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

This case study examines Kentucky's coal severance tax, introduced in 1972, and its role in funding economic diversification and basic services in coal-producing counties. While the tax has provided significant resources through funds like the LGEAF and LGEDF, its effectiveness is challenged by a lack of a coordinated long-term strategy and a sharp decline in revenues as coal production and employment plummet.

• Kentucky has experienced a severe decline in coal production and employment. Production fell from a peak of 173 million short tons (157 Mt) in 1990 to 36 million short tons (32.7 Mt) in 2019, representing a drop of almost 80%. Coal mining employment, which peaked at over 75,000 in 1948, fell to a quarterly average of less than 6,000 in 2019.
• The coal severance tax, established in 1972, was restructured in 1992 to better support coal-mining regions in eastern and western Kentucky. Half of the revenue is now allocated to these regions, split between the Local Government Economic Assistance Fund (LGEAF) for basic services (15%) and the Local Government Economic Development Fund (LGEDF) for industrial development (35%).
• The effectiveness of the LGEDF in promoting industrial diversification was limited, as industrial parks in eastern Kentucky struggled to find tenants. Consequently, funds were redirected toward specific local projects, including senior centers, veteran memorials, and recreation facilities, though the document notes a lack of a coordinated long-term economic development plan.
• Coal severance tax revenues are becoming increasingly unpredictable and insufficient to meet the needs of a just transition. Revenue dropped from $20.5 million in 2011 to $8.9 million in 2016. The LGDEF's fiscal 2020 budget was $13.6 million, while the Empower Kentucky project estimates a need for $387 million by 2032 to support a just transition.
• Coal mining in Appalachia has caused significant public health and environmental damage, including polluted water supplies and increased rates of respiratory, heart, and cancer problems. Surface mining in the region is linked to $75 billion per year in public health expenses.

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} }