Coal and Renewables in Central Appalachia: The Impact of Coal on the Tennessee State Budget

Although coal has played an important historical role, the Tennessee coal industry now provides few jobs to state residents, and does not provide significant revenues to the state budget. In fact, as estimated in this report, the industry itself—together with its direct and indirect employees—actually cost Tennessee state taxpayers more than they provide. Our estimates provide an initial accounting of not only the industry’s benefits, but also its costs.

Coal’s importance for Tennessee is not likely to grow in the future based on the declining competitiveness of Tennessee coal resulting from the depletion of the lowest cost coal reserves. Implementation of the Clean Air Interstate Rule, climate legislation, tighter restrictions on mercury emissions, regulations on coal combustion wastes, and pending restrictions on valley fills from surface mining are all likely to result in future declines in coal production. Should this occur, then coal’s already limited presence as an industry in the state will continue to diminish. This reality should raise questions about Tennessee’s priorities as they relate to economic policy and energy development.

In this report, we examine the net impact of the coal industry on the Tennessee state budget by compiling data on and estimating both the tax revenues and the expenditures attributable to the industry for Fiscal Year 2009: July 1, 2008 through June 30, 2009. In calculating these estimates, there is an inherent degree of uncertainty associated with the results. We do not claim that our accounting of revenues and expenditures is precise; in fact, we round our estimates so as not to provide a false impression of precision.

In general, we find that the relative importance of the coal industry to the state budget and economy is negligible, accounting for less than 1% of state revenues and an even smaller percentage of total employment. Further, in certain accounts, the industry imposes a net cost on the state budget for FY2009.

Finally, it is important to note that the impacts of coal extend beyond traditional accountings of revenues and expenditures. While the focus of this report is on the industry’s net impact on the state budget for a single year, legacy costs resulting from past and future coal industry activity must be considered. These are important both for their potential impact on the availability of funds for various and more beneficial priorities, and for their future impact on the local and state economies, on the environment, and on the health of Tennessee residents.