Kentucky, USA: A Coal Mining Tax Supporting Economic Diversification in Appalachia

Since 1972, Kentucky has used a coal severance tax to support economic development and basic services in coal-dependent counties through the Local Government Economic Assistance Fund (LGEAF) and the Local Government Economic Development Fund (LGEDF). While these funds have provided critical resources for infrastructure and social programs, their effectiveness in achieving broad economic diversification is limited by the lack of a coordinated long-term strategy and a sharp decline in tax revenues as coal production drops. By 2019, coal production in Kentucky had fallen by nearly 80% from its 1990 peak, leading to unpredictable funding and a growing gap between available resources and the needs of a just transition.

• Kentucky's coal production and employment have declined sharply, driven by mechanization, the rise of cheaper natural gas and renewable energy, and diminishing easy-to-mine reserves. Production fell from a 1990 peak of 173 million short tons to 36 million short tons in 2019, while quarterly average employment in mines was less than 6,000 in 2019.
• The coal severance tax, introduced in 1972, was restructured in 1992 to allocate half of its revenue to coal-mining regions via two funds: the Local Government Economic Assistance Fund (LGEAF) for basic services and the Local Government Economic Development Fund (LGEDF) for industrial development. A 2018 law further directed 100% of surplus revenues to LGEAF-eligible counties.
• Economic diversification efforts have seen limited success due to the absence of a coordinated long-term strategy. Early attempts to build industrial parks in eastern Kentucky struggled to find tenants, leading the state to fund a fragmented array of social, educational, and infrastructure projects instead.
• The financial viability of the severance tax as a development tool is threatened by plummeting coal revenues. Tax receipts in 2015 were only 62% of 2009 levels, and revenue dropped from $20.5 million in 2011 to $8.9 million in 2016, creating a funding gap for just transition initiatives.

APA

World Resources Institute (2021). Kentucky, USA: A Coal Mining Tax Supporting Economic Diversification in Appalachia. https://www.wri.org/snapshots/kentucky-usa-coal-mining-tax-supporting-economic-diversification-appalachia

Chicago

World Resources Institute. Kentucky, USA: A Coal Mining Tax Supporting Economic Diversification in Appalachia. 2021. https://www.wri.org/snapshots/kentucky-usa-coal-mining-tax-supporting-economic-diversification-appalachia.

Wikipedia

{{cite report |author=World Resources Institute |title=Kentucky, USA: A Coal Mining Tax Supporting Economic Diversification in Appalachia |date=1 April 2021 |url=https://www.wri.org/snapshots/kentucky-usa-coal-mining-tax-supporting-economic-diversification-appalachia |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{worldresourcesinstitute2021kentucky, author = {{World Resources Institute}}, title = {{Kentucky, USA: A Coal Mining Tax Supporting Economic Diversification in Appalachia}}, institution = {World Resources Institute}, year = {2021}, month = apr, url = {https://www.wri.org/snapshots/kentucky-usa-coal-mining-tax-supporting-economic-diversification-appalachia}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }