Like most billionaires, Oklahoma oilman Harold Hamm is not accustomed to doing things for himself. For that, there are people: people to drill wells, people to clean up after him, people to drive him from here to there, and — almost certainly — people to write laws.
For years, those laws did well by him. Oklahoma’s gross production tax — the levy applied to fossil fuel extracted from the ground — was set at 2 percent for the first three years of a well’s production, giving it the the lowest effective tax rate on oil and gas of any major producing state as of 2017.
As teacher unrest spread from West Virginia to Kentucky to Oklahoma, educators in the Sooner State began to zero in on the tax breaks for oil and gas producers, arguing that teacher salaries and school spending could be lifted with a modest boost in the tax.
So, Hamm took matters into his own hands, showing up personally at the Capitol as the state legislature debated raising the rate from 2 to 5 percent.
Raising taxes in Oklahoma requires a three-quarters majority, yet with Hamm looking down from the gallery on his people in the Capitol, they defied him.
Hamm would have to pay up to help the teachers get a $6,000 raise — an amount the teachers themselves, among the lowest paid in the nation, deemed insufficient to solve the state’s education funding crisis. As of Wednesday, they’re in their 10th day on strike.
As in West Virginia and Kentucky, the fight over public funding for basic needs is inextricably linked to the politics of energy in Oklahoma.
Richard Ojeda, a leader of the West Virginia strike and an insurgent Democratic congressional candidate, has been explicit about the connection. “We are on the next Saudi Arabia!” he bellowed at one Capitol protest. “They’ve said that — the energy people said that! So, if we’re on the next Saudi Arabia, obviously they want it to be just like Saudi Arabia, where you have about 10 people driving around in Lamborghinis and everybody else eatin’ sand sandwiches! That’s what they want. Guess what? No!”
In Kentucky, the ties between the collapse of coal and its education funding are less direct, though public employees are no less fired up about having a government they see as more beholden to big donors and corporate interests than to funding their pensions. Following the passage of a hotly contested pension bill, they’re marching Wednesday on the Capitol in Frankfort. The Kentucky Education Association — one of the main drivers behind the recent statewide sickout — says Gov. Matt Bevin has shown a “blatant disrespect for Kentucky’s public employees.”
“There is a clear connection between the hundreds of millions of dollars that have been siphoned off in tax breaks for oil and gas production and the state’s inability to adequately fund our teachers and school operations and public employees,” said David Blatt, Director of the Oklahoma Policy Institute.
West Virginia and Oklahoma are ranked 48th and 49th, respectively, in average teacher salary, according to the National Education Association, while Kentucky is doing better at 26th.
While hardly phrased as such, among the things that public employees in each of these states are fighting for is to define an economy where fossil fuels are a much smaller part of the picture, if not gone altogether. For states whose economies were built around coal, oil, and natural gas, what would it look like to fund public services — and run a functional economy — in a future without them? If progressive states like California and Washington offer one look at the future of climate policy in the United States, then Oklahoma, West Virginia, and Kentucky offer another.
Following a boom after World War II, coal output in the eastern half of the country has been in relative decline since the 1990s. Coal employment has been dropping since the 1980s. Despite President Donald Trump’s, Scott Pruitt’s, and other Republicans’ insistence that these dips are the products of an Obama-era regulatory “war on coal”, that war’s most effective combatant, by far, has been natural gas, advancements in the extraction of which have sent the coal industry into a tailspin over the last half-decade or so.
Trump is doing everything in his power to prop up coal, but the effort simply hasn’t translated into any kind of sustained rebound for the sector. In 2011, over 18,000 people were employed by Kentucky’s coal industry. As of last November, that number had dropped to just under 3,900. Overall, coal production in Appalachia fell by 45 percent from 2005 to 2015, with West Virginia and eastern Kentucky getting hit worst. As the president of the Kentucky Coal Association said of Trump’s coal boosterism, “We are stopping the bleeding, but it has not stopped. We’re starting to get to that flatlining point.”
Natural gas, of the kind being pumped out of Oklahoma, is a different story. The drop in oil prices landed the state in a “mini-recession“ in 2015. Prices have recovered recently, but that doesn’t mean the sector is any less volatile over the long run — a fact that’s especially concerning given that around one quarter of all jobs in the state are tied to energy production. As public employees this week have been pointing out, tax policies that are recklessly generous to the oil and gas industry there have meant that even the uptick in oil prices hasn’t managed to improve the state’s dire financial situation.
And, though hardly at the center of the conversation, there’s also the looming possibility that, with another, more climate-conscious Congress and White House, fossil fuel production nationwide could be rapidly scaled down, in line with the reductions science is telling us are necessary.
It’s no mystery why extractive industries have gotten preferential treatment in Oklahoma, West Virginia, and Kentucky, or why many lawmakers there haven’t had much incentive to ask these sorts of questions. The states were practically built by and around fossil fuels, which have shaped each of their politics for well over a century, mostly in the extractive industries’ favor. Ted Boettner, executive director of the West Virginia Center for Economic Policy, or WVCBP, put it bluntly: “Shared prosperity and natural resource extraction tend not to go hand in hand.”
The oil and gas industry is Oklahoma Gov. Mary Fallin’s biggest campaign contributor. West Virginia Gov. Jim Justice is a coal magnate, whose companies owe $15 million in unpaid taxes to six states, including $4.5 million to West Virginia and nearly $3 million to Kentucky. For his part, Bevin was the Club for Growth’s pick to primary against Sen. Mitch McConnell, R-Ky., from the right, before he came into his state’s executive branch. Once he got there, he installed former coal lobbyist Charles Snavely as head of the state’s Energy and Environment Cabinet. “I chose him,” Bevin said of the appointment, “because he’s a coal man.” In all three states, legislators on both sides of the aisle have accepted generous donations from fossil fuel companies.
Shifts in the energy market over the last several years have left the residents of these states holding the bag for pro-industry policies.
Combined with the rise of hydraulic fracturing, or “fracking,” developments in horizontal drilling have allowed oil companies to unearth previously difficult-to-access shale gas. Each were instrumental forces behind the shale gas boom that started around 2008, and horizontal drilling transformed from a niche into an economic powerhouse. As Blatt told The Intercept, “A few-million-dollar tax break turned into a hundreds-of-millions-dollar tax break.”
In North Dakota, the beating heart of the shale boom, taxes on new wells were set at 11.5 percent, and education spending per pupil grew by 26 percent between 2008 and 2016 — more than in any other state in the country. In 2008 alone, Oklahoma’s tax break saved its oil and gas industry $1.3 billion dollars. Per-pupil education spending has dropped by 28 percent since then.
To make matters worse in Oklahoma, the nature of horizontal and fracking wells makes it such that much of the gas extracted from them will be harvested in the first several years of operations — well before Oklahoma’s tax incentives expire. So, by the time the state would get around to taxing them, companies may already have pumped the wells dry.
Progressive groups in the state called for the tax to end in 2014, as it was set to run out, but the state’s fossil fuel industry — namely Devon Energy, Chesapeake Energy, and Hamm’s Continental Resources — largely won out. The troika successfully convinced the state legislature to preserve the break and institute an initial 2 percent tax on new vertical and horizontal wells. In a minor concession, the eligibility period for the tax was reduced from 48 to 36 months.
The tax break’s extension amounted to a $470 million subsidy for the industry in 2015, even as oil prices cratered from oversupply. So, whether shale gas is in a boom or a bust hasn’t made much of a difference for public services in Oklahoma. The effect of the subsidies on state amenities, and on schools in particular, has been devastating. While hardly flush with cash before, some districts have cut back the number of school days per week from five to four, in order to save on operating costs and allow teachers to save money and take on extra work. Class sizes have ballooned and classroom materials are nonexistent or in tatters, as some teachers report they don’t assign homework for fear of not being able to replace lost books.
As education funding dwindled, the oil industry itself stepped in to offer curricula. According to an investigation by NPR member stations, the Oklahoma Energy Resources Board has provided oil-centric curricula to 14,000 teachers around the state. Lessons include modeling enhanced oil recovery with straws and soda bottles, and math problems focused on calculating the ideal slope of pipelines. An online book for younger students narrates the extended nightmare of a character name Petro Pete, in which he’s forced to go to school without objects made of petroleum.
Andrea Thomas, a high school English teacher in an Oklahoma City suburb, told Amy Goodman of “Democracy Now!” that her husband, also a teacher, sells his plasma to help the family make ends meet. They both do odd jobs when not teaching. As one teacher told Tulsa World of the funding crisis, “I feel like they’re choosing oil and gas over education.”
The funding situation has been compounded by the broader austerity politics espoused by Fallin, Bevins, and Justice. All of them have slashed taxes on the wealthy in the name of competitiveness, while pushing for punishing cuts to public services; public employees have zeroed in on the cuts for the 1 percent writ large. West Virginia public employees are looking to raise the corporate net income tax there, which gives a pass to big companies like Walmart that operate in the state. Strikers in Oklahoma have called for a repeal of their state’s capital gains tax exemption, which would generate an estimated $120 million in additional revenue.
And while austerity logic and the political might of the fossil fuel industry is a common denominator, the problems faced in each state vary. The oil and gas industry in Oklahoma remains profitable, meaning there’s wealth to be shared — even if it’s not sustainable over the long run. “Now that we’re going to get more money from oil and gas in the next couple of years, one thing we can do is tax it while we have it and not give hundreds of millions of dollars away in subsidies,” Blatt told The Intercept. “Next time the prices plummet, we may be more vulnerable.”
Coal in West Virginia and Kentucky has sunk in the last five years. In West Virginia, at least, a higher severance tax on gas and coal could still go a long way in mitigating the funding challenges facing the state’s Public Employees Insurance Agency, or PEIA, the beleaguered state health care agency at the center of last month’s strike.
Teachers who swarmed the West Virginia Capitol last month filled its atrium with chants for a “severance tax” and to “tax our gas.” As South Charleston high school science teacher Emily Comer told me, raising the severance tax is one of the few options the state has for fully funding PEIA in a way that won’t draw from programs that help poor West Virginians, like Medicaid.
“People understand that the gas companies can afford it, that there has to be revenue, and that it shouldn’t come from poor and working people in West Virginia,” she said. Though fully funding PEIA was a major demand of the strike, the issue of where the money would come from was left unresolved as teachers and other public employees returned to work. Now, public employees are focusing their energy on the PEIA task force that will convene over the next several weeks, an ad hoc body comprised of government, teachers union, and insurance industry representatives, which is tasked with mapping out insurance providers’ futures. “We see the effects of poverty face to face when we walk into our classrooms every single day,” Comer told me. “We are the last people who want to get a raise on the backs of poor people.”
Boettner explained that a severance tax of the kind public employees are calling for is “kind of like the first carbon tax.” The tax is levied on coal and gas producers, and is assessed and distributed differently from state to state. In West Virginia, the severance tax on both coal and natural gas is set at 5 percent of the sale price that mine and drilling operators sell their product for just after it’s extracted. Revenue is doled out at the state and local levels, and most gets distributed back to counties.
That said, it’s no panacea. “The severance tax is by far the most volatile tax that we have. A lot of money in a short amount of time, based on energy prices and demand. Sales taxes are more stable,” Boettner said, but adds that they’re regressive, meaning that the tax burden falls mainly on poor and middle-class people rather than corporations or the wealthy.
That’s why Boettner and Jason Bailey, director of the Kentucky Center for Economic Policy, or KCEP, have advocated for the creation of a permanent severance tax trust fund for West Virginia, Kentucky, and other states in central Appalachia. Spurred partially by the oil crisis years earlier, several resource-rich states in the West, in the mid-1970s, sought out ways to preserve their resource wealth in the event that their wells ran dry. What resulted was essentially a state-level endowment: a pool of funds that’s invested and eventually generates its own income from the returns on those investments. Unlike traditional tax revenue, it’s allocated to be used only for specific purposes and is difficult for legislators to raid on a political whim. Spending outside of its designed usage could only be unlocked via a ballot measure to amend the state constitution, making these trusts “permanent” rather than simply a rainy day fund. In five of the six states with permanent funds, revenue allocation changes require a public vote.
Inspiration came for Alaska lawmakers after Democrats and Republicans managed to fritter away nearly all of the $900 million made from from the 1969 sale of oil leases in Prudhoe Bay. “There are, of course, several other reasons to support the Permanent Fund,” then-Gov. Jay Hammond wrote shortly before the fund was created, “but off the top of my head, at the moment, I can only think of 900 million!” A ballot measure enshrining the fund in a constitutional amendment passed with 66 percent of the vote. Around the same time, similar trusts and funds were established in Montana, New Mexico, and Wyoming, all through constitutional amendments. New Mexico created its now-$3.6 billion Severance Tax Permanent Fund in 2008. North Dakota started its Legacy Fund during the shale boom in 2010, collecting $613 million worth of principle between 2011 and 2013.
With a modest 1 percent rise in severance taxes on oil and natural gas, WVCBP predicts that by 2035, a permanent fund in West Virginia could generate over $2 billion in earnings to be allocated toward things like infrastructure and economic diversification, with $3.7 billion remaining in the fund. The West Virginia legislature established a similarly minded West Virginia Future Fund in 2014, although Boettner sees much more work to be done in terms of allowing the fund to build its principle and allocate funds responsibly. In 2016, Oklahoma’s legislature passed the Energy Revenues Stabilization Act, which devotes “above-average” tax revenue from the oil and gas industry to a rainy day fund that state lawmakers can draw from when state finance officials declare a revenue failure.
KCEP estimates that by 2035, a bona fide permanent fund in Kentucky could reach a $735 million balance, and put $33 million toward education, economic development, human services, infrastructure, and other purposes. Still, Bailey said, there simply isn’t that much left to tax.
“The decline of coal is one of the contributors to the crisis, in that it’s been a cause of budget cuts due to the resulting revenue shortfalls,” he told me. “It’s not the only reason we have revenue shortfalls, but it’s one of them.” Kentucky has had a modest severance tax on coal that used to funnel about $300 million a year into state coffers, before the industry started to nosedive half a decade ago. There’s also a severance tax on oil and gas, just not much actual production.
The coal industry’s recent collapse — the loss of what little revenue and jobs the industry was providing to the state — has created what can only be described as a crisis. “There’s a real problem right now in funding basic infrastructure. County governments are teetering. School districts are teetering. … I don’t know how some of these basic services are going to continue,” Bailey said. To compound these problems, landowners who pay taxes on still-buried coal, in the expectation that it will be burned, are now appealing to the state to lower their property values and tax rates since they know it won’t be, withering the tax base still further.
“The state right now needs the money from the severance tax to keep basic government function running. There’s no sense of putting money in a savings account when you can’t operate EMS and fire departments. I don’t blame them at this point for not doing that, but they should have done it 30 years ago,” Bailey lamented.
“Our economies have been propped up by extractive industries that had all these problems that were borne by the workers in the communities where they operated,” Bailey said of Kentucky and other resource-rich states. “It did bring economic benefits in terms of wages and tax revenue, and cheap energy has played a role in our manufacturing economy here. But then, that goes away and you still have some of the problems that were coming from that industry, but none of the benefits. And the economy suffers.”
Given the constraints of state budgets and their inability to deficit spend, those problems are virtually impossible to solve without federal support. Both Bailey and Boettner emphasized that, while permanent funds, progressive tax codes, and more responsible spending would all be positive steps, there’s only so much that cash-strapped states themselves can do to mitigate their steep economic challenges.
“There’s no national policy or commitment to responsibly assisting communities that we don’t need anymore for their role in the energy regime. It’s really a tragedy, what we’ve done,” Bailey explained. “It’s part of the reason that there’s so much frustration here. These trends are not going to change. If anything, they’re going to accelerate as we adopt policies to deal with the climate problem.”
There’s a growing acknowledgement around Appalachia that it’s not likely to return, and that the people and the state as a whole need to find new ways of balancing their respective books. “The conversation on that is not as problematic as it used to be,” Bailey said. “The problem is that it came 20 years too late.”
It’s not as if there isn’t any federal money on the table for Kentucky. As the Marshall Project reported late last year, Rep. Hal Rogers, R-Ky. — known in Washington and back home as the “prince of pork” — has, since 2006, been pushing for millions of dollars in federal funding to build a maximum-security prison on a reclaimed mine site, and has secured nearly $500 million toward that end. Just recently, as public employees rallied at the state Capitol in Lexington, he got what looked like a final green light for the project, which could begin construction as soon as next year.
But a prison on top of an abandoned mine isn’t exactly the future Blatt, Bailey, and Boettner have in mind for diversifying their states’ economies. Several federal programs and initiatives, like the RECLAIM Act and the Appalachian Regional Commission, allocate funds that could be put toward job creation and economic development in Appalachia. Yet even tallied together, these efforts — some old and some new — don’t constitute a holistic federal plan to address the deep fiscal challenges facing states with declining resource wealth, either now or in the not-too-distant future.
“In the future, you’re going to have to look at lowering health care costs through a ‘Medicare for All’-type program and making college a lot more affordable. When you’re a poor state, it’s hard to pay for those things,” Boettner said. “Especially looking at the future, the federal government’s going to have to play a big role once again.”
Boettner and Bailey each raised the idea of a federal job guarantee as a means of helping diversify Appalachia’s economy and transition it away from extractive industries. “A lot of public employment can be created from reforestation, remediation of waterways, reconstruction of the landscape to help, on a long-term timescale, with restoring the natural wealth and beauty of Kentucky. But in the short term, it could put people to work in ways that improve water quality downstream,” Bailey said, noting that some funds are already available for such work through the RECLAIM Act. “There’s a whole swathe of employment that could happen here, from social services to dealing with the opioid epidemic to providing quality early education and care.”
As its effects become more widely felt, climate change will touch nearly every corner of the world’s economy–from the kinds of cars on the market to the contours of the welfare state. What we think of as climate policy in such a context will necessarily grow, and consider, in earnest, the full impact of decarbonization.
The question of how to adequately run an economy built on fossil fuels without them is hardly limited to central Appalachia and Oklahoma. It’ll be a hot topic this year at COP24, when the United Nations will host its annual climate talks smack in the middle of Polish coal country. The wonks and lawmakers headed to Katowice in December might do well to recognize that America’s striking public employees, already working green jobs, are as big a part of the climate fight as its environmentalists — whether they’re talking about the environment or not. As they’re making clear, the battle to define a low-carbon world is about much more than how many parts per million of carbon there are in the atmosphere. In every sense of the word, it’s about power.
Comer, the West Virginia high school teacher, was quick to say that the thousands of public employees chanting for a severance tax in the state Capitol a few weeks back weren’t really criticizing their state’s extractive industry because of its contribution to global warming. “I don’t think it’s an environmental thing,” she said, “I think it’s just a corporation thing. There has been a ton of money made in this industry that’s coming from our state. It’s wealth that belongs to our state and could be going to benefit the people who live here and should, but it’s being shipped elsewhere. People are not particularly interested in standing for that. But people aren’t thinking about it in terms of climate change.”