HAZARD — Coal production was down approximately 30 percent in Kentucky’s Eastern Coalfields in 2012, and the region’s coal counties are now dealing with what that will mean for their budgets.

The fiscal court in Knott County last week approved a sweeping measure to shore up a $900,000 shortfall in the county budget. The measure included up to 25 percent cuts and a reduction in insurance contributions.

Knott County’s shortfall was discovered after officials determined that the county was operating with an unbalanced budget in their Local Government Economic Assistance (LGEA) fund, money that comes from the amount of coal and minerals produced in the county.

According to an estimate released by the Department for Local Government (DLG) in Frankfort, a handful of eastern coal counties can expect to see LGEA shortfalls of more than $1 million. For counties where these revenues can make up a third of the overall budget, these types of cuts have the potential to have very costly effects.

For its part, the DLG estimates that Perry County, one of the state’s top coal producers, could potentially see a loss of more than $930,000 this fiscal year. Perry County Judge-Executive Denny Ray Noble noted that despite the coal industry’s downturn, the county’s budget is currently on sound footing because the fiscal court approved a budget last summer that took into account an expected drop in coal production. He said he doesn’t expect any mid-year complications.

“We’re in fine shape,” Noble said, adding that some of the measures he adopted included a declination on any new borrowing. “I’ve not went after any bonding. I’ve tried to get rid of those bonds and tried to stay in shape for this, because I seen this coming.”

Officials elsewhere are making or considering hard decisions as the DLG has estimated significant losses in other counties. Letcher and Floyd counties could each see a drop of $1.1 million, while Bell and Martin could see a drop of well over $250,000.

Floyd County at present has only five active coal mines, said Judge-Executive R.D. “Doc” Marshall. That’s a significant decrease over just 10 years ago when there were approximately 40 mines in operation. As a result, Marshall said, it isn’t hard to determine why county officials are closely monitoring every expenditure.

“We’re just sort of watching our spending,” he said. “We’re trying our best to put the material where it needs to be.”

So far, he added, Floyd County has not had to make any major cutbacks, but a significant cut in coal revenues could also affect funding for the county’s 16 fire departments and other special allocations.

This downturn in Eastern Kentucky will mean counties may have to approach their budgets in a different manner than before. For Knott County, Magistrate Calvin Waddles said officials there will need not only to address spending, but also how their budget is crafted and how coal revenues are considered.

“The first solution to this problem (in Knott County) is stop out-of-control spending,” Waddles said. “Second of all, is to build a budget that doesn’t depend on coal severance.”

Andrew Hartley is a DLG attorney and addressed the Knott County Fiscal Court last month regarding the shortfall there. Though the numbers for most counties aren’t in yet, he expects that considering the drop in coal production and what that means for the budgets of coal-producing counties, there is a real potential for problems in the near future.

“I think there has been a roughly 30 percent drop in coal revenues in these first two quarters of the (fiscal) year,” he said. “We’re anticipating an effect. Absolutely.”

In Knott County, officials are simply working to approve a balanced budget in compliance with state law, said Magistrate Jamie Mosley, but they also know there could be even deeper cuts in the future if the coal industry’s downturn continues.

“If coal continues to drop,” Mosley said, “it’s not looking good for Knott County.”

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