Gov. Steve Beshear has created a Coal County Scholarship Fund with $4 million from coal severance taxes. This fund was proposed by former Gov. Paul Patton, now the president of the University of Pikeville. He asked for funding for scholarships to his college. He wants this to come from multi-county coal severance taxes.

This follows on the heels of his partnering with Greg Stumbo, the Speaker of the Kentucky of Representatives pushing through the Kentucky legislature that would have publicly funded the University of Pikeville. This subsidy would have also drawn from coal severance taxes.

The teaming of Patton with one of the most powerful politicians in Kentucky brought a lot of attention to coal severance taxes. Their effort to create a new public university with coal severance taxes was defeated in large part because of a groundswell of resistance from Eastern Kentucky citizens and their elected leaders. The heart of the concern was grounded in what many believed was the usurpation of their coal severance tax.

The dominoes are now falling. The president of the University of the Cumberlands is also lobbying Kentucky Governor Brashear for scholarship funds drawn from our severance taxes. Union College is also making a request from the same source.

The educational merits of the Patton-Stumbo proposal were thoroughly reviewed in a report commissioned by Gov. Beshear. The “Report on the Advisability and Feasibility of Moving the University of Pikeville into the State University System” raised many serious educational concerns. (It can be viewed at http://media.kentucky.com/smedia/2012/03/15/19/37/1earAv.So.79.pdf)

Targeting coal severance taxes to underwrite these ventures has raised many questions about the role of severance taxes in our communities. Severance taxes are typically imposed on coal, gas and oil. Resources like these are limited and extracting them can place a strain on rural roads, land and water.

Severance taxes are collected to compensate for these losses and to prepare communities for life after the resource is gone. Fifty percent of our coal severance tax goes into the general fund. The bulk of the rest goes to the coal producing counties and “coal impact counties.” (These are counties where coal “passes through.”)

Kentucky law restricts the use of coal severance tax to what economists call “bricks and mortar” projects. An example of this is the old T. L. Bayne factory building. It, the bridge to it, and the water-sewer were paid for in large part with coal severance taxes.

In the regular session, during even numbered years of the Kentucky General Assembly, a budget is supposed to be passed. This year, as in all previous years, the law that restricts the use of coal severance taxes to “bricks and mortar” projects was modified.

Instead of this piece meal approach on how we use severance taxes we need a strategic and comprehensive policy that will get back to the original intent of severance taxes. While this has always been critically important, it is especially so today.

During the first three months of 2012 coal severance tax revenue was down 25 percent. Many analysts project a continued decline in the demand for Appalachian coal. The president of Appalachian Power, a leading electricity provider for our region, has said: “Nobody is building any new coal. The economics just aren’t there. Gas is just so cheap; you cannot deny that natural gas is the fuel of choice.”

MACED, (the Mountain Association of Community Economic Development) projects that the eastern Kentucky coal counties will generate about $2.2 billion dollars between 2013 and 2035. Visit, http://www.kypolicy.org/content/promoting-long-term-investment-appalachian-kentucky-permanent-coal-severance-tax-fund-0.

They recommend setting aside 1 percent of our coal severance taxes for the purpose of creating a permanent trust fund dedicated to community development. By 2035 the trust fund would hold $735 million (in 2010 dollars) and would yield about $31 million each year. The beauty of the plan is that after the first 10 years the payout would greater than the annual one-percent contribution.

Our fund could be patterned after successful permanent trust funds that have been a proven track record in Alaska, Montana, Wyoming and New Mexico. The West Virginia Center on Budget and Policy makes similar recommendations for their state. In the Big Sky Economic Development Fund gives about “75 percent of the interest income goes toward grants to local and tribal governments to assist businesses in creating new jobs that pay at or above the average county wage.” Visit, http://www.wvpolicy.org/downloads/WVEconomicDiversificationTrustFundRpt021312.pdf.

Using severance taxes for scholarships may help build a better future. However, we would be better served with a more comprehensive approach that considers a permanent trust fund.