Coal liquefaction plant, artist's rendering
Image: Our Hoosier State [1]
There are lots of reasons not to like the deal that Peabody Energy Co. is cooking up to build a coal-to-liquid fuel plant in Kentucky. The incentives Peabody wants are unprecedented: $315 million in subsidies that will be on the backs of Kentucky taxpayers for the next 25 years. Worse, it's an unproven technology that will create bigger environmental problems under the guise of solving the country's energy dependence. The U.S. Senate considered similar legislation last month, and it failed. Miserably. The uber-conservative editorial staff of the Wall Street Journal, who are as pro-business as it gets, thought government funding of coal conversion was a waste of public money.
But even if Peabody Energy Co. were not a coal company, and made tennis shoes, cell phones or computers, this deal would be a bad one.
Like so many other big deal incentives have been in Kentucky, coal-to-liquid fuel will be a bad deal for the state's taxpayers, small businesses, entrepreneurs, local school districts and communities in general. Why is that? It's simple. Over the years, the incentives keep getting bigger and bigger, the toll on taxpayers worse and worse while the corporate demands grow more outrageous.
Incentives came on Kentucky's radar when the state put together a $160 million package to lure in Toyota "“ a cost that conservatively amounts to about $50,000 per employee. The incentives were controversial at the time. They became more controversial later when Toyota admitted playing Kentucky off Tennessee for a bigger incentive package, much like Peabody is doing with coal-to-liquid now, pitting Kentucky against Illinois and Indiana.
The Toyota package was approved in 1985. Kentucky never landed another Toyota, but in the years following, incentives have grown larger and the benefits are becoming more and more questionable.
In 1995 Kentucky gave Dofasco, Inc., one of Canada's largest steelmakers, and Co-Steel $140 million in aid for a 400-employee mini-mill in Gallatin County "“ at a cost of $350,000 per job. And a timber company was approved for $300 million in tax credits for 300 jobs "“ a million dollars a job?
Kentuckians for the Commonwealth rally in Louisville against tax incentives for a coal to liquid fuel plant, July 25
Photo: KFTC [2]
Now it looks like Peabody is going for being the granddaddy of them all "“ 300 permanent plant jobs in exchange for $315 million in incentives and tax offsets. Our state will be on the hook to Peabody for the next 25 years. But how effective are incentives at making companies stick?
Sykes Enterprises is a case in point. In 1999, Sykes, a Florida-based corporation, set up two call centers, one in Hazard and one in Pikeville. After gulping down $14 million in incentives, Sykes created more than 1,000 jobs in 2000. Four years later, Sykes closed both facilities, but at the same time added jobs in El Salvador. The incentive package Sykes received even included ownership of buildings "“ improvements made with Kentucky tax dollars. When another company made a deal with Sykes for the Pike County property Sykes had abandoned, the county had to pay Sykes $167,526 to buy back an adjoining lot "“ land that was given to Sykes in 1999. Sykes recently announced a return to Hazard, with the possibility of adding 200 jobs.
Eastern Kentucky isn't the only place where Sykes cut and ran [3]. The same story happened in Greeley, Colorado; Klamath Falls, Oregon; Milton-Freewater, Oregon; Bismark, N.D.; Manhattan, Kansas; Ada, Oklahoma and others.
The incentive packages, costly as they are, don't always reflect the total costs. For example, Kentucky made available to Wal-Mart more than $25 million in incentives for two distribution centers "“ one in London and one in Hopkinsville. That may sound cheap compared with the other deals, until the cost of publicly funded health insurance is factored in. Nationwide Wal-Mart employees are some states' largest single consumers of Medicaid and K-CHIP. Good Jobs First, a Washington, D.C., progressive think tank, estimates that Wal-Mart employees cost Kentucky $34,192,596 in Medicaid and K-CHIP 2005.
Whether a coal company, a phone center, a steel mill or a car manufacturer comes calling, there are some things that Kentucky's leaders should demand before it doing business with private companies. If incentives are offered, they should only be for forward looking jobs that pay living wages and benefits. Our legislators shouldn't cave in to pressure sales tactics, typical of "you-must-act-now" late night television commercials.
Companies should not call our state legislature to heel like a disobedient dog, dragging our lawmakers into a costly and unnecessary legislative session. And most importantly, no single employer -- certainly not one offering only 300 jobs -- should use a midnight hour incentive package as a way to dodge coal severance taxes.
These taxes - a paltry repayment to coalfield communities for the vast minerals pulled from the hills "“ have been a burr under the coal company's saddle ever since the late Harry Caudill [4] won that hard-fought concession in 1972, when he lobbied hard and was unable to convince a single mountain legislator to vote in favor of it.
If our current legislators don't have the steel to stand up and negotiate a respectable bargain when they spend our tax money, the least they could do is keep intact the work of the our past legislators like Caudill, who wasn't afraid to drive a hard deal for the benefit of the people he was elected to serve.