It’s no secret that coal is on the outs in the United States. The country’s natural gas boom and environmental regulations are dethroning King Coal after decades of rule in the electricity market. That should be good for the climate, but the transition to natural gas and renewables has human costs. Right now Central Appalachians are taking the hit, forcing communities there to contemplate a future beyond coal.
In eastern Kentucky, coal mining has been the lifeblood of the economy for well over a century. Now it's facing what might be termed a “low coal” future. Much of the easy-to-get coal has already been mined out. What’s left is harder to get, so production costs are higher. “The coal seams, they’re getting smaller,” says 30-year-old Ryan Trent, a laid-off miner who started at age 19. “You’ve got strata in between it, which is not full coal. So the more rock you cut, the less coal you’re getting.”
That’s partly why Appalachian coal is having a hard time competing, not just against cheap and cleaner natural gas, but against newer, more efficient coal mines in the West’s Powder River Basin and the Midwest’s Illinois Basin. Coal companies also blame stricter EPA water quality standards, which they argue has effectively halted permits for Appalachian strip mining.
The overall effect has been a wave of production slowdowns, mine closures and rising unemployment in the last two years. The median unemployment rate for eastern Kentucky’s top 10 coal-producing counties is 15.05 percent. That statistic includes Trent, who was earning $24.50 an hour, non-union, and says coal mining “is in his blood.” He’s been looking for another mining job since he was laid off in December 2012. “I’ve got the softest hands in eastern Kentucky, I’ve been doing so many dishes,” he jokes.
Trent and other miners are used to the ups and downs of the coal business, but Justin Maxson, president of the Mountain Association for Community Economic Development, says this time is different. “To lose almost 7,000 jobs in almost 18 months is a catastrophe,” he says. “It’s a huge economic collapse. Folks to some degree feel like they’re under cultural assault.”
The realization that this could be a permanent decline in what’s been the lifeblood of the region is just now beginning to settle in, after years of warnings and, some would say, denial. John Haywood, owner of a tattoo parlor in Whitesburg, called The Parlor Room, says some of his more regular customers were coal miners, but many have stopped coming in. “They used to come in once a month, even twice a month,” Haywood says. “Tattoo collectors that were willing to sit for a long time and get covered up.”
“Coal miners are our middle class.” That’s a common refrain in eastern Kentucky, where more than a quarter of the people live in poverty. According to Bill Bissett, president of the Kentucky Coal Association, starting salaries in the mines average $65,000 and the jobs don’t require a high school education.
Communities are just now beginning to seriously discuss economic alternatives. Some blame the slow start on the “War on Coal” rhetoric, saying it’s distracted attention from preparing for a “low coal” future. Others say political leaders have spent coal severance tax money on basic services instead of diversifying the economy.
Regional leaders who gathered in the mining town of Hazard to talk to Marketplace stressed they didn’t believe there was one single thing that could “replace” coal. They hope a new bi-partisan effort called SOAR (Shaping Our Appalachian Region) will come up with some alternatives. The region has already been targeted for special assistance from the federal and state government, but residents fear the money won’t be enough.
“I mean, what happened in Detroit when that industry was threatened,” says Jeff Whitehead, executive director of the Eastern Kentucky Concentrated Employment Program. “There was a lot of government support. Lots of it.”
Jennifer Bergman, JobSight Services Director at the program, says the region should develop an “entrepreneurial” economy, “but we need people with money to spend to have that entrepreneurial base.”
Many here say the region should take advantage of its cultural distinctness and build an economy based on central Appalachian folk arts and crafts. Previous efforts to develop that have fallen victim to politics and lack of funding. Doug Naselroad, master artist in residence at the Appalachian Artisan Center in Hindman, says the incomes generated might not rival coal’s, but that’s not the point. “What we’re trying to create is something sustainable and that’s rooted in the culture and tradition of the people here, instead of something which just plunders the land and moves on.”
Dan Estep, 56, a former coal miner, is experimenting with that idea. He’s teaching blacksmithing and knife-making at the Kentucky School of Craft and selling his wares at craft fares. He doesn’t make much money, but says he’s happy to have a skill that’s “marketable.” “I’m grateful to live in this country,” Estep says. “Every day’s an opportunity.”
From the Marketplace datebook, here's what's coming up April 8:
- In Washington, the Labor Department releases its monthly Job Openings and Labor Turnover Survey.
- The Senate Agriculture, Nutrition and Forestry Committee holds a hearing on "Advanced Biofuels: Creating Jobs and Lower Prices at the Pump."
- The Senate Finance Committee is scheduled to discuss "Protecting Taxpayers from Incompetent and Unethical Return Preparers."
- I know it's only the beginning of the week, but let's talk about beer. The Craft Brewers Conference & BrewExpo America gets underway in Denver. About 7,000 attendees are expected.
- And those following "Boardwalk Empire" saw her brew up some trouble last season. Actress Patricia Arquette turns 46.
The Chicago area’s public transit agency says it’s been bilked of hundreds of millions of dollars over the last 15 years, a penny or two at a time. The culprits: towns in outlying parts of Illinois. Like Kankakee, population 27,000. Channohan, population 13,000. Sycamore, population 17,000. The agency says dozens of companies, including Target, AT&T and American Airlines, have used the towns as tax havens.
MTS consulting keeps an office in a faceless little building off Schuyler Avenue in Kankakee, about an hour south of Chicago. When no one answers, I look in the mail slot. No lights are on. A desk is visible, but no computer or phone. Later, MTS CEO David Polush tells me both are just out of view.
Down the hall, I ask a woman at Pinnacle Opportunities about MTS: Have you ever met anybody who’s been there?
"I haven’t. Sorry." She's been working there for more than a year.
In a court filing, Chicago’s Regional Transportation Authority says MTS records significant sales here, on behalf of clients based in the Chicago area. It’s one of several companies with offices like this in towns like Kankakee.
They’re here to save on sales tax. Illinois sets a statewide sales tax, but in Chicago the tax is higher because it adds levies for the city, the county and the RTA.
Carol Portman, executive director of the Illinois Taxpayers Federation, says peculiarities in Illinois sales tax law forced the Department of Revenue to write rules about where sales take place. "In some instances," she says, "it led to some rather unexpected results."
That is, some companies have been able to run their business one place— like Chicago— but, for tax purposes, book their sales someplace with a lower rate— like Kankakee. In some cases, it’s consultants like MTS that book the sales.
Additionally, towns like Kankakee offer an extra incentive to companies. Under state law, Kankakee gets a penny of the sales tax it collects— and the village gives 85 percent of that penny back to these companies.
The remaining sliver adds up to $2.5 million dollars a year for Kankakee. Ten percent of the village’s budget.
Portman sees nothing unusual about the arrangement. "That really isn’t any different from the income tax credits, or the property tax abatements that we’re giving people to come here," she says.
For instance, Boeing got tens of millions of dollars in city and state tax breaks when it moved its headquarters from Seattle to Chicago in 2001.
Jordan Matyas, the RTA's chief of staff, sees things differently. He’s suing companies like MTS and towns like Kankakee.
He says there are reasons companies base their operations in Chicago: Amenities like transit make it easier for them to do business.
"If they want to move somewhere else that has less resources, that’s their decision," he says. "But as long as they’re taking advantage of all our government services, they need to be paying the appropriate sales tax."
Kankakee’s mayor, Nina Epstein, makes no apologies. "There are other parts of the state than the RTA district," she says.
Epstein says some of these companies don’t have Chicago offices at all. Some are Internet companies with no other physical presence in the state. Others simply don’t need full time staff to fulfill orders.
"This has helped fund police and fire services, public works," she says. "But now, it’s going to be taken away."
Last fall, the Illinois Supreme Court ordered a rewrite of tax regulation, to eliminate some of these arrangements. That’s underway.
Meanwhile, some companies have ended their presence in Kankakee, and Epstein has zeroed out income from the tax deals for her next budget.
Tax expert Carol Portman says this is how tax policy works: There are winners and losers.
"It’s easy for someone like the RTA to feel like they’ve been the loser and they want changes that make them the winner," she says. "But the problem is: There’s a loser then."
At the end of the first week of April, tech stocks had their worst day in two months with the technology-suffused Nasdaq Composite Index falling 2.6 percent. In early trading in the next week, they aren't doing much better. Carl Riccadonna is Senior U.S. Economist at Deutsche Bank Securities, and joined us to discuss,
President Barack Obama is expected to issue two executive orders this week, in an effort to close the pay gap between men and women. The first would prohibit federal contractors from retaliating against workers who talk about how much they are paid. The second would require federal contractors to give the government pay information broken down by race and gender. But it is unclear exactly how these orders will be meaningful.
The University of Baltimore is like a lot of urban, public campuses. Most students here work, and more than half need to take remedial courses. That's partly why just 12 to 15 percent of students graduate in four years. So starting in the fall, the University of Baltimore will offer new freshmen a deal. If they finish in four years, the last semester's tuition is on the house.