs, according to the governor’s budget office. The Office of Public Instruction must cut at least $19 million over the next two years, while the Department of Public Health and Human Services will have to cut $26 million.

West Virginia, one of the nation’s largest producers of coal, faces similar circumstances.

In a letter to the Legislature, West Virginia Gov. Jim Justice said, “The budget forecast for the state of West Virginia is the worst we’ve seen since the Great Depression.”

Justice said West Virginia must come up with $123 million to address a 2017 budget shortfall, “while at the same time we are looking at a $497 million gap to balance FY 2018.”

Coal mining has dropped significantly in the last few years as cheaper natural gas has become a preferred energy source to burn for electricity. Another reason for coal’s decline has been the Clean Power Plan, an Barack Obama administration effort to curb greenhouse gases.

The plan, while meant to reduce carbon dioxide emissions, could harm Montana’s economy for years to come, according to a report from the University of Montana.

Montana has invested in major energy infrastructure next to its Colstrip power plants, and the state is a net exporter of electrical energy. In fact, the state has some of the cheapest electrical power in the nation for its residents, and Montana produces about 37 percent of its electricity through coal-fired generation plants at Colstrip. The state will lose over $500 million annually in household income, the UM report said.

Two of Colstrip, Montana’s, four generating units are set to close in 2022, the result of a legal settlement among environmental groups who sued the plants’ owners over clean air violations.

Closing the coal plants and adapting to other energy sources will be a costly endeavor for the state, resulting in thousands of lost jobs, the report said. It estimates the decline in state and local tax and non-tax revenues from compliance with the Clean Power Plan will exceed $145 million per year in 2025.

On March 28, President Donald Trump signed an executive order to review the Clean Power Plan.

As coal production on federal lands in Montana dwindles, one of the West’s largest coal producers, Cloud Peak Energy, is looking at mining contracts on private lands.

The company’s subsidiary, Big Metal Coal, has signed an options contract with the Crow Tribe of Montana to mine coal from the tribe’s lands.

“Coal from Montana will continue to play an important part in meeting America’s energy need for decades to come,” Cloud Peak spokesman Rick Curtsinger said. “Coal production in Montana creates good paying jobs and generates important tax revenues for the state as well as local governments.”

Curtsinger said the Trump administration’s efforts to turn around the coal industry might save some of the jobs in Montana. “The EPA under the previous administration did nearly inestimable damage to coal, costing jobs and causing budget shortfalls for states,” he said.

Coal has enjoyed a bit of a rebound in West Virginia, allowing the state to recoup some of its coal-severance taxes lost in previous years.

“From a longer-term perspective, however, we don’t expect this rebound to persist,” Brian Lego, an economic forecaster at West Virginia University, said. Coal severance taxes will likely remain lower than what was collected just a few years ago in West Virginia due to lower domestic use of coal by utilities and tight competition for global demand for coal used to make steel, Lego said.

The tighter budgets in West Virginia are affecting all areas of the state, especially schools, Lego said.

Higher education has been among the hardest hit, Lego said, with an actual reduction in state spending of more than $90 million between fiscal years 2012 and 2018.

“The path forward over the next year or so will likely not be as difficult as the past few years, thanks to the rebound in energy markets, moderate growth in employment and a handful of revenue enhancement measures that were passed recently,” he said.

The nation has seen a bump in coal exports this year. First quarter 2017 results from the Energy Information Administration show that coal exports increased 15.3 percent over the previous quarter and were up 58 percent from first quarter 2016. So far this year, U.S. coal production is 14.5 percent above this time last year, according to the Energy Information Administration.

A family walks near the Colstrip electric generating plants in Colstrip, Montana. (Photo: David Reese)

West Virginia’s longer-term economic picture looks more challenging, given the state’s demographic profile – a large population over 65, poor health conditions, a drug crisis and slow economic growth, Lego said.

But Montana has begun preparing for the future, as coal jobs decline. Last week Gov. Steve Bullock announced the receipt of a $4.2 million federal grant to help retrain workers affected at Colstrip, Montana’s coal-mining epicenter.

“Taking care of the workers of Colstrip is a top priority of our administration, and I remain committed to making sure we don’t leave the community high and dry,” Bullock said. “This funding is absolutely critical to ensuring responsible, Montana-made solutions that will bolster job creation potential and harness good paying jobs for hard-working Montanans and their families in the region.”

Bullock said $2 million in funding will be immediately available for planning efforts in Colstrip and for workforce training of coal workers in other Montana communities.

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