West Virginia debates gas fund
Legislator suggests creating cushion from severance-tax revenue
CHARLESTON, W.Va. — For decades, coal from West Virginia’s vast deposits was mined, loaded on rail cars and hauled off without leaving behind a lasting trust fund financed by the state’s bestknown commodity. Big coal’s days are waning, but now a new bonanza in the natural-gas fields has state leaders working to ensure history doesn’t repeat itself.
West Virginia’s Senate president, Jeff Kessler, is pushing to create an oil and natural-gas trust fund to support core government functions decades from now. His goal: a cushion of funds long after the gas is depleted to buoy an Appalachian mountain state chronically vexed by poverty, high joblessness, and cycles of boom and bust.
The Democratic Senate leader said the previous generation missed out on creating a permanent fund based on coal severance tax revenue.
“Had we had the good sense to put a few cents aside of every ton of coal … that has come out of our ground, we’d probably be the richest state in the Union instead of in many respects the poorest,” Kessler said.
Supporters say the future health and welfare of the state is, to some extent, at stake. West Virginia consistently has ranked among the states with the lowest life expectancy while grappling with problems of obesity, education and drug abuse.
Kessler’s isn’t a new concept. Other states with abundant natural resources have set up legacy funds as Alaska voters did in 1976 with a constitutional amendment creating the Alaska Permanent Fund to protect a portion of that state’s oil wealth for future generations. That vote came amid construction of the trans-Alaska pipeline, and the fund is now worth billions.
Kessler is still crafting his Future Fund proposal for the 2014 legislative session that opens in January. He said he’s leaning toward presenting it as a proposed constitutional amendment.
His proposed endowment would be built with a portion of oil and natural-gas severance tax collections. Severance taxes, including those on coal and other natural resources, are a big part of the state budget. They contributed an estimated $462 million, or 11 percent, to total general tax revenues in the fiscal year that ended in June.
The trust could not be tapped for a specified number of years and would be limited to supporting a few needs including education, economic development or tax relief once it became accessible.
Kessler said constitutional protections would lock down the fund from lawmakers and interest groups tempted to pry it open prematurely to spend money elsewhere. “I don’t want it to be willy nilly, people using it for pet projects,” he said.
He said places such as Alaska are already benefiting from their funds.
Supported by about 30 percent of all mineral royalties the state receives, the Alaska Permanent Fund is invested in a broad portfolio and recently had an unaudited market value of $46.6 billion. Dividends, coming from investment profits, are paid each year to most Alaskans. Last year, the payment amounted to $878 per person. Principal can’t be spent.
Natural-gas production in the big Marcellus Shale formation under parts of West Virginia and other nearby states has been rising even faster than energy experts had predicted. That production in West Virginia alone nearly doubled in the last five years and could nearly double again in coming years, they say.
Tapping it can require an unconventional horizontal drilling method as well as hydraulic fracturing. Also known as fracking, that process relies on water drawn from area sources that’s mixed with chemicals and sand and then pumped into wells to crack the rock.
As a result of the production boom, natural-gas severance tax collections in West Virginia are expected to surge.
But despite the welcome news, some are taking a waitand-see approach.
Corky DeMarco, executive director of the West Virginia Oil and Natural Gas Association, said the proposal to divert money into a fund that’s untouchable for years comes at a time of a shrinking state budget.
“In theory, I’m not sure how anyone could not support leaving something for their children and grandchildren,” he said. “The problem is that we are looking at budget deficits in West Virginia.”
The Legislature agreed in April to cut ongoing spending by $28 million and expects to face more budget pressures next year.
Ted Boettner, executive director of the West Virginia Center on Budget and Policy, estimates that an oil and gas trust fund started now could accumulate $2 billion to $4 billion by 2040, if it wasn’t tapped. But that wouldn’t be politically practical, he said, adding that the fund would probably need to be accessible within five to 10 years to build public support.
While West Virginia has been a coal-producing powerhouse for generations, Kessler noted, some of its most economically stressed areas are in the heart of the coalfields.
“When the [coal] seams got thinner and the jobs were done, there was just nothing to sustain their communities,” Kessler said. “I don’t want to see that happen again … when I see another golden opportunity where we have something in great supply and enormous demand.”