Lambert: Sounds like West Virginia’s got the resource curse.
It was a warm Monday afternoon in late February. Thousands of teachers, public school employees and supporters rallied on the steps of West Virginia’s Capitol building, on the banks of the Kanawha River in Charleston.
Schools in all 55 counties were closed again. Teachers, cooks and janitors were in the third day of a strike. They wanted pay raises and a fix to the skyrocketing cost of their health insurance.
On the other end of the state, at a town hall meeting with teachers in Wheeling, Gov. Jim Justice tossed out a possible solution: Fund the pay raises with an increase in taxes on the state’s booming natural gas industry.
West Virginia “benefited from the extraction of coal and we benefited from the extraction of timber, but we were still dead last in everything,” said Justice, whose family made its fortune in coal. “And now we have this gas situation and we’re on fire, and we have a real opportunity again.” If the state doesn’t pass a gas-tax hike, the governor said, “we’re going to be left holding the bag again.”
But what seemed like a stunning change of direction proved to be little more than a feint. Gas industry lobbyists strongly criticized the proposal and the governor’s tax hike idea quickly faded.
West Virginia has been here before.
Sixty-five years ago, then-Gov. William Marland, the son of a mine superintendent, shocked state lawmakers by proposing a new tax on coal to upgrade schools and roads.
“Let’s use this equitable source of revenue, because whether we like it or not, West Virginia’s hills will be stripped, the bowels of the earth will be mined and the refuse strewn across our valleys and our mountains in the form of burning slate dumps,” Marland told a joint session of the Legislature in February 1953.
Marland’s proposal was soundly defeated following an onslaught of criticism. One biographer called it “political suicide.”
Today, West Virginia’s headlong race into the gas rush is taking the state down the same path that it’s been on for generations with coal.
Elected officials have sided with natural gas companies on tax proposals and property rights legislation. Industry lobbyists have convinced regulators to soften new rules aimed at protecting residents and their communities from drilling damage.
In 2011, for example, then-Gov. Earl Ray Tomblin, a Democrat, and his party’s legislative leadership weakened a measure to regulate the growing industry, at the urging of gas company lobbyists. Among other changes, language was eliminated that would have given state regulators more authority to deny drilling permits that threatened water supplies and populated areas.
Supporters say the state’s actions over the past few years have positioned West Virginia to compete for growth.
“We have a regulatory body and a legislative body and an industry that are all willing to work together,” said Al Schopp, chief administrative officer for Antero Resources, the state’s biggest natural gas producer. “That makes it a good environment.”
But critics fear that West Virginia won’t fully share in the riches the industry creates and will be forced to bear the long-term environmental, health and infrastructure costs, much as it has for the now-dwindling coal industry.
“It’s repeating the same cycle,” said former state Senate President Jeff Kessler, a Democrat from Marshall County, one of the state’s biggest producers of both coal and natural gas.
In 2014, after several years of trying, Kessler persuaded the Legislature to approve a plan to use gas industry taxes for educational and infrastructure projects, to help diversify the state’s economy. Six U.S. states have such programs, including North Dakota and Alaska.
But while West Virginia lawmakers created a similar program on paper, they haven’t set aside any money for it.
Retired Sen. Jay Rockefeller, D-W.Va., also worries about what he’s seen in recent years. Rockefeller, who served for 30 years in the Senate and, before that, as the state’s governor, recalled “devastating” testimony about the gas industry during a 2012 public hearing in Fairmont. A local sheriff, Rockefeller remembered, described an “invasion” of heavy traffic and damage to local roads from thousands of trucks servicing all the new natural gas wells. Such complaints continue today.
“It’s a terrible peril for a rural state like West Virginia to have so much drilling,” Rockefeller said in an interview this month. “Natural gas is doing well now, but at what price?”
As One Industry Busts, Another Booms
For generations, coal has been the most economically significant, politically powerful and socially influential industry in the state. West Virginia coal provided high-wage jobs, paid a large portion of state and local budgets, and fueled a nation hungry for both electricity and steel. The state’s mining jobs peaked at more than 125,000 in the 1940s.
Along the way, the industry received huge tax breaks, often to offset the costs of machines that allowed much more coal to be mined with fewer workers. Lobbyists, lawmakers and regulators picked away at environmental and worker safety rules and enforcement.
Over time, the costs of these regulatory and tax breaks became clear: Miners died in horrific explosions, massive mine cave-ins or from deadly black lung disease. Creeks were left polluted and land scarred.
In the past 10 years, the job losses in coal have picked up. The 14,000 miners working in West Virginia last year represented a drop of about 40 percent from 2008, according to U.S. Department of Labor data. Today, the parts of West Virginia that for generations produced the most coal are among the poorest communities in the region.
Experts point to a variety of factors for the industry’s decline: Much of the best coal has been mined. Air pollution rules put pressure on outdated power plants. Renewable sources of energy, like wind and solar, have continued to take a bigger share of the electricity market.
But among the biggest factors in coal’s latest contraction has been increased competition from cheap and plentiful natural gas.
Since the mid-2000s, gas companies have begun to tap into the Marcellus Shale, a vast rock formation packed with natural gas that stretches from New York to Virginia. Technological advances allowed natural gas producers to drill much farther horizontally underground, reaching greater gas reserves. Hydraulic fracturing, or fracking, pumps huge amounts of water, sand and chemicals underground to free gas from shale deposits.
Industry officials and political leaders point to gas as the key to West Virginia’s bright future, as an elixir to every kind of state woe — joblessness, budget shortfalls, even the drug abuse crisis.
“Natural gas just fell out of the sky on us, didn’t it?” Justice mused in a speech earlier this year. “We need to do everything we can to exploit that to make it even better and better and better and better.”
Natural gas production in West Virginia more than doubled between 2008 and 2012, to more than half-a-trillion cubic feet, then surged, reaching nearly 1.4 trillion cubic feet in 2016, according to the U.S. Energy Information Administration.
Jobs also increased. Total gas industry jobs in the state increased from about 7,500 in 2006 to more than 13,000 in the third quarter of 2017— nearly pulling even with coal jobs, according to the state Commerce Department.
A recent analysis shows that, as with coal, increasing gas production might not bring broader economic gains. Between 2014 and 2016, while gas output kept climbing, the six largest-producing counties lost 1,600 jobs across all sectors of the economy, according to the February report by the West Virginia Center on Budget & Policy.
“There is a huge opportunity, as far as the products of gas,” said Keith Burdette, a former state senator and commerce secretary who is now business development director with Bowles Rice, an industry law firm. “If we’re just extracting it and shipping it somewhere else, we’re like a banana republic.”Still, industry supporters argue there’s a key distinction between the state’s experience with coal and its potential long-term future with gas. Coal brought power plants to the region and supported the steel industry. Natural gas boosters say the scope of development possible with gas is far greater. They say it will lead to so-called “downstream” development of plants that separate natural gas byproducts into crucial raw materials for a wide variety of plastics manufacturers.
Anne Blankenship, executive director of the West Virginia Oil and Natural Gas Association, agreed that “our state would prosper most if we would keep our natural gas here and use it here in West Virginia, creating more jobs and drawing more businesses here, especially in the chemical manufacturing industry.”
Justice and other state leaders are banking on what they say is a 20-year commitment for more than $80 billion in Chinese investment in natural gas infrastructure that they predict could create tens of thousands of additional jobs in West Virginia. Few details about the plans have been released.
Trying to Keep History from Repeating Itself
Whether this vision is realized or not, increased gas production has forced state lawmakers to confront a question they faced long ago with coal: how to properly regulate it.
The industry’s growth brought with it huge drilling rigs and fleets of fracking fluid trucks. Residents complained about constant noise and traffic, and worried about air and water pollution.
By 2011, West Virginia’s top regulator, Department of Environmental Protection Secretary Randy Huffman, was warning that his agency lacked the tools to address public concerns. Regulators were in a similar position in the early days of the coal industry, Huffman recalled in an interview this month.
“I didn’t want us to see this industry get too far down the road without getting some reasonable controls in place,” he said. “We tried to learn some lessons and we took advantage of our history to not let it repeat itself.”
Industry leaders who often oppose tougher environmental rules took a more accepting tone. Corky Demarco, then the top lobbyist for the West Virginia Oil and Natural Gas Association, said his industry needed the DEP to be “in a position where they have the confidence of the citizens of the state.”
Over the months to come, though, state officials took steps that citizen groups and some lawmakers said fell far short of what was needed.
When Tomblin outlined priorities during his State of the State address in January 2011, promoting growth in the natural gas industry made the list.
But Tomblin didn’t mention his own DEP’s drilling oversight bill.
The agency head, Huffman, pushed the bill during the 60-day legislative session, but without the political muscle of having it labeled part of the governor’s agenda. The bill died on the last night of the session.
Huffman didn’t give up. He brought together leaders of industry and environmental groups to try to come up with some kind of plan.
In July 2011, Tomblin called reporters, gas industry officials and legislative leaders to a Capitol news conference to announce an executive order that called on the DEP to write new gas-drilling rules.
Later, it turned out that the governor changed his order at the last minute — after embargoed copies had been sent to some news outlets, and a draft was posted on a gas industry website. The governor reduced the oversight of new drilling operations by registered professional engineers. He also removed language that would have required public notice for drilling permit applications, not just within city or town borders, but also within a mile of municipalities. At the time, the city of Morgantown had tried to ban drilling around the city’s borders, but that effort had been thrown out by a local judge.
Lawmakers, not satisfied with the governor’s order, came up with their own legislation, based on months of meetings and public hearings in counties in the middle of the gas boom. Then-Delegate Tim Manchin, a cousin of Sen. Joe Manchin, D-W.Va., recalled overflow crowds, with some complaining about gas industry impacts and others praising the jobs being created.
“The place was packed. They were out the doors,” said Manchin, a committee co-chairman, describing a meeting at a high school in Clarksburg.
Manchin’s committee put together a comprehensive oversight bill. As the end of 2011 approached, Tomblin called lawmakers into special session and gave them his own proposal for a drilling bill. The governor’s version weakened the language proposed by Manchin’s committee.
Tomblin’s legislation, which would supersede his executive order, still created a new type of permitting process aimed at better regulating modern horizontal gas wells. Drillers would have to submit plans showing how they would control sediment, manage water and wastes, and pay permit fees to help fund the state’s inspection program.
But language was removed that would have allowed the DEP to hold public hearings on permit applications. An independent review of the DEP’s oil and gas program also was taken out. Protections for surface landowners were removed.
Union leaders had been complaining about this issue for several years. They noted lines of trucks with Texas and Oklahoma plates at gas-drilling operations and full motels in the surrounding communities.The governor’s version also excised a provision that was aimed at finding out if West Virginia residents were getting the jobs created by the industry.
Manchin’s bill had required drilling companies to report employee residency data. The governor’s plan substituted a study using existing data that even state researchers acknowledged doesn’t really explain where the workers come from.
Charlie Burd, executive director of the Independent Oil and Gas Operators Association of West Virginia, insists the 2011 drilling law set higher standards for his industry than those that allowed many of coal’s past problems.
“In almost every way, we’re more regulated than before,” Burd said.
Manchin remains uneasy about the end result.
“That bill got emasculated,” he recalled recently.
A New Governor, an Even Friendlier Approach to Industry
Environmental groups and landowner organizations considered the final drilling bill hopelessly weak — and the Legislature has not acted on studies recommending strengthened protections for residents.
In particular, the statute included a provision setting a 625-foot buffer zone between drilling and homes. But it measured the distance from the center of a well pad, not the edge of it, so homes could end up closer than 625 feet from drilling activities. The bill proposed by Manchin’s committee would have given Huffman authority to expand the buffer distance; the bill signed by the governor did not, instead mandating a study.
When completed in May 2013, that study by researchers at the DEP and West Virginia University said lawmakers should require that the setback be measured from the edge of drilling operations to provide “a more consistent and protective safeguard” for residents.
Five legislative sessions later, lawmakers haven’t passed anything to implement that study’s recommendations.
“I don’t believe there’s a good argument that you should be building these industrial complexes right on top of people’s homes,” said Huffman, who is now retired. “I’m not arguing against gas exploration, but if your home was going to be near a well pad, how far away would you want it to be?”
In late 2015, amid continued complaints, Huffman’s agency tried to institute some basic protections, prohibiting noise and light from some types of natural gas facilities from causing a “nuisance” for nearby residents. The effort survived a legal challenge from the state’s natural gas industry.
Then, in November 2016, Justice was elected governor. Justice, a billionaire who personally funded much of his gubernatorial run, ran as a Democrat. Among those Justice defeated in the primary was Kessler, whose campaign focused on using mineral taxes to diversify the state’s economy. In the general election, the gas industry tended to support Justice’s Republican opponent, car dealer and then-Senate President Bill Cole.
But Justice later switched his party affiliation, joining the GOP in a high-profile move during a visit to West Virginia last year by President Donald Trump. By that time, Republicans had taken over both houses of the Legislature.
When he delivered his first State of the State address in February 2017, Justice’s rhetoric about the DEP was clear. He vowed that the agency would stop saying “no” to business and industry. (Justice’s coal operations have been cited for pollution and safety violations, and his companies have millions in unpaid back taxes.)
His choice to lead the DEP was a former coal industry executive turned energy industry consultant, Austin Caperton. And since late last year, one of Justice’s top advisers has been Bray Cary, a former local television executive who now serves on the board of directors of EQT Corp., the state’s second-largest gas producer.
One of Caperton’s first actions came in response to a request from the natural gas association: He repealed Huffman’s initiative to protect residents from excessive noise and light.
Later in 2017, Caperton waived West Virginia’s authority to review proposals for two major natural gas pipelines — Mountain Valley Pipeline and the Atlantic Coast Pipeline — to determine if their construction would violate the state’s water quality standards.
He said that a separate state permitting process was sufficient, and told a local talk-radio show that the environmental effects “ultimately will be zero.” Caperton also defended the decision in a letter sent to all DEP staff, saying the agency would “use all of our resources” to ensure the pipeline would be built safely.
Environmental groups had watched the same thing happen with coal: Loose reclamation rules allowed operators to avoid regrowing forests that mining cut down, and lax enforcement let coal companies ignore requirements for post-mining development of flattened mountains.The pipelines are in the early stages of construction, too soon to know if Caperton’s assurances will bear out. But in the past year, water pollution problems related to a different gas pipeline, called Rover, have been so serious that West Virginia regulators twice issued “cease and desist” orders, a rare enforcement step that temporarily stopped work on the project.
Now, citizen groups fear that the state lacks the political will to regulate the development that industry proponents say could come with increased natural gas drilling.
“It’s already happening at a dizzying pace, and we’re concerned about doing that in a responsible manner,” said Angie Rosser, executive director of the West Virginia Rivers Coalition.
“Déjà Vu for The People Who Sat Here 130 Years Ago”
In this year’s legislative session, lawmakers continued to help the industry, giving gas producers one of their most long sought-after goals: a law that makes it far easier for them to force unwilling co-owners of mineral holdings to allow drilling.
Across West Virginia, the ownership of land has often been complex. Someone may own the surface land, while someone else owns the right to the minerals — the coal or gas — underneath it. And over the years, many natural gas tracts have become divided among multiple owners, as land and minerals are passed down across generations.
Industry officials say they frequently run into situations where all but one co-owner favors drilling, and that one holdout can block the process. Industry officials say the new legislation allows the majority of owners to rule, helping gas companies piece together multiple tracts into larger operations, and making capital-intensive production economical.
“We aren’t looking to cut corners,” said Kevin Ellis, a vice president of Antero. “We’re just looking for a faster way to make decisions.”
Ellis said the final bill was backed not only by natural gas companies, but by groups such as the West Virginia Farm Bureau because it was less aggressive than earlier proposals and included some protections for surface landowners.
But even with those protections, the bill comes with a cost.
Not only does it take away the property rights of co-owners of natural gas reserves who are opposed to drilling, it gives them no ability to challenge whether the payments are adequate.
These concessions continue to rankle state Sen. Mike Romano, a lawyer and a Democrat from gas-rich Harrison County. During the debate on the Senate floor, Romano warned that West Virginia was once again at a crossroads.
More than a century ago, mostly out-of-state industrial interests bought up a large portion of the land in West Virginia, along with the coal beneath the state’s hills and hollows. These speculators were aided by confusing state property laws, favorable court rulings and the growing political influence of industrialists over farming interests. Residents lost control over the state’s natural resources and, with it, a greater share of the wealth generated by mining.
Allowing gas producers to force unwilling mineral owners to allow drilling, and then limiting their right to push for a larger share of the money, echoes that coal industry past, Romano said.
“It’s déjà vu for the people who sat here 130 years ago and gave away our coal wealth to big out-of-state companies, because that’s what we’re about to do again,” he said.
Amid Opposition, the Governor Backs Down on Taxes
Not until March 6 — after West Virginia schools had lost nearly two weeks of instructional days — did the governor and lawmakers reach a deal to end the teacher strike.
Teachers and other state employees would get 5 percent pay raises. But the money — more than $100 million — would come from cuts in other government programs, including efforts to boost tourism and the program that provides health care for the state’s poor, not from a tax on the natural gas industry.
Still, Justice had brought into the open again long-simmering issues about West Virginia’s economy: How can a state with an economy so focused on extractive industries ensure the long-term benefits for its residents?
Economists who study this phenomenon call it the “resource curse” — when wealth from natural resources actually detracts from a community’s broader economic well-being.
Some blame the curse on commodity price volatility. Others point to how the availability of high-paying jobs in mining or similar industries can discourage residents from seeking more education. Still others suggest that the power of resource-related industries leads to systems of patronage that undermine government and public health protections.
This year, when Justice proposed the natural gas tax hike for teacher pay raises, the industry reacted much the same way coal operators had when Marland offered up the idea in 1953.
“The oil and gas industry has invested billions of dollars in West Virginia and has paid over $1.3 billion in property and severance taxes over the past five years alone,” Blankenship, the industry group’s director, said in a news release. Severance taxes are called that because they apply to minerals at the point that those minerals are “severed” from the ground.
Industry officials also were concerned about a tradeoff Justice had suggested. The governor thought he could convince gas producers to go along with a tax hike in exchange for a broader bill that would have made it easier for industry to force drilling not just on co-owners of minerals, but on their neighbors as well. Industry officials and legislative leaders from Justice’s own party pushed back, fearing a battle over the governor’s plan.
The governor backed down, but there was one final effort by some lawmakers to attach the tax increase as an amendment to the narrower legislation favored by the industry.
Speaking on its behalf, Romano described watching the natural gas industry grow so much in recent years in his home county. He wondered if this was what it was like a century ago, when much of West Virginia’s coal wealth was being bought up by out-of-state owners.
“I have a lot of close friends who were pioneers in the natural gas business in this state,” Romano said. “And you know what they’ve all said? ‘Raise the severance tax. Raise the severance tax before they steal our wealth and look back at us and we’re still the poor state we’ve always been.’”
The amendment failed on a voice vote.