A $5 million transfer from a fund meant to guarantee environmental cleanup of shuttered coal mines in Ohio could prolong reclamation efforts or leave taxpayers on the hook in the event of unexpected closures.
Ohio’s Reclamation Forfeiture Fund is paid into by mining companies to make sure money is available to restore land to its natural state if companies abandon their operations. Reclamation includes treating water pollution, backfilling open pits and sealing mine entrances, in addition to other methods of reducing pollution and danger to nearby communities.
Gov. John Kasich’s administration shifted a fifth of the fund’s balance last summer in an apparent effort to balance the state’s budget. The move, which was made without consulting the fund’s advisory board, has drawn criticism from the industry and federal authorities.
“We are very concerned about funds that are dedicated for the purpose of one thing being moved over to something else,” said Ohio Coal Association President Mike Cope, who called the shift a “raid” and a “theft.”
The controversy comes at a time when coal mine reclamation in the state is already underfunded and the industry faces growing uncertainty.
Weakening an already precarious system
The cleanup of coal mines in the U.S. relies on mining companies putting up financial assurances called bonds — similar to a security deposit on an apartment — that are returned to companies once the land is restored to its natural state. If a company abandons its operation, state regulators then take those bonds to pay for reclamation.
Six states, including Ohio, use bond pools, precarious systems that allow mining companies to cover only a portion of their cleanup costs by pooling money from multiple companies and paying out when individual sites are forfeited or abandoned.
In June 2017, an analysis found that Ohio’s bond pool could cover estimated liabilities but would be $25 million short in the event of a “shock loss” such as an average-sized permit holder unexpectedly becoming insolvent. The report found that it would take more than 150 years of fees and taxes from coal production for the fund to be substantial enough to cover the costs of cleaning up the largest permit in the pool.
Within two months of that report’s publication, the state’s executive branch used a provision in a budget bill to remove $5 million from the bond pool.
The state’s Office of Budget and Management never consulted the advisory board that manages the bond pool. When the advisory board finally discovered the missing money, chairman Michael Sliva wrote to Gov. Kasich’s office.
“I am writing to raise our serious concerns and request reconsideration of this transfer… We would have contacted you sooner, but we were not made aware that a transfer from [the bond pool] was being contemplated. Because of the $5 million transfer, [the bond pool] now fails to meet the actuarial criteria for long-term solvency to cover expected reclamation liabilities and expenses,” Sliva wrote.
He also expressed concern at a budget bill allowing such withdrawals to continue through fiscal year 2019, and that the federal authority overseeing coal mining might revoke Ohio’s right to self-regulate its industry.
Kasich, who is term-limited and will leave office in January, did not respond.
Federal office questions funding shift
When the advisory board met on May 1, Sliva said he did not see any path toward getting the $5 million back and stressed the importance of enacting a legislative amendment that “protects our fund so by law this cannot happen in the future.”
The governor’s spokesperson, Jim Lynch, did not answer questions about the transfer and lack of transparency, instead referring them to the Office of Budget and Management, which also did not respond for this story, and the Ohio Department of Natural Resources (ODNR).
ODNR spokesperson Matt Eiselstein declined to say the rationale for moving the money or its now-intended use, but, in a statement, he said, “Ohio will continue its commitment to the proper regulation of the mineral resources industries, as well as its efforts to provide Ohioans with the proper environmental protections and remedies.”
One day after the advisory board sent its letter to Gov. Kasich, the federal Office of Surface Mining Reclamation and Enforcement (OSMRE), which regulates coal mine cleanup under the Department of the Interior, sent a letter to Lanny Erdos, chief of ODNR’s Division of Mineral Resources Management, questioning the removal of the $5 million from the bond pool and insinuating a threat against the state’s ability to self-govern its coal industry.
“The removal of funds for uses other than its intended purpose as established by Ohio legislation, causes serious doubt that Ohio can meet its obligations under primacy to assure that it will have available sufficient money to complete the reclamation plan for any areas which may be in default at any time,” wrote Ben Owens, director of OSMRE’s Pittsburgh field office
In a letter back to the federal office in September, Erdos confirmed the transfer and said an agreement had been reached to not transfer money again.
According to communication logs obtained through a records request, the federal agency had not followed up with the state on the matter, at least through April, making it unclear whether it plans to take punitive action. A spokesperson for the federal agency did not answer questions on actions it had taken on the matter.
Critic blames decade of lax oversight
Bob Mooney spent two decades regulating coal, first with the ODNR and then with OSMRE before retiring, and was among the first to notice the $5 million missing from the bond pool. He blames Ohio’s lack of a ring-fenced bond pool and insufficient reclamation bonds on a lack of federal oversight.
“(Office of Surface Mining) is dead in the water. (Office of Surface Mining) has not done anything substantive regarding the Ohio program for, in my opinion, more than a decade,” Mooney said.
The backdrop to the removal of the money is that the state was already underfunded for coal mine reclamation. A spreadsheet ODNR maintains to calculate reclamation liabilities shows the state would need nearly $613 million to cover outstanding reclamation costs. The bond pool and all current bonds together account for about $81 million, about 13 percent of estimated liabilities.
“We have one of the most accurate and comprehensive spreadsheets in the country relative to calculating liability,” Erdos said at the bond pool advisory board meeting in May.
A nationwide survey of reclamation bonds found Ohio has the third lowest level of bonds per acre — a rough method of comparing different states’ bonding adequacy — of any of the 23 coal-producing states that run their own coal program. Between outstanding bonds and the bond pool, Ohio has available an average of $2,260 per each acre that is bonded for disturbance.
According to ODNR’s own data, the state’s cost to reclaim an acre of land is three times that. From 2000 through 2016, the department reclaimed 1,424 acres at a cost of more than $7,000 per acre.
Further hurting the level of reclamation funding, the General Assembly also wrote into law in 2007 its intent to send $5 million to the reclamation bond pool, which it still has not done more than a decade later.
Risk rises as production declines
Peter Morgan is a senior attorney with the Sierra Club and works on coal-related topics such as bonds and bankruptcies. He explained that bond pools are already dangerous because they rely on historical trends in forfeitures and therefore fail to take into account the ongoing and prolonged coal downturn.
“[The bond pool] is a recipe for disaster, and that makes it all the more shocking that the state would dip into that pool at this time. I’ve never seen that in any other state,” Morgan said.
Ohio’s coal production has plummeted over the past decade, falling more than 60 percent, one of the worst drops of any coal-producing states. Accounting for more than 28 million tons as recently as 2011, Ohio mined 9.3 million tons in 2017.
“It looks like the industry’s going to be around 8 or 9 million tons of production this year, which is a significant drop, as we all know, over the past several years. I don’t expect that to change over the next couple years,” Erdos of the ODNR told the bond pool advisory board.
With stagnated production, severance taxes paid into the bond pool remain depressed, highlighting a flaw in such bonding systems. Precisely when production is winding down and mines are in danger of forfeiture, less money comes into the bond pool to cover its costs.
“The very real potential we’re looking at here is the bottom dropping out of the market, leading multiple companies to simultaneously forfeit,” Morgan said. “That has the strong potential to draw the bond pool down to zero very quickly.”