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WVCBP: Severance tax revenues to remain stable, growing

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Despite hand wringing over the future of the coal industry, a West Virginia Center on Budget and Policy analysis projects relatively stable severance tax collections.

The analysis was written by Sean O'Leary, an analyst with the nonprofit think tank. The decline of coal, O'Leary wrote in a report posted Tuesday, will be offset by natural gas severance collections and recent legislative changes.

The report takes a look at the five different funds in which coal severance taxes are distributed – the county coal revenue fund, the all counties and municipalities coal fund, the coal county reallocated severance tax fund, the oil and gas county revenue fund and the all counties and municipalities oil and gas fund.

"While coal production is projected to fall, rising coal prices should keep revenue stable. The County Coal Revenue Fund is projected to fall from $24.8 million in 2010 to $20.6 million in 2020, before rebounding to $28.7 million in 2035," O'Leary wrote. "While the County Coal Revenue Fund is projected to stay flat, West Virginia's coal-producing counties will see significant increases in severance tax revenue through the Coal County Reallocated Fund, which will send approximately $4.3 million in revenue to coal- producing counties in FY 2013, and will reach $20 million annually by 2027."

Natural gas severance taxes are projected to grow every year through 2035. The oil and gas county revenue fund is projected to grow from $3.9 million in 2010 to $22.4 million in 2035. The revenue split among all local governments is to increase $1.3 million to $7.5 million over the same time period.

Overall, O'Leary projects a growth in overall severance tax collections – from $38.3 million in 2010 to $88.1 million by 2035.

"As with any projections, these estimates of severance tax revenues are subject to a degree of uncertainty, and could, in fact, be too optimistic," O'Leary wrote. "If coal revenues fall more sharply than expected or if natural gas revenues do not grow as much as projected, the state could consider scaling back or eliminating a number of tax expenditures that currently reduce severance tax revenue."

Severance tax revenues currently make up about 11 percent of the state's revenues.