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Virginia's coal tax credits, tobacco commission grants falling well short of goals, JLARC finds

Virginia's coal tax credits, tobacco commission grants falling well short of goals, JLARC finds

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The General Assembly’s oversight commission on Monday recommended that legislators eliminate Virginia’s coal mine tax credits, saying they are no longer relevant.

The coal tax credits are among the state’s largest incentives to promote business growth, but they generate economic losses for the state, according to a Joint Legislative Audit and Review Commission report. The state has spent $225 million between 2010 and 2018, but JLARC found negligible economic benefits in spending and returns in revenue.

Virginia offers two major tax credits aimed at boosting coal mining in Virginia, which has plummeted. The coal tax credits have been a topic of debate in recent years, with Republicans who represent the economically struggling far corner of Southwest Virginia pushing for their continuance while critics have questioned whether the tax credits that coal companies rely on are accomplishing their goals.

When Republicans controlled the legislature, they pushed to retain or reinstate the coal tax credits. Then-Gov. Terry McAuliffe, a Democrat, consistently vetoed the legislation in the past, citing the “ineffectiveness” of the tax credits and pointing to a 2012 JLARC report that said coal production declined at the same rate or faster even with the state-issued credits designed to slow the demise of Virginia’s coal industry.

Lawmakers tweaked the coal tax credit two years ago so it applied only for high quality metallurgical coal, a type of coal used in the production of steel. Virginia enjoys a good export market on that coal.

One of the tax credits is designed to encourage electricity generators to use Virginia coal, but JLARC notes that all but one of the commonwealth’s coal-fired plants will close by 2025. Natural gas has replaced coal as the major fuel source for power generation in Virginia.

With Democrats in control of the General Assembly, the death of the coal tax credits seems more certain.

State analysts also examined grant programs offered by the Tobacco Region Revitalization Commission and found they have not achieved their goals.

The tobacco commission was created two decades ago to spend Virginia’s portion of the national tobacco settlement, and it doles out money for projects designed to benefit 41 economically depressed localities in Southwest and Southside Virginia. The commission wields significant influence over which businesses gain traction, and where, in Southwest and Southside Virginia.

Most of projects approved through the commission’s Tobacco Region Opportunity Fund, which is intended to encourage businesses to locate or expand in the region, did not meet the goals outlined in the grants. Between 2010 and 2018, 29% of the projects met job creation benchmarks, and 41% achieved wage goals. Only 14% of the projects accomplished all of the goals required by the grants. The commission ended up cancelling half of the projects.

The study found that the commission’s megasite program has spent more than $90 million for site development at large publicly owned industrial properties, but only two of the nine business sites funded by megasite grants have tenants. Full build-out of the sites could take decades, and about half of the jobs will be new, with the other half being transferred employees.

The tobacco commission has a small staff compared to other agencies that provide incentives. State analysts recommended the commission collaborate with the Virginia Economic Development Partnership to improve how it assesses projects.

Lawmakers from outside the tobacco region have been interested in finding ways to tap into the tobacco commission’s funds. They’ve criticized the commission in the past for not spending the money wisely.

Sen. Janet Howell, D-Fairfax, asked if it was possible to fold the tobacco commission into the VEDP. Doing that would likely require legislators to change the state code.

“I think that’s something we might consider,” she said.

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