A House panel advanced a bill Tuesday that would phase out two costly coal tax credits that a state investigation recently found generate economic losses for Virginia.
The incentives, designed to encourage coal production and coal use and aid the struggling economy of southwest Virginia, are decades old and among the state’s largest. They have been a persistent political issue in recent years, with Republicans generally pushing to keep or expand them and Democrats seeking to end or limit them.
On a 6-4 party-lines vote, a House subcommittee approved a measure from Del. Sally Hudson, a Democrat who represents Charlottesville and Albemarle County, to end the credit by 2022. The bill still must advance through a full committee and both chambers before it could be sent to the governor.
In an interview, Hudson said she thinks the measure has strong prospects for final passage this year, in part because of the finality of the investigation last year from the state’s legislative watchdog agency, which plainly found the credits are not working and recommended they be repealed.
“Separate from your feelings on whether the state should be investing in coal, if the goal is for them to be spurring additional economic activity that doesn’t seem to be what’s happening,” she said.
In September, the Joint Legislative Audit and Review Commission presented lawmakers with the findings of a study of the effectiveness of 10 incentives intended to either promote business growth through infrastructure development or encourage business activity in distressed regions.
“The (coal) tax credits are among the state’s largest incentives, but they generate economic losses for the state and no longer appear relevant,” the report said.
One of the tax credits, which typically goes to mining companies and was intended to help Virginia coal producers maintain competitiveness, “is no longer warranted” because Virginia’s mining productivity has met that of other states, the 151-page report said. The other, a credit designed to encourage electricity generators to use Virginia coal, “no longer serves a purpose” because all but one coal-fired plant in the state will close by 2025, the report said. The remaining plant, Dominion Energy’s Virginia City Hybrid Energy Center, is already dependent on Virginia coal.
The report estimated that between fiscal years 2010 and 2018, the Virginia economy lost 35 jobs, $21 million in gross domestic product, and $5 million in personal income because of the credits. During that same period, coal mining companies and electricity generators saved $291.5 million in income taxes, according to the report.
A commission review of Virginia tax policy in 2012 also questioned the effectiveness of the credits, saying: “An analysis of the change in coal production and employment over time indicates that the State’s coal tax credits may not have achieved their public policy goal of slowing the decline in coal mining activity and employment.”
The version of Hudson’s bill that passed out of committee Tuesday was amended from what she initially filed to push the sunset date back by a year and to add language that would convene a workgroup to steer the transition away from the credit and consider other sources of economic development.
Republican committee member Del. Joseph McNamara, who called the first version of the measure “extremely mean and nasty” to southwest Virginia, said that while he had a hard time “arguing the logic” of the amended bill, he opposed it.
“To single out a tax credit that’s impacting quite simply the poorest area of our state seems to me … to be kicking our friends while they’re down,” he said.
Hudson, an economist, said that the primary fiscal impact of the measure won’t be felt for several years because the largest credit — the one that typically goes to mining companies — is paid out three years after its earned. Without her bill, the tax credits were set to end in 2023.
“From my perspective this is not a matter of regional discrimination but a sincere desire to invest in both environmental sustainability and economic justice throughout the Commonwealth,” she said.
Democratic Sen. Jeremy McPike has filed a similar bill that has not yet received a hearing. Hudson said it would be amended to align with hers.