The Register-Herald, Beckley, West Virginia

January 28, 2014

Future fund

The Register-Herald

— As state lawmakers debate how to close a $143 million budgetary shortfall for this budget year, the options are less than thrilling.

They are debating a second year of 7.5 percent budget cuts and a hiring freeze for state employees. And they are looking everywhere for sources of revenue to somehow apply toward balancing that budget.

Those are real and immediate problems.

Yet it is refreshing to see some state leaders looking beyond the concerns of today to fashion a plan to minimize these types of budget problems in the years to come.

Senate President Jeff Kessler, D-Marshall, is proposing a Future Fund which would set aside 5 percent of the severance tax for oil and gas drilling, which is occurring mostly in the northern part of the state.

If the Legislature had done the same with the coal severance tax in 1975, Kessler says, the state would have $8 billion in reserves earning $800 million annually at 10 percent interest.

“We would be a completely different state today,” he told The Register-Herald. “What could we do with $800 million?”

Kessler notes that North Dakota was in many ways similar to West Virginia prior to the major drilling there in the Bakken shale using hydraulic fracturing, or fracking, to extract oil.

That same drilling process is being used in West Virginia’s booming extraction of natural gas from the Marcellus shale formation.

“Nobody wanted to go to North Dakota because there was no opportunity there,” he said. But because of the drilling there, North Dakota became the fastest-growing state, while West Virginia was one of only two states that lost population.

And North Dakota capitalized on the fossil fuel industry by setting aside some of the tax money it collected for a Legacy Fund. In 20 months, the state had $1.5 billion, more than the $900 million it took West Virginia 20 years to save in its Rainy Day Fund.

The boom in fracking in West Virginia is occurring in the northern and northwest areas of the state, even though gas-bearing shale formations are found farther south in West Virginia as well. But the gas to the south is “dry” gas, composed primarily of methane. In the areas along the Ohio River where drilling is occurring, the gas is known as “wet” gas, which is mostly methane but also consists of other gases such as propane, butane and ethane, giving producers more products to sell.

Even coal production in the state is moving to the north. In 2012, according to the West Virginia Center on Budget and Policy, Marshall County in the Northern Panhandle became the No. 1 coal-producing county.

We believe Kessler’s idea makes sense, and would create a fund that would benefit all of West Virginia: money for schools, money for roads, money to help diversify the economy in all parts of the state.

Coal may be in decline, but in nations like Germany, Japan and China, it is on the rise as a key component of those nations’ power-generating strategies. And we believe it will once again have a role in a diversified power-generation matrix in the United States.

The idea of a Future Fund not only has merit on its side, but is critical for West Virginia in order not to repeat mistakes that were made in the past.

We can’t go back to 1975 and set aside some of the revenue generated by coal extraction to help us in the present.

But setting aside revenue from gas drilling in a Future Fund is a way to show we’ve learned from our mistakes. We certainly can’t afford to repeat them.