By Zack Hale and Taylor Kuykendall

February 6, 2021 - Both chambers of the General Assembly have passed legislation this week to eliminate the controversial coal tax credits, making it all but certain that the costly business incentive will end after attempts in past years to retain it as a financial lift for far Southwest Virginia.

A critical report from the legislature’s watchdog agency found that the tax credits — among the state’s largest — generated economic losses for the state, making it hard for legislators to justify the program’s continuance.

The House of Delegates passed the bill to do away with the tax credits on a party-line vote of 54-45, while the Senate passed it on a vote of 22-17, with Sen. Emmett Hanger, R-Augusta, joining Democrats. There are still a few more steps before the bills are expected to arrive at the governor’s desk.

The lawmakers who are carrying the legislation — Sen. Jeremy McPike, D-Prince William, and Del. Sally Hudson, D-Charlottesville — live hours from Southwest Virginia. Both said the intent was not to harm the far corner of the commonwealth, but wean it off a reliance on ineffective tax credits for an industry that has declined and help the region shift toward growing industries.

The legislation will eliminate two tax credits One is aimed at boosting high quality metallurgical coal, a type of coal used in the production of steel, and the other is designed to encourage electricity generators to use Virginia coal. Together, the state has spent about $315 million on them between 2010 and 2018. However, they generated fewer than 10 jobs, less than $1 million in state GDP, and less than $1 million in personal income for every $1 million Virginia spent on them, according to a report from the Joint Legislative Audit and Review Commission.

Under the legislation, the coal tax credits would end in January.

Critics of the legislation acknowledge that the tax credits aren’t exactly accomplishing what they should be, but they worried about them being taken away without a supplemental plan to help the most economically distressed region of the commonwealth.

Hudson has emphasized that the legislation calls for the creation of a workgroup, composed of the Virginia Coalfield Economic Development Authority, Department of Mines, Minerals and Energy, the Virginia Employment Commission and others. The group will examine how to transition the region’s economy, including a focus on clean energy development.

Jonathan Belcher, executive director of the Coalfield Economic Development Authority, said scrapping the coal tax credits will create a $900,000 hole in its budget. Before the coal tax credit was changed to only apply to metallurgical coal, the authority received between $2.5 million to $3 million.

“In recent years, this fund has become increasingly important because of declining revenues from other revenue sources,” Belcher said.

Belcher attributed several recent economic development projects, including a wood products manufacturing facility in Russell County bringing 73 jobs, to the money from the coal tax credits. He also said the authority was able to establish a $1 million fund last year to invest in renewable energy projects through the coal tax credits.

McPike requested the state budget include $2 million for the economic development authority. The House and Senate budget-writing committees are scheduled to unveil the budget on Sunday, and the Senate’s budget is expected to include $500,000 for that purpose.

McPike has also been leading a push to change the tax incentives for data centers to attract them to Southwest Virginia. Virginia offers a sales and use tax exemption if certain requirements, such as investment and jobs threshold, are met.

“When I took on the coal tax credits, I agreed I would do everything in my power to assist Southwest in its future, and I’m sticking to my word on this,” McPike said.

There are three competing bills focused on building data centers outside of Northern Virginia, which is the world’s largest data center market. A majority of states offer competitive tax incentives to attract data centers because, while they don’t create a lot of permanent jobs, they require a lot of continued investment in replacing technology and are a valuable source of revenue with property taxes.

McPike’s bill is narrowly tailored so that goal is to lure them to far Southwest Virginia. He said a bill from Sen. Frank Ruff, R-Mecklenberg, “undermines” his proposal because it’s too broad and wouldn’t direct the data center industry to the most distressed localities if they wanted the better tax incentives.

Del. Will Morefield, R-Tazewell, has a bill of his own to reduce the jobs and investment requirement. Over the new few weeks, the lawmakers will have to come to a consensus on legislation.