Montanans: with severance tax, coal boom will not drain our state

When asked to justify their 30 percent coal severance tax, Montanans point to the effects of the last minerals boom on their state. Just look at Butte, they say, where Anaconda is phasing out its copper production operations. Butte, built afoot a mountain once proudly labeled the "richest hill on earth," is left with a gaping pit literally undermining the foundations of the city.

Or look at nearby Anaconda, another company town which boasted the "world's tallest smelter" until last year when the firm shut it down and began sending copper to be smelted more cheaply in Japan.

Montanans are determined that the coal boom now under way in the eastern part of the state will not leave them in the same sorry state that the copper industry did.

Montana's 30 percent coal tax, the highest in the nation, has just been upheld by the Supreme Court. But the battle raised by coal companies and electric utilities goes on, now in Congress. Congressman from coal-consuming states, especially in the Midwest where cheap, clean Western coal is an attractive alternative to the more expensive high-sulfur Appalachian coal, are pushing legislation which would place a 12.5 percent ceiling on coal severance taxes. Montana is now gearing up for a counterattack against the utilities' campaign, which Montanans feel unfairly depicts them as blue- eyed Arabs gouging energy consumers.

"We've really had a number done on us," says Thomas E. Towe, the Democratic state senator from Billings who guided the tax through the Montana legislature in 1975. Towe now spends much of his time in Washington, d.C., and in other Western energy-producing states trying to whip up support for the tax. He is incensed that Midwest electric utilities are casting the tax as a consumer issue.

The real issue, he says, is Montana's efforts to mitigate the effects of rapid energy development on local communities. And Montana wants to ensure that some revenue is left in the state once its coal resources are depleted.

Montana's agressive spirit toward the coal industry is in large part an outgrowth of farmers' and ranchers' anger at the changing life styles in the eastern part of the state where coal development is concentrated. When coal production began to rise during the mid-1970s, bringing an influx of new people to small towns, property taxes skyrocketed in order to fund public services and to build new new roads, sewers, and schools. As the farmers and ranchers saw it , they were being forced to pay for a change in their way of life they didn't want, and at the same time to help bring in an industry with which they compete for land and water resources.

It was a unique time in Montana, with ranchers and farmers joining hands with environmentalists and a sympathetic Democratic administration in state government to pressure the coal industry.

In today's Republican, pro-business atmosphere, similar efforts to impose severance taxes on hard-rock mining have gone nowhere. But there is little chance that Montana will scale down the coal severance tax on its own accord.

Towe belittles the contention that a cap on coal severance taxes is needed to prevent other states from enacting similarly stiff taxes that would raise the cost of energy to consumers. Indeed, Montana is organizing other Western states in opposition to the proposed 12.5 percent cap on coal taxes. But Towe doubts that coal producers like North Dakota and Wyoming can be as effective as Montana in neutralizing the tax opposition of rural electric utility cooperatives and coal companies.

For Eastern coal-producing states, the current coal slump means they must do everything they can to promote their more expensive product. So tax increases are unlikely.

Montana's program of channeling coal severance tax revenue to coal communities undergoing growth pains is the object of envy to neighboring states. In Wyoming, a fund from an effective 13.1 percent coal severance tax suffers from a highly politicized grants award system. In contrast, the seven-member Montana Coal Board, composed of laymen, administers the local aid program relatively free of political pressures.

Only 8.75 percent of the annual revenue collected from the coal severance tax is earmarked for the local impact aid program. In fiscal year 1981, the state expects to take in about $80.3 million from the tax, so just over $7 million will go to the local impact program. Since the program's inception in 1976, about $30 million has been spent on local aid, the bulk of the money spent on new schools and sewers for the three eastern counties -- Rosebud, Treasure, and Big Horn -- where the impact of coal development is greatest.

The rest of the tax revenue is divvied up as follows: One- half of the revenue goes into a "constitutional trust fund" to be held in reserve as the state's legacy once its coal reserves are depleted decades from now. Another 10 percent is reserved as an educational trust fund while another 5 percent goes directly to the state's public school system. Renewable and alternative energy projects receive 3.75 percent of the tax revenue, while libraries, parks, and the arts receive 3 percent altogether. The remaining 19 percent is left to the state treasury, with about half of this amount spent on environmental quality programs such as coal strip mining control.

Critics charge that stiff resource taxes like Montana's coal severance tax are little more than a form of tax relief for the state's residents, rather than a generator of funds for specific communities beset by the demands of rapid growth.

And Towe admits that income from the constitutional trust fund may well end up used as tax relief.

Furthermore, there were inconclusive moves in Montana's last biennial legislative session ending in March to rewrite the formula of earmarked funds so that more would accrue to the treasury.

Despite these attempts to, in a sense, pervert the intention of the coal severance tax, Montanans point with pride to the system they have set up to respond to the needs of fast-growing communities with a minimum of red tape.

With President Reagan phasing out various federal grants to local communities and calling for greater state action, now is hardly the time to limit the states' ability to tax, Senator Towe maintains.

He further rejects the electric utilities' contention that Montana's coal severance tax foists an unfair burden on consumers in the form of dramatically higher electricity prices. Towe figures that the state's tax, which runs about the average electric bill in the Midwest. He considers it hypocritical for Midwestern states to complain about Montana's coal tax when these same states assess 4 or 5 percent sales taxes on electricity bills. Towe was appalled to learn that Detroit residents, in addition to the 4 percent Michigan sales tax on electricity bills, must even pay a 5 percent tax to their city government.

Towe also lambastes states which complain about Montana's coal severance tax but levy stiff taxes on their own resources. Minnesota is a major consumer of Montana coal whose congressmen are pressing the 12.5 percent lid on coal severance taxes. But Minnesota's tax on taconite production puts Montana's coal tax to shame, Towe says.

Similarly, Texas is another consumer of Montana coal whose congressional delegation is leading the fight to limit the tax. But Texas has a long history of funding its educational system with oil and gas severance taxes. To cite another example, Towe points to the sponsor of the House version of the coal severance ceiling bill, Florida Democrat Sam Gibbons. But Florida's own tax on phosphate production brings in about the same amount of money as montana's coal tax.

Armed with statistics like these, Montana's lobbyists in Washington, D.C., are trying to bottle up the legislation in committee and buy themselves more time. If a vote were taken in Congress right now, Montana would probably lose the fight. But the state is picking up support among Republicans who have come to view the severance tax as a matter of states' rights. It is also drawing support from other energy- producing states wondering how they will handle rapid growth in energy production.