UNIVERSITY OF ILLINOIS LIBRARY AT URBANA-CHAMPAIGN UNIVERSITY LIBRARY UNIVERSITY OF ILLINOIS AT URBANA-CHAMPAIGN The person charging this material is responsible for its renewal or return to the library on or before the due date. The minimum fee for a lost item is $125.00, $300.00 for bound journals. Theft, mutilation, and underlining of books are reasons for disciplinary action and may result in dismissal from the University. Please note: self-stick notes may result in torn pages and lift some inks. Renew via the Telephone Center at 217-333-8400, 846-262-1510 (toll-free) orcirclib@uiuc.edu. Renew online by choosing the My Account option at: http://www.library.uiuc.edu/catalog/ Digitized by the Internet Archive in 2013 http://archive.org/details/assessmentoffutu8129huff DOC. No. 81/29 July, 1982 OPEN SHEF ASSESSMENT OF FUTURE ECONOMIC TRADEOFFS BETWEEN COAL MINING AND AGRICULTURE by Linda L. Huff ) Gregg Jarre! 1 Sherry Jarrell Project No. 80.214 James R. Thompson, Governor Michael B. Witte, Director State of Illinois Department of Energy and Natural Resources 1) Done under contract from the Illinois Department of Energy and Natural Resources as Project Number 80.214 to Huff and Huff, Inc., 140 N. La Grange Rd. , La Grange, IL. Printed by Authority of the State of Illinois Date Printed: Jul ^ 1982 Second Printing: October 1982 This report has been reviewed by the Department of Energy and Natural Resources and approved for publication. Views ex- pressed are those of the contractor and do not necessarily reflect the position of DENR. One of a series of research publications published since 1975 This series includes the following categories. Air Quality Water Environmental Health Solid and Hazardous Waste Economic Impact Study Noise Management Energy Information Services Illinois Department of Energy and Natural Resources Policy and Planning Division Research Section 325 W. Adams Springfield, Illinois 62706 (217) 785-2800 11 / ^/ v {g 7£^K Contents List of Figures vii List of Tables ix Acknowledgments xvii Chapter 1 INTRODUCTION 1 2 SUMMARY 4 2.1 Land Use in Illinois 4 2.2 Projections of Agricultural Activity 7 2.3 Projected Coal Mining Activity 10 2.4 Economic Determinants of Land Use 12 2.5 Economics of Conversion of Farmland to Coal Mining 16 2.6 Distribution of State, County, and Local Wealth Effects 21 3 COAL MINING IN ILLINOIS 29 3.1 Overview of Coal Mining in Illinois 29 3.2 Illinois Coal Production and Reserves 31 3.3 Resources Required for Mining 50 3.4 Employment and Income 63 4 AGRICULTURAL ACTIVITY IN ILLINOIS 4.1 Importance of Agriculture to the Illinois Economy 66 4.2 Illinois Agricultural Production 72 4.3 Resources Required for Farming 84 4.4 Farming Revenue 92 4.5 Property Taxes Generated by Farmland 98 5 COMPARATIVE ANALYSIS OF COAL PRODUCTION AND MARKET FORECASTS DETERMINING FUTURE MINING ACTIVITY IN ILLINOIS Ill 5.1 Policy Concerns Regarding Energy Scenarios . . . Ill 5.2 Current Conditions of the Coal Industry .... 116 5.3 Illinois Coal Consumption and Markets 122 5.4 Coal Production and Market Forecasts Affecting the Illinois Coal Industry and Its Future . . . 136 iii CONTENTS (continued) Chapter 6 FUTURE DEVELOPMENT OF ILLINOIS AGRICULTURE 188 6.1 Description of Demand/Supply Scenarios for Agriculture 190 6.2 Projections of Agricultural Demand 196 6.3 Land Requirements of Agriculture 212 6.4 Agricultural Forecast Implications 217 7 ENVIRONMENTAL EFFECTS OF MINING 221 7.1 Status of Land Reclamation 222 7.2 Water Quality Aspects of Mining 232 7.3 Underground Mining Impacts 236 7.4 Aesthetics 240 8 ANALYSIS OF DETERMINANTS OF CONVERSION OF FARMLAND TO COAL MINING ACTIVITY IN ILLINOIS 241 8.1 Introduction 241 8.2 Economic Determinants of the Conversion of Farmland to Coal Mining Activity 244 8.3 Private Returns to Farming and to Farmland in Illinois, Post 1950 258 8.4 Returns to Coal Mining in Illinois 281 8.5 Economics of Conversion of Farmland 287 9 LAND CONVERSION ATTRIBUTED TO COAL MINING 295 9.1 Surface Mining Land Requirements 298 9.2 Underground Mining Land Requirements 302 9.3 Cumulative Land Effects 307 10 METHODOLOGY FOR ASSESSMENT OF STATE AND LOCAL IMPACTS ASSOCIATED WITH MINING ACTIVITY 312 10.1 Introduction 312 10.2 Employment Impacts 314 10.3 Direct and Secondary Income Effects 320 10.4 Governmental Revenues 324 11 STATE AND COUNTY ECONOMIC IMPACTS OF FUTURE MINING ACTIVITY 340 11.1 Introduction 340 11.2 Statewide Impacts 342 11.3 Anticipated County Impacts 349 iv CONTENTS (continued) Chapter 11.4 Summary of State and County Impacts 380 12 LOCAL IMPACT ASSESSMENTS 381 12.1 Introduction 381 12.2 Fiscal Impact Methodologies 382 12.3 Summary of Comprehensive Growth Management Strategies for Energy Impacted Counties .... 391 12.4 Site Specific Effects of Coal Mining 398 12.5 Summary 401 FIGURES Number Page 2-1 Illinois prime farmland by county 5 2-2 Projected Illinois coal production through year 2000 . . 11 3-1 1979 U.S. coal production by state 30 3-2 A modified room-and-pillar mine plan showing the isolation of panels from the main entries 32 3-3 A longwall mining plan showing complete support removal and a sharply defined panel width 34 3-4 Operating coal mines, January 1978 42 3-5 Strippable coal reserve blocks 45 3-6 Deep coal reserves 47 4-1 Distribution of prime farmland in the United States ... 73 4-2 Distribution of prime farmland in cropland 74 4-3 Illinois cash farm income by commodities 1979 76 4-4 Illustrates the range of corn and soybeans throughout the state 78 4-5 Distribution of prime farmland 81 4-6 Number of Illinois farms in three size categories, 1880-1974 83 4-7 Value per acre versus years 93 4-8 1981 productivity index 101 4-9 Comparison of farm real estate taxes per acre among all states in 1976 106 5-1 Consumption patterns of Illinois coal 126 5-2 Coal producing counties in the United States, 1975-1979 135 5-3 Mid range energy scenario comparison for the United States, supply-demand equilibrium 168 vii FIGURES (continued) Number Page 5-4 National and Region 5 coal production levels derived in past Department of Energy forecasts of future market conditions 169 6-1 A two-dimensional portrayal of alternative future scenarios for United States agriculture 192 6-2 Major agricultural production areas in Illinois, by type of prevailing farm enterprise 198 6-3 Proportion of Illinois land allocated to major farm and nonfarm uses in 1974 204 9-1 Location of Illinois underground resources and economically strippable coal reserves 296 9-2 Distribution of land area that is prime farmland .... 297 10-1 Distribution of employment versus residential location of miners in Randolph, St. Clair, Perry, and Jackson Counties 317 10-2 Growth in business for towns with population greater than 10,000 332 10-3 Growth in business for towns with population betwen 5,000-10,000 334 vm TABLES Number Page 2-1 Projected 1990 Illinois acreage, all grain crops, compared to 1974 cropland available, by area of the state 5 2-2 Returns to farmland regressed on market return, inflation, and changes in crop prices, post WW II period 15 2-3 Annual rate of land disturbance due to surface mining production 18 2-4 Land affected by underground mining in Illinois 19 2-5 State tax revenues associated with mining 23 2-6 Employees in coal mining living in county where mining activity occurs 25 2-7 Direct income from resident miners 26 3-1 Illinois coal production by mine type 36 3-2 Trends in overburden depth in Illinois surface mines . . 38 3-3 Underground mining depth in Illinois 39 3-4 Rank of counties producing more than 500,000 tons or more (1979) 41 3-5 Characteristics of coal resources obtained through underground mining 48 3-6 Typical underground and surface mine capital costs ... 51 3-7 Capital cost components for surface mining 52 3-8 Mining uses of permitted acreage from 1972 to 1979 ... 55 3-9 Coal affected acreages, prelaw - June 30, 1980, 6/30/76 through 6/30/80 58 3-10 Productivity in Illinois Mines 61 3-11 Educational background of new miners by workplace .... 62 3-12 County income and employment attributed to mining .... 64 ix TABLES (continued) Number Page 4-1 Trends in Export Demand All Agricultural Commodities ... 67 4-2 Agricultural land uses (1977) 68 4-3 Historical crop production in Illinois 70 4-4 1979 counties leading in crop production 77 4-5 Historical cropland use and yield 79 4-6 Distribution of farm expenses 85 4-7 1979 costs of farm production by farm size 86 4-8 Farm expenses on a per acre basis 88 4-9 Labor requirements according to farm size 89 4-10 1979 farming employment by county 91 4-11 Standard deviation as percent of annual revenue per acre 95 4-12 Land price as a function of soil rating, 1979 96 4-13 County employment characteristics according to" prime farmland percentages 97 4-14 Illinois farm real estate taxes, 1962 to 1976 103 4-15 Illinois farm property taxes compared with taxes on all property in Illinois and personal income of farm proprietors, 1960-1976 105 4-16 Farm real estate taxes in Illinois and other states: 1970 and 1976 107 4-17 Changes in support for state and local services, by originating revenue source: Illinois and selected states, fiscal years 1960, 1970, and 1977 . . 109 4-18 Tax rates on lands, equalized valuations, and farmland value index, 1969-74 for 22 counties impacted by coal mining 110 TABLES (continued) Number Page 5-1 Distribution of coal produced by the U.S. and Illinois for each major consumer category 1975-1980 123 5-2 Domestic distribution by consumer category of coal produced in the U.S. for consumption in the Midwest region and State of Illinois: 1975-1980 125 5-3 Regional distribution of bituminous coal by the State of Illinois 127 5-4 Electric utility industry annual purchases of coal produced in Illinois by region and state: 1975-1980 . 128 5-5 Comparative evaluation of Illinois utility coal purchases 130 5-6 Annual Illinois underground coal mine production .... 133 5-7 Annual Illinois surface coal mine production 134 5-8 National Coal Association short term forecast of production and consumption 141 5-9 Development and expansion plans for Illinois and the United States: Aggregated and annual, 1976-1989 145 5-10 New coal mine developments and expansions in the Midwest states, 1980-1989 147 5-11 New coal mine developent and expansion survey for Illinois, 1980-1989 149 5-12 Coal shipments from Illinois mines to the electric utility industry 152 5-13 Coal shipments from producing state to Illinois electric utilities 152 5-14 National and regional coal production goals for 1985, 1990 and 1995 by aggregated supply regions (1980 update) " 158 5-15 National coal consumption by end use sector for each scenario in the time frame 161 xi TABLES (continued) Number Page 5-16 Comparison of DOE coal production goals for 1985 and 1990 developed in June 1978, April 1979, July 1980 and December 1980: Medium demand level 163 5-17 Midwest and national coal production data by time frame and mine type for each forecast 173 5-18 Second National Energy Plan assumptions aggregated by energy source 177 5-19 Region 5 economic growth rates employed in shift- share deployment of Second National Energy Plan projections for energy/economic activity 180 5-20 Data sources used in siting new coal mines for NEP II . . 182 5-21 County coal reserve data supporting the Illinois projection forecast of the National Energy Plan II . . 183 5-22 National Energy Plan - II county coal production forecast for the state of Illinois 184 5-23 Time period percentage change in National Energy Plan II Illinois coal production forecast by mine type 186 5-24 Total and new coal production by Illinois coal region . . 187 6-1 Alternative scenario assumptions on rates of change and 1990 levels of the basic determinants of commodity demand and supply 191 6-2 Changes in export demand for selected Illinois farm commodities, 1976 to 1990 195 6-3 Projections of 1990 average farm size and number of farms in Illinois 197 6-4 Illinois shares of U.S. 1990 production of selected crops compared to the present, and projected 1990 production by scenario 200 6-5 Projected 1990 Illinois corn and soybeans yields by production area compared to 1977 yields 201 6-6 Projected 1990 Illinois acreage, all grain crops, compared to 1974 cropland available, by area of the state 202 xii TABLES (continued) Number Page 6-7 Projected 1990 animal numbers and percent change by type of animal and area of Illinois 206 6-8 Share of Illinois milk production by area of the state . 208 6-9 Projected total farm income and expenses for Illinois farm sector, and distribution among major items .... 209 6-10 Projected total assets and debts, and distribution among major items; nominal terms 212 6-11 Acreage of Illinois land in major use categories, 1954-1974 214 6-12 Projected Conversions of rural land to specified alternative uses, 1975-1990 215 7-1 Test plot data on reclaimed soil 227 7-2 Pre-mining land use 230 7-3 Comparison of certain effluent limitations, water quality standards and 1977 effluent quality of Illinois coal mine water discharges 233 7-4 Water demand and supply estimates for surface mined counties 235 7-5 Land requirements for underground mining activities . . . 237 8-1 Returns to farms and to farmland, and its components, yearly 1950-1979 261 8-2 Mean annual returns to farmland and other assets .... 264 8-3 Correlation between returns to Illinois farmland (and its components), returns to other assets, and rate of inflation, yearly returns over 1950 to 1978 .... 268 8-4 Returns to Illinois farmland regressed on market return and rate of inflation 271 8-5 Returns to farmland regressed on market return, inflation, and changes in crop prices, post WW II period 275 XI IT TABLES (continued) Number Page 8-6 Net income per acre to farms and farmland regressed on crop prices, 1950 to 1979 277 8-7 Mean revenue from crop production to Illinois farmland with differing yield qualities, by year from 1968 to 1979 279 8-8 Land prices and returns (capital gains), selected counties between 1964 and 1978 280 8-9 Recent changes in the market for Illinois coal 284 8-10 Net income as a percent of revenue for coal mining firms 286 9-1 Strippable reserve characteristics in Illinois counties 299 9-2 Annual rate of land disturbance due to surface mining production 301 9-3 Surface land uses of underground mines in Illinois .... 303 9-4 Underground reserve characteristics 305 9-5 Land affected by underground mining in Illinois 306 9-6 Cumulative land disturbance associated with coal mining . 308 10-1 Time sequence of mine impact scenario 313 10-2 1979-1980 residential and employment patterns in mining counties 318 10-3 Distribution of community impacts associated with residential patterns 321 10-4 Reported percentage of take home pay spent by resident and non-resident coal miners, 1979 328 10-5 State sales tax receipts for agricultural and mining counties 329 10-6 Summary of mineral rights assessment procedure at major coal producing counties in Illinois 336 xiv TABLES (continued) Number Page .1-1 National Energy Plan - II county coal production forecast for the State of Illinois 341 .1-2 Projected revenue of Illinois coal 343 .1-3 Projected statewide coal mining employment 345 .1-4 Projected income in Illinois from coal mining 346 .1-5 State tax revenues associated with mining 350 .1-6 Employees in coal mining 352 .1-7 Employees in coal mining living in county where mining activity occurs 354 .1-8 Percent of total employment attributed to coal miners living in the county 356 .1-9 Direct income from resident miners 357 .1-10 Direct mining income as percent of total county income 359 .1-11 County income/employment multipliers 360 ,1-12 Total income generated from resident miners 361 .1-13 Direct mine purchases 363 .1-14 Sales tax revenue collected by county and communities . 365 .1-15 County and community tax revenues from mine purchases . 366 .1-16 Sales tax revenue from mine purchases and employee purchases for counties and local communities 367 .1-17 1978 county receipts by source 369 .1-18 Range of Illinois coal sales tax by county 371 .1-19 Coal company land ownership 373 .1-20 Comparison of relative changes in assessed valuation for Fulton County 375 xv TABLES (continued) Number Page 11-21 Comparison of relative changes in assessed valuation for Knox County 376 11-22 Mineral rights assessment compared to total county assessment 379 12-1 Relating methods to contexts and tasks of fiscal impact analysis 385 12-2 Municipal and school district median operating expenditure multipliers by population size and growth rate 388 12-3 Summary of available impact assessment methodologies . . 390 12-4 Elements of impact assessments conducted by Regional Planning Commissions in Illinois 392 12-5 Projected mining employment and population increases for Greater Egypt communities 394 12-6 Summary of public facilities affected by mining growth (1980-1983) 397 12-7 Population and employment characteristics of Norris, Fairview, and Farmington 399 12-8 Changes in business activity with mining 400 xvi ACKNOWLEDGMENTS Completion of this project depended upon the cooperation and data inputs of several state agencies and private individuals. The authors express their appreciation for time and effort to the following indi- viduals. Walter Bierman, Chief of Research, Policy and Planning, IL. Dept. of Commerce and Community Affairs Ron Darden, Chief, Land Management Section, IL Dept. of Agriculture Gary Doxtater, Manager, Environmental Studies and Planning, AMAX Coal Company Douglas Downing, Supervisor, Land Reclamation Division, IL Dept. of Mines and Minerals Richard P. Gale, Director, Western Illinois Regional Council Harold Halcrow, Dept. of Agricultural Economics, University of 111 inois Ivan Jansen, Dept. of Agronomy, University of Illinois Robert Keime, Director, Fulton County Planning Robert Masterson, Director, Knox County Regional Planning Commission Robert Pinkerton, Director, Tri-County Regional Planning Commission Sue Pfluger, Director, Planning Dept., DeKalb County •James Riggle, Land Management Section, IL Dept of Agriculture Michael Schechtman, Illinois South Project David South, EES, Argonne National Laboratories xvn The information provided by these individuals was utilized to describe the existing situation in Illinois and analyze future effects. Although these individuals provided insights on particular aspects of the problems, the authors bear sole responsibility for the analyses and conclusions of this report. xvi ii CHAPTER 1 INTRODUCTION Illinois is a state endowed with not only a vast reserve of bituminous coal but also highly productive agricultural lands. The coal reserves in Illinois represent the largest bituminous coal reserves (162 billion tons) in the United States and could supply the 1979 level of national energy consumption for 135 years. Prior to the escalation of world oil prices, the domestic production of oil and gas had been declining while coal extraction had been increasing at a slower rate than in prior decades. From 1975 through 1980 there were important pieces of national and state legislation enacted to promote greater utilization of these abundant coal resources. The future conversion of land for mining activities is an important concern in that energy forecasts indicate an acceleration in mining activity. Illinois is a state which has benefitted from improved agricultural productivity and increased United States export of agricultural commo- dities. Illinois ranks third in the United States in acres of prime farmland and in prime land utilized for producing crops. In 1979 Illinois led the nation in farm exports with $2.9 billion or 9.1 percent of the total United States exports. In terms of total agricultural production Illinois is fourth in crop and livestock production. The potential conflict is based upon the location of coal resources and the distribution of prime farmland. Coal resources under- lie over 75 percent of Illinois, although surface mining on a large scale has only occurred in 18 of 38 counties with strippable reserves. Approximately 45 counties with greater than 50 percent prime farmland also have coal resources. Chapter 3 summarizes coal mining activities as well as the location of strippable and underground reserves. Chapter 4 presents the economic significance of agriculture and its char- acteristics. The magnitude of the future land conversion impact depends not only on the total acres affected but also upon the rate of conversion. Future economic activity of farming and mining are discussed in Chapters 5 and 6. These projections serve as a basis for analyzing the location and magnitude of economic and land conversion impacts. Chapter 7 describes existing reclamation requirements and the state of the art in terms of recovery of land productivity. Chapter 8 considers the economic determinants of land value as they explain the distribution of land between mining and agriculture. Externalities which affect the efficiency of land distribution are viewed in terms of alternative policies to internalize these impacts. Also, the distribution of welfare effects, which influences the socio- political environment rather than the economic efficiency of land con- version, is discussed. Chapter 9 specifically estimates the magnitude of land use by coal mining activity through the year 2000. These values are categorized on a county basis and have been reviewed according to historical land use patterns. The economic impacts associated with coal mining do not effect the allocation of land but rather describe the wealth distribution effects. Chapters 10 and 11 estimate projected changes in employment, income, and tax revenue at the state and county level based upon a forecast of mining activity and historical residence patterns. Chapter 12 per- tains to local communities and the range of impacts which are encountered at this level. Three fiscal impact methodologies are evaluated for use in coal mining assessments as well as a review of historical impacts on communities near mining activities. By describing land conversion impacts and economic effects of forecasted mining activity, a perspective of the problem can be developed. The magnitude of coal mining impacts and the areas of concern are thus delineated for future policy decisions. CHAPTER 2 SUMMARY Illinois is a state with substantial energy reserves in the form of coal and is a leader in agricultural output. Of the 24.4 million acres available as the cropland base, approximately 80 percent or 19.1 mil lion acres is considered prime farmland. Coal mining in Illinois has occurred since the 1860s and will continue in the future because of the vast quantity of reserves remaining. Figure 2-1 illustrates the potential magnitude of the conflict by locating coal reserves on a map which describes counties according to their prime farmland content. Economically strippable reserves are concentrated in the west central counties of Knox, Fulton, Peoria, and Stark and Perry County in the south. Greater than 75 percent of the land in Stark County is prime farmland while Knox, Fulton, and Peoria contain 50 to 75 percent prime farmland. In Perry County there is 25 to 50 percent prime farmland. Underground coal reserves extend over the central and southern Illinois, most of which contains greater than 50 percent prime farmland. Thus, future farming and mining activity will occur in close proximity. 2.1 Land Use in Illinois Agriculture is the predominant land use in Illinois requiring in 1979 23.5 million acres of the 35.7 million acres of total land area. Other land uses can be categorized on a percentage basis of total land area as the following: Strippable Reserves Deep Coal Reserves E2 ]o- 30 (inches 30-60 60+ SOURCE: -1. Location of Illinois Underground Resources and Economically Stri pable Coal Reserves Adoption of Illinois Sta Geological Survey Data Figure 9-2. Distribution of Land Area That Is Priae Farmland Land Use Percent of Total Area cropland 70.1 urban areas 4.6 transportation 3.1 parks and wildlife 0.5 national defense and industrial 0.2 grassland range 5.1 woodland 10.5 farmsteads 1.1 other 4.8 TOTAL 100.0 Included in the "other" use category is surface mining activity. The cumulative number of acres affected by coal mining from earliest records through 1980 is 210,615 or 0.6 percent of the total state lands. On a statewide basis the conversion of land to mining appears small; regional impacts, however, may be of a different magnitude. Individual counties may have up to 11.3 percent of their area cumulatively impacted by historical mining. These lands have been restored to various uses and levels of productivity as the reclamation standards varied with time. Thus, a portion of 210,615 acres has been restored to cropland, grassland, woodland, or other uses. On an annual basis, coal mining impacts 4,800 acres or 0.01 percent of the state area. In the past, urban areas and transportation have been major drains on total agricultural land base, even though the conversion of farmland to such uses rarely occurs directly. In Illinois the cropland base has increased over time even though the land in farms has decreased. In 1950 the total land in farms was estimated at 31.7 million acres; by 1980 this number had decreased to 28.6 million acres. Land in farms is not limited to cropland but includes other activities, such as live- stock, as well. The cropland base has been increasing over time, and in 1979 approximately 23.5 million acres were planted. Since land con- version is occurring at a rate of approximately 86,000 acres per year, the loss of any existing cropland has been offset by the development of new cropland, resulting in losses of pasture and forest acreage. Such an assumption is supported by historical land use data which indi- cate that the acres in grassland have decreased by 50 percent since 1954 (from 3.6 million to 1.8 million acres). These historical con- version patterns are of importance when evaluating future land avail- ability for two economically important activities, coal mining and agri- culture. 2.2 Projections of Agricultural Activity To assess the magnitude of future conflicts it is important to estimate the future growth in coal mining and agriculture. Such forecasts are predicated upon certain combinations of economic factors occurring, and the results of such forecasts should only be considered indicative of general implications. The activity in Illinois agriculture was projected through the year 1990 in a research project conducted within the Department of Agri- cultural Economics and Agricultural Experimental Station, University of Illinois at Urbana-Champaign. The study, entitled, "Alternative Futures for the 1980s" is the work of several authors who coordinated their research with aggregated data adapted from a United States Department of Agriculture (USDA) computerized projection system. Three alternative sets of quantitative assumptions regarding key determinants of demand and supply lead to unique projections for Illinois agriculture. The variability in United States agriculture is described for the three scenarios: (1) Low Demand, (2) Baseline, and (3) High Demand. The Baseline scenario is based upon continuation of current long-run trends with moderate economic growth. The Low Demand scenario assumes much smaller increases in demand due to low population growth rates, economic activity, and agricultural trade. Production in this scenario is high due to good weather and low inflation rates. The High Demand scenario is based upon stronger growth rates of population and trade than Baseline conditions. A high rate of inflation occurs as the cost of agricultural production increases. Total supply of agri- cultural products actually decreases below that associated with Baseline. Utilizing the three scenarios for projecting agricultural growth and land needs provides a range of possible results. Projected yields are highest under the Low Demand assumptions (good weather and productive technology) and lowest under High Demand assumptions. The acreage required to attain projected crop production increases with higher crop produc- tion and decreases with greater yields. Table 2-1 depicts the cropland acreage required for the three agricultural scenarios as compared to the 1974 cropland base. Illinois agricultural activity under Baseline and Low Demand conditions has sufficient land to satisfy farming needs. The High Demand scenario would create some pressure on the cropland base in that all existing 1974 cropland would be utilized and new acreage would have to be developed. This land deficiency exists at the regional and state level under the High Demand scenario. Table 2-1. Projected 1990 Illinois Acreage, All Grain Crops, Compared to 1974 Cropland Available, by Area of the State High Demand Baseline Low Demand (Thousand Acres) Area One Total Required Acreage 3,527 2,907 2,225 1974 Cropland 3.437 3,437 3,437 Difference -90 530 1,212 Area Two Total Required Acreage 6,329 1974 Cropland 5.874 Difference -455 Area Three Total Required Acreage 9,435 1974 Cropland 9,216 Difference -220 Area Four Total Required Acreage 7,002 1974 Cropland 5.873 Difference -1,129 State Total Required Acreage 26,293 1974 Cropland 24.400 Difference -1.893 5.194 5.874 680 3.775 5.874 2.099 9.086 9.216 130 8,236 9.216 980 5,603 5.873 271 3.957 5,873 1.914 22.789 24.400 1.611 18.195 24.400 6.205 The expected level of agricultural activity in the 1980s is considered to lie between Baseline and High Demand results, according to the authors of the Summary Report. Thus, the adequacy of the cropland base for future growth is questionable, especially considering a con- tinued rate of land conversion for other uses, such as urbanization, roads, and parks. 10 2.3 Projected Coal Mining Activity The future growth of the Illinois coal industry is directly related to the national forecast of coal demand and anticipated industry constraints. The process of projecting future conditions in the coal industry can be accomplished by a variety of methods, which may or may not incorporate all exogenous and endogenous factors affecting coal demand and supply. To obtain an adequate representation of the future production outlook from Illinois coal fields, a group of ten projections was com- piled. These projections reflected (1) national coal production goals and total energy outlook scenarios, (2) industry expectations of capacity expansions, and (3) State of Illinois perceptions of industry conditions and constraints. The 1979 National Energy Plan II (NEP II), which was selected as a basis for the Illinois coal industry projection, varies slightly from other energy forecasts through the year 1990. In terms of the general contribution of coal as a component of the energy fore- cast and in particular Illinois coal production, each forecast is similar. Moreover, since NEP II provides the greatest amount of spatial data, the forecast can be applied to county-level assessments while retaining approximate coincidence with revised energy sector goals and policies. The resulting production forecast for Illinois coal is depicted in Figure 2-2. Total Illinois output is projected to rise from 59.5 mil- lion tons in 1975 to 135.8 million tons per year in 2000. The largest increase in output is anticipated to occur between 1990 and the year 11 140 120 I s / / — tmmm _ mmmm $ i *1*C9 20 4 f 1976 1985 1990 2000 Year Fig. 2-2. Projected Illinois Coal Production through Year 2000 12 2000. According to Figure 2-2, underground mining contributes a major portion of this accelerated growth. Current production levels are divided 55 and 45 percent among underground and surface mining, respectively. There has been a steady shift towards underground mining since 1970. Underground mining will certainly become a dominant technology while surface mining rates will decrease slightly over time. The net result projected for Illinois coal production is a doubling of capacity by the year 2000. This particular statewide forecast can be distributed among counties to determine future levels of production. 2.4 Economic Determinants of Land Use The conversion of land from agricultural uses to coal mining uses can be analyzed on the basis of economic efficiency. Standard micro- economic theory concludes that the unregulated, private decisions will result in an economically efficient allocation of land between farming and coal mining if certain theoretical assumptions are valid. In par- ticular, the private allocation is efficient if coal mining does not impose significant external costs on parties not involved in the private transaction. Alternatively, if coal mining imposes significant external costs on local residents, for example, then the privately-determined allocation of land between farming and coal mining will be inefficient. The socially efficient allocation properly accounts for all of the costs and benefits of conversion of farmland into coal mining acreage. If the private parties who determine the actual conversion rate bear all of the costs and reap all of the benefits of conversion, then the actual conversation rate will be efficient. Illinois has remained an agricultural state through time despite 13 large amounts of coal reserves. The differences in returns can explain this allocation. The yearly returns to farming and to farmland in Illinois were compared to the returns from various other portfolios of assets, such as residential real estate, bonds, and NYSE stocks. The data indicate that the mean yearly return to Illinois farmland between 1950 and 1978 is equal to or exceeds the mean yearly returns to any of the other portfolios. Over the entire 29-year period from 1950 to 1978, the private rate of return to Illinois farmland is 11.75 percent (mean annual rate). This return to farmland is net of the estimated opportunity costs of farm family members' labor. Breaking this total mean annual return into its two components, the contribution of net income from the sale of crops and livestock is 3.05 percent (mean annual rate), while the mean yearly capital gain return is 8.7 percent. The fluctuation in total returns to farmland is mostly attributable to the variation through time in the capital gains return. Comparing the 29-year mean return to Illinois farmland to the returns yielded by other widely-held assets, Illinois land returned the same as did a diversified portfolio of farmland located throughout the United States. The portfolio of U.S. farmland was less risky, due to its greater diversification. Both Illinois farmland and U.S. farmland yielded higher returns than did a diversified portfolio of residential real estate, which returned annually, on average, nearly 7 percent. A diversified portfolio of NYSE stocks did only marginally better than Illinois farmland over the 29-year period while displaying more than 14 twice the degree of financial risk. Substantial returns averaging slightly over 20 percent per year were earned since 1970 on Illinois farmland, during which period the capital gains from changes in the value of Illinois farmland provided an average return of 16.8 percent. Crop production returned the remainder, about 3.2 percent since 1970. Table 2-2 presents regressions of returns to Illinois farmland, to U.S. farmland, and to Illinois farms on market return, inflation, and changes in the prices of corn and soybeans. The first regression, with the returns to Illinois farmland as the dependent variable, shows that the changes in the prices of both corn and soybeans have a direct effect on the returns to Illinois farmland. Therefore, an estimate of the private discount rate to Illinois farmland should be tempered by predictions about the future changes in crop prices. Notice that the inflation rate remains an important determinant of the return to Illinois farmland despite the inclusion of changes in crop prices in the regression. This effect of inflation also holds up in the regression with capital gains returns as the dependent variable. Therefore, inflation increases the returns to farming (see regression 2, Table 2-2) and to farmland independent of the increase in crop prices that usually accom- panies inflation. The same may be said about the returns to U.S. farm- land, judging by regression 4 of Table 2-2. Based on the post-1950 returns behavior, if inflation rates will be between 2 and 4 percent, then the private discount rate to Illinois farmland is estimated to be between 6 and 9 percent. If inflation rates 15 to c i_ 3 T3 4-> O CU •^ o. 01 -* 1— 1 i. •— * TO 3 z: 2 e -M o to O "3 Q- 01 «/> •» n to 0) cu s_ u o< •^ 01 i_ ex o. "O Q. c o to U ^— <_> E c. c TO •r» U_ (/l o CU 4-1 en c «/» to c -C k. o 3 +J XJ 01 c ex to . CM C\J cu . ■-H IT) •«->cm en CM "O ex • i • 10 o o •i- c TO CU cu cu u CD-Q -f- C >, J- c CU '_ -*L 3 s_ -UJ to 01 s: ex c TO -t-» c o u c cu cu «— c to CU -r- Q. i- Ol t3 o > ■a o cu o CM m o o o o o «T CO o o*> o ^ o ^ o o O CM O o ■-< m i-i -h «3- CO O CM O «-i O •-» O ^H o ^ «— • CM o o «— i o «^" cm oo in vo in t— • cm hi — CM CO i—i CM »-l CO *-4 CO »— < CM O C\J f— < CO 00 CM «-t CM CM m O CO O ~* cm in O in O ^ o ^ o h CO CO i— I CO lO fO o in o cm om o o o cm o o O CO •a (A "O c c c to •^ TO r— ■ VO TO O <— O E O E cn ■•-> E 4-> '_ — > '_ u TO TO ^— in (A TO C H- C M- TO c C <+- i_ s- ■M i. s. 3 • 3 • y« 3 3 • ■»-> .— ■»-> «— Q.4-> •»-> (•) CU r- cu •— TO CU CU • cx •— ■ cx «-i u i- CX =3 ocn cr> cx» ino r»» co mx «r r-^ *r co ^" r». CT> Ot C7» O^ CT»C5"» C7» CJ» CU •o L. TO "O c TO 4-> w> >. -O "O cu -o •f" > *^» TJ +J c cu •f^ u ■t" H- *♦- cu o u -o • a 4-> j-> c TO CU E •^ •^ u — ■ «^- in u_ 01 u_ CU II o u o •^» ■o J-> cu (/> t ■-• CM CU 16 are expected to be between 7 and 10 percent, then the discount rate to Illinois farmland should be between 12 and 17 percent. To justify on efficiency grounds converting the typical acre of farmland to a non- farm use, the alternative use must promise to return more than 15 per- cent. 2.5 Economics of Conversion of Farmland to Coal Mining The allocation of land between farming and coal mining is deter- mined by the relative value of the land in the alternative uses. Con- version is properly viewed as a natural consequence of this market allo- cation process. Illinois land that is yery valuable as farmland relative to the value of its underlying coal reserves will not be mined. The market price of the farmland reflects its future stream of net returns from farming, and coal operators would not be able to profitably purchase this farmland. Alternatively, if the coal resources are very valuable relative to the lands' value in farming, due to the high price of coal, the low cost of mining these particular reserves, or the low productivity of the farmland, then the land will be converted to coal mining activity. The return on mining in Illinois specifically relates to the demand and supply factors of production. Demand for Illinois coal is related to its price, the price and availability of competitive sources of energy, transportation costs, and other economic factors. To main- tain a competitive price with an adequate rate of return requires mining of those reserves which are economically attainable. For a given market price of coal only certain coal reserves can be mined at an adequate rate of return. 17 The conversion of farmland to mining in Illinois is restrained in general by the economics of coal mining within the state. Thus, even with vast coal resources, there will be no dramatic increase in land conversion because of dynamic market conditions. Tables 2-3 and 2-4 presented the expected magnitude of land conversion with coal mining activity. Statewide the number of surface acres expected to be impacted from 1980 through 2000 is 99,000 acres or 0.3 percent of the available farmland (29.0 million acres). Changes in legislative or economic factors could affect these expected conversion rates. Agricultural projections of Baseline conditions are associated with demand for new agricultural lands; however, High Demand conditions would result in demand for land and an ensuing increase in land price. The development of a High Demand scenario would thus indicate a possibly lower rate of land conversion, as the price of agri- cultural land and hence its return, is increased. If environmental regulations are liberalized, the returns on mining may be enhanced and conversion rates higher than that projected would be expected. The availability of increased supplies of oil and natural gas would act to dampen the demand for coal and reduce coal mining activity. Within the analytical framework developed, a variety of possible actions can be evaluated as they relate to impacts on land conversion on a statewide basis. The distribution of land impacts on a county basis is perhaps of greater importance since any externalities will occur at the local level. Surface mining is forecasted In three counties--Knox, Peoria, 18 Table 2-3. Annual Rate of Land Disturbance Due to Surface Mining Production County 1985 Total # Acres/Yr. 1990 Total # Acres/Yr. 2000 Total § Acres/Yr. Fulton 512 Gallatin 68 Jackson 362 Jefferson 224 Johnson - Knox 430 Peoria 126 Perry 1,187 Randolph 261 St. Clair 358 Saline 357 Stark 36 Vermilion 212 Williamson 171 465 60 362 198 401 111 1,058 231 317 344 32 212 152 434 52 375 161 377 117 881 193 268 337 30 222 129 4,304 3,943 3,576 19 x* 3 c •H e •H 3 o u co M CU -O c ■3 *3 CU _i o 3 u-l "3 c CO I -3 3 CO CU M CJ T3 < 0) 4J CU CJ CJ CU 3 u-i U-l U-l H < o 3 o C/5. o CN -3 CU CO C CU -H s- 2 a u < cu -a c 3 cn CU '— i a -3 < cu u cu cj cj cu CO U-l U-l U-l u <: o 3 ON CO CU >-l CJ TJ < CU 4-1 3 u cj 3 cQ u-i '— U-l H < m 3 CO C/l CN —* "3 CU 3 C CU -H * s o u < 0) -3 c =3 § o CO -- O O .-* m co -* <■ o — • — ' CN CO --I (?OO>O0000^M <■ 00 m f^ — 'N O-J o -vrror-voCN-^aoo O CO ON CN ro Q\ *r CI I s h m no o co co «j o ON nO co-j-HMn^socriini/iNOi/in inOCN\OOr^coinin.*3-coorncoin i/i\0^;ncMiri^Ta\cNfOiri-^vOM >-or^-Coa>xou~ivrr N -.^3 , fMr-- ml CO^f A O^N^TNN >T^>OCNNNfnis(SCN>J- 3 3 H r-l 3 p-« CQ U-l H U U-l — 1 O < 3 H o 3 • S-i 73 3 3 3 fl —i •H s s •3 3 3 B 3 O -j 3 1) c 3 •H •n a H p— 1 • — i jj E a d V4 a 3 a CQ •H 3 o 3 3 Ui •H 3 — in co u 3 3 U-l "3 £ 4-1 3 3 4-1 ■H a U-l 3 3 E !-i ~~ • 3 U ■3 3 X 'J C 3 BO cn =^ 30 1-1 C — CN c 3 c O o O0 "H > 4-1 > O CU 3 >> r> CJ 3 u u-, CJ -H 3 U-l II B "3 c » 3 ■J-l c c "T3 T3 CO •H o u 11 3 39 u c -3 > CJ 3 ■H >. 3 ■-i ■H a U-l 4-1 fH ■J) !-i E JjS U-l •H 3 3 3 u 3 ^J .3 — ■rt ■H c 3 u JZ i — I 3 3 Ut M 4-1 3 T3 —J 00 3 > 3 3 u E O — ^ 3 3 a -a 3 E 3 cj U 3 g 3 3 O c 3 U-l r '/I U 3 3 3 o 3 u II II II II 3 X 0C 3 3 J-l 05 X. Q CU 3 3 U-l -3 ^3 S-l a s 3 3 = C/J -J 20 and Stark—which presently have no active operations. Over 50 percent of the land in these counties is considered prime farmland. There are 11 other counties in which surface mining will continue. Perry County has been and continues to be the leading surface mining county with 11.3 percent of the county area previously mined and additional 10 percent projected. Of concern is not only surface acreage affected by the increase of underground mining focuses upon the importance of subsidence effects. Little is known about this problem but it certainly could be an important future issue. Externalities which occur in local land use decisions relate to the aesthetics, other environmental issues, such as water quality and noise. Stringent state and federal reclamation regulations have acted to internalize the direct effects of land disturbance. The visual effects of unreclaimed land and loss of property tax base due to unpro- ductive lands have been minimized by legislative requirements. Lands must now be recovered to similar levels of production and uses after mining as were pre-existing. Subsidence must also be minimized according to federal regulations. Adjacent land owners and communities incur the adverse effects of blasting noise, additional road traffic, and visual aesthetics of a mining operation. These external costs have not been incorporated into the private rate of return. Regulations have been established regarding blasting, and coal companies repair and maintain heavily trafficked roads. Both actions reduce some of the remaining externali- ties of mining. 21 2.6 Distribution of State, County, and Local Wealth Effects The primary determinant of the remaining social and political concerns pertains to the redistribution of wealth. Returns to coal mining accrue to the individual involved in the land transaction, the coal company, and the communities where economic transactions, such as purchases and taxes, are increased. Depending upon the size and site specific characteristics, smaller communities near the mining activity may not receive any additional wealth from the development. If mine employees do not reside in the community or purchase goods, then there are minimal benefits for the community. Yet the proximity of the mine would inflict certain aesthetic losses upon the community. The land conversion would not yield additional benefits for the communi- ties. The ensuing changes in state and county employment, income, and tax revenue were estimated for expected levels of mining activity. The relative magnitude which might then occur at the local level was described. At the state level all income and employment can be aggre- gated; however, the distribution among counties and communities is highly variable. Patterns in residency, purchasing, and tax policies all affect the local wealth effects of coal mining. Specific assumptions regarding prices, wages, productivity, purchases, and mine purchases are described in detail in Chapters 10 and 11. The following projections are intended to depict only the magni- tude of the impacts not precise expectations of site specific changes. Economic characteristics of individual counties and of mining firms 22 with mineral rights will influence any future changes in county income and employment. The value of coal produced in Illinois is expected to exceed $2 billion in 1985 and grow to over $5 billion by the year 2000. As coal employment increases from 49,600 to 61,400 in 1985 to over 100,000 in the year 2000, the percent of state employment rises from 1.0 to 1.6 to 2.1, respectively. Between 1985 and 2000 the actual number of mining employees may double. The associated change in income is quite similar. Coal mining would account for approximately 1 percent of the state's 1985 total income of $143 billion. The state derives tax revenue from various facets of coal extrac- tion. The major sources are personal income taxes, coal sales tax, and the corporate income tax. Table 2-5 presents the expected magnitude of tax revenues derived from coal mining activities. One item of particular interest is the coal sales tax. This tax is only collected on coal produced and purchased in Illinois. Since Illinois consumes only slightly over half of the coal mined, the coal sales tax value is only applied to half of Illinois' production. The local and county governments do not obtain the full economic impact of increased mining in their area. The magnitude of variation depends upon historical residential patterns, purchasing habits, and local tax policies. For some counties as few as 20 percent of the miners resided in the county or as much as 100 percent. Thus, the expected employment in county mines was adjusted for counties where residential information was available and for others a probable range was utilized. 23 Table 2-5. State Tax Revenues Associated with Mining (millions of dollars) 1985 1990 2000 State Personal Income Tax 9.1-11.3 10.5-13.1 18.8-23.7 State Corporate Income Tax 17.1-25.6 20.1-30.1 33.9-50.8 Direct State Sales Tax 8.9-11.0 10.2-12.7 18.3-23.1 Sales Tax from Indirect Purchase 14.0-17.4 16.2-20.1 29.0-36.5 Sales Tax on Mine Purchases 8.8 11.2 23.2 State Coal Sales Tax 55.7 65.4 111. Total Tax Revenue 114-130 134-153 234-268 24 Projected totals in mining employment and income, shown in Tables 2-6 and 2-7, respectively have been adjusted. The economic importance of mining within a county depends not only upon the extent of mining production but also on the economic char- acteristics of the county. The direct mining income represents as little as 0.03 percent to as much as 18 percent of the county income in 1985. By the year 2000, mining could contribute to over 20 percent of the total county income for 4 counties. In addition to direct income there is also the induced employment and income which contributes to the county base. The income/employment multiplier represented an increase in mine- related economic values of approximately 1.6 for the 22 mining counties. Another important factor in economic effects at the county level is the generation of governmental revenues through sales tax, income tax, property tax, and minerals assessments. The income tax effects could not be calculated since the amount returned to each county is dependent upon the total collected by the state and the population of the various counties. The sales tax which the county or local communities collects depends primarily upon purchases by resident miners and mining companies. The location of business centers, county availability of retail services, and other factors all determine the magnitude of sales tax generated. In addition to municipal and county retailers tax, there is a one percent sales tax on coal at the mine if the coal is purchased in Illinois. Thus, some counties receive no sales tax on coal at all and others accrue a substantial amount. The potential value of this coal sales tax exceeds 25 Table 2-6. Employees in Coal Mining Living in County Where Mining Activity Occurs 3 County 1985 1990 2000 Christian 994 - 1260 1140 - 1450 2310 - 2940 Clinton 3 335 - 1210 431 - 1560 926 - 3340 Douglas 3 447 - 1610 669 - 2410 1410 - 5090 Franklin 2460 - 3130 3000 - 3820 6260 - 7970 Fulton 530 - 618 481 - 561 449 - 524 Gallatin 3 134 - 475 147 - 525 274 - 982 Hamilton 3 140 - 504 299 - 1080 643 - 2320 Jackson 589 - 687 589 - 687 610 - 711 Jefferson 3 Johnson 422 - 1510 477 - 1710 933 - 3360 Knox 108 - 358 101 - 333 95 - 314 Macoupin 1220 - 1560 1500 - 1900 3120 - 3970 Montgomery 3 Peoria 131 - 473 150 - 542 305 - 1097 41 - 135 36 - 120 38 - 126 Perry 1690 - 1970 1500 - 1760 1260 - 1460 Randolph 319 - 1110 335 - 1180 553 - 1970 St. Clair 1680 - 2060 1800 - 2220 2950 - 3700 Sal ine 630 - 757 647 - 780 884 - 1090 Stark 3 13 - 43 11 - 38 11 - 36 Vermil ion 94 - 310 94 - 303 99 - 326 Wabash 710 - 903 876 - 1120 1840 - 2350 Will iamson 663 - 813 686 - 847 1100 - 1370 Notes: a) 30% to 85% of coal miners in county assumed to live in county. 26 Table 2-7. Direct Income from Resident Miners (millions of dollars) County 1985 1990 2000 Christian 22 . 28 25 32 51 - 65 Clinton 7.4 - 27 9.5 - 34 20 -73 Douglas 9.8 - 35 15 - 53 31 -110 Franklin 54 - 69 66 - 84 140 -180 Fulton 12 _ 14 11 _ 12 10 - 12 Gallatin 2.9 - 10 3.2 - 12 6.0 - 22 Hamilton 3.1 - 11 6.6 - 24 14 - 51 Jackson 13 - 15 13 - 15 13 - 15 Jefferson 9.3 _ 33 10 _ 38 21 - 74 Johnson Knox 2.4 - 7.9 2.2 - 7.3 2.1 - 6.9 Macoupin 27 - 34 33 - 42 69 - 87 Montgomery 2.9 _ 10 3.3 _ 12 6.7 - 24 Peoria 0.9 - 3.0 0.8 - 2.6 0.8 - 2.8 Perry 37 - 43 33 - 39 28 - 32 Randolph 7.0 - 25 7.4 - 26 12 - 43 St. Clair 37 _ 45 40 _ 48 65 - 81 Sal ine 14 - 17 14 - 17 19 - 24 Stark 0.3 - 0.9 0.2 - 0.8 0.2 - 0.8 Vermil ion 2.1 - 6.8 2.1 - 6.7 2.2 - 7.2 Wabash 16 _ 20 19 _ 25 40 - 52 Will iamson 15 - 18 15 - 19 24 - 31 Total 295 - 473 329 - 549 575 - 994 27 the value of taxes collected on mine and employee purchases. Two other sources of local governmental revenue are property taxes and mineral rights assessments. Future coal mining activities are not expected to affect land values and hence property taxes for the following reasons: a) Present trends are for coal companies to continue to own land (93 percent of 1979 permitted acreage was corporate owned). b) Reassessment of land typically is requested by owners; however, coal companies do not request reassessment and so mined land is valued at same level as nearby soils. c) Reclamation requirements stipulate a 90 percent return in land capability after mining. Such a stringent requirement minimizes degradation in value. Mineral rights are assessed in a variety of ways, depending upon county policy. The assessed valuation of minerals may contribute to 11.5 percent of the county assessed valuation. Four counties do not assess minerals at all. The variation in mining employees residential and purchasing patterns as well as mineral rights assessments and coal sales taxes all contribute to a wide range of wealth effects possible at the county level. There are two specific sources, mineral assessments and coal sales taxes, of governmental revenue which are related to the value of mineral resources within a county. At the local level the economic and fiscal impacts of coal mining areevenmore uncertain. Changes in population occur for communities near mining according to a variety of factors, such as city size, distance from major metropolitan area, community services, housing availability 28 and others. At the local level, there are externalities of noise due to blasting, traffic, aesthetics, and environmental concerns. These externalities impose additional costs upon the local community, and these communities may or may not be compensated by additional revenue. These local impacts, because of the disparity between social costs and revenues (benefits), are perhaps of greatest concern in projecting the future significance of coal mining in Illinois. 29 CHAPTER III COAL MINING IN ILLINOIS 3.1 Overview of Coal Mining in Illinois Coal Production in the United States is an important element of future plans for energy self-sufficiency. Total coal production in the United States has continued to grow slowly since 1970 at a rate of 2.8 percent per year. In 1979 total coal production was 770 million short tons per year for the United States. The tonnage of western coal has increased to approximately 25 percent of the market because of the low sulfur content contained in those sub-bituminous coals. The Illinois Basin coal which includes Illinois, Kentucky, and Indiana has a higher heating content per ton than western coal, and, unfortunately, a higher sulfur content. The heating value of Illinois coal varies from 10,000 to 12,000 Btu's per pound with a sulfur content typically from 3 to 5 percent. In 1979 Illinois ranked fifty in coal production with 71 active mines. Figure 3-1 shows the relative order of the top nine coal -producing states. Illinois coal production accounted for 7.7 percent of the total United States production. Thus, Illinois is an important contributor to the total coal supply in the United States. The following sections describe the characteristics of coal mining 30 millions of short tons Kentucky West Virginia Pennsylvania Wyoming Illinois Ohio Virginia Indiana Alabama Other States Fig. 3-1 1 979 U S. Coal Production by State 31 in Illinois. The type of mining, its location, and the resources required are briefly presented as background to the analysis of land use trade- offs. 3.2 Illinois Coal Production and Reserves 3.2.1 Mining Techniques Underground and surface mining both contribute to the total output of Illinois coal. Coal deposits which are less than 150 feet deep are technically minable via surface techniques. The thickness of the coal seam and amount of soil lying on top of the coal or overburden primarily determines the feasibility of surface mining. Area mining is the pre- dominant form of surface mining in Illinois because of the flat terrain. Area mining consists of an active pit 180 to 250 feet in width and up to 3 miles in length where coal is systematically recovered. Such a pit moves slowly affecting 100 to 400 acres per year, depending upon 2 the mine size. The recovery efficiency of surface mining varies between 80 percent and 90 percent due to accessibility of deposits and extraction techniques. For coal deposits 150 feet to 1000 feet in depth, underground mining is necessary. The two techniques utilized in Illinois are longwall or room-and-pillar method. Twenty-seven mines utilize the room-and-pillar 4 method, and four use a longwall technique. The room-and-pillar method extracts coal in room panels and leaves in place pillars of coal to support the roof, as shown in Figure 3-2. Thus, the percent recovery of coal in a deposit may be up to 80 percent but is limited by safety and mining 32 IICI Kr^sirr. yTTTrtft ■ ESS fe^-~ - ■ -^T^-^Vrnz i rgir*^ BARRIER PILLAR _"!!3HpB:!H9p .,_,. . , _. MAIN ENTRIES PANEL MAIN ENTRIES PANEL EXTRACTION: ROOM WIDTH: ROOM LENGTH: ROOM PILLAR WIDTH: BARRIER PILLAR WIDTH: UP TO 80 PERCENT 15-30 FEET 200-300 FEET 10-30 FEET 50-150 FEET [IF PILLARS ARE PULLED) 500 ft Figure 3-2. A modified room- and- pi liar mine plan showing the isolation of panels from the main entries. SOURCE: Review of Underground Mining Practices in Illinois as Related to Aspects of Mine Subsidence with Recommendations for Legislation , 111. State Geological Survey. Doc. No. 80/10, p. 3.7. 33 5 requirements. Typical removal efficiencies are 50 percent to 75 percent. Longwall or retreat mining achieves greater removals (70 percent to 90 percent) by blocking out panels and planning for surface subsidence. Figure 3-3 depicts this mining method. 3.2.2 Coal Production Characteristics The development of the coal industry began in 1885 when coal sur- passed wood as the leading source of fuel. At that time the "Central Competitive" coal fields of Pennsylvania, Ohio, Indiana and Illinois were already productive. During the twentieth century the relative importance of the central Appalachian fields located in West Virginia and Kentucky increased as they replaced Pennsylvania production. Pro- duction from these fields continued throughout early part of the decade before peaking in 1947 at 631 million tons. From 1947 until 1961 mining importance declined as oil and gas discoveries replaced coal in most markets were a flexible, clean burning fuel was in demand. Within Illinois production increased on a yearly basis between 1957 and 1970 with one exception, 1967. The 1970 production level was 64.8 million tons, the highest level since 1943. Since 1970 though, production has declined through 1978 when a turnaround began to emerge. During these nine years production fluctuated between 34 PANEL WIDTH PANEL EXTRACTION: 100 PERCENT PANEL WIDTH: 400-600 FEET 150 ft ISGS 1979 Figure 3-3. A longwall mining plan showing complete support removal and a sharply defined panel width. SOURCE: Review of Underground Mining Practices in Illinois as Related to Aspects of Mine Subsidence with Recommendations for Legislation , 111. State Geological Survey. Doc. No. 80/10, p. 3.16. 35 58 and 64 million tons with a peak year in 1972 at 65 million tons.* Coincidentally, the rate of decline during this time frame approaches that exhibited as an increase between 1957 and 1970 and occurs during the introduction of environmental legislation. This includes the National Environmental Protection Act of 1969 (NEPA), the 1969 Federal Coal Mine Health and Safety Act, the 1970 Clean Air Act and the 1972 Water Quality Act. The production levels attained in Illinois from 1970 through 1980 indicate a fluctuating production tonnage which has not exceeded the 1970 value. Even though production has not increased substantially, other dynamic changes are occurring within the state regarding the type of mining and its location. Table 3-1 presents the annual coal production as a function of mine type since 1970. The total state tonnage has not increased; however, surface mining production has steadily declined * During this same time frame national coal production was increasing by 28 percent so that Illinois' proportion of national production declined from 11.3 percent in 1969 to 7.7 percent in 1979. Several steps were taken by Illinois to compensate for this trend. First, in 1974 the Illinois Coal and Energy Development Board authorized $65 million in bonding authority to financially support development of new technologies that could expand the Illinois market share. Second, the legislative and executive committee was established to study the problems related to Illinois coal development, and development policy recommending (a) the Illinois Energy Resources Committee, (b) Governor Thompson's committee on 1977 Clean Air Act Amendments, and (c) the Governor's Task Force on energy conversion and coal conversion. Illinois also became an active participant in the interstate coal task force and was a major stimulus behind the creation of the Energy Resources Center (UICC) and Coal Extraction and Research Center (SIU). 36 Table 3-1. Illinois Coal Production by Mine Type Coal Production, million tons per year Year Surface Mines 1970 33.3 1971 29.0 1972 33.8 1973 29.0 1974 27.0 1975 27.7 1976 27.0 1977 24.3 1978 23.9 1979 26.9 1980 _ Underground Mines Total 31.6 64.9 29.5 58.4 31.7 65.5 32.6 61.5 31.1 53.1 31.9 59.5 31.0 58.0 29.6 53.9 24.8 48.7* 32.6 59.5 63.0 ** ♦Strikes reduced actual mining time. **Estimated by Illinois Coal Operator's Association, SOURCE: 1979 Annual Coal, Oil and Gas Report , State of 111., Dept, of Mines & Minerals, May 1980. 37 in the last ten years. In 1970 surface mining accounted for 33.3 million tons or 51 percent of the state production, and this contribution decreased to 45 percent in 1980. This decline is attributed to the continuing depletion of the readily accessible deposits and other economic factors. In Illinois the trend in overburden thickness encountered during mining is a measure of the finite supply of shallow reserves. Overburden depth information furnished by coal companies as part of their permit application is tabulated annually by the Department of Mines and Minerals. Table 3-2 categorizes the overburden depth as a percent of the total permitted acreage for the years 1972-1979. Ignoring permits issued during 1978 (considered an atypical year due to a mine strike), the data show a decreasing trend in the amount of permitted acreage in the 26 to 75 foot overburden depth category and a corresponding increase in the 76-100 foot category. Thus, surface mining operations are removing more overburden which increases surface mining costs. Underground mines operate at a variety of depths in Illinois, and the feasibility depends upon a combination of seam thickness, mine depth, and other operating factors. In 1979 over half of the underground mines operated at less than 300 feet in depth, and the remainder were dis- tributed up to 1,000 feet in depth. Table 3-3 summarizes the distri- bution of underground mine depths in Illinois since 1970. The number of underground mines operating at a depth less than 200 feet has decreased from 12 in 1970 to 8 in 1979. Thus, there is a trend toward mining Year 38 Table 3-2. Trends in Overburden Depth in Illinois Surface Mines Percent of Total Permit Acreage Overburden Depth of Overburden Depth of 26 to 75 feet 76 to 100 feet 1972 85.3 12.1 1973 73.1 26.8 1974 81.0 18.5 1975 69.9 29.4 1976 64.2 35.6 1977 7.3 89.1 1978 99.3 1979 43.4 46.9 SOURCE: 1979 Annual Coal, Oil and Gas Report , State of 111., Dept. of Mines and Minerals, May 1980, p. 24. 39 Table 3-3. Underground Mining Depth in Illinois Number of Mines Operat ing Mining Depth, feet 1979 1978 1977 1976 1975 1974 1972 1970 <200 8 7 5 5 5 7 10 12 201-300 9 8 8 8 7 7 7 6 301-400 3 3 3 2 1 1 1 3 401-500 1 1 1 1 1 1 1 501-600 2 2 1 1 501-700 3 4 4 3 3 3 4 4 701-800 4 3 3 3 3 3 3 3 801-900 1 1 1 >900 1 31 28 25 23 21 23 26 29 SOURCE: 1979 Annual Coal, Oil and Gas Report , State of Illinois, Dept. of Mines and Minerals, May 1980. 40 at greater depth for underground and surface mining in Illinois. The mine size in Illinois for underground and surface operations has increased even though production has not substantially increased. New mines are utilizing economies of scale in production as older mines are phased out. In 1979 there were 40 surface mines and 31 underground mines operating in Illinois. The average surface mine size was 0.7 mil- lion tons per year (tpy), although mines smaller than 0.1 million tpy and up to 3.4 million tpy operate within the state. These larger mines utilize the economies of scale associated with area mining operations. Underground mines averaged 1 million tons per year in 1979 production. Thus, though there are fewer underground mines, the average production was greater. The 1979 minimum underground mine production was 0.16 mil- 4 lion tpy and the largest underground mine yielded 2.9 million tpy. The location of coal production has shifted in the last 10 years although the top coal-producing county has not changed in that time. According to Table 3-4, Perry County with five surface mining operations has remained the leader in coal production. For six other counties, Randolph, Jackson, Wabash, Douglas, and Clinton, mining activity has increased in the last ten years. All other counties listed in Table 3-4 reported declines in coal production between 1970 and 1979. Figure 3-4 depicts the location of the major coal-producing sites in Illinois. The surface mining operations are located in southern and western Illinois while underground mining occurs in southern Illinois and the central portion of the state. 41 Table 3-4. Rank of Counties Producing More than 500,000 Tons or More (1979) Numbe >r of Mines 1979 Production, 1970 Rank in County UG - tons Proi duct ion Perry - 5 10.3 1 Randol ph 3 3 8.2 8 Frankl in 5 5.5 2 Jefferson 3 1 4.8 3 Macoupin 2 4.1 not 1 i sted Will iamson 4 13 3.1 6 Christian 1 2.9 7 Fulton - 4 2.8 5 Douglas 2 2.6 14 Sal ine 3 6 2.5 12 Jackson - 2 2.3 not 1 isted St. Clair 1 2.2 4 Montgomery 2.1 10 Wabash 1.8 not listed CI inton 1.3 not listed Gallatin 1 1.2 9 Knox - 1 0.8 13 Peoria - 1 0.6 11 Source: 1979 Annual Coal , Oil and Gas Report, State of Illinois » » Dept. of Mines & Minerals, May 1980 '^"W l~ZiZ5 Extent of coal-bearing''-'^ a sequence ■ Underground mine A Strip mine O Under construction Figure 3-4. Operating Coal Mines, January 1978. SOURCE: Illinois State Geological Survey 43 The majority (93 percent) of the demonstrated reserve base for the state is found in four seams: Danville #7, Herrin #6, Springfield - Harrisburg #5 and to a lesser extent Colchester #2. The majority of the underground and surface mining operations are located here because the seams are the thickest and the overburden shallow. Generally, the coals in the basin become steeper from outcrop lines toward the center of the basin. Surface mining is largely concentrated around the periphery in areas where major minable coal seams are exposed or near the surface. These areas represent locations where coal deposits are now economically recoverable. 3.2.3 Illinois Coal Reserves Future production sites depend upon the geographic location of coal reserves and their accessibility. Illinois has the largest reserve of bituminous coal (162 billion tons) in the United States. This includes 20 billion tons of coal deposits 18 inches or more in thickness and less than 150 feet deep, which are considered accessible for surface mining. The remaining deposits compose 87 percent of the total reserves and are availble only through deep mining techniques. The Illinois State Geological Survey (ISGS) has evaluated the economic feasibility of mining the 20 billion tons of coal considered strippable according to the following criteria: 1. reliability of data 2. overburden and coal thickness 3. size of the block of coal 4. proximity to manmade and natural obstacles 44 Based upon the ISGS study, 6 billion tons are considered strippable reserves and these are located in southern and southwestern Illinois. Figure 3-5 illustrates the general location of these reserves. The following counties are ranked according to the magnitude of their strip- pable reserves (all greater than 200 million tons): 1. Fulton 2. Perry 3. Peoria 4. Knox 5. St. Clair 6. Stark 7. Madison 8. Greene 9. Randolph 10. Henry There are 38 counties with strippable reserves; however, 20 of these counties have never been mined on a large scale and in 1979 only 14 counties had active mines. According to the ISGS, the reason that mining has been limited to southwestern and southern Illinois is the lower land value, higher coal heating value, and greater number of tons per acre which is recoverable. Although these counties represent short term mining sites, projected mining activity will occur in other counties as well. These projections are discussed in detail in Chapter 5. In categorizing Illinois coal reserves, all coal deposits located deeper than 150 feet are available for underground mining. Approximately 87 percent of the total coal reserves in Illinois are obtainable only through underground mining techniques. These underground resources Figure 3-5. Strippable Coal Reserve Blocks SOURCE: Reserves and Resources of Surface-Mi nab! e Coal in Illinois p. 7. 46 consist of 141 billion tons. In a feasibility analysis of Illinois resources, four criteria were utilized: 1. depth of seam 2. thickness of seam 3. quality of coal by quantity 4. mine size. Figure 3-6 depicts the depth of coal reserves and their location through- out the state. The distribution of reserves by seam depth was estimated as the following: Depth (feet) Percent 125-200 4.0 200-300 3.9 300-400 15.7 400-500 5.3 500-600 19.2 600-700 8.1 700-800 9.0 800-900 9.6 900-1000 23.5 over 1000 1.7 The deep coal resources available by county &re listed in Table 3-5. Only eight of the top ten counties with deep coal resources are presently being mined. The depth of coal and seam thickness are important deter- minants in mine feasibility. In 1979 there was only one underground mine which extended to 929 feet, and the majority of deep mines were less than 600 feet. Coal limit ^ Coal cut out by Anvil Rock m ^ Sandstone Member ■J Coal cut out by sandstone facies A •^£s of Energy Shale Member \ (Walshville Channel) yjv fj|l||j Coal split and thin Coal thickness (inches) 30-60 0-30 60 + 20 40 60 MiU» 40 90 Kilomalar* &^ Ganaralizad tflicfc w— of Harrin Coal. Figure 3-6. Deep Coal Reserves SOURCE: Adapted from Illinois State Geological Survey Data 48 Table 3-5. Characteristics of Coal Resources Obtained through Underground Mining* r«..„+„ Deep Coal Resources in Place, n„«+u „* r„=,i c«„™ d,^ County r m ,-n,-^„o „.? ^„,. Depth of Coal Seam, Rank J millions of tons r f-j- Bond 2,644 400-600' Bureau 444 200 Christian 5,038 400-600 Clark 1,424 200-600 Clay 2,475 1000 Clinton 3,666 400 Crawford 2,368 600 Edgar 3,276 200-400 Edwards 1,833 800-1000 Effingham 2,525 800-1000 Fayette 3,939 600-800 Franklin 4,489 400-800 Fulton 247 200 Gallatin 3,422 200-400 Hamilton 4,475 800 Henry 429 200 Jasper 3,959 600-1200 Jefferson 5,144 600-800 Knox 191 200 LaSalle 1,825 200 Lawrence 2,630 600-800 Livingston 2,949 200 Logal 2,588 200 McLean 1,216 400 Macon 1,901 400-600 Macoupin 6,139 200-400 Madison 2,232 200 Marion 2,650 600-100 Marshall 1,134 200 Menard 1,087 <200 Montgomery 5,689 400-600 Morgan 1,139 <200 Peoria 794 200 Perry 1,532 200-400 Richland 2,525 1000 49 Table 3-5 (continued) 200 • 200-600 200 5 600-1000 200 600-800 400 9 1,000 6 600-800 10 200-400 r . DeeD Coal Resources in Place, n ^+u „* ,„,i Cm * D*„b County • .,, . r- . Depth of Coal Seam, Rank J mill ions of tons K ft St. Clair 1,923 Saline 3,514 Sangamon 4,985 Shelby 2,611 Vermilion 2,586 Wabash 1,486 Washington 4,375 Wayne ~ 4,610 White 4,001 Williamson 2,543 Woodford 1,174 200 *Based on counties with over 1 billion tons of coal resources in place and subtracting quantity of strippable resources. SOURCE: Illinois Coal Facts 1981 , prepared by Illinois Coal Association, Springfield, IL. D. E. Klein, Revised Coal Resource Estimates: Four Case Studies . Electric Power Research Institute, EPRI EA-1360, March 1980. 50 3.3 Resources Required for Mining 3.3.1 Capital and Operating Costs Coal mining is a highly mechanized, capital intensive industry. Surface mining and underground mining represent a large commitment of capital for mineral extraction. Table 3-6 depicts the typical capital investment for surface and underground mines, each 0.5 MM tpy. According to Table 3-6, the capital cost for an underground mine is greater than that for a surface mine of the same production capacity. In 1980 dollars the underground and surface mining investment are $42 million and $35 million, respectively. This cost would vary according to mine size 9 and site specific characteristics. A U.S. Bureau of Nines report compared costs for a 1 million tpy and 3 million tpy surface mining operation. The capital investment charge increased from 28 percent of the annual cost for a million tpy mine to 35 percent of the annual cost for a 3 million tpy production level. * The mining equipment which is purchased consists primarily of earthmoving equipment and specialty mining instruments, such as drag- lines, bucket wheel excavators, continuous miners, and so forth. These pieces of equipment are specially ordered and constructed by a few manu- facturing firms in the United States. Table 3-7 lists the equipment items utilized in a 1 million tpy surface mining operation as a per- g centage of total cost. Two items, the stripping shovel and dragline, represent 66 percent of the equipment investment for such a mine. 51 Table 3-6. Typical Underground and Surface Mine Capital Costs (1980 dollars) 3 Underground Mine Surface Mine (500,000 tpy) (500,000 tpy) Total capital investment, .. „ $ million 4i ' a 35.3 Total capital investment, per ton of annual 83.60 70.60 capacity, ($/ton) Notes: a) Updated costs from 1977 data contained in Coal Data Book , President's Commission on Coal, U.S. 6P0, Washington, D.C., February, 1980. 52 Table 3-7. Capital Cost Components for Surface Mining Equipment Item Percent of Total Equipment Cost Stripping Shovel Dragl ine Unit train loading facility Coal trucks Drill Loading Shovel Shop Equipment Bulldozers Electric Cable Warehouse and shops Miscellaneous trucks Other Total 52 13 7 4 3 4 3 2 2 1 2 7 100 SOURCE: U.S. Bureau of Mines, "Cost Analyses of Model Mines for Strip Mining in the United States," Information Circular 2535, U.S. GPO, Washington, D.C., 1972. 53 Annual operating costs of surface mining include labor inputs, operating supplies, utilities, royalties, taxes, and insurance. In 1970 annual production costs for a surface mine were categorized as 9 fol lows: direct and indirect labor 34 percent fixed costs 34 percent operating supplies 13 percent By 1977 these percentages changed slightly to capital costs of 35 percent, labor of 37 percent, supplies of 19 percent. The remaining costs were attributed to utilities, royalties, and indirect costs of operation. Direct production and maintenance labor wages represented approximately 17 percent of the annual cost of mine production in 1970 for a "typical" 1 million tpy and in 1977 for a 3 million tpy surface mine operation. The 1977 annual costs of operating a 0.5 million tpy to 3 million tpy mine vary from $4.5 million to S21.5 million per year, respectively, excluding capital charges. In relating this annual cost to the land disturbed during surface mining, the cost per acre of extraction varies from $45,000 to $54,000.* 3.3.2 Land and Water Requirements The land and water requirements of the coal industry are unique compared to other manufacturing concerns. During surface and underground mining, water is considered a hindrance which must be removed. Ground *Assuming a 0.5 million tpy mine affects 100 acres per year and a 3 million tpy mine strips 400 acres per year, the following calculation is made: Cost per acre - too' acres to Nacres " S45 ' 000 " «4,000/acre 54 water seepage, and direct runoff can interrupt mining operations and are generally pumped out, treated (if necessary), and discharged. Small amounts of water are utilized for dust control on haul roads, conveyor belts, or continuous miners. The only operation which utilizes larger amounts is the coal preparation plant. Wet cleaning and separation of coal from impurities is designed as a closed system in which water is recycled. Typically there are holding facilities for emergency break- downs or system blowdowns. Thus, the water requirements for mining coal are a minimal concern in Illinois. Land is utilized in surface and underground mining for haulage roads, mine buildings, preparation plants, and refuse disposal as well as the surface mining operation. Haulage roads, drainage ditches, and building areas typically represent less than 10" of the area permitted per year. Table 3-8 itemizes the acreage permitted in Illinois from 1972 through 1979 for these auxiliary operations. The percentage per- mitted varies from 2.2 percent to 11.1 percent of the total. This varia- tion is attributed to the length of a permit (up to three years) and the breakout of auxiliary areas. An average of 5.7 percent of the land permitted is assumed attributable to auxiliary operations. Another permitted activity involves gob and slurry disposal from preparation plant operations. Refuse (gob) materials are the result of the crushing and the screening of coal at the preparation plant. These materials are typically large diameter particles compared to slurry, which is a waste resulting from fine coal wet processing. The 55 Table 3-8. Mining Uses of Permitted Acreage from 1972 to 1979 Acreage Permitted Acreaae Percentage Tnf2l Da . ++ , for Refuse Disposal - - Auxiliary v Total Permitted c for . -J Year . . ., . Area of Acreage n , c1 Auxiliary, T . , 3 Gob Slurry ~ . . -lb Total 17 Operations D QV . m -;++ Q ^ Permitted 1972 6,349.12 510.3 928.55 139.52 2.2 1974 4,983.00 885.6 1,293.44 174.50 3.5 1975 6,701.00 1,096.51 1,799.36 348.95 5.2 1976 17,235.50 1,331.51 2,401.36 1,653.80 9.6 1977 3,784.00 966.24 2,624.93 97.00 2.6 1978 2,858.50 716.93 2,639.22 163.00 5.7 1979 16,058.40 837.2 2,722.22 1,783.40 11.1 Average 5.7% a Acreage permitted for refuse disposal includes both SMLRA & SMLCA & RA SMLRA - Surface Mined Land Reclamation Act. SMLCA & RA - Surface Mined Land Conservation and Reclamation Act. Acreage includes drainage ditches, roads, and other land uses. SOURCE: 1979 Annual Coal, Oil and Gas Report , State of 111., Dept. of Mines and Minerals, May 1980. 56 slurry is a water stream with fine coal particles which is typically discharged to a settling pond and the supernatent recycled. Typically, slurry ponds and refuse piles are permitted and reclaimed to stringent specifications when such sites are no longer active. Table 3-8 indicates the permitted refuse and slurry areas from 1972 to 1979 for surface and underground mines. The permitted area for slurry ponds has steadily increased since 1972, and this is attributed to the increased volume of coal being cleaned within the state. The acreage permitted for gob disposal has fluctuated, and this is explained by alternative methods of disposal for such coarse materials. In surface mining operations the refuse may be buried during reclama- tion and thus disposed of. Underground mines on occasion may also receive gob or slurry material for burial. Although refuse may be handled through the active mining operation, both surface mines and underground mines clean coal resulting in slurry disposal sites. In 1979 there were 40 preparation plants in Illinois with capacities of cleaning approximately 92 percent of all surface coal and 74 percent of all underground coal mined. The percentage of coal cleaned has increased for both surface and underground mines to reduce sulfur content and according to customer specifications. In terms of volume of cleaning capacity available, the surface and underground preparation plants are equivalent or each is approximately 50 percent of the state preparation plant capacity. The cumulative number acres of land affected by coal mining operations up through June 1980 is 210,615. This represents 0.5 percent of the 57 total acreage in Illinois. Table 3-9 summarizes the distribution of lands affected by county. Of this total, fifty percent was mined prior to any law (1920-1962) and forty percent was affected from 1962 through 1975. Since 1975 the average number of acres affected per year has averaged 4,844. The 1980 acreage is distributed over 12 counties although 40 counties have historically reported mining activity. Five counties- Perry, Fulton, Williamson, Saline, and Knox— have greater than 4 percent of the county area affected by a_M_ historical and current mining activities On an annual basis 0.01 percent of the total land area in Illinois is mined; however, this activity is concentrated in 12 counties at the present time. 3.3.3 Labor Requirements The number of employees needed for mining in Illinois has been steadily increasing since 1974. In 1974, 12,467 workers produced 58.1 million tons of coal. The 1979 production of 59.5 million tons 4 required 18,499 workers. This change in employment is not attributed to increased demand but rather a reduction in productivity. Productivity, defined as the average tons per man day, has been declining because of requirements associated with the Coal Mine Health and Safety Act and the reclamation specifications, including the Surface Mining Control and Reclamation Act. There is a significant difference in productivity between surface mining and underground mining. 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Table 3-10 depicts the difference in produc- tivity by mining type in the last ten years. The productivity in surface mining is almost double that in the underground operation. Therefore, the underground mine generates more jobs for the same level of output of the surface mine. To supply the necessary manpower for future mining activity requires additional training. In 1975 coal mining companies established the Illinois Basin Coal Mining Manpower Council, Inc. to ensure the filling of mining positions with properly trained persons. In addition to the training programs of the unions, educational institutions, and state agencies, the mining companies also operate full scale programs. Present requirements for on the job training include the following: a) All mine supervisory personnel must be tested and certified by the state. b) Basic training for new miners is required. c) Every employee undergoes refresher training annually. In the 1970 census the average educational background of miners was g listed at 8.1 years of schooling. Table 3-LL presents the 1975 educa- tional distribution of new miners, which has a greater percentage of g workers with high school or greater training. The 1980 average hourly earning of the coal miner is $10.89, which results in an average income of $22,000 per year in Illinois. Depending upon the job classification, seniority, and so forth, this 61 Table 3-10. Productivity in Illinois Mines Average tons per man per day Year Underground Surface 1969 22.9 34.1 1970 19.8 32.4 1971 17.3 32.7 1972 16.3 35.3 1973 17.2 23.6 1974 16.0 27.6 1975 14.2 24.3 1975 13.4 19.4 1977 12.0 20.9 1978 10.7 20.4 1979 11.2 21.3 SOURCE: 111. Dept. Mines & Minerals. 1979 Annual Coal, Oil and Gas Report , State of 111., Dept. or Mines & Minerals, May, 1980. 62 Table 3-11. Educational Background of New Miners by Workplace (percentage distribution, 1975) EDUCATION UNDERGROUND STRIP MINING CONSTRUCTION TOTAL 0-8 11.5% 14.9% 17.6% 13.1% 9-11 13.2 14.4 18.2 14.2 High School 41.5 43.3 29.7 40.2 Tech Without Mining 13.1 10.2 11.5 12.2 Some College 12.4 12.1 17.6 13.1 2 Year Degree 2.0 1.9 .7 1.8 4 Year Degree 2.8 .9 3.4 2.5 TOTAL 100.0% 100.0% 100.0% 100.0% (643) (215) (148) (1006) EDUCATIONAL BACKGROUND OF COAL MINE LABOR FORCE (percent distribution) Less than High School 52.6% Some High School 18.0% Finished High School 23.6% College 5.9% TOTAL 100.0% AVERAGE YEARS 8.1 SOURCE: Coal Data Book, 1980. 63 average income would vary. 3.4 Employment and Income Coal mining activity is an important industry for employment and income. On a statewide basis, the coal mining activity directly accounts for 18,499 jobs and over $500 million in income in 1979. This employ- ment and income is distributed throughout the coal -producing counties. Table 3-12 presents the income and employment attributed to mining on a county basis. The counties inTable3-12 are ranked according to production, with Perry County the greatest and Peoria the smallest pro- duction available. It is interesting to note that the residential pat- terns of miners vary from the production levels. Perry, Franklin, St. Clair, and Macoupin have the greatest number of employees, and this is based not only on current production levels but other factors as well. Randolph, Clinton, and Williamson have disproportionately low numbers of employees but the workers are assumed to be residents of adjacent counties. Mining income varies in importance among counties, accounting for approximately 55 percent of total county income in Gallatin and gradually decreasing in importance to 0.5 percent in Peoria County. The direct income and employment contribution of coal mining stimulates the county economy through employee purchase and taxes paid. In addition to the employment payrolls, mining companies make direct purchases of local goods and services. These purchases may consist of maintenance services, 64 Table 3-12. County Income and Employment Attributed to Mining 1979 Mining Income 1979 Mining Employment County Income ($ x mill ion) Percent of County Total Number Percent of County Perry 50.7 35.8 1,681 18.6 Randolph 19.3 10.0 676 4.5 Frank! in 98.1 49.5 3,319 24.5 Jefferson 49.6 23.4 1,870 11.4 Macoupin 40.1 21.1 1,582 9.8 Will iamson 29.4 11.5 968 5.0 Christian 35.9 17.3 1,199 8.7 Fulton 28.2 16.0 939 6.5 Douglas N/A N/A Sal ine 16.1 14.0 659 6.8 Jackson 23.2 7.0 644 2.3 St. Clair 63.2 4.7 2,114 2.2 Montgomery N/A N/A Wabash 28.1 24.8 1,051 14.0 CI in ton 1.8 1.5 45 0.4 Gallatin 23.7 55.1 830 27.3 Knox N/A N/A (LT 200) LT 0.7 Peoria 9.5 0.6 304 0.3 Hamilton 1.8 516.9 6.8 45 Total 18,081 N/A - Not available SOURCE: Personal Income by Major Source 1974-79 , State of 111., Dept. of Commerce and Community Affairs, April 1981. 65 parts, supplies, gasoline, or transportation services. The percentage of mine purchases which can be locally supplied varies with the char- acteristics of communities and the mining operation. The economic effect of a coal mining operation extends from the local to the state economy, however, the magnitude of this effect is peculiar to the geographical and demographical characteristics of the region. The distribution of these economic effects is an important factor in the tradeoff analysis, and Chapters 10, 11 and 12 describe in detail the interrelationships which occur between the mining activity and the local, county, and state microcosms. 66 CHAPTER 4 AGRICULTURAL ACTIVITY IN ILLINOIS 4.1 Importance of Agriculture to the Illinois Economy Agriculture is an important element in the national economy as well as the Illinois economy. There has been a dramatic increase since the 1970 's in the demand for agricultural products as exports to other countries. Increased acreage in cropland production and con- tinued increases in productivity have enabled Illinois farmers to be among the leaders in agricultural output and export. In 1979 Illinois led the nation in exports with 9.1% of the total U.S. exports and with 12 17.7" of the feed grain and products exported from the United States. Of the $32 billion in U.S. exports, Illinois provided $2.9 billion. 12 Table 4-1 depicts the increase in Illinois and U.S. farm exports since 1970. Corn and soybean production are the primary components of Illinois' export contributions. In 1979 on a national basis Illinois was second in crop receipts and fourth overall with $6.96 billion for crops and 1 ivestock. The United States possessed in 1977 a cropland base estimated at 540 million acres of which 413 million acres are currently in pro- 13 duction and 127 million acres are potentially convertible to cropland. Table 4-2 depicts the status of all agricultural land in 1977. According to Table4-2 statistics, the North Central region accounts for over half of the cropland acreage in the United States. Illinois farmers planted approximately 23.8 million acres in 1979, which repre- sents 6% of the total national cropland acreage. On a production basis, 67 Table 4-1 . Trends in Export Demand All Agricultural Commodities Year U.S. Exports of Farm Products, Billions $ Illinois Exports of Farm Products, Bill ions $ 111 U.S inois as % . Exports 1980 40.48 3.64 9.0 1979 31.98 2.92 9.1 1978 27.31 2.81 10.3 1977 23.97 2.57 10.7 1976 22.76 2.50 11.0 1975 21.85 1.85 8.5 1974 21.32 1.94 9.1 1973 12.89 1.31 10.2 1972 8.05 0.76 9.4 1971 7.76 0.66 3.5 1970 6.72 0.66 9.8 SOURCE: 111. Crop Reporting Services, Supplied by James R. Kendall 68 Table 4-2. Agricultural Land Uses (1977) (mill ions of acres) Census Region Crop Land Pasture Land Range Land Forest Land Other Land Total West 65.8 12.6 229.3 63.2 1.4 372.3 North Central 228.6 41.6 71.1 69.1 7.2 417.6 South 101.6 72.7 113.6 181.7 2.0 471.6 Northeast 16.9 5.8 - 62.3 1.5 12.1 86.5 Total 412.9 132.7 414.0 376.3 1348* *Excludes 10.9 million acres of farmsteads, or land for farm houses and buildinas. SOURCE: National Agricultural Lands Study. Final Report. 1981 U.S. Dept. of Agriculture and Council on Environmental Quality. January, 1981. 69 however, Illinois accounted for 18.2 percent of total U.S. corn pro- duction and 16.8 percent of the soybean production in 1979. The pro- ductivity of Illinois soils and farm management are responsible for above average yields per acre compared to the national statistics. Table 4-3 demonstrates the historical importance of Illinois crops to the national output. Illinois has been a major producer of corn and soybeans based upon the market share contributed from 1973 to 1980. For (at least) the last forty years the United States has exper- ienced agricultural surpluses and underused production capacity. This situation, however, is changing for the following reasons: 1. Increased export demand. (During the 1970s the average volume exported increased 10 percent each year). 2. Slight increase in domestic demand. 3. Increase in domestically-produced alcohol fuels from crops. 4. Dampened productivity growth (yield per acre). The National Agricultural Lands Study completed in 1981 projected that between 84 and 143 million additional acres would be needed to supply 1 3 the demand for crop products in the year 2000. This projection utilized a continued annual increase in crop productivity of 0.75 percent to 1.5 percent in future farming endeavors. Thus, the importance of utilizing available farmlands for future demand is evident. The supply of ,: prime farmland," which is the best land for farming, is also important in projecting future crop production. There are several definitions of "prime farmland" which should be described in assessing Illinois' position. 70 o c o u 3 T3 O 3 > o oo 5^ • 00 oO • c 03 => o •r™ (/) i— +-> •r— .3 a ■r- o ■i-J or i 03 I— I J3 oo 3 o u 3 O i. a. _ o C_3 00 • ■— 03 33 o oo r— +j ■r— 03 u o -!-> 3 c O — •r— 1— O ^~ '_ r— <4_ Q. t— I a „ oo ill r— OJ 3 -3 OO n 3 > -3 l/l 00 3 c O c *^ — 3) - >- CO <£> en «3" «* on r*» U3 KO CTl CTl CTl r^ 00 — I O0 <— I co co ro oo on CM O i-H m cm CTl CM CU 5- 3. CM on i-H CO LO CO r^ CO en CM cm m i — r^ <— • i — i O «=r CM i— < CM Of) .— i CM 00 00 en o oo CTl CTl i — en co en CTl CTl LO CT. ■51- r-. cr ao CT> OO CU O 03 S- .a o s_ 3 CU 03 00 3 "3 CU xa oo T3 3 03 3 i- • O «=J- <_) .— i 3 O •> +J "3 CJ CU 3 -a — * o o • o oo co • CTl C_3 C£ o OO 71 A technical definition of prime farmland is based upon the U.S. Department of Agriculture (USDA) soil Classes I, II, and III defined by the Soil Conservation Service (SCS). These capability classes are determined by the soil quality, slope, erosion hazard, drainage char- acteristics, and moisture supply. The SCS description is indicated by the general subtitle. of each the following classes: Class I - Soils in Class I have few limitations that restrict their use. Class II - Soils in Class II have some limitations that reduce the choice of plants or require moderate conserva- tion practices. Class III - Soils in Class III have severe limitations that reduce the choice of plants or require special conservation practices or both. The SCS definition utilized in the U.S. Surface Mi ne Control and Reclamation Act of 1977 is that "prime" lands is the following: the land best suited for producing food, forage, fiber and oil- seed crops. It has the soil quality, growing season, and moisture supply needed to produce sustained high yields of crops economically when treated and managed according to modern farm methods. It gives the highest yields with minimum inputs of energy or money and results in the least environmental damage. This includes all Class I soils, more than 80 percent of Class II and less than a third of Class III soils. Important characteristics are soil quality, growing season, and moisture supply. Such lands can be "farmed continuously under careful management with a high level of pro- ductivity." 14 According to the U.S. Department of Agriculture, Illinois has 72 19.1 million acres of nonfederal prime farmland in crop production. Figure 4-1 shows the distribution of prime farmland across the United States. Of the total 344.5 million acres designated prime land, Illinois accounts for 6.3 percent, which is the third greatest state acreage. Of the prime land in cropland production, Illinois is third with eight percent of the 230 million acres farmed annually as shown in Figure 4-2. Prime agricultural land has also been defined by the Cooper- ative Extension Service of the University of Illinois according to grain- crop productivity index. There are three subdivisions or grades of prime agricultural lands defined at the following productivity indices: Class A - Index of 145 to 160 (excellent) Class B - index of 125 to 140 (very good) Class C - Index of 105 to 120 (good) This index corresponds fairly well with the SCS definition but empha- sizes the range in quality and productivity of "prime farmland." Thus, prime farmland represents a limited resource which has increasing impor- tance to future economic consideration. 4.2 Illinois Agricultural Production Illinois has consistently been a leader in agricultural produc- tion. There are approximately 105,000 farms* with less than 473,000 people (1970 Census value) representing 28.6 million acres of land *Farm defined by Illinois Dept. of Agriculture as such if more than $1000 in sales is maintained. 73 Figure 4-1. Distribution of Prime Farmland in the United States SOURCE: America's Agricultural Land Base in 1977. Interim Report Number Five . National Agricultural Lands Study. 1980. 74 Prime Farmland in Cropland in 1977 -Nonfederal Land (million acres) Figure 4-2. Distribution of Prime Farmland in Cropland SOURCE: America's Agricultural Land Base in 1977. Interim Report Number Five . National Agricultural Lands Study. 1980. 75 12 in Illinois. The primary crops have been corn and soybeans with these two accounting for 91 percent of the $4.6 billion crop cash receipts in 1979. Figure 4-3 shows the distribution of cash farm income by com- modity. Corn and soybeans each account for 30 percent of the farm income in Illinois. Table 4-4 lists the leading counties in corn and soybean pro- duction. These counties are primarily located in the central part of the state. The distribution of these crops is not limited, however, to just the central region. Figure 4-4 illustrates the range of corn and soybeans throughout the state. Wheat production occurs primarily in the lower half of the state, and oat production is limited to the northwestern corner of Illinois. 4.2.1 Land Use The total acreage planted in Illinois has gradually expanded since the 1940s as the importance of the soybean crop has increased. In 1966 20.6 million acres were planted for all crops, and soybeans were 29 percent of the acreage. In 1979 the total cropland acreage had increased to 23.4 million acres and soybean acreage was 42 percent of the total. The increase in acreage has come from the development of new cropland, declines in pasture and set-aside, and declines in hay and small grain production. Additional increases in crop acreage are considered marginal at this time. Table 4-5 summarizes the historical land use and yield for soy- beans and corn in Illinois. The yield per acre has increased with time 76 Livestock and Livestock Products 34% Crops 6 6 °Jo Figure 4-3. ILLINOIS CASH FARM INCOME BY COMMODITIES 1979 SOURCE: Illinois Agricultural Statistics, Annual Summary, 198 0, Illinois Dept. of Agriculture and U.S. Dept. of Agriculture, 1980, p. 7. 77 Table 4-4. 1979 Counties Leading in Crop Production Corn Producers Millions of Bushels McLean 48.9 Champaign 40.7 Iroquois 40.5 LaSalle 40.1 Livingston 38.1 Bureau 35.6 Henry 31.5 Vermilion 31.3 Whiteside 28.5 Sangamon 27.5 Soybean Producers Millions of Bushels McLean 12.3 Livingston 12.1 Iroquois 11.0 Champaign 10.7 LaSalle 10.1 Sangamon 8.6 Vermilion 8.4 Christian 7.8 Macoupin 7.6 Montgomery 6.5 SOURCE: Illinois Agricultural Statistics, Annual Summary, 1980 . Illinois Dept. of Agriculture and U.S. Dept. of Agriculture, 1980. 78 CORN PRODUCTION - 1 9 7 9 SOYBEAN PRODUCTION - 1 9 7 9 1 Oot = 500,000 Bushels 1 Dot a 200.000 Bushels Figure 4-4. Illustrates the range of corn and soybeans througnout the state. SOURCE: Illinois Agricultural Statistics, Annual Summary, 1980 , Illinois Department of Agriculture and U.S. Dept. of Agriculture, p. 12. 79 Table 4-5. Historical Cropland Use and Yield Corn Soybeans Year Acreage Yield per acre Acreage Yield per acre (1000 acres) (bushels) (1000 acres) (bushels) 1966 10,342 82 5,941 27 1967 10,790 104 6,009 31 1968 10,090 90 6,660 31.5 1969 9,700 102 6,730 34 1970 9,940 74 6,800 31 1971 10,070 106 7,150 33 1972 9,225 110 7,520 34.5 1973 9,530 103 9,130 31.5 1974 9,900 82 8,440 24.5 1975 10,810 116 8,350 36.0 1976 11,590 107 7,600 33.0 1977 11,080 105 8,900 38.0 1978 10,730 111 9,250 33.5 1979 10,610 128 9,800 38.5 SOURCE: Illinois Agricu Itural Statistics, 1964-1980. Illinois Dept. of Agriculture and U.S. Department of Agriculture, 1980. 80 excluding those years where weather conditions reduced crop yields. The increased productivity has been attributed to a high level of manage- ment practice and technological improvements in farming techniques. Hybrid corn varieties, fertilizer and chemical application, and increased mechanical utilization all resulted in increased yields per acre. In the 1960s the annual increase in productivity averaged 1.4 percent on 13 a national basis. Continued yield increases are anticipated but not at the historical level. Machinery effectiveness, chemical application, improved drainage and irrigation are all areas which may enhance future crop yields. In Illinois the high percentage of prime farmland has enhanced the yields achieved by farmers. Figure 4-5 designates the counties by percentage prime farmland. According to Figure 4-5 the central coun- ties contain the greatest percentage of prime farmland. Comparing the leading crop producers of Table 4-4 with Figure 4-5 indicates that eight of the ten top corn and soybean producers also have more than 75 per- cent prime farmland. 4.2.2 Farm Size and Ownership Although more land is being utilized for corn and soybean produc- tion, the actual number of acres in farms, the number of farms, and farm population have all declined since 1950. Total land in farms has declined from 31.7 million acres in 1950 to 28.6 million acres in 1980. 12 The actual number of farms has also steadily dropped from 203,000 to 105,000. Thus, the average farm size is increasing and, in 1980, the 81 Figure 4-5. Distribution of Prime Farmland 82 12 average value was 272 acres per farm. A farm population of 473,000 was reported in the 1970 Census, and it is expected that this number has continued its downward trend. The change in the distribution of farm sizes has also varied with time. According to Figure 4-6, few farms of over 1,000 acres existed in the 1930s; however, a six-fold increase had occurred by 1970. Similarly, farms of 500 to 999 acres have increased with time. Those farm operations with less than 500 acres have declined continuously as the financial pressures of farming have reduced their profitability. According to University of Illinois study grain farm costs decline up 1 c to 1,000 acres and then remain constant. J The incentive for increasing farm size to over 500 acres will continue, and larger farm sizes will 1 c be a continuing trend of the future. Ownership patterns in Illinois are similar to the other Corn Belt states. Ownership by occupation is categorized in 1978 by the 15 following distribution of people: farmers 43?£ retired persons 21" white and blue collar workers 22 c . As to type o f ower, husband and wife tSrTis accounted for 43 percent while sole proprietors were 37 percent. Partnerships, family corporations, and nonfamily corporations were 9 percent, 1.5 percent and 1.4 percent, respectively. Thus, in 1978 about 850,000 acres of farmland were in corporate ownership, which is less than any other Corn Belt state. 83 2400 r- 2000 1600 1200 800 400 15,000 12,500 - 10,000 - 7500 5000 240,000 200,000 160,000 120,000 80,000 40,000 Farms with 1000 or more acres Farms with 500 to 999 acres Farms with less than 500 acres 1880 ' 1900 ' 1920 ' 1940 ] I960 ' 1980 1890 1910 1930 1950 1970 Figure 4-6. Number of Illinois farms in three size categories, 1880-1974. SOURCE: Roger E. Schneider et a!., A Summary Report. Agriculture in Illinois: Alternate Futures for the 1980s . University of Illinois, Dept. of Agricultural Economics. AERR 176. September 1979. 84 Acquisition of land has been a steady market activity. Presently, only 22 percent of all land, which include more than farmland, had been held since 1950. Thirty percent of the land was acquired between 1970 and 1978, and 23 percent was purchased in the 1960s. 4.3 Resources Required for Farming Farming is a land intensive operation which requires a variety of chemical, mechanical, and labor inputs. The resources required for farming can be allocated into two categories, operating expenses and total annual expenses which include depreciation, taxes, and interest. Typically, in Illinois, operating expenses compose 51.5 percent of the total annual farm production cost. Table 4-6 indicates that deprecia- tion, capital consumption, and interest charges reDresent 30.5 percent of the cost of farming. Property taxes and rental are remaining expenses. In Illinois, farms spent approximately $789 million on pur- chases of fertilizer, S890 million for machinery, and S690 million for labor annually* The distribution of these costs varies according to farm size. Table 4-7 depicts typical annual expenditures for a variety of farm sizes. Total annual farm production costs range from 377,200 to $413,000 for the largest farm size. Labor costs as a percentage of total expenses decrease as the farm size increases. This is offset by the interest charges for larger farms which represent a greater *Fertilizer, machinery, and labor costs based on 11.5 percent, 13.0 per- cent, and 10.0 percent respectively of total annual expense of $6.86 billion. 85 Table 4-6. Distribution of Farm Expenses Cost Item Percent of Total Cost Operating Expense 51.5 Depreciation and Capital Consumption 21.3 Property tax 6.4 Interest on borrowed funds 9.2 Net rent 11.6 Total 100.0 SOURCE: Roger E. Schneider et al . , A Summary Report. Agriculture in Illinois: Alternate Futures for the 1980s . University of Illinois, Dept. of Agricultural Economics. AERR 176. Seotember 1979. 86 o oo +J 00 O O oo >> U 3 ■a o s_ — E s- ra 4- o 00 +J rO Q- X "O UJ a) OJ c_ oo o s_ o u i- o A3 >> 4-> s- c > U- jQ o o CM o o co O O o o o o o o o o o o o o o o o o c£> Cn 1— 1 m i— i in r— 1 CM cn LO CM en CM CO CO t— 1 o o I CO c 4- O _ ra .C 00 >> s fO (4- O) ■o c ra c O0 o oo 0J c 3 oo ai Q. LO r-» CTi n 0) CD i_ rt3 O jQ rO <_ O +-> - cu Q. c o o o o LO Cn o o CO o o co CO o o oo CM o o II o co en LO CM I o CO CO ro L o CM cn en «a- i o CO en O o LO en en i o LO LO cn en o a co o o cn co CO CT> Q. a aj (J 0) (U -M s_ a. «< CU >5 ■a -m 00 u O) ■•- ■o S- 3 -t-> i— U u cu C r— i— i CD 00 CU -a 3 O c fO "O i- c cn n3 c •>- a) 5- +-> ra C j2 OJ E c -t-> o 00 a» +-> > oo c cy •i- s_ cu r— +J Q->9 fO LO u • CO cn c 00 •>- 3 C r— ■r- a. ra CU >, S- 4-> >+- I— o •<- >1 i. o +-> c rjj > >1 <4- r— O E *S ra cn o 00 -o c ra CO cn i/i 3 r— -a a. a cn •_ -_ O .a ra u ra +-> 3 • .O 00 a> •> 3 O i— ra 3 > a -a •< c >> ra i- I— OJ c +-> <- c -r a o s- U ra o oo a> aj o > i- •r- i. r— a. T3 c ra -^ u o 4-> 00 at > o c: ra s- 3 00 C oo OJ X ra CO 3 a. •<- O 3 r— JO CU CU cn o c_> o c «4- o oo s_ > 00 "O s_ o (J OJ C£. 00 00 CU C CO 3 CO J. ■a cn i- ra 3 u 3 ai <— 0) i- S_ 4-> ra — 3 OO cn cn 3 i- cn o O0 87 fraction of production costs. A breakdown of expenses on a per acre basis indicates the magni- tude of inputs on a unit basis. Table 4-8 itemizes the costs for a typical northern and southern farm in Illinois. Fertilizer and chemical applications to maintain the soil represent approximately 11 percent of the farm cost. Machinery costs which include fuel and depreciation are 17 percent to 23 percent. Labor varies between 9 percent and 12 per- cent on a farm which averages over 500 acres in size. Other costs of farming, which include the cost of land, are not itemized in Table 4-8; however, the total cost per acre of $253 to $319 does incorporate such items. The value of farm production on an output basis ranges from $289 to $352 for this farm, which results in a management return of $33 to $36 per acre. Reinvestment in equipment or additional land typically is taken out of these earnings. 4.3.1 Labor Requirements Labor required for farming operation comes primarily from family workers; however, hired workers supplement this labor force. In 1979 there were 125,000 family workers and 40,000 hired workers in the agri- cultural work force. The July, 1980 average wage rate for hired farm workers was $3.88 per hour although machine operators were paid $4.25 per hour and supervisors received $5.95 per hour for their services. According to Table 4-9, the number of labor months varied with farm size from 12 to 32.8 man-months for farms 180 to 256 acres up to 1200 88 Table 4-8,. Farm Expenses on a Per Acre Basis 1979 $ per acre value Cost and Return per Acre Northern 111 inois Farm 3 Percent of Total Farm Cost Southern 111 inois Farm* 3 Percent of Total Farm Cost Soil fertility 34.37 11 29.06 12 Buildings and fence c 7.75 2 7.89 3 Machinery and equipment ' 55.63 17 57.87 23 Labor 27.22 9 29.36 12 Value of feed fed 0.23 0.1 28.00 11 Total nonfeed costs e 318.78 252.62 Value of farm production 351.80 288.74 Management returns 33.02 36.12 Soil rating of 86-100, 500-649 acres in size Soil rating of 36-85, 500-649 acres in size. c Includes repair. ^Includes depreciation, repairs, machine hire, gas and oil, and the farm share of electricity and auto. e Total cost includes interest, taxes and so forth. SOURCE: 1979 Summary of Illinois Farm Business Records . University of Illinois, College of Agriculture. Circular 1179. 89 Table 4-9. Labor Requirements According to Farm Size Farm Size in Acres Labor 180- 260- 340- 500- 650- 800- 950- 1200- 256 339 499 649 799 949 1199 1999 Total man 12>Q l26 U ^ Q l6A lQ9 223 26>6 32-8 months of labor Man-months cf hired labor 0.3 0.9 1.7 3.7 5.5 8.0 11.2 12.5 Labor cost, S/acre 52.97 40.05 31.57 27.22 25.14 24.56 24.95 24.08 SOURCE: 1979 Summary of Illinois Farm Business Records . University of Illinois. College of Agriculture. Circular 1179. 90 to 1999 acres, respectively. The labor cost on a per acre basis declines, however, as greater economies of scale in machinery are utilized. The number of farm workers and proprietors per county is presented in Table 4-10 for counties considered in the land use tradeoff analysis. Farm employment accounts for 1.5 percent up to 31.2 percent of the employ- ment in the counties where mining activity is projected to occur. 4.3.2 Capital Requirements To generate $6 to $7 billion in farm income annually in Illinois requires a commitment of capital. In 1978 there were $50.88 billion in farm assets; 79 percent in real estate, 19 percent in non-real estate assets, and 2 percent in financial assets. In terms of the debt and equity relationship of farming businesses, there were $7.17 billion in liabilities and S43.71 billion in equity on a statewide basis. The capital generated for agriculture typically comes from the savings and capital gains of farm operators. In addition to re-investment of farming returns, debt capital, or off- farm sources of capital may be needed for purchasing additional land and equipment. Typically, depreciation and capital consumption represent 21 per- cent of the total farm expenses in Illinois. For grain farms of 340 to 499 acres in size, depreciation was 10.6 percent and capital invest- ment was 11.8 percent of the value of farm production in 1979. This would represent approximately $72 per acre in capital associated expense for such a farm size. Annual capital purchases would be estimated at $38 per acre for a farm ranging in size from 340 to 499 acres. For 91 Table 4-10. 1979 Farming Employment by County County Number of Farm Proprietors Number of Farm Employees Total Farm Employed Total Employment in County Farm Employment as % of Total Employment Christian CI inton Douglas Frank! in 1,418 1,253 1,783 883 830 271 307 126 2,248 1,524 2,090 1,009 13,842 10,341 8,740 13,541 16.2 14.7 23.9 7.5 Fulton Gallatin Hamilton Jackson 1,802 405 915 925 405 168 138 380 2,207 573 1,053 1,305 14,400 3,044 2,974 27,604 15.3 18.8 35.4 4.7 Jefferson Johnson Knox Macoupin 1,323 559 1,644 2,126 158 99 563 546 1,481 658 2,207 2,672 16,396 2,572 30,760 16,117 9.0 25.6 7.2 16.6 Montgomery Peoria Perry Randolph 1 , 726 1,459 974 1,425 260 314 136 256 1,986 1,773 1,110 1,681 12,701 115,951 9,018 15,015 15.6 1.5 12.3 11.2 St. Clair Sal ine Stark Vermil ion 1,662 723 651 1,778 382 79 202 744 2,044 802 353 2,522 97,999 9,703 2,734 44,177 2.1 8.3 31.2 5.7 Wabash Wil 1 iamson 434 705 100 58 534 763 7,524 19,300 7.1 4.0 SOURCE: 111. Dept. of Commerce and Community Affairs. Employment by Type and Broad Industrial Sources Years '74-' 79. April 1981. for 92 larger farms, this rate would increase based on Table 4-7. 4.4 Farming Revenue In describing the total farm employment, income and farmland value, it is important to determine if there are differences among coun- ties related to the quantity of prime farmland available. The counties of Illinois have been generally categorized according to the following percentages of prime farmland: less than 25 percent prime farmland 25 percent to 50 percent prime farmland 50 percent to 75 percent prime farmland greater than 75 percent prime farmland Figure 4-5 illustrated the distribution of prime farmland on a county basis, according tc the definition of SCS. One measure of the economic significance of prime farmland is the employment, income, and land value patterns associated with the utilization of prime farmland. There are 29 counties with greater than 75 percent prime farm- land while 39 counties possess 50 percent to 75 percent prime farmland. Only the southern Illinois counties and metropolitan counties have less than 50 percent farmland. The number of farm proprietors per county is greatest for those counties with greater than 75 percent prime farm- land. The average number declines with the percentage of prime farmland. The revenue per acre generated from farmland was also examined according to the historical value of prime land. Figure 4-7 depicts the increasing value of farm products per acre for the four categories of prime farmland. In 1979 the value per acre from counties with greater 93 3 w oa < --a .? T" 1 1 1 — r- 1 — r- i I — P" k T "T" o o o o o o o o o o o o o o 8 o oo o «r a o 00 OJ ««r P>J o 00 <© «r m «M CM •i- .c I— ce o 00 > •r- E *-> o U i- 3 4- -a co o -o l s- cu o q. +-> r^ E ■i- o U 4- o 3 O "O 00 t— I O CJ! I s- c o Q. -i- -t-> i— (T3 — OL O OO c .3 r— ■r— oo 4-> oo CJ 5* _l O cn OJ o ja O I— a « la LO fa cn i— o ^ cn i— O J2 O fl LO 1- cn h- LO o LO OO LO LO * LO n CM CO i— 1 CM i— I in cn -b<* faO" ■be- LO oo o O CM <* CO t* CO A r^» CM CM 00 CM LO 00 O^- w» 4a<* «3- co LO I— 1 cn <— 1 o CM CM T— » •> o •* CM 1— 1 CM •<=«► V* V=>- o oo LO f— I 1—1 CO H LO «3" cn o co o LO cn «3- cn o o CM LO CO cn CM •a- i — CM 0O •b<> cn LO co oo LO CM co cn CM P*» LO CM r% oo o O) oo c T3 M- •r— 00 •f* O 00 •>-> cu ta +J (O S- a. cu o QC T3 (j 3 CU — >> Oo o (O u e I— •i- -|_> •r— > CUim a. T3 00 cu o •I— >•!- cu CU CD 4- 5- CU i-J «=Coo cu i- +-> C O U s_ CD U cn f0 «c £ "O CU ^N.. -3 s- -a ITJ L) s_ ■r" ^» 3 >, = CO o +->ra cu s_ -t-> il- 3 > 1- OL. > o cu CO s_ cu > CU «^" • (/I T3 C 3 C to •<- +J LO U T3 •> m 0O 3 t— I «3 &. •> -M LO 4- - C • o lO r^ s_ O! , cu -Q a. a 3 m 2 3 o CO "O 00 cn r— " *^ ^-i O -3 00 4-> > *_ 00 C 3 +-> O ^ (_) ro "3 s_ cu ^1 4-) 00 CU (T3 u M- j2 O s. Gl c_ s_ s^ 0) C ^3 ^D — = - T3 3 -i- 3 ro = 5- CU T3 -3 oo U_ 4-> CU CJ « >»•>- = o c_ cn cu "O « +-> 3 +-> TJ H3 s- u fl CU s -3 M ^r U f- u (T3 00 OO CU cu • i- t. C3 o u u. a. C_3 o oo oo 97 Table 4- 13. County Employment Characteristics According to Prime Farmland Percentages Counties Counties Counties Counties with Greater with 50% 25% to 50% with Less than 75% to 75% Prime than 25% Prime Prime Farmland Prime Farmland Farmland Farmland Total Number 29 39 25 Average Number of Farm Proprietors per County 1,420 1,321 1,072 533 Average Number of Wage and 454 4 5 2Q? 457 Salary Employment Total Employed 54 356 67 m 3 g? g 81Q in Agricul ture SOURCE: 111. Dept. of Commerce and Community Affairs. Employment by Type and Broad Industrial Sour c es for Years '74- '79 . April 1981. 98 proprietors per county increases with higher percentages of prime farm- land. The number of farm employees similarly increases. Reporting in Cook County of farm employees accounts for the disparity in the less than 25 percent prime farmland category. Associated with large tracts of prime farmland are higher revenues per acre, higher land prices, and a greater degree of farming activity. Figure 4-7 and Tables 4-11, 4-12, and 4-13 provide an indication of the economic importance of prime farmland based on county descriptors. Such information is utilized in considering a proposed change in land use to mining. 4.5 Property Taxes Generated by Farmland This section discusses the assessment of farm land, trends in tax assessment, and the importance of farmland taxes to state revenues. It is useful at this point to differentiate between farm real estate and farm property. Farm real estate is strictly the physical land, while farm property includes both farm real estate and farm capital such as buildings, equipment and other physical assets used in the farming business. 4.5.1 Assessment of Farm Property In 1977, special assessment provisions were established for farm property under Illinois Revised Statutes Chapter 120, Section 501(a) (l)-(3). Under this section, a farmland owner may apply to the county supervisor of assessments to have the farmland valued twice--once at 99 33-1/3 percent of the fair cash value the property would bring at a voluntary sale where the buyer would use the property for farming or agricultural purposes, and the other at 33-1/3 percent of its fair cash value if it were not used for agricultural purposes. The farmland owner is taxed on the lower of these two valuations as long as the land continues to be used for agricultural purposes. If the land is converted to non- agricultural use, then the person liable for the taxes on the property must pay the difference (plus interest) between the taxes actually paid and the taxes that would have been levied had the land not been valued for agricultural use. This repayment requires recovery of the difference in taxes for the three years preceding the conversion of the land to a nonagricultural use. Using standard economic analysis, this provision is seen as both a private cost of converting land from agricultural to nonagricultural uses (increased taxes, plus interest costs, to the converter) and as a social benefit (increased tax collection reducing the need for other revenues to support state and local services). A further provision for the valuation of farm property was enacted in 1977 under Illinois Revised Statutes, Chapter 120, Section 501 (c). This provision, more popularly known as the 1977 Illinois Farmland Assess- ment Law, allows any owner of a farm, which has been used as a farm for the preceding two years, to be eligible for a farm value assessment on the farm real property. A farm is defined as any parcel of land used solely for the growing and harvesting of crops; for the feeding, 100 breeding and management of livestock; for dairying; or for any other agricultural or horticultural use or combination thereof. A formula is provided to determine the value per acre of the best grade of land used for farming purposes within each Illinois county. The formula includes the following elements: (a) The value per acre of agricultural products sold from the county where the land is located, as established by the most recent Census of Agriculture of the United States Bureau of the Census; (b) The average value per acre per year of principal crops (corn, soybeans, wheat and all hay) for the most recent three years, as published by the Illinois Crop Reporting Service for each county; (c) Ten percent of the average sale price for the same three years per acre of land transferred for agricultural use as determined from real estate transfer declarations for the county. The value per acre of the best grade of farmland within each county is the average of (a) and (b), plus the amount in (c). To establish the equalized assessed value for soils of various productivity, a graph was developed to correlate soil productivity with equalized assessed value. This graph is based upon the average produc- tivity ratings and assessed valuations for the top ten counties and the average of the ten conties with the greatest percentage of Cisne- Hoyelton soils. The 1981 productivity index graph is depicted as Figure 4-3. Derivation of the applicable productivity index pertains not only to the soil types but also the slope and erosion factors. A productivity index of 130 is considered the highest in the state and the Cisne-Hoyelton soils have a productivity index of 87.5. Values for the farm dwelling and other improvements must be 101 10 :a id 1 13 U_ OJ to ■a 13 c CO 10 1 — ' #* 00 • c CD c 3 •r™' •^ +J 3 (0 • r— 3 s: T3 ,_ > 13 o TD o 0) N >1 ■•— 3 i^— fl -a 3 o 3 3 l/l O a> c_j +-> 13 OJ 0£ CM X S_ 03 o CO I «3" CU _e> 13 -o c 13 <3" ^— r~^ E 1 i_ ct> 13 <*o U_ en -— < <+- O «> OJ X 3 CD r— T3 13 e > — • «^r t mm r-. 13 i O) CTi OS U3 en 4- ^^ O cu X +J OJ 13 ■a -M c oo HH LU 3 o •r— +-> ^ — . 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O S- 3 • i— 13 OJ O) 13 -t-J 13 — > o. a. a i/5 on oo 3 O •I— (/I E 4-J ,_!. 13 ^. -m X s- fO OJ +J a. o i- s. o clu- >> X 4J OJ •f— -3 o 3 - 3 . l/l O ro -t-> +-> o a_> ^-a p— S_ "O s 13 a. s en 3 13 3 i— i CO •t— uo -3 a> +J X 13 S_ I— o M- >i +J i^ S_ CJ T3 ■^ U_ ■»-> 13 (/) 3 • i — i- C O) 3 +J 13 -3 i— o 13 3 a> -— CJ3 ■!- . CU 3 « -t-J 3 -— O 3 s_ u O T- r— S_ T3 cn 3: - •iooico-i csj •— i cm en \o vd en co i-~ m u o E o If) CO LP CO* 5 LO 2 =3 o Lfl O CJ c o c_) O cn co o 9iflinr\ CO i w * I •— o c t— LU O w ^ -^ in —J *— 4J |M +j 3 4J 3 « ^ 13 o C T3 •<- *■> •*J H- u 13 C — > - o p— — c o I— U '_ a. co ex •" S_ -O ul i. c *J u CO CO •— C CO cn i— m ■0) — -3 ■/) nj _c IQ il O ■*-» CO U 4-> u *> s LU UOKI-O ■_ o o o h- Q _ c 13 c o a w (O f— -w o ■a B B O 3 in >a 13 m *J li CO in 13 s_ — 3 '_ 3 O 4_) CO CO C *J g Q ■n LO *■*» a b (thousands of short tons) Region and State of Destination 1975 1976 1977 1978 1979 1980 West South Central Louisiana — — 1 69 46 253 Texas — — — — — 23 East South Central Alabama 398 — 217 846 1257 2480 Kentucky 1982 1487 997 335 230 464 Mississippi 924 537 587 399 210 473 Tennessee 521 456 252 43 416 522 South Atlantic Florida (c) (c) (c) 1052 1492 1960 Georgia 987 1525 1440 822 1659 2457 West North Central Iowa 3017 2839 2627 2213 2855 2583 Kansas -- -- — — — 113 Minnesota 1688 1530 1223 753 752 777 Missouri 12054 13672 13405 11000 13215 13947 East North Central Illinois 25044 24972 21767 20509 21739 21575 Indiana 6273 6080 6408 5440 9891 10469 Michigan 640 702 914 901 944 743 Ohio — — 73 42 — — Wisconsin 5110 4663 4440 3994 3831 3326 Export/Other 245 35 15 24 25 -- Illinois Supply Total 59883 58498 54326 48442 59062 62165 Notes: SOURCE a) Any state excluded received less than 500 tons. b) Sum of state totals may not equal Illinois supply total to disclosure and data problems. c) Florida shipments included with Georgia. due Bituminous and Subbituminous coal and lignite distribution, calendar year 1978, 1979, 1980, U.S. DOE, Energy Information Administration. Bituminous Coal and Lignite Distribution, calendar year 1975, 1976, 1977, Mineral Industry Surveys, U.S. D0I, Bureau of Mines. 128 Table 5-4. Electric Utility Industry Annual Purchases of Coal Produced jn Illinois by Region and State: 1975-1980 a Region and State of Destination 1975 1976 1977 1978 1979 1980 West South Central Louisiana — — — — — 233 Texas -- — -- -- -- -- East South Central Alabama -- -- 217 846 1757 2480 Kentucky 1982 1487 997 335 464 222 Mississippi 924 537 587 399 210 473 Tennessee 521 456 252 43 415 519 South Atlantic Florida ( b ) (b) (b) 1052 1290 1513 Georgia 987 1525 1440 822 1659 2457 West North Central Iowa 2290 2090 1865 1660 1955 1644 Kansas -- -- -- -- — 81 Minnesota 1688 1530 1205 723 716 723 Missouri 10496 12084 11822 9708 11653 12649 East North Central Illinois 22006 21414 18432 17934 18867 18700 Indiana 3398 3261 3791 3330 6843 7616 Michigan 334 442 658 742 785 590 Ohio — — — -- — -- Wisconsin 4595 4129 3839 3536 3237 2805 Total 49284 48930 45105 41130 49850 52705 Notes: a) numbers may not add due to disclosure and data problems, b) Florida shipments included with Georgia. SOURCE: Bituminous and Subbituminous coal and lignite distribution, calendar year 1978, 1979, 1980, U.S. DOE, Energy Information Administration. Bituminous Coal and Lignite Distribution, calen- dar year 1975, 1976, 1977, Mineral Industry Surveys, U.S. D0I, Bureau of Mines. 129 exhibits the electric utility purchases from Illinois. A comparison of Tables 5-3 and 5-4 shows that electric utility consumption comprises 83 to 84 percent of the total purchases from Illinois. The differential is principally industrial purchases with some coking coal, especially by Illinois and Indiana. Illinois consumers are using less coal from Illinois mines and importing more coal from other states, especially those providing low sulfur coal. This is indicated in the comparative evaluation of 1969 and 1979 percentages of coal purchases from Illinois mines in Table 5-5 The fraction of Illinois purchases from Illinois mines dropped from 81 percent to 51 percent in ten years. Three-quarters of the coal imported arrives from the West with the remainder originating in the Midwest or Appalachian regions. The proportions differ minimally if one is dealing with total consumption as opposed to electric utility purchases. The West first shipped coal to Illinois in 1970, originating from Montana. By 1974 Wyoming was also sending coal and then in 1975 Colorado had a contract to supply coal to Illinois. As Missouri, Indiana, Georgia and Florida have been a growing market for Illinois, so has 34 Illinois been one for the western states. The Illinois Pollution Control Board's Chapter 2 regulations adopted in 1972 have limited the use of high sulfur coal , especially in major metropolitan areas and in new facilities, and is one of the primary reasons for the increased market for low sulfur coals in Illinois through the seventies. Sulfur dioxide regulations are a factor in the change in Illinois coal demand but not the complete answer since the ultimate impact of the restrictions 130 Table 5-5. Comparative Evaluation of Illinois Utility Coal Purchases 1969 1979 Quantity, % MM tons Total Quantity, % MM tons Total Coal shipments to Illinois From Illinois mines 36.4 81 21.7 51 Imported 8.8 19 21.0 49 Total 45.2 100 42.7 100 Coal shipments from 1 11 i no i s To Illinois users 36.4 54 21.7 37 Exports 30.6 46 37.6 63 Total 67.0 100 59.3 100 131 varies with states. ' The relative price of Illinois coals is another contributor since in some markets low sulfur coals have a price advan- tage. Iowa, Minnesota and Wisconsin are states where this is true. This affects Illinois market share since these three states were traditionally large purchases of Illinois coal. The use of high sulfur Illinois basin coal in southern and south- eastern states (especially for utilities) has been stimulated by a limited availability of coal from central and southern Appalachian coal regions which traditionally supplied these states. Between 1970 and 1975 utility coal consumption requirements in this region increased by 29 percent or at an annual rate of 5.6 percent. Appalachian mines only supplied 70 percent of the demand. The limited supply and higher prices created a market for Illinois coals. A recent report prepared for the Institute performed a detailed analysis of 1978 coal shipments from Illinois to other states. Of the 132 electric power plants surveyed, 77 received Illinois coal. Industrial coal use is the second largest market for Illinois coal Industrial and manufacturing plants use the coal for heat and steam for space heating. This market for Illinois coal shrank by more than 50 percent to 5.4 million tpy between 1969 and 1979 but remained rela- tively constant from 1975 to 1979. Expanded use of natural gas, dis- tillate, and purchased electricity by manufacturing and industrial facili- ties are the principal alternate fuels responsible for a decline in coal use within this sector. These fuels were purchased due to lower price, superior handling and respective burning qualities. 132 The other sectors were marginal contributors to the consumption of coal. Most metallurgical coal (82 percent) purchased went to Inland Steel with the remainder going to the volatile Illinois steel industry. Retail sales and transportation are almost small enough not to be recorded. 32 35 All other markets are categorized as future prospects. ' 5.3.2 Illinois County Coal Production The coal production data by respective mining type and county is presented in time series fashion within Table 5-6 and 5-7. The cycli- cal nature of this industry is not only evident by reviewing the county specific totals but also by scanning across the totals for each mine type. A period of oscillation was experienced between 1970 and 1975 that introduced a decline in production for practically the remainder of the decade. The trend did turn upward after the 1977-1978 coal miners strike and has exhibited a steady series of increases through 1980. These data are presented principally for background upon which to compare the future projections and to attain a feeling for the counties producing coal together with their relative position among one another. Figure 5-2 displays the areas of the county with production during the latter half of the previous decade. The distribution of areas within the state of Illinois and the interior province differs substantially from the spatial pattern exhibited by producing counties in either the overthrust belt/northern Great Plains or the Appalachian regions of the country. Large land areas are involved with producing coal in both of the latter two areas whereas in Illinois, Indiana and western Kentucky (interior basin), the production is currently concentrated 133 4, u T3 U O E • _ — a. i— ao Cn VO Ol 3 O — C (_> ■a c 3 O S- a. s. D •a c o If) CM o CM CM o o O 8 CM ao en 00 Vf> CM IT) CM ^- IT) VO CO CM c en CO IT) cn CM o CO CO O vO VO c cn Cn n VO LT) Ol If) o r^» t _ t vn «T cc O CO m vO r^ CM *■ H CM LT> O o «■ «r o CM CM ~ o o ~ o """ CM en ,_ «■ 0>> CT> r-s. 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C • <— « 4-1 aj c 1) — *j o -3 >~ C T! c c — — c a o — u cu cu (/) l_ 14- -J a JC 4-1 3 — =. CU — * -J 3 ■a a 3 s. ^ ai > -j CU 3 CI *J ~ ■a a sz o to (/> < a < z '<0 o < o en en s_ - s_ < 1 o "O — »*. c <. \ X CT> hi r«» cu 5 o as t— i i Mi IT) o <4- OS « c to o < +J 4-» CO +J 3 -O S- ■ •o -t-J 1 ♦ % 4-> c 00 Q CU # 4- JZ. •r— c en < C •^ CO c O <_3 CO •r— u o •I— _i -o c TO o c_) LO o c "id UJ 3C0 4-) Cn UJ CJ Q£ =5 O CO 5o 136 around the periphery of the basin area. As discussed in Chapter 3, this is where most of the shallower, more accessible, economic coal is located. Within Illinois, the producing areas can be divided into three groups: a northern, central and southern district. Subsequent dis- cussion of potential county production will address the cumulative totals from these areas. 5.4 Coal Production and Market Forecasts Affecting the Illinois Coal Industry and Its Future The following section is divided into several components. First, a general discussion of different forecasting procedures introduces the various forecasts to be reviewed. A distinction is made here between supply-derived projections and market-equilibrium forecasts. Following this introduction, a detailed discussion is presented of supply-derived forecasts that have taken account of the future production and marketing of Illinois coal. A similar discussion is included for market- equilibrium forecasts whereby the coal production forecasts associated with Illinois are highlighted along with the relevant assumptions to support the forecast. The section closes with the selection of the second National Energy Plan (NEP II) as the appropriate forecast to utilize in the assessment of future coal mining impacts. All relevant details of NEP II are presented and described in Section 5.4.6. 5.4.1 Differences in Forecasting Procedures The process of making projections of future conditions can be accomplished by a variety of methods. The simplest is by making educated 137 speculations given an understanding of the future interaction of exo- genous forces and the effects of past trends. Another method is to empirically estimate future situations by linearly extrapolating past activity into the future. Still another means of gaining a perspective on the future is by forecasting the composition of activities due to a mathematical and behavioral specification of the interrelationships between various economic and noneconomic factors. In the identification of future Illinois coal production activities various national, regional and state forecasts and projections were reviewed. Before discussing these coal projections, a further distinction must be made between these two procedures in order to iden- tify the basis for their outlook. This distinction involves projecting either just the supply of coal based on a number of resource and pro- duction factors or the equilbrium attained between supply and demand under market conditions. For the supply of coal such factors as historic trends, future capacity, past/expected market shares, proven reserves, technological change and/or future market conditions (entered as an exogenous parameter) are typically employed. Alternatively, to reach a supply-demand equilibrium, prices, quantities, market structure and the interrelationships between fuels, technologies, and sectors must be exogenously defined and/or determined by the model. It is only through this latter method that an economic assessment of the least cost alter- natives can be made between various substitutable fuels and their dis- tinct sources of supply. With regard to coal production, a market anal- ysis is performed by evaluating different consumption patterns and matching these demands with coal from alternate coal basins. Extraction and 138 transportation costs contribute to the total and marginal costs of pro- duction that are used in determining the quantity of coal that would originate from a particular coal supply region, and thereafter in deriving the market price confronting the regional and national demand markets. 5.4.2 Identification of Coal Production and Energy Forecasts Reviewed In an attempt to obtain an adequate representation of the future production outlook from Illinois coal fields, eleven projections/forecasts were compiled. These projections reflected (1) national coal production goals and total energy market scenarios, (2) industry expectations of capacity expansions and (3) state of Illinois perceptions of industry conditions and constraints. The reports or outlooks reviewed that iden- tified possible energy futures in general, and more specifically coal production expansion paths, are presented as follows: Forecasts and Projections of Coal Production for Illinois and the Midwest Region A. National Energy Forecasts 1. "Annual Report to Congress 1978, 1979, 1980" U.S. Department of Energy, Energy Information Administration 2. "Natioal Energy Policy Plan" U.S. Department of Energy, Office of Policy, Plannina & Analysis 3. "National Energy Plan— II" U.S. Department of Energy 4. "National and Regional Coal Production Goals for 1985, 1990 & 1995" U.S. Department of Energy, Assistant Secretary for Resource Applications B. Industry Capacity Expansion Plans 1. National Coal Association - Annual Outlook 2. Keystone Coal Industry Manual Survey 3. "Status of Coal Supply Contracts for New Electric Generating Units" U.S. Department of Energy, Federal Energy Regulatory Commission 139 C. State Sponsored Studies in Conditions and Constraints 1. "Implications of Expanding Coal Production for Illinois' Trans- portation System" Illinois Department of Transportation and Illinois Institute of Natural Resources 2. "The Impact of Sulfur Dioxide Regulations on the Market for Illinois Coal" Illinois Institute for Natural Resources Each of these identified sources will be discussed in varying degrees of detail. The amount of attention devoted to each is a function of its importance in contributing to the selection of and comparison with the forecast of Illinois coal production to be employed in this study. As indicated in the opening paragraph, the second National Energy Plan was selected for use in assessing the coal production impacts. A more detailed discussion and assessment of the second National Energy Plan assumptions and components is presented in Section 5.4.6. The fol- lowing sections compare and contrast the forecasts and projections on the basis of their procedure; either supply-oriented or supply/demand equili- brium. 5.4.3 Supply-Derived Coal Forecasts and Projections 5.4.3.1 Short Run Production Outlook and Opportunities The National Coal Association has stated in 1980 national coal production amounted to 825 million tons of coal. This amount is 6 percent greater than 1979 when 777 million tons were produced for distribution. For 1981, the National Coal Association forecasts a nation- wide increase of 2.3 percent for production while demand is expected to climb by 4.8 percent. This growth imbalance will allow production 140 to be 844 million tons, demand (including exports of 87 MM tons) approaching 837 MM tons leaving a surplus of only 7 MM tons. The relatively modest production growth and small surplus is due to high stockpiles existing at the domestic utility and industry coal consumers. Export capacity inadequacies help constrain the growth of this expanding market together with a forecasted decline in world trade of metallurgical and steam coal due to economic uncertainties/fluctuations in Europe. The regional distribution of this 1981 coal production forecast by the National Coal Association is presented in Table 5-8. The produc- tion originating from the eastern region is expected to grow by only 2 MM tons but this net output masks the shifting pattern of production occurring within the region; South Appalachia is declining with a steady moderate growth in the Midwest and North Appalachian regions. In the West, the 1981 forecast is for a 6.9 percent increase over the previous year, compared to a 10.7 percent increase from 1979 to 1980. The slower growth in western coal results in the national forecast showing a 6.3 percent growth (1979-1980) to 2.3 percent growth (1980-1981). Although the rate of growth in the consumption of coal also declines, it does so less significantly than production with the net result being a smaller expected surplus. 141 Table 5-8. National Coal Association Short Term Forecast of Production and Consumption (MM tons) Production region East West Total Consumption Total Surplus Actual Forecast 1979 1980 1981 554.9 580 582 221.4 245 262 776.3 825 844 742.0 799 837 34.3 26.0 7.0 SOURCE: Coal Age , February 1981 142 Some factors cited by the coal industry for the dampened near-term outlook include the uncertainty in prices due to the new labor contract agreement implications and the rising rates for transporting the coal by rail. The electric utility industry is expecting a 5.6 percent increase in consumption over 1980, even though generation is expected to increase by 3.5 percent and new on-line generation only 40 percent of the 1980 additions (8800 MW vs 15,200 MW). The positive aspects potentially affecting the production and consumption of coal but unlikely to have a marked effect during 1981 include the following Reagan-generated actions: 1. Regulatory reform and return of regulatory responsibility to the states (97th Congress undertaking but only long term results expected); 2. Office of Surface Mines reviewed and restructured; 3. Ensure the regulations of the Surface Mine Control Act (1977) are not overly restrictive nor impose greater costs than the benefits justify; 4. Minimize the chaos likely to occur in the coal industry during the transition from federal rules to state jurisdictions' 5. Clean Air Act Amendments of 1977; often identified as hindering market development will be undertaken in 97th Congress. Mixed goals and views not shared totally by either party; and 6. Acid rain problem is being studied in accordance with the mandate by 96th Congress but will most probably be postponed as a legislative issue. As indicated earlier, the outlook and thereby fortunes of the domestic coal industry is linked to the electric utility industry. Since utilities have been entering each of the last several years with substantial stock- piles, it must be other factors and markets that will contribute to the resurgence in industry growth and diversification. In particular, the 143 northeast is becoming a new market as oil burning utility and industrial units are converting to coal. Moreover, in new plants coal is displacing most oil but only some nuclear units. Another contributor to this situation is the Staggers Rail Act. By giving the railroad greater flexi- bility through partial deregulation, the price of coal will go up in the short-term but the emergence of contract (fixed) rates for coal delivery will establish the long term agreements necessary for a reduction in market risk and uncertainty. This factor may also benefit the eastern and midwestern mines since geography and transportation costs are becoming increasingly more important than environmental and regulatory costs. Through the higher rail costs from the West, market pattern changes are beginning to emerge. In the East the view is that the fortunes of coal are inextricably linked with the slackness in the economy and any resurgence will thereby be dependent on the economic growth of the regional and national economy. In Appalachia, any coal production growth has to be interpreted cautiously since more tonnage has been put under contract as of late making the spot market—where most small operators complete — a very depressed market. With market growth in the eastern region exhibiting a mixed forecast, and surplus capacity in the production fields, competition will be very strong. For the immediate future, the Midwest has a number of high growth possibilities. These include relaxation of the clean air regulations, synfuel plant developments, moderation of the Surface Mine Act, a growing export market and the turnaround in the economy influencing the growth 144 of electric power demand. No appreciable improvements are expected, though, before 1985 due to (1) the attrition of older markets offsetting growth, and (2) cost effectiveness of high sulfur coals in plants with scrubbers. 5.4.3.2 Coal Production Capacity Additions The coal industry is planning for a resurgence in growth since it dominated the energy picture in the 1950s and 1960s. In a 1977 survey of coal mine developments and expansions, 617.3 MM tons of new capacity was projected for 1977-1985 period with 515 MM tons expected between 1980-1989. Although some duplication exists, due to overlapping time frames, upwards of 800 MM tons of new capacity has been planned and/or is in production as of 1981. In the 1977 survey by the Keystone Manual, 315 mines in 21 states 38 were surveyed that had a combined output of 777.5 MM tons. Illinois was indicated as contributing 5 percent to the new 1977 mine develop- ments and expansion capacity with 18 mines and 38.4 MM tons of productive capacity. Table 5-9 indicates the relevant statistics for Illinois and the U.S. for cross-comparison. In contrast to the 1977 forecast, the 1981 Keystone Coal Industry Manual survey, also shown in Table 5-9, revealed that coal production from (1) mines currently being developed, (2) older mines, and (3) those in the planning stages, 515 MM tons of new capacity could be added by 39 1989. The most important factor determining the attainment of this additional capacity is the federal coal leasing policies for western coal production. Uncertainties in current and future market developments 145 Table 5-9. Development and Expansion Plans for Illinois and the United States: Aggregated and Annual, 1976-1989 1977 Coal Aae 1981 Keystone Manual Projection i (1976-1985) Projection (1980-1989) Illinois U.S. Illinois U.S. Total capacity 820 a to be added, 38.4 778 50.0 MM tons Deep mining 24.7 269 44.2 607 Surface 13.7 509 5.8 213 Present capacity, MM tons 6.6 106 11.9 188 Annual capacity additions, MM tons 1976 3.6 53.8 - - 1977 8.35 92.2 - - 1978 8.55 95.9 - - 1979 4.80 87.7 - - 1980 1.30 122 8.9 76.3 1981 2.00 64.1 4.4 65.0 1982 0.50 51.2 3.54 60.3 1983 0.50 33.3 2.83 57.0 1984 2.00 30.0 3.13 64.2 1985 0.20 41.1 2.90 70.9 1986 - - 4.30 60.0 1987 - - 3.14 59.6 1988 - - 2.76 47.6 1989 - - 1.35 33.1 Note: a) Includes 39.8 MM tons scheduled for development after 1989. SOURCE: Refs. 38 and 39. 146 cancelled some mining openings and delayed others on established lease tracts. The extension of leases, in addition to those currently out- standing, hinges on the activation of production on the leases presently standing idle. The 1981 survey accounted for 324 expanding or planned mines that have a combined expected output of 780 MM tons annually. This figure includes those mines currently exhibiting some partial production, but does not include mines now operating that will not expand or the 40 MM tons scheduled for development after 1989. Of the 324 mines, 157 were in some stage of operation prior to 1980 with a production level of 188 MM tons. Another 39 mines opened in 1980 with a combined output of 14 MM tons to date. Seventy-five (75) percent of total productive capacity additions will be west of Mississippi, from 156 mines and a total expected output potential of 616 MM tons. The expansion and development plans both east and west of the Mississippi River will be performed by producers who accounted for 66 percent of the total U.S. output in 1979. Before initiating a discussion of the individual mine openings for Illinois, Table 5-10 puts in perspective the developments and expansions of coal mines in the Midwest region. It is obvious from reviewing the data in the table, together with the state percent of total capacity of the region, that Illinois comprises more than three-fourths of the regional capacity additions between 1980-1989. Table 5-10 displays this trend on a mine and company specific basis within 111 inois for the years 147 en co en o CO CTi V ■M +-) to a 3 T3 aj to c a (13 a. x -a c Q s CU i in T3 » •+-> to «j O Q. >— (OS uz <*- o to a> • c o •r— z s: A >> 4J to a. •<- c ■r- u o im *J o_ l/l T3S us U_ O to 0) • c o • r— 2= s A >> +-> to a. •<- c CD u o a> rO+J a CL -OS OS 0) +j « 4J on CO to c\j LT> o o en CO o CO a ^o LT> en o co Lfi O CO CM CM en CM «3- o o r-. cn m to o en m CM c\j r-. >> ^s u to 2 •^ rO +-> r— o c e <0 c ra cu -t-> •^ •r- ^ o r- -o 1— r— c • en en cu CJ c a> s_ cu <4- cu <_5 Ct o t/1 148 1980-1989. Most surface mining capacity, not included in present capacity, is either brought on line in 1980 or shortly thereafter. Conversely, underground mines are found scheduled for inclusion into the productive capacity category throughout the time period. This capacity distribu- tion pattern differs markedly from that exhibited by the 1977 survey where most additions were limited to a 5 year time horizon. In the 1981 survey, Illinois coal companies have production being brought on- line up to 1989, with a substantial percentage of the capacity being added after 1985. This trend exhibits both confidence in the future market demand for coal as well as the likely price competitive environ- ment expected for coal to dominate. The one caveat to this favorable outlook is related to the development and expansion additions for Illinois (Table 5-11). A number of the mines scheduled for opening in the late 1970s, by the 1977 survey, appear on the 1981 survey in the 1982-1984 time frame. One conclusion to be reached here would be that the market prohibited these additions from being developed due to surplus capacity, market saturation, depressed prices, regulatory restrictions and/or insufficient investment capital. Alternatively, the company may have simply adjusted its expansion/development schedule with the results being illustrated in mine transfers between surveys. Regardless of the reason, the later survey does incorporate several of the earlier forecasted mine openings, thereby adding to its favorable outlook but at the expense of previous mine plans and not new demand and market conditions. 149 en oo en en cc en o 00 en 00 en cm oo en 8 en 00 01 c S. "B Cv c_) o to o o o o ^> o o IT) o o O o m C a evi a a o d o o o r>. >- d — • o o a d o o o o o o LT1 «T o o o LO CM 00 o o o o o o CM o o — IT) a o o o CM o o CM IT) O O O o o lO CM o c — 4 O <— ' CM o — o — o «B" d — I o i — • en c u_ i- ib co a. Q. iB O <_> UTOOOCOOOOOOCOOOOOCCOOOOCOOO vOTCMTin^ocuiT— "CMOaioo— "OOOo«3-^r'rooc0Ln — CM— CMCMOCMOCMCM— *CMCMCMCM— CO— CM'B"'— •— — CM CM — — i o o -CI .2 CO 4J C Q. — >. CO c C 3 2- O z: u aooonoaooouoooooooaiy->aac:3oaoooco ♦J E c o u a pM ^^ >o >. o c o ib a 0) X 10 3 IB B <_> z «s l/l CO 31 -*— -o — c 3 C '_ >,•- Q n^ 3 IB C iB 3 a. 3- o O0 3 J= 3 -= 3 J3 _' 1 ^^ -*-J !/l "O (J O C3 a r— -*. — ou 1/1 u U u CO 4J 3 .a i 1 > t ~-~ u o *J i ib ■» m I. CM i u O £ £ •^ *-* T3 :>> 3. -1 _i > c -n E 3 £ LO >o U M ID U ■C 5 3 5 B (/) -J 3 — B t/l O ■o a 3 • 3 « t— 3 _ e 3 - o O J3 l/13ffiKU "" i-j " OS Z Z 2 O. '_ • IB CO o en O i. >— ■a CJ 0) IB >■> CO 3 O O i— *j UJ o u Q-t- o CO Q. C <_> CO i/> CO U 3 3 — ' - CO c a to CI VI .— CJ <— • a c c — u u :>> ib - — -o ^- s » en £ 13 3 CO I o o - CO IB 3 S- u o CO CO X ^— c - a. s_ c - 3 CO CO IB «t LU U_ — • 2*: 2»£ Z 3 3 CM +j CO — -C B — ' '- — ' — Q. C i. _* B 3 C r— C a o .e 3 IB O O 4-> t/i i^ O i- +J en = (/l *"- • CI 3 B iB 3 B I 4-> C •— c •— r— TT cnr*. l/l — £ IB i- Ol C C CM I c ul CT r— 3 IB IB >> Ifl B O •— O C£ i/1 o£ - IB O 3 3 —I i i 3 O E to -: i IB *■> l l IB CM J> - .c _l CO ul IB iO in — •(-) ■3 — x: B VI _ _* £ O 4-J •»■ IB I— o o o IB O O Si O -tJ — K££UZI^I-£l tj — o o ~> o I— IS • — ■ i— IB O ^ • IB IB O U IB U O O (_3 O 3 (_) O ■O CO C >, C S. i/J • CO T3 iB CO — W CD O <— *J i- O -O ■O C S- U T3 iB •— O O ■— — CO z a: s: z o q. • o o o CJ f— IB IB O O <_! O ■3 <: t/l SI CO a •o u. 150 5.4.3.3 Coal Production Market Analysis Since the electric utility industry accounts for the largest share (>70 percent ) of coal consumed within the state of Illinois, as well as in most areas of the country, the supply forecasts based on market demands are principally addressing the demand for coal by the utility industry. Two sources of data were reviewed in this category .33? 40 , 41 goth of them showed substantial divergence in the demands for Illinois coal by the electric power industry. In the first study, the future demand for Illinois coal by the electric utility industry in Illinois and other states was examined with attention devoted to the total coal demands and supply sources for the Illinois 33 electric utility industry. Since the trends in demand for coal mined in Illinois by the utility industry have shown a decline since 1970, the various factors contributing to this demise were identified. Two factors emerged as the largest contributors in the fuel choice and source selection; implementation of sulfur dioxide emission standards for plants and an increasing reliance on nuclear power. These two factors have caused a shift to low sulfur coal in existing plants and the construction of new plants that burn it. Both factors contribute to the declining fuel share for Illinois coal in the electric utility industry. To determine if this pat- tern of fuel choice and supply source would continue to affect the demand for Illinois coal in the 1980s, a survey of utility company intentions to purchase coal was compiled. This survey indicated the anticipated 1982 and 1987 coal purchases of coal, the deliveries to existing and future power plants and the likely supply sources of the coal. 151 Table 5-12 presents the coal shipments from Illinois mines to electric utilities in an array of Midwest and Eastern states. The second table (Table 5-13) identifies the sources of coal being delivered to the Illinois electric utility industry. Although these data on coal shipments are based on utility company estimated plans, they will undoubtedly change to a certain degree due to adjustments of the electric sector growth projections, market conditions and/or unforeseen events. This study states though that many of these shipments are/will be based on long- 33 term contracts, therefore the estimates are fairly reliable. Although the data for 1977 are not presented in Table 5-13 the survey found that electric utility purchases of Illinois coal will increase by 23 percent between 1977 and 1982. Moreover of the 19.0 MM ton annual increase in coal demand by electric utilities during the 10 year time period (1977-1987), more than two-thirds has been estimated to originate in Illinois and the other states in the Illinois coal market area. The Illinois electric utility industry is expected to purchase 18.4 percent additional coal with 25.6 percent more being purchased within the state during 1982-1987. This increased reliance on Illinois coal for Illinois electric utilities shifts the market share from 47.8 percent to 50.7 percent. At this same time, Illinois supplies 12.5 percent more coal to the electric utility in general and 7.0 per- cent additional to the utility market outside of Illinois. Historically, power plants have consumed a substantial share of the coal produced in Illinois but a switch to western coal negatively affected demand through 1978. The reversal originating then and being 152 Table 5-12. Coal Shipments from Illinois Mines to the Electric Utility Industry (thousands of tons) State of Destination Quantity Shipped 1982 1987 Illinois 17,800 22,300 Indiana 9,550 12,300 Wisconsin 4,700 4,560 Missouri 14,400 13,700 Kentucky Iowa 2,880 3,250 Michigan 450 450 Tennessee 652 650 Georgia 7,600 7,600 Florida 1,800 3,000 Missouri 480 Total 60,300 a 67,800 a Table 5-13. Coal Shipments from Producing State to Illinois Electric Utilities (thousands of tons) State of Origin Quantity Shipped 1982 1987 E. Kentucky 1,650 1,590 W. Kentucky 1,000 1,000 Illinois 17,300 22,300 Indiana 296 287 Alabama North Colorado 760 920 South Colorado 1,000 1,500 Wyoming 3,050 3,750 Montana 11,600 12,600 Total 37,200 a 44,000 a Note: a) Totals may not add due to rounding SOURCE: Implications for Expanding Coal Production for Illinois; Transportation System. 153 33 exhibited in the 1982 and 1987 survey projections show: 1. An increased reliance on coal as a source of energy for power generation in the Illinois coal market region, 2. Diminishing opportunities for additional penetration of low sulfur western coal in the Illinois coal market, and 3. Increasing stringent SOo emissions control for all new power plants. Beyond these regional factors, the past increases in the world price of oil has influenced the national policy of switching current uses of oil in power plants and industrial boilers to coal. Besides this effort, the government has been advocating the increased use of coal* which has evolved into some ^ery positive effects on the demand for Illinois coal. This is most readily seen in the expanding market for Illinois coal in Florida, Georgia and Mississippi, states that are replacing oil and gas as fuels. Because of the increasing costs associated with nuclear power** together with the economic water transportation routes, the demand for coal, based on the survey, is expected to grow throughout the 1980s within the Southeast. The conversion process from high sulfur coals to low sulfur western coal within the Midwest is exhibiting a much slower rate than in the early 1970s. During this time period, retrofitting existing power plants *These efforts include initiation of the Synthetic Fuels Corporation as part of the Energy Security Act, international agreements to double coal output, and altering restrictions imposed, by the Clean Air Act. **(!) Nuclear construction costs relatively more expensive than coal which is compounded by the longer construction schedule and historic regulatory and environmental delays. (2) lower demand growth rates makes larger nuclear units less cost competitive. 154 was more costly than altering the fuel source but most plants that switched were in some stage of operation prior to the implementation of the current emission standards. Furthermore, most of these plants were located in areas where more stringent standards were enforced (i.e., urban/ metropolitan areas) and therefore compliance was attained more cost effectively and readily by adjustment to the source and type of coal used. It is thereby the conclusion of the Department of Transportation and Institute of Natural Resources study that the opportunities for low sulfur 33 western coal has been/will be confined to existing plants. New power plants (with scrubbers) in the 1980s will rely on Illinois coal since it will be more economic given the combination of transportation, tax, extraction and income transfer considerations. In Illinois the only two new power plants expected to consume western coal by 1987 are the Commonwealth Edison Powerton plant (5.0 MM tons/year) and CiLCo's Edwards 33,34 plant (1.5 MM tons/year). These two plants account for greater than 50 percent of the increase in western coal entering the state since 1977. Conversely, all other plants brought on-line since 1977 together with the Central Illinois Power Service Newton plant and CILCo's Duck Creek plant, currently being constructed will consume Illinois coal. The other source of data projecting the market and supply projection for Illinois coal is a report entitled "Status of Coal Supply Contracts for New Generating Units." 40 ' 41 Two issues of this report are currently avail able; one covers the period 1977-1986 while the other encompasses 1979- 1988. This projection of new power plants scheduled for completion iden- tifies the total coal demands of each unit by state, together with the 155 percent of coal currently committed by contract. For the 1977-1986 period the east north central region (Illinois, Indiana, Ohio, Michigan and Wisconsin) will have a total coal demand from new utility units of 57.8 million tons. This is 13.9 percent of the total U.S. demand from new units, and of which 58.3 percent is assured. When the sources of coal for new units scheduled for service during 1977- 1986 is confined to the Interior Basin, 7.5 percent of the total U.S. demand is projected to be satisfied. The total coal demand from new units supplied by the Interior Basin is 31.2 MM tons, and 21.1 MM tons or 67.8 percent is currently assured. These statistics show that of the power plants planned for the east north central region, greater than half have assured supplies and of the plants supplied by the Interior Basin (located predominantly in Illinois and Indiana) coal fields, prac- tically 70 percent are currently under contract. Since the majority of the production is from Illinois and to a lesser extent Indiana, only a small proportion of future coal supplies will originate outside the region. An update of the coal supply contract report for the time frame 1979-1988 shows that the additional coal demands of the new units scheduled amounts to 40.0 MM tons. This additional quantity as a percent of total demand equals 10.1 percent with 55.1 percent assured. The interior coal basin is expected to supply 24.5 MM tons of the additional demand of 41 the new units of which 17.1 MM tons or 69.9 percent is assured. 156 5.4.3.4 National and Regional Production Goals As part of the Federal Coal Management Program initiated in 1978, a federal coal leasing program was established whereby the coal-bearing lands of the western U.S. would be gradually brought into production. To support this coal management program and prepare the accompanying programmatic environmental impact statement, national and regional pro- duction goals were prepared under a memorandum of understanding between the Departments of Energy and Interior. The goals were designed to guide the Secretary of Interior in establishing and revising the coal lease The first set of goals was issued in June 1978 with interim updates in April 1979 and December 1980. The latest goals are based on national energy needs, existing and emerging national and international policies and laws that affect coal demand and supply, and market conditions. Since energy forecasts are generally based on expected market conditions and energy laws and regulations, the production goals may differ with the forecasts. The principal dichotomy occurs in that the goals are based on policy initiatives to expand domestic coal production while the fore- casts simulate market equilibrium. For these reasons, the goals are likely to exceed energy forecasts such as those prepared by the Energy Information Administration of the Department of Energy. 157 The national and regional production goals cited in the 1980 update indicate for the medium demand level the following national production path: 1985, 1.12 billion tons; 1990, 1.62 billion tons; 1995, 2.21 billion tons. To account for uncertainty in coal demand and market conditions similar projections were made above and below these production levels. These alternative goals represented low, medium and high electric and coal demand scenarios and are displayed in Table 5-14. As is evident from the table, most production growth (two-thirds) is in the West where one-half (50 percent) of total U.S. production will originate by 1995. Due to various uncertainties regarding coal consumption over a 15 year time-span, the range of goals (high to low) is substantial. This is particularly true within different supply regions. But for the total U.S., the low scenario is 7 percent, 28 percent, and 46 percent less than the medium scenario for the years 1985, 1990 and 1995, respectively. Alternatively, the high scenario is 11 percent, 23 percent, and 25 percent greater than medium scenario for the same sequence of years. Regardless of the magnitude of the production goal ranges, it can be con- cluded that production and expected growth will be substantial. This can best be illustrated by looking at the difference between actual 19/9 production and the low-to-high scenario range for 1990 and 1995. The range for 1979 to 1990 between the two scenario extremes is 488.4 MM tons to 1204.6 MM tons. For 1979 to 1995, the range widens as well as the magnitude of difference between the two years; 737.4 MM tons for 158 in cd cd ro o fcO CD c CD o i — i +-> « +J U") s- co o CD .c: i — i to 5- gr ,os 4- — ts> r— ^^^ IT3 a O +-> •r— +J o a CO 3 CTi T3 1—4 o *-^- s. a_ 10 c i — o (T3 •^ O en <_J CD C£ r— T3 >> C i^ o Q. •I — Q. CD 3 CD oo Of T3 •a 01 c +-> ro rO CD r— a> rO i- C a> O CD •t— > Z -Q (T3 IT) en CD o CD CD CD -a s o CD T3 CD CD iflifiOO •3- «3- CD in CM r». CO ID <=3- CM r^ «=1- CM CM O VO CO o ISflrl t—i IT) en cm vo «*- o c*5 «=a- r — . r^ o <— i CO CM CM kf •a- o en CM CO CO CO LO «a- lo <— i l—H co ro cm lO ro i— i O r-» CO r^ OlPOlH ro CM CM cm in cn en in io «a- cm i—i <— i in cm cm kr CM 10 in <— i CM lO i— I CM CM VO «o- CM CM •a- CM CO m o o CD CM O o en i— i in •a- CD CM P— «3- co CD in in ID in co r^ r». en CD r^ in in in CD o|T CM CD O CM CM r— I ■—•CM |^f CM o co cnK CO CD r-iffi .— i .— i \en o CO CO f*» ^HCD o r^ CM CM CM en <— i cm kr i— i ra ra o o CJ +J c •^ 3 -M u r— 3 • <0 -a 10 -4-> o i— O S- T3 h- a. +J o -a r— 4-> c ra •t- 4-> -C 10 r— u ra ra fO LU c r— o fO i— •r— Q. ra CD Q.+J a> < o QC I— -a o3 C "*- ra o r— ro ■M £ C m 3 O a) is> •f— 2 4-> T3 Ul ra •i— »r" z 2: c <♦- >4- O o O T- 4-> CD E « -M 3 i — ra 10 3 T3 a. a. • rO co oo •^ Ol o o O CD 1— 1— CO <-+ CD ^— ^-^— ^ i-H o« rO X5 .. UJ (/) c_> 01 cc +-> 3 o o zr in 159 low to 1985.0 MM tons for the high. Of the growth that is to occur by execution of the goals, approxi- mately two-thirds will be accountable to western production. The growth in the total West as a percent of the change in total U.S. from 1979 to 1990, varies between 63 percent and 72 percent, while from 1979 to 1995 the range narrows to 65 percent to 69 percent. From 1979 to 1990 the share of production from the total east declines from 71 percent to 50 percent and then still further to 45 percent in 1995. This declining share for the total East is primarily attributable to reduced output in south and central Appalachia since the Midwest maintains a stable share (19 percent to 24 percent) throughout the production horizon, while North Appalachia grows from 5 percent to 15 percent. (These share percentages were determined across time and scenarios). In the East region this growth is further reinforced by indicating that North Appalachia coal production increases between 52 percent and 78 percent from 1979 and 1995, and the Midwest grows between 133 percent and 272 percent, while Central and South Appalachia decline. These 1980 coal production goals were developed through the appli- cation of the Department of Energy, Energy Information Administration's Midterm Energy Forecasting system* (MEFS) and the National Coal Model** (NCM). Select baseline assumptions and regional electric demands from the 1979 midrange Annual Report to Congress (ARC) forecast were combined *The basic structure of the MEFS model will be discussed briefly in the section describing the Second National Energy Plan. (Section 5.5) **See Reference 43 for a description of this model. 160 with externally specified growth rates in electric demand for the high and low scenarios in the preparation of the overall scenario conditions. Other factors included in arriving at the low, medium and high produc- tion goals were synfuels demands, and industrial and export demands for coal . The electric growth rates were 2.2 percent, 3.2 percent and 4.4 per- cent for the low, medium and high scenarios between 1978-1995. For synfuels it was assumed that the presidential goals given tovthe Synthetic Fuels Corporation of 0.5 MM barrels per day by 1987 and 7.0 MM BD by 1997 would be accomplished. Siting of the facilities were geographically dispersed to encourage the use of various coal conversion technologies and to minimize impacts. Industrial coal demands were based on composite forecasts pre- pared by the Department of Energy Fossil II model. Finally, coal exports were correlated with the findings of the interagency Coal Export Task Force.* These assumptions not only contributed to the derivation of the production goals but were also used in the preparation of the coal con- sumption by end-use sector. The national demand was specified and there- after regionalized through the application of regional supply curves, transportation costs and other pertinent assumptions. The National Coal Model determined production in 30 coal supply regions that minimized coal delivery costs of meeting regional demands. The national coal demands by end-use sector are presented in Table 5-15 for each scenario *A further delineation of each sectoral assumption and the supporting documentation can be found in Reference 43. 161 .£ CO cn CO CO LO r-^ CTI o £ 3 r^« CO 1—4 r-» en CO o to to s_ c o O cn LO O CO «a- CM -M 0) o •r- _) to •— i LO S_ -i- 4- 1—4 O +J o CLt- to •f™ E — ^™ s_ r— 03 03 i— 33 to i— i f— 1 l-H en £ co 4- l-H 3 03 O .£ o -o •<- -M u s- O 03 +j t= to to -t-> 3 LU £ 0J o Cn 3 CM •— i r-^ CO CM o o •»-> •!— tO £ 3 O S. u CT> T3 i— i o >3- o CM 1—4 CM 03 £ T3 1- o 5- i— * O) to 1— 1 1—4 l-H to i— O £ CL 4- CU QL s: 1—4 O.T- -1- ,__ s_ £ U S- 03 o O +-> 0) 03 o «* CO to o to CM r-^ 03 i. O r— CO _i to i— i CM S_ CL 03 c l-H ■*-> XJ £ 0) o to "a £ O i/j • I— £ £ 03 •^ 33 4-> O 03 en Q. x: o r^ en CM o CM E to cu -o E cn o 0) £ +J cc £ 3 •r— to 1—4 LO I— 1 CM CO CM -a o £ LU to £ 3= to I— 1 l-H CM \ -i- 03 +J -M i — -a £ >> O o aa 03 -Q <_) •<- 5 a r _ £ S Q. tO -^ 03 o LO 3 co CM r~. CO o LO £ C £ •r— CO •r— • • • • • • O E O U O -t-> CI ■o CO o to l-H CM l-H CO o u •r- Q. l-H a to 1 — 1 l-H o s- -)-> e s: l-H 4-i — to 03 3 03 QJ Z 01 £■(->•<- £ O O 4-J 4- o ■sj- I-H CM <3" 1—4 CO •1- +J T- O o 3 CO 4-> i — o cn co r»» «— 1 CM f— 1 en Q. £ •<- OJ t— —1 to «— 1 en E a; +-> 4-> 03 3 OJ 3 03 O to 2 T3 O r __ £ ■*-> >^ O 0) J3 a. 33 i— 03 Cn u ja o en i-H 1 ■(-> r _ ^ • £ Z o to CO rH cn m 3 |— •r— 03 03 to LO O >— ^^— *» l-H oO a •r— 33 -M to 0) •^ s_ 3 £ i- -l-> CO U £ • • -Q co i- +J r— CU OJ CO -t-> i— 3 O • • LU 03 33 +J J1 1— ■a £ -£ s_ 03 T3 ■*-> to o I— u 3 o 4-> O _ CU Q£ T3 33 £ F— £ cu > X 1— Q.Z o O LU LU i— i 2: or CO LU z CO 162 within the time horizon. Up to now the discussion of the national and regional production goals has focused on the 1980 update but earlier projections of coal production were made that influenced previous leasing policies. There- fore, a comparison of the most recent prediction with the earlier goals is valuable in determining the degree of variability/sensitivity to changing conditions. Moreover, it can be seen how responsive the Midwest coal region (and in particular, Illinois since it is the largest producer) is to adjustments in the production goals. Table 5-16 compares the regional production goals attributable to the medium demand for each update. Four production goal projections are presented while only the June 1978, April 1979 and December 1980 are final. The July 1980 update is a preliminary goal. The final medium U.S. production goal for December 1980 is less than 1 percent above the June 1978 goal and 8.3 percent above the April 1979 goal for 1985 while 6.5 percent and 10.5 percent greater during 1990, respectively. The reasons for the increases include higher demands for coal exports and coal-derived synfuels, more stringent restrictions in use of natural gas in boilers, higher world energy prices, lower limits on nuclear capacity and higher expected conversion of utility boilers to coal. To counteract those growth variables, lower electric growth rates and higher real transportation costs dampened the magnitude of expanded production. Nevertheless, the positive growth factors substantially dominated the negative conditions. 163 ■o co Q. O "cu E > 3 O) •<- Q "O CO o s: CTl cn i— » • • o T3 CO c cn o co C CTl o •-• •r- +-> >> U r— * — * 3 3 00 T3 n c o o i. « ■*-> Q_ CTl r» +-> r— en s_ as •— i c O £ o <— 00 ■r— UJ j_ ^: o a. gr a O r-H OJ CO _J •f- fjj r _ c -a ra 3 c C2.T5 T3 g£ = o c CD O -1- a LO I lo co .a o cn en s_ co xj o £ CO a> en o i— < a a fO .— co 3 cn •r- cn o_cn CO CO c r-- 3 cn ■"3 <— 1 i- OJ -2 O E CO OJ cn u r— SJ Q LO CO cn >>o r— CO 3 cn -3 -— ' •r- cn Q.cn a; co 3 cn c o cn co or CM OC\JO HON cn oo i— i CsJ CO r-» cm r-» cm o t— • CO f- 1 i— t CsJ cm r» to cvj «a- CM r- 1 CM CM co cm co LO LO 0O CM O ■— I CM CM lo r*-» to r-^ «g- co cn cm CT> O r-t CM <— I CM ^" CM CO CO r^» LO >a- o CO CM lo LO CM lo co co r- LO LO i— I <3- CO «3- LO CO •SI- -H LO en •ST LO CO CO CO r»» •* CM ev- LO CO LO LO CO LO o LO cn «d- co Cn r>« CO LO «r CM r>. LO i— i co CO LO «3- o • • • • • LO CM r^ CO <—> T i—( LO LO CM «a- CO r-» 1 — LO CO CM CM LO en «* CO 1 — CO CO t— i LO «3- l-H CM lo >* r^. CO CM o CM CM LO r— • <— i cn co co co LO <— * CM CO <— • LO co cn LO lo r^. co CM CM LO r^ CM r- «3- <— i «3" CM LO LO CO t-H CM •=T CM LO CO o OCVIT CO LO fH hOcvj CM CM fO (Q ra LO CO cn «3" LU 2 =5 Q. CL Q. ea (/I Q. Q. C •M 4-> ■M ... •I— o o o O CO T3 o C cn (O cn r— 1 S CO A •^ LO > CO 0) cn '- i— ( a i- •r" o r" L|- J 3 00 a. ra s- o o o H- c "O o aj •r- a. 4-> o u r— 3 a> -a > o a» s_ -a a. 00 , — f— ra fO o o CJ cn ,^ c (O o c •t— o ■I-) •^ a cn 3 aj "3 QC O '_ oes Q. r _ f^ fO r— ra <13 ■z. r O H- •^ o cn 0) a s_ -t-> T3 o "O co a. cn =) ^H >> r— i- ra fl •p— 3 . 3 • r— -u C • E 3 CO LO *^» a» •r- cn p— s cq cn 0) s t— < i- o O a. o co -a cn c .— i ra CO C_J ce: o CO 164 Although these conditions and market attributes contributed to a higher 1980 goal across both time periods and past goals, the Midwest region exhibited mixed effects. For 1985 the 1980 update was greater by 3.6 percent than the June 1978 goal but less by 4.8 percent when compared to the April 1979 update. These 1985 results diverge significantly from that shown for the U.S. Moreover, a comparison of the 1990 Midwest goals show the growth moving in the same direction but varying in magnitude. The 1980 update forecast for 1990 is 4.8 percent greater than the June 1978 goal and 12.8 percent more than the April 1979 goal; both figures go outside the bounds of the national goal comparison. These results are difficult to interpret since a consistent pattern did not develop nor can a reasonable correlation be made in specifying the cause of the divergent shifts. It can be stated, though, that the Midwest main- tains its national share (18 percent to 21 percent) across all the goals at the medium demand level. When contrasting the final goals with the preliminary goals, the U.S. totals experienced at 16.5 percent increase in 1985, 15.7 per- cent in 1990 and 26.0 percent in 1995. The production differences are due principally to changes in assumptions concerning the amount of synfuel and export demands (increased), nuclear build limits (lowered) and limits of natural gas in utility boilers (lowered). The Midwest region in the final goal reacted by producing a higher percentage in the low scenario, approximately the same in the medium and less in the high as compared to the preliminary goals. This is illustrated in the follow- ing table which presents the finals goals as a percent of the preliminary 165 for the Midwest, Low Medium High 108.0 116.2 122.1 120.0 116.3 111.8 122.1 120.3 113.1 Midwest Region Final Goals as a Percent of the Preliminary Update Goals Scenario Year 1985 1990 1995 The higher national coal production implied by the December 1980 update has mixed effects on the regional production goals for each time period. The differences in regional electric demand growth, supply curves, transportation costs, and assumed export, synfuels and industrial demand for coal all contribute to the disparity in regional, scenario and temporal effects. What this means is that a careful tracking of individual variable effects is necessary to identify the significance of changes to the potential levels of output. This can be partially accomplished by comparing the production goals to alternate coal projections that have different assumptions and solution methods. For the 1979 ARC, the 1980 production goals employed the same medium world oil price tract and other (but not all) pertinent assumptions so some similar results are obtained. The low scenario 1980 goals are less than 1979 ARC while the high scenario goals are greater than the 1979 ARC. Mixed results are obtained at the 166 medium level: the production goal is less than ARC in 1985, and greater than ARC in 1990 and 1995. Not all regional production goals have the same relationship with regional forecasts as do the national goals and forecasts. A more meaning- ful regional /national comparison is possible at the medium scenario since the goals and forecasts share more common assumptions than at the low and high levels. Comparisons for the medium level show that the goals entail greater western production than in ARC forecasts because: 1. Industrial demands assumed in production goals analysis imply proportionately greater use of low sulfur western coal than is included in the ARC industrial demands for coal. 2. Relative to ARC assumptions, coal-derived synfuel demands underlying the goals are higher in total and greater for the West, and 3. The procedure for disaggregating electricity growth rates from DOE regions to National Coal Model (NCM) regions results in a somewhat higher growth rate for demand regions in West as contrasted to eastern portions of the Midwest. Additional details relative to these two Department of Energy, Annual Reports to Congress will be presented in the next section. 5.4.4 Energy Market Equilibrium Forecasts Five national energy forecasts were reviewed to determine their appropriateness in analyzing future coal production impacts on the agri- cultural lands within Illinois. Three of these forecasts are energy futures prepared for Congress in 1978 through 1980. The other two fore- casts are constructed in compliance the U.S. Department of Energy Organizational Act (Public Law 95.91). 167 Figure 5-3 displays these five forecasts by presenting their energy equilibrium (supply and demand balance) for each respective five year time increment from 1980 through 2000. The latest two Annual Reports to Congress also project energy supply and demand through 2020 but a separate model is employed, distinct from the mid- term time frame model. It is readily evident that as time has progressed, the projection of energy usage has declined markedly, from 138 quads in 2000 to 100 quads under the auspices of the 1981 National Energy Policy Plan. The national and Region 5 (Midwest) region production levels for each energy forecast is presented in Figure 5-4. It is obvious upon reviewing the relative positions of the national and regional coal pro- duction bars that there is not a substantial divergence between each of these forecasts. The 1979 NEP II forecast appeared to be predicting the lowest level of national coal production until the 1981 NEPP was released. This new forecast almost exactly coincides with the NEP II for the years 1985 and 1990. A direct comparison cannot be made for 1995 since the NEPP did not estimate a value for that time frame but it appears that coincidence would be reached in 1995 as well if one inter- polates the growth trend. The significance of the similarity between the national production levels for each year of concern is that it rein- forces the applicability of the NEP II coal forecast for use in this study. This is due to the fact that the 1981 NEPP study has incorporated the energy and economic philosophies of President Reagan thereby updating 168 ■5 S3 >■ s 8 o en en O en to ■a c a e o Q I _^ a. a. 3 V) (A — a — ■a o c o — c o Id -3 s- c 9 o to >• as 3 = c a ae ■a 2 m i IT) (snia SL oi ) savno c CD C a to OJ CO o c o 00 •t- ■ — +J a; -f- > -a a c _i o o c O +-> •r- (U 4-> J* U 5- 3 ra -a S o i- •i— GO CD ra oj u CC O) i- ■a o C Li- ra .— cr> ra t- C 0) o c LO « en CJ «a- t CC ID < o CD CD •r— Lf> U_ CO o> suoi WW 170 the earlier 1979 NEP II without rerunning the forecast. Moreover since the NEP II provides the greatest amount of spatial data the forecast can be applied to county-level assessments while retaining approximate coincidence with the revised energy sector goals and policies of the Reagan administration. 5.4.5 Selection of Coal Production Forecast The preceding review and evaluation of the coal projections and energy forecasts highlighted the relevant attributes of each outlook. Besides contributing to the selection of a coal production forecast to be employed in this study, the previous sections (1) discussed in sub- stantial detail the variety of approaches available to predict future coal production and consumption, (2) established a framework for com- paring the merits and attributes of each prediction of coal production, and (3) illustrated the variation in production levels and identified some of the contributing factors that affect the future production levels The first group of supply-derived projections were restricted to the short-term and lacked adequate county detail. The second group in this category identified the productive capacity additions and expan- sions relative to the state of Illinois. Although the descriptive scheduling of mine openings will be valuable to other parts of this study and in interpreting the county coal projections associated with NEP II, the restricted time span and the absence of a comprehensive, integrated demand component restricts its usage. High variability and uncertainty associated with individual industry projections also con- tributes to the limited applicability. The same concerns can be applied 171 to the third group of supply-derived projections, since industry expec- tations of coal purchase contracts drives the market analysis of likely production levels. A market analysis is the closest type of equilibrium condition since the demand market specifies the quantity necessary to be produced. The missing links are a resource inventory and cost curve to determine if the quantity and purchase price are adequate to produce that level of output. The final supply-derived projection, the coal production goals, accomplishes this link but expands the production aspects to account for various national and regional objectives while leaving demand to determine the feasibility of given output levels. If the appropriate factors were available to disaggregate this coal production projection to the county level, it could have been used in the study. Alternatively, in order to correlate the level of coal pro- duction with the other energy activities taking place simultaneously in future situations, a market equilibrium forecast is used. A market equilibrium forecast is comprised of a series of supply and demand balances between each energy source and end-use sector. Through this forecast method, the price, quantity and substitutabil ity of an energy type is accounted for in the context of other available and alter- nate fuels together with the demand pattern expected given the price and economic/noneconomic factors contributing to its level. The five forecasts reviewed in the previous chapter were of this nature. As indicated, each of them relied in the same modeling methodologies — the mid-term energy forecasting system — with the only difference being attibutable to alternate externally specified data inputs. Variability in this input data, which included all nonquantifiable assumptions, 172 was the primary contributor to the distinctions between each of the forecasts. Since these distinctions were not severe, especially relative to to the coal component of the forecast, any of the five forecasts could have been selected to represent the coal production level expected between 1980 and 2000. Because the Second National Energy Plan provided a readily avail- able county-level production forecast, disaggregated from the national projection, it was selected for use in this study. The previous section compared and contrasted it against the more recent forecasts of energy in general and coal in particular. Table 5-17 identifies the supply- derived and market equilibrium outlooks in contrast to the Second National Energy Plan. As can be readily seen, although there is some divergence, there is also relatively more convergence on the state, regional and national levels. The positive nature of this cross-comparison reinforces the selection of NEP II as the representative coal production level having some likelihood of coming true but more importantly providing the necessary data at the geographic scale needed to perform the subse- quent analysis. 5.4.6 The Second National Energy Plan The Second National Energy Plan, or as it is commonly called NEP II, was prepared for President Carter, who released it on May 7, 1979. The Plan called for future use of energy that would meet the goal of a more balanced use of energy resources, overcome a serious dependence on foreign sources of petroleum and rely more on domestic coal. The Plan was based on 1975 data, which was 173 Table 5-17. Midwest and National Coal Production Data by Time Frame and Mine Type for Each Forecast (MM tons) Midwest National Forecast 1985 1990 1995 1985 1990 1995 1985 Annual Report Surface Deep Total 60 162 222 39 251 290 38 339 377 570 463 1033 815 650 1465 1142 857 1999 1979 NEP II Surface Deep Total 83 65 148 80 85 165 73 172 245 980 1220 1480 1979 Annual Report Surface Deep Total 64 201 265 43 282 325 34 337 371 613 517 1130 607 737 1344 803 912 1715 1980 Annual Report Surface DeeD Total 56 110 165 35 222 257 22 297 319 594 437 1031 733 709 1442 949 929 1878 174 a turning point in the history of energy use. The decade began with the United States self-sufficient and ended with the nation facing energy scarcity. The transition between these two extreme situations was marked by a great number of changes in the sources of energy, the prices of energy materials and public issues surrounding energy use. For the coal industry, 1970 was relatively favorable since pro- duction of 612.7 MM tons was the highest level attained in greater than 20 years. A decline in industrial, commercial, and residential use of coal in the post-war period was counterbalanced by a moderate growth in coal use by the electric utility industry. By 1975 the domestic use of coal was 577 MM tons with an additional 65 MM tons being exported. While coal was supplying one-fifth (1/5) of total energy consumption, the majority of the coal was being supplied to produce electricity. Although Appalachia maintained the greatest share of pro- duction, the West was significantly increasing its productive capacity. Even though favorable conditions existed in the coal industry, scarcity, allocation problems, supply disruptions, and resource uncer- tainty were occurring with oil and gas. The National Energy Plan attempted, through the construction of scenarios, to illustrate the major areas of uncertainty. The following pages will outline the objec- tives of NEP II, identify the procedures employed in performing the forecasts and present the national Region 5 and the state of Illinois data relative to the county coal production forecast. 5.4.6.1 Projection Method The NEP II projections of future energy consumption and production 175 provide a set of internally consistent futures to guide energy policy planning and analysis. The projections are designed to integrate near-, mid-, and long-term outlooks into one, aggregate but consistent framework. Scenarios were designed to illustrate the two major areas of uncertainty: (1) world oil prices, (2) domestic supply/demand conditions. The world oil price scenarios explore the implications of alternate projections of future world supply and demand on the U.S. balance. Three world oil price scenarios were obtained by altering the expectations of future world GNP growth, OPEC productive capacity, non-OPEC supplies, net Communist imports, and the average costs of unconventional oil substitutes By accounting for all these factors, the scenarios were designed to bound the range of uncertainty but were not meant to track near-term world oil price fluctuations. In this regard, prices were assumed to increase smoothly and level off at a long term price ranging between S27-38/barrel . In actuality, prices may not take a smooth expansion path (i.e., abrupt adjustments in 1973-1974, 1979) but instead have the potential to overshoot the long-run price due to long lags in the planning and production sectors for oil and shifting demand away from a dependency on liquids. The NEP II scenario results were derived from the Mid-term Energy Forecasting Model (MEFS) which includes: • regional supply models for oil, gas, coal and electric • regional demand models by sector-residential, commercial, transportation and utility • regional conversion models for refineries and utilities • integrating model for computing a multiregional , multi commodity energy supply/demand balance 176 MEFS, therefore, is an integrating model of several models: 1) MEFS supply model computes production and processing levels for various forms based on costs and prices, 2) MEFS demand model computes designed levels of consumption of various commodities based on price elasticity and cross- elasticity, and 3) both supply and demand are made dependent on various exogenous factors constructed for scenario evaluation. Table 5-18 presents the major assumptions associated with the Second National Energy Plan. Most of the assumptions/conditions included in this plan are still in existence today with the only significant difference being the oil price tracks used in this earlier scenario. In the NEP II scenarios an imported oil price range of $16-38/barrel (1979 dollars) was assumed for the years 1980-2000, which is substan- tially below current prices. According to the world oil price track, the high growth rate scenario, coal increases by 139 percent between 1980 and the year 2000, while increasing its production market share from 26 percent to 38 percent. All other fossil fuels decline in produc- tion during this same time frame. In end-use consumption, coal also increases by greater than 100 percent between 1980 and 2000 while its market share grows from 7 to 11 percent. Increased market penetration in both production and consumption relate to the moderate price increases predicted for coal. The delivered price for coal increases by 10 percent while gas prices increase 121 percent and oil 64 percent over the 1980-2000 time- frame. 177 Table 5-18. Second National Energy Plan Assumptions Aggregated by Energy Source General • Projections include President Carter's April 1979 energy proposal on: - phased decontrol of oil prices - windfall profits tax - shale oil tax credits - new solar initiatives • Total ramifications of National Energy Act of 1978 included • World oil prices are projected to rise in real terms to $20/barrel in 1985 and $32/barrel in the year 2000. • GNP grows at 3.5 percent/year from 1978-1985, and 3.1 percent/year from 1978-2000. Oil t Undiscovered resources and indicated and inferred reserves assume USGS "mean" estimates. t Domestic oil prices are decontrolled gradually from 1979-1981 and fully decontrolled thereafter. A wellhead tax on windfall profits is assumed. • No domestically produced crude oil (especially Alaskan production) is assumed to be exported. • The trans-Alaska pipeline can be expanded to a carrying capacity of 2.2 million barrels of oil per day after 1985. • The proposed Standard oil of Ohio oil pipeline connecting the West Coast to the Gulf is not assumed to be operational (unused El Paso Gas pipeline) . Gas • Natural gas prices to producers are limited as specified by the Natural Gas Policy Act' of 1978 (decontrolled after 1985). t Undiscovered resources and indicated and inferred reserves assume USGS "mean" estimates. • The Alaskan natural gas pipeline will be completed by 1985. 178 Table 5-18. (continued) Gas (continued) • The price of natural gas imports under new contracts is tied to the world price. The surcharge added to industrial gas prices is assumed to be based upon the price of distillate oil. Coal • Federal leasing of surface-mined coal adeauate to satisfy demand. • Coal reserves are based on uses "mean" estimates. • Coal exports reach 110 million tons by 1985. Utilities t Rate reform previsions of National Energy Act result in the use of time-of-day rates that improve electric utility oDerating efficiencies. • Construction and siting delays of nuclear power plans are expended due to non-economic forces. t Nuclear capacity is expected to double to 100 gigawatts by 1985, and grow to approximately 250 gigawatts by 2000. • The coal conversion regulatory program prohibits the construction of new gas baseload capacity; baseload oil is allowed only where economically justified. • Pursuant to Eseca requirements, oil and gas-fired conversions to coal are mandated to occur by 1985. • Existing coal plants are assumed to be in compliance with state implementation plans. Plans under construction are assumed to meet new source performance standards. 179 5.4.6.2 Summary of Energy Forecast for the Midwest Region and State of Illinois Using the national energy production and consumption output from the MEFS and fossil 2 models, regional and state data were derived by using the shift-share (regional economic development technique to disaggregate the national forecast to more usable results. The shift share process involves using spatial functions derived from correlation analysis of the nation-to-the-region, and the region-to-the-state in terms of key economic, energy sector and fuel type data. The economic data used to disaggregate the national data to Region 5 (Midwest region) is presented in Table 5-19. A similar table and process was then employed to further disaggregate the regional projections to the individual states within the region. According to the NEP II Midwest forecast, II 1 inois has the greatest production level of any Midwest region state and it is principally due to its predominance in the extraction of its coal resources. Although Illinois ranks first in the production of energy resources within the region, it often ranks second to Ohio in terms of energy consumption. Most of the energy consumed within the Midwest region is by the electric sector. For Illinois, coal supplied approxi- mately 70 percent of its 1975 electrical output while by 2000 this is predicted to drop to less than 50 percent. The other states in Region 5 rely more extensively on coal since their nuclear program is not as significant as in Illinois. The future growth of nuclear power within the state of Illinois will therefore dictate the amount of coal consumed in the electric sector. 180 Table 5-19. Region 5 Economic Growth Rates Employed in Shift-Share Deployment of Second National Energy Plan Projections for Energy/Economic Activity Percent Growth Rate Sector 1975-1985 1985-2000 1975-2000 Total 4.79 2.60 3.47 Agriculture -0.92 0.72 0.06 Mining 3.01 1.91 2.35 Construction 6.38 2.78 4.21 Manufacturing 4.48 1.73 2.82 Food 1.52 0.56 0.94 Paper 4.41 1.95 2.93 Chemicals 4.01 2.55 3.13 Petroleum 4.45 1.60 2.73 Primary Metals 4.09 2.11 2.90 Other 5.15 3.12 3.93 Population 0.52 0.39 0.44 181 5.4.6.3 County Coal Production Forecast for Illinois The coal mining and reserve data base supporting the Second National Energy Plan coal production forecast was compiled through reliance on the Keystone Coal Manual (1977) for 1975 production statistics and the United States Geological Survey (USGS), Bureau of Mines(BOM) and Keystone Manual Data Reports for county coal reserve delineation. Table 5-20 presents the data sources used to site the new coal mining activity. The procedure employed in determining county coal production is as follows: The model assumes initially that existing mines supply the coal required. Annual production of existing mines are then depre- ciated exponentially over time with planned mines opened to meet coal requirements in a chronological order, but not necessarily on the proposed date specified by industry. When planned mines are exhausted, additional requirements are met through the regional supply distribution forecast of MEFS for the 12 coal supply regions. This procedure results in a preliminary siting. Then, county coal reserves are compared to the amount of coal mined in the county. If reported reserves are exceeded by greater than 20 percent, the new mines are resited in the nearest counties having coal reserves of similar Btu and sulfur content. The county coal reserves supporting the NEP II forecasted pro- duction in Illinois are presented in Table 5-21. Through the identified procedure, and using the production targets established by NEP II, county coal production for 1985-2000 is presented in Table 5-22. Productive capacity is forecast to expand from 60 MM tons in 1975 to 136 MM tons 182 Table 5-20. Data Sources Used in Sitina New Coal Mines for NEP II Type of Data Source Location and base year coal production of existing mines (1975) by county. Adjustment of county production to meet state control totals Planned mine openings; location by county and annual mine capacity Thermal content and sulfur content of ccal by county Keystone Coal Industry Manual , 1977 Coal-Bitumen and Lignite in 1975 , Bureau of Mines, 1976. Projects to Expand Fuel Sources , Bureau of Mines, 1976 New Coal Mine Additions and Expansion Plans , National Coal Association, 1977. Keystone Coal Industry Manual , 1977. National Energy Transportation , Vol. I; Current Systems and Move- ment , Congressional Research Service, 1977. Appendix 3, l! Sulfur Content of American Coal Reserves by County Adjusted for Heat Value." Coal reserves by county The Reserve Base of U.S. Coals by Sulfur Content , Bureau of Mines, 1975 183 Table 5-21. County Coal Reserve Data Supporting the Illinois Production Forecast of the National Energy Plan II County Name Reserves by Mining Type c Underarcund Surface Total Christian Clinton Douglas Frank! in Fulton Gallatin Hamilton Jackson Jefferson Johnson Knox Macoupin Montgomery Peoria Perry Randolph St. Clair Sal ine Stark Vermi 1 ion Wabash Will iamson Total 3,347 1,322 412 3,038 221 1,761 2,440 227 1,800 b 68 3,421 3,910 289 1,201 214 951 2,553 1,544 262 1,573 30,550 3,347 1,322 412 3,038 1,810 2,030 230 1,991 2,440 300 526 b 1,800 b b 605 673 176 3,597 3,907 1,422 1,711 973 2,174 417 631 1,163 2,114 431 2,985 237 237 353 1,397 24 286 530 2,103 8,671 39,220 Notes: a) County coal reserves by mine type include only those counties with existing or forecasted production in 1975 and therefore does not represent all economically recoverable reserves nor those found in the complete Bureau of Mines coal reserve file. b) Represents insufficient data or reserve uncertainties that restrict identifying a value estimate. The exclusion of these county data values are thereby absent in the totals. c) Totals may not add due to rounding, 184 r^^r— r—^'O^'CO n cm ~ r» C CTi r-»| VO ^C*vnOCMCOVOCMO * — ' ^* »■« [*> o r» vo o TO-iO CO ro o o o NO' — '-< O r- —• cm cm O — « ~— — •t «r «■ r» 1 Ul — « CO rv o^ i/l O — C\J CM VO cr> o n vo Or- CO lOrs .— cn «a-l en co co co co vn cm o — t^o m m lOM — ionrsCMCOcy ^vo vo — CO r-. vn co vo vn vn »-i CO -" CO — CM — t CM ^^ vn CO vo vn co co ^ r— crt cm ~* co cm vn «— ~« vn -h O CO T vo n O — ncvj o CO CM *T *T CM CM co co CO «T • — 'VO 1 • ■ IO • CM o CM O ^- — 00 rs CD fO tn ud vo <— i oco»-n CM O ^ ~* u-> .-« «r co m ao lo vO "O ^ O co ^ r** Cf^ »-* CO ~ KO <— ' CO CO ^ CM o C2 o> ~ co CM C — i en CM O O O CO CO o *+ CM VO CO CTt «-i ul CM nn t— 1 CON O O — -co CO O "^ CO cr> — co co vo •— vn O CM O CM CO] "3- CM vn P— CM O VO ■ — '<-« CM — O •— ' vn vO MOO-C1 en vn O C- CM O CM O o o —» — • O — I CM «T — O O — r» O o o ■a o O r— CO ~~ — vn o m cm tn —• i — r— J cm vn CM — « — vo in lu a. o — o FHr>»«inrsvnulr»»«fv.ulN CMCM^inLnvnvor— coooeri^- OOOOOOOOOOO— I vn in co vn en »— vo p— ao co cr» to VJ o >» B B c L. k c O •— j. a *3 ^~ v> cu l/l 3 cn-^- ^ o c ^ •— l/> ■ — •— - a» c — * -1 <4_ E x o — • s. s. TJ •— 1_ E "5 s_ *■ 3 a pM — = VJ v>- -c a u c o v. C • — TJ k. -2 pM JS .— o s. 3 T3 ■■a ■O 1) a e r3 O 0) 11 « —> U^ ^-Low demand boundary Extremely low demand \Q< \o e« , sceoo^ hr. 30.se fit* 10 The present 990 -Time Quantitative assumptions and projections representing the alternative parameters and outcomes of the NIRAP scenarios. Demand higher and aggregate supply even lower than on the High Demand boundary. 'Demand lower and aggregate supply even higher than on the Low Demand boundary. Figure 6-1. A Two-Dimensional Portrayal of Alternative Future Scenarios for United States Agriculture SOURCE: Schneider, R. E. and Swanson, E. R. , A Summary Report . Agriculture in Illinois: Alternative Fut ures for the 1980s, 1979" " " 193 defined by these sets of assumptions are referred to as the Baseline, High Demand/Low Supply, and Low Demand/High Supply scenarios. Taken together, such scenarios bracket a range of possible future conditions in the general economy and provide a basis for alternative projections regarding Illinois agriculture. The Baseline scenario's set of assumptions and projections repre- sents current long-run trends in the U.S. economy, and the agricultural demand projections are associated with the continuation of those trends. By referring to Table 6-1 we see that the NIRAP Baseline assumes moderate growth in the general economy, with the level of economic activity and population increasing at annual rates slightly above those for the 1970- 77 period. Consumers would continue to use vegetable-based products as a substitute for 2-5 percent of their meat diets. Agricultural trade would grow at moderate rates, as foreign countries attempt to develop additional self-sufficiency in their own agricultural economies. The assumed Baseline inflation rate implies a drop from recent annual rates, although the rate is still higher than the post-1960 average. Increases in public expenditures on agricultural research and extension follow the long term trend begun in the early 1940s, with weather conditions in 1990 approximating the average during the past 40 years. The High Demand/Low Supply alternative, referred to hereafter as High Demand, assumes stronger growth in the general economy and higher rates of increase in population growth and agricultural trade. Popula- tion increases at a rate greater than the average since 1960, while GNP grows at a rate closer to the average since 1960. These changes 194 in demand factors lead to a strong annual growth in demand for agri- cultural products. The High Demand supply assumption of a high rate of inflation, because it raises the cost of agricultural production, actually leads to a potential total supply below that associated with the Baseline assumptions. Real expenditures on agricultural research and extension under the High Demand assumptions continue at present levels but are offset by the supply-depressing effects of high inflation and adverse weather. At the other extreme from the Baseline, the Low Demand/High Supply (Low Demand) scenario assumes much smaller increases in demand for agri- cultural commodities due to low annual rates of growth of population, economic activity, and agricultural trade. Supply, however, is stimulated by a low rate of inflation, good weather, and high expendi- tures on research and extension. While future outcomes beyond the extremes implied by the High Demand and Low Demand assumptions are not impossible, it is more likely that the general economy will operate within the range defined by these demand boundaries. If individual determinants do take on values more extreme than these boundary assumptions, it is likely that other determinants, such as price movements, will change to offset the affects of the discrepancy. It is expected that Illinois agriculture will adjust within a range of outcomes determined by potential changes at the national level. Past trends and expected future changes in the distribution of U.S. 195 agricultural production among regions and states lead to projections of the Illinois share of U.S. total production of each commodity. Exports, however, play a key role in the projections for Illinois agri- culture, and need to be highlighted. The composition of the total export market, as opposed to the gross level of exports, is of special significance to Illinois farmers: as mentioned previously, Illinois production accounted for nearly one- fifth of total U.S. exports of feed grains and soybeans and their products, and nearly one- tenth of total exports of meat and meat products. Because foreign exports are a chief component of total demand for agricultural products, the income received by Illinois farmers is especially sensitive to projected changes in export demand under the various scenarios, as seen in Table 5-2. Table 6-2. Changes in Export Demand for Selected Illinois Farm Commodities, 1976 to 1990 P roiec Jed Perc snt Chanae By Scenario Commodity Hign Dem and Baseline Low Demand Beef and Veai 70 49 22 Pork 59 (-33) (-43) Wheat 6 14 (-12) Soybeans 81 63 7 Corn 12 15 (-43) SOURCE: Schneider, R. E. and Swanson, E. R. , A Summary Report . Agriculture in Illinois: Alternative Futures for the 1980s, 1979. 196 6.2 Projections of Agricultural Demand Within the context of the alternative scenarios described, the projected future of Illinois agriculture can be presented. In the fol- lowing paragraphs, future Illinois crop, livestock and dairy production, financial projections for the state's agricultural sector, and projected land use requirements are each discussed. 6.2.1 Projected Crop and Cropland Demand A discussion of Illinois' projected crop production necessarily begins with information on the size, numbers, and organization of Illinois farms, both today and as anticipated over the next twenty years. Over the last 10 to 15 years, the number of Illinois farms has steadily decreased while the average size of farms has grown at ever- increasing rates. Farm cost data show that larger farms can be operated more efficiently, with lower per acre costs due to the exploitation of larger agricultural machinery and managerial economies of scale. In addition, the business structure of farms has more recently been characterized by a declining percentage (from 43 percent in 1940 to 21 percent in 1974) of farm operators who rent their entire acreage, an increasing percentage (from 15 percent in 1940 to 33 percent in 1974) who own part of their land, and a steady percentage (47 percent) who fully own their land. It is anticipated that individual proprietorships will become a smaller proportion of the total number of farms in the future, and that the pattern of declining farm numbers and increasing farm size will 197 continue. Table 6-3 shows projections of 1990 average farm size and number of farms in Illinois by production area. These four production areas, shown in Figure 6-2, geographically divide Illinois into regions defined by the prevailing farm enterprise. The "production area" method is utilized by the USDA, and enabled authors of the Summary Report to better utilize the available USDA data. This convention also aids in the presentation of the projected Illinois crop production and crop yields, Table 6-3. Projections of 1990 Average Farm Size and Number of Farms in Illinois Number of Farms Average Farm Size Percentage Percentage 1974 1990 Change 1974 1990 Change Illinois Area 1 Area 2 Area 3 Area 4 SOURCE: Schneider, R. E. and Swanson, E. R., A Summary Report . Agriculture in Illinois: Alternative Futures for the 1980s, 1979. 1 1 1 .042 83,902 -24 16,307 12,200 -25 27,773 21,250 -24 34.312 26.950 -21 32,545 23.500 -28 262 311 + 19 246 283 +15 272 320 +T8 297 349 + 18 225 277 +23 New technologies such as hybridization and improved fertilizers have led to increases in Illinois' corn and soybean yield which have, 198 Figure 6-2. Major Agricultural Production Areas in Illinois, by Type of Prevailing Farm Enterprise SOURCE: Schneider, R. E. and Swanson, E. R. , A Summary Report . Agriculture in Illinois: Alternative Futures for the 1980s, 1979. ' 199 for corn, been historically higher than the national average. In addi- tion, the combination of inexpensive fertilizer, high grain prices, the development of new cropland by draining and clearing of forests, the decline in rotational pasture and government set-aside acreage, the decline in acreage of hay and specialty crops, and the decline in acreage of small grains has led to an increase in the acreage harvested for row crops. Corn and soybeans increased to 80.9 percent of total Illinois cropland in 1977. It must be noted that further increases in the acreage of these two major crops may lead to serious risks of increased soil erosion, in the absence of technological advances to ward off this problem. Future changes in crop production in Illinois depend on the contin- uation of increased yields, improved plant environment, and larger, more powerful farm machinery. The NIRAP projections of U.S. production and Illinois shares incorporate the potential for the existence of these factors as well as many others, and lead to projections of future Illinois crop production, given the alternative assumed aggregate demand and supply conditions. Table 5-4 presents the projected 1990 Illinois Crop Production for each of the three scenarios. Much of Illinois farmland is already being farmed. As one can see from Table 6-4, projected increases in total U.S. demand and pro- duction will lead to greater proportional increases in other states' shares, and a slight decline in the share of U.S. production originating in 200 Table 6-4. Illinois Shares of U.S. 1990 Production of Selected Crops Compared to the Present, and Projected 1990 Production by Scenario Share of U.S. Total Total Production in 1990 Present 1990 High Demand Baseline Low Demand (percent) (million bushels) Corn 19.6 18.3 1.272.0 1,333.8 1,157.3 Soybeans 19.3 16.7 442.3 398.3 297.6 Wheat 3.0 2.3 57.5 57.8 48.1 Oats 4.5 3.0 20.8 21.9 22.4 Barley .2 .1 .6 .6 .5 Rye 1.9 1.4 .5 .5 .5 Grain Sorghum .1 .9 9.1 9.4 9.4 SOURCE: Schneider, R. E. and Swanson, E. R., A Summary Report . Agriculture in Illinois: Alternative Futures for the 1980s , 1979. Illinois. Nevertheless, large increases in total soybean production in Illinois are projected under both High Demand and Baseline conditions: approximately 51 percent and 36 percent more, respectively, than average state production during the 1975-77 period. The increases in corn pro- duction are more modest, with a 10 percent increase under Baseline con- ditions and only 5 percent under High Demand Conditions. Corn production is lower under High Demand conditions because the higher foreign demand results in increased emphasis on production of soybean for export. The distribution of this projected production among the different farming areas of Illinois will depend on relative future yields in those areas and changes in cropping patterns. Table 6-5 shows projected 1990 Illinois corn and soybean yields by production area compared in 1977 yields. Projected yields are highest under the Low Demand assumptions and lowest under the High Demand assumptions since the Low Demand scenario assumes increases in productive technology and favorable weather while the High Demand scenario assumes the opposite. The assumed low product 201 prices and returns prevent the projected yields under the Low Demand scenario from being even higher than those indicated in Table 6-5, while high input prices restrain farmers from increasing yields through maximum use of technology under the High Demand scenarios. Table 6-5. Projected 1990 Illinois Corn and Soybeans Yields by Production Area Compared to 1977 Yields Projected 1990 1977 High Demand Baseline Low Demand (Bushels per Acre) Area One Corn 115.2 100.6 112.4 113.0 Soybeans 38.2 32.3 35.2 36.3 Area Two Corn 100.7 114.8 128.3 128.9 Soybeans 38.2 37.3 41.4 41.9 Area Three Corn 108.6 125.9 140.6 141.4 Soybeans 39.8 38.0 42.1 42.7 Area Four Corn 89.9 34.6 94.4 94.9 Soybeans 31.8 28.1 31.1 31.5 State Average Corn 105.0 112.0 126.0 128.0 Soybeans 37.0 34.0 38.0 39.0 Sourca: Scott. A ERR 170. SOURCE: Schneider, R. E. r»nH Swnnsnn, E. R., A Siinwapv Pgpcrt . Agriculture in Illinois: Alternative Futu res for the 1980s , 1979"! ~~ The acreage required to attain projected crop production increases with increased crop production and decreases with increased yields. These offsetting factors, as well as estimates of relative availability of land, were used in estimating the projected 1990 Illinois acreage required by all grain crops, both for the entire state as well as the four production areas, as compared to 1974 available cropland. The estimates, shown in Table 6-6 , indicate that some pressure on land would result should the High Demand conditions actually develop. Under 202 Table 6-6. Projected 1990 Illinois Acreage, All Grain Crops, Compared to 1974 Cropland Available, by Area of the State High Oemand Baseline Low Demand (Thousand Acres) Area One Total Required Acreage 1974 Cropland Difference 3.527 3.437 -90 2,907 3.437 530 2.225 3,437 1.212 Area Two Total Required Acreage 1974 Cropland Difference 6,329 5.874 -455 5,194 5,874 680 3.775 5.874 2,099 Area Three Total Required Acreage 1974 Cropland Difference 9.435 9,216 -220 9,086 9,216 130 8,236 9,216 980 Area Four Total Required Acreage 1974 Cropland Difference 7,002 5,873 -1,129 5,603 5,873 271 3,957 5,873 1,914 State Total Required Acreage 1974 Cropland Difference 26,293 24,400 -1,893 22.789 24,400 1,611 18,195 24,400 6,205 SOURCE: Schneider, R. E. and Swanson, E. R., A Summary Report , Agriculture in Illinois: Alternative Futures for the 1980s, 1979. 203 such conditions, all existing cropland would be used, and new acreage would have to be developed, even if no acreage were allocated to hay and forage. For the state as a whole, this High Demand 'deficit" in required cropland of 7.7 percent ( -gOg-g ) could come from existing grass- lands and woodlands, both in and out of farms, which accounted for a total of 15.6 percent of Illinois land in 1974. (See Figure 6-3.) In any case, given competitive conditions, if the demand for cropland increases at all prices, returns to cropland would rise, and land would be converted to cropland at a higher rate than, say, under Baseline condition assumptions. Under the Baseline and Low Demand scenarios, no such pressure on land due to projected crop production is indicated. 6.2.2 Projected Livestock Production Although during the 1974-76 period the sale of livestock and poultry and their products accounted for 33 percent of the cash income of Illinois farmers (of which 80 percent was from hogs and cattle), this sector of the Illinois economy has steadily declined since 1960. Reduced profitability of livestock and poultry production (and losses in many cases), and the comparatage advantage of Illinois in grain pro- duction, help to explain this trend. Future changes in livestock production in Illinois will be influenced by changes in aggregate domestic demand for meat and by the resulting prices. In the past, increases in demand for beef have resulted in increasing per capita beef consumption, even while prices were rising. Pork 204 Total land in farms 81.5% Grassland in farms Other Farmsteads, lanes Woodland in farms - / / / Woodland £. / / not in farms Grassland not in farms Other* (0.7%) Unspecified Rural transportation Urban areas . Total not in farms 18.5 % - "1 Source: Schneider and Fettig, AERR-168 * Other ! Parks and refuges, 0.5 7o ; Federal defense and industrial areas,0.2 % Figure 6-3. Proportion of Illinois land allocated to major farm and nonfarm uses in 1974 SOURCE: Schneider, R. E. and Swanson, E. R. , A Summary Report . Agriculture in Illinois: Alternative Futures for the 1980s, 1979. 205 consumption declined somewhat, even as prices rose. The increase in the consumption of poultry meats has been proportionately greater than the decline in poultry prices. Demand for meat in total and by type is a function of total popula- tion, disposable income and consumer preferences. The High Demand alter- native NIRAP assumptions include increases in poulation and income and thus result in projected increases in aggregate demand. The increase of protein substitutes in the Low Demand scenario would dampen effective increases in demand, especially for beef. Supply conditions also affect relative prices and, thus, actual consumption patterns. The mix of demand and supply relations simulated in the NIRAP system leads to projections of per capita consumption of selected meat items. By applying projected state shares to U.S. totals, Illinois livestock and poultry production levels were developed. Since the Illinois shares of U.S. livestock and poultry production have declined during the last 20 years, this trend was assumed to continue, but at a slower rate of decline. Table 6-7 shows the projected 1990 animal numbers and percent change by type of animal and area of Illinois. The greatest proportionate increases indicated for beef and pork are in southern Illinois (Area Four). Area One will have increases in beef cow and fed cattle numbers, with a relatively smaller increase in pork production. Area Two will also have a large increase in pork production. Overall, the projected changes in animal number by production area, a reflection of the forces of comparative advantages in the past, are not significantly different from changes which would be expected given 206 ible 6-7. P rojected 1990 Anima 1 Number -s and Percent ; Change by lype if Animal and Area o f Illinois 1974-76 Projected 1990 Percent chan ge. 1974-76 to 1990 Animal Type/ Area Average High Demand Baseline Low Demand H igh Demand Baseline Lov .' Demand (Thousand Animals) All Cattle: One 832.5 833.3 807.8 759.0 .1 - .3 - 3.8 Two 1,083.6 1,219.8 1,182.5 1,111.2 12.6 9.1 2.5 Three 623.1 350.0 339.3 318.8 -43.8 -45.5 -43.3 Four 744.1 929.9 901.4 847.0 25.0 21.1 13.8 State Total 3,287.3 3,333.0 3,231.0 3,036 1.4 - 1.7 - 7.6 Beef Cows: One 103.3 139.1 134.9 126.8 34.7 30.6 22.7 Two 333.0 355.7 345.0 324.1 6.8 3.6 - 2.7 Three 179.6 73.3 71.1 66.8 -59.2 -60.4 -52.3 Four 242.5 264.9 256.9 241.4 9.2 5.9 .5 State Total 859.0 833.0 808.0 759.0 - 3.0 - 5.9 -11.5 Fed Cattle: One 275.8 362.6 351.5 330.0 31.5 27.4 19.7 Two 312.3 305.3 296.4 278.3 - 2.1 - 4.1 -10.9 Three 164.4 137.2 133.0 124.9 -16.5 -19.1 -24.0 Four 110.9 174.4 169.1 158.8 57.3 52.5 43.2 State Total 863.3 980.0 950.0 892.0 13.5 10.0 3.3 Sows Farrowed: One 204.6 230.9 231.0 226.8 12.9 12.9 10.9 Two 661.1 855.2 855.7 840.1 29.4 29.4 27.1 Three 260.6 241.4 241.5 237.1 - 7.4 - 7.3 -10.0 Four 272.0 421.5 421.3 414.0 55.0 55.1 52.2 State Total 1,398.3 1,749.0 1,750.0 1,718.0 25.1 25.2 22.9 Pigs Saved: One 1,437.6 1.616.2 1.517.0 1,587.2 12.4 12.5 10.4 Two 4,536.5 5,987.3 5,990.2 5,379.7 32.0 32.0 22.6 Three 1,824.5 1,689.7 1.690.5 1,659.3 - 7.4 - 7.3 -10.0 Four 1.919.4 2.950.8 2.952.3 2.397.3 53.7 53.3 51.0 State Total 9,718.0 12,244.0 12.250 12,024 25.0 26.1 23.7 Stock Sheep: One 35.7 18.4 15.2 18.4 -48.5 -57.4 -48.5 Two 65.3 30.5 25.4 30.5 -53.6 -61.4 -53.6 Three 62.2 22.2 18.4 22.2 -64.3 -70.4 -54.3 Four 28.0 10.9 9.0 10.9 -61.1 -67.9 -51.1 State Total 191.7 82.0 68.0 82.0 -57.2 -64.5 -57.2 Layers: One 1,296.3 633.5 611.7 617.1 -51.1 -52.3 -52.4 Two 533.0 172.8 166.8 168.3 -67.6 -68.7 -63.4 Three 2,805.1 3,800.9 3.670.3 3,702.6 35.5 30.8 32.0 Four 1,802.6 1.151.8 1.112.5 1,122.0 -36.1 -38.3 -37.8 State Total 6,437- 5,759.0 5,561.0 5,610.0 -10.5 -13.6 -12.3 URCE: Schne- ider, R. E. anr 4 Swan son, E. R. , A Surrrr'ar y Report. Agriculture in Illinois: Alternative Futures for the 1980s, , 1979. 207 continuation of past trends. The most obvious changes for the Illinois livestock economy implied in the NIRAP projections is the projected state increase in pork production. Any potential pressure on land resources would arise from projected increases in beef cow numbers in Areas One, Two and Four which outweigh the decline in beef cow numbers in Area Three, a situation which could only arise under the High Demand assumptions, and then only if sheep and dairy do not maintain their marked downward trend. Specialization in livestock and poultry production has been asso- ciated with increasing size of enterprises just as in crops. In Illinois, this has been more true for pork production than for beef, and is partly responsible for the higher level of pork production. Lower unit costs will continue to favor larger pork-producing enterprises on fewer farms. Beef production, on the other hand, although the size of enterprises has increased somewhat, has remained a fairly small- scale operation in Illinois, especially when compared to national trends. This pattern is expected to continue. Dairy production in Illinois, although part of the state's total livestock economy, has characteristics which warrant special attention. Dairy production, processing, and distribution tend to be more localized and thus is subject to evaluation as a coordinated industry within an area focused in or near Illinois. Milk production in Illinois, as well as the number of milk cows, has declined more sharply over the last 30 years than in any adjacent 208 state. Total milk production is expected to be in the vicinity of 1.5 billion pounds by 1990, down from 2.5 billion pounds in 1977. Cow herds are expected to nearly halve in number by 1990 as well. (See Table 6-8). These projections are not likely to be highly influenced by the alternative conditions at the national level that form the alter- native NIRAP scenarios. The high returns to corn, soybean, beef and pork production under High Demand conditions would probably further weaken the ability of dairying to compete for productive resources, thus leading to slightly lower levels of milk production. At the other extreme, the lower relative profitability of competing enterprises under Low Demand conditions would be offset by reduced aggregate demand for milk, given lower income and population growth. Thus, total milk pro- duction and milk cow numbers vary little with scenario: both continue to dec! ine sharply. Table 6-8. Share of Illinois Milk Production by Area of the State 1976 1985 1990 Area One Area Two Area Three Area Four SOURCE: Schneider, R. E. and Swanson, E. R., A Summary Report . Agriculture in Illinois: Alternative Futures for the 1980s, 1979. (Percent) 48.3 46.0 44.0 10.9 8.0 7.0 11.8 10.0 9.0 28.9 36.0 40.0 209 6.2.3 Financial Projections for Agriculture Financial projections for Illinois farming differ significantly with each scenario. Table 6-9 shows the variation in gross farm income, expenses, and net farm income of Illinois farmers projected as a result of the alternative combinations of economic conditions. As might be expected, all are highest under High Demand assumptions. Under Low Demand conditions, income and expenses increase yery little from 1978 levels. Expenses do increase more than gross income, however, so that net farm income drops to half of the 1978 level by 1990. Table 6-9. Projected Total Farm Income and Expenses for Illinois Farm Sector, 3 and Distribution Among Major Items 1978 Projected— 1 990 Hign Low Demand Baseiine Demand Gross Farm Income (billion dols.) S 7.4 S23.8 S15.3 S 8.9 Sources: (percent) Crops Livestock Government payments Other 55.0 34.0 1.0 10.0 60.6 28.4 11.0 59.2 30.6 .1 10.1 56.9 33.0 .1 9.9 Total Expenses (billion dols.) S 5.9 S16.5 ST 1.5 S 8.1 Sources: (percent) Operating expenses Depreciation, Capital cons. Property tax Interest Net rent 50.0 21.0 6.0 9.0 12.0 45.4 20.7 6.1 13.2 14.6 43.3 20.9 7.4 14.7 13.7 45.3 20.3 9.1 16.0 9.3 Net Farm Income (billion dols.) S 1.5 S 7.3 S 4.4 S .3 Expenses/Gross Income (percent) 79.9 69.3 72.8 91.0 Not adjusted for inflation. Percent of gross income and total exoenses. Schneider, R. E. and Swanson, E. R., A Summary Report. Agriculture in Illinois: Alternative Futures for the iraos, 1979. 210 The projections indicate that an increasing proportion of Illinois farm income will be derived from crop production. Under Low Demand conditions, however, the reduced foreign demand does lead to a decline in the share of gross income from crops. Under both High Demand and Baseline assumptions, total expenses will increase relatively less than gross income. Current operating expenses as a share of total expenses decline from present (1978) levels under all scenarios. Interest on borrowed funds and net rent both increase as a proportion of total expenses, except for a decline in the share to rent under Low Demand assumptions. This is due to the increasing value of fixed inputs, especially land, and also indicates the increasing dependence of farming on borrowed capital. Interest expenses as a share of the total increase as aggregate demand, prices, and income decline across scenarios. Thus, as income to farming declines, debt servicing payments become an increasing drain on cash flows. Payments to landowners, on the other hand, increase in importance as total and net income increase from Low Demand to High Demand Levels. The increased value of land associated with the higher product prices and the relative scarcity of this input under conditions of increased demand with few advances in technology leads to more than a tripling of rental payments from $.71 billion in 1978 to $2.4 bil- lion in 1990. With smaller increases in aggregate demand and greater technological advances, net rent remains relatively con- stant at $.75 billion in 1990 (Low Demand column of Table 6-9). The projected net incomes indicate that farm operators also gain under High Demand and Baseline assumptions, but will experience nearly a 50 percent decline in their returns from farming if economic conditions develop as under the Low Demand assumptions. In real terms, that is, adjusted for inflation, the decline would be even greater. The alternative income and expense projections lead to considerably different financial positions for Illinois farmers, as seen in Table 5-10 Real gains result under both the High Demand and 3aseline scenarios, while real losses are the result under Low Demand since inflation out- paces the rate of increase in asset values. Differences in total farm debt are less than for assets. The dis- tribution of total debt between real estate and non-real estate is also similar across scenarios, with real estate having a greater share of 211 total debt than in 1978. The differences across scenarios in total assets, with debts rela- tively constant, will result in a much more favorable equity position for farmers should the high demand assumptions become reality. However, equity in relation to total assets actually declines even under High Demand conditions. Net income as a percent of debt does increase con- siderably under High Demand conditions, indicating some improvement in farmer's ability to carry increased debt burde. Under Low Demand conditions, net income shrinks to 4 percent of total debt, and equity drops to 70 percent of assets even though assets increase very little. This could lead to serious problems for farmers faced with constant debt servicing requirements, declining income and no real gain in the value of their assets. Since farm numbers are expected to decline in the future, the finan- cial outcomes elaborated above will be divided among fewer farmers in the future. Net declines in income per farm would be less severe than that indicated for the entire farm sector under the Low Demand scenario, while net increases in income per farm would grow under the High Demand scenario. A relatively small portion of Illinois farms have expanded the size of their holdings through aggressive debt financing. In 1975, 88 percent of farmland transfers involved debt financing, with debt accounting for an average of 76 percent of the purchase price. Farmers have been willing to take on these financial risks and high debt servicing 212 requirements (which often exceed net cash flows from the financial real estate) in expectation of capital gain rewards. To date, these awards have been forthcoming, and would continue under the High Demand scenario. The value of real estate declines in real terms, however, under the Low Demand conditions and therein lies the financial risk of debt financing of farmland. Table 6-10. Projected Total Assets and Debts*, and Distribution Among Major Items; Nominal Terms Pre ijected-1990 High Low 1978 Demand Baseline Demand Total Assets (billion S) S50.9 S167.4 ST 13.1 S52.3 Share in: Real Estate (percent) 79.0 85.4 33.7 78.5 Non-real Estate (percent) 19.0 13.6 15.3 20.1 Financial Assets (percent) 2.0 1.0 1.0 1.4 Total Debts (billion S) S 7.2 S 25.5 S 22.0 SIS. 7 Share in: Real Estate 50.0 58.3 58.1 55.9 Non-real Estate 50.0 41.2 41.9 43.1 Farm Equity (billion S) S43.7 S141.9 S 91.1 S44.1 Equity/Assets (percent) 85.9 843 30.5 70.2 Net Income-Debt (percent) 20.3 28.5 20.0 4.3 SOURCE: Schneider, R. E. and Swanson, E. R. , A Summary Report . Agriculture- in Illinois: Alternative Futures^ for' th e 1980s , 1979. 6.3 Land Requirements of Agriculture The final concern of this section is projected land use require- ments of Illinois agriculture. Land is a crucial resource to the Illinois agricultural economy. Continued high farm output requires the availa- bility of adequate land for production. There is a limited amount of land in Illinois and there are competing demands for use of this land. (See Figure 6-3.) The allocation of land, as with any limited resource, 213 occurs through a combination of market and non-market forces. The market mechanism allocates land to the use that appears to promise the highest potential return. Nonmarket forces may modify the results suggested by market forces, as sociopolitical forces interact to place restraints on land use and transfers, or to modify the returns from various types of use. For example, net returns may be reduced by the imposition of taxes. Land use requirements for crop production were discussed earlier in this section. There are other important uses which put demands on land, the most important of which are urban uses, roads and highways, recreation and wildlife, and coal strip mining. In the past, urban areas and transportation uses have been major drains on the total agricultural land base, even though the conversion of farmland to such uses rarely occurs directly. In Illinois, as indicated by Table 6-11, cropland losses have been nearly offset by the develop- ment of new cropland, resulting in a net loss of pasture and forest acreage. Projected future requirements for additional land for selected non-agricultural uses are shown in Table 6-12. These projections are based on the analysis of past trends and expected future changes. Urban uses are projected to be the single largest category of future conversion of rural land, based on observed trends in population in different areas of the state and the size of urban areas expected to experience increases in population. In general, the smaller the size of the urban area, 214 E E s cd i LT) cd CD s_ o CD CD -t-> TO 0) l/J s_ o IB T5 CU -Q » co cm en in r*. co — in co co cm GO «— *r r»» cn <*1 T T T Ifl lO ITS to 00 r» r>» r«._ 03 05 CO co co" co" pj 00" * T IT) CO T co «— r-» o in 00 own co »- cm" 00" en" 00" o *r o — 09 tOl0 00lfl. CO O) CD (fl a r» mn in' o m" m" m" co co co oo co T O T GO T rs co co in m 00 O O) O O) +J 0J| s_ J= -M Q. CO s_ C£ l+- >) s_ 1/1 ITJ oo O Li- <=c > • c LU J- CU •> -M C <— o «=c I/) c A3 •« 2 oo C/0 -r- o T3 c c •<- -o •— O) c CD CD 00 O co CD CD < C_3 an O 0O 215 Table 6-12. Projected Conversions of Rural Land to Specified Alternative Uses, 1975-1990 3 Area Area Area Area Alternative Use One Two Three Four Illinois (Thousand Acres) Urban Uses 310.2 21.5 65.2 42.2 439.1 Roads and Highways 7.8 .8 1.7 1.2 11.5 Recreation, Wildlife and Related Uses 16.7 3.7 8.1 7.1 35.6 Coal Strip Mining 22.5 48.5 7.5 52.0 32.5 102.5 82.0 Total 334.7 568.2 Not all conversions are expected to come from cropland or even from farm land. For exam- ple, assuming past patterns of cropland disturbance and reclamation of land, coal strip min- ing is expected to take about 33 thousand acres of cropland. For the other uses, rough esti- mates could be developed by assuming the proportion from cropland as equal to the share of total land presently in cropland (Figure 9). More precise estimates would require analysis on an individual county basis. SOURCE: Schneider, R. £. and Swanson, E. R., A Summary Report . Aariculture in Illinois: Alternative Futures for the 1980s, 1979. the more land required per capita increase in population. In recent years, population increases have tended to occur in smaller urban areas rather than in large cities, a factor which was incorporated in the projected land use requirements. The projections for urban uses would be decreased to the extent that future population redistribution is marked by population increases in densely settled urban areas. Roads and highways will require little additional land in the future because the Interstate Highway System, a major drain on Illinois land during the 1960's and early 1970's, is now nearly complete. Land for recreational uses, wildlife areas, and related purposes may be a more significant requirement in the future. Many feel that 216 Illinois is currently lacking in total land available for recreation. It is expected that existing grasslands and forestland, rather than cropland, would be converted to recreational land, so it would not be a direct drain on the Illinois productive agricultural land base. However, urban areas generally take land according to existing urban or built-up areas and other characteristics that tend to make cropland the most desirable land for urban development. In the past, cropland "lost" by such conversion has been replaced from existing grass- land and forestland. The continuation of this trend depends on the availability of grassland and forestland, and on the strength of the desire of Illinois residents for more forest and recreation land, as stated in numerous surveys. In the projection of land conversion in the Summary Report, an estimate was presented of acreage affected by coal mining. The figures provided in Table 6-12 for conversion of rural land to coal strip mining need some clarification. Even though rural land used for underground mining is omitted, the 82,000 acres is considered an over- estimate of conversion due to coal strip mining. According to the authors, not all the conversion is expected to come from cropland or even farmland. Assuming past patterns of cropland disturbance and reclamation of land, coal strip mining is expected to take a total of about 33,000 acres of Illinois cropland (as opposed to "rural" land) between 1975-1990. This 33,000 acre estimate is itself misleadingly high, because it ignores the impact of the reclamation laws. Present reclamation 217 laws require that disturbed land be reclaimed to 90 percent productive yield within a reasonable length of time. The above discussion, of course, refers to the state of Illinois as a whole. The county impacts vary considerably, and those counties with both prime agricultural land and coal deposits are most affected. For instance, from Table 6-12 we see that projected conversion of rural land to coal strip mining in Area Four alone (southern Illinois) accounts for over half of that for the entire state. 6.4 Agricultural Forecast Implications The future of Illinois agriculture depends heavily on external factors, including both national and international developments. It is the judgment of the authors of the Summary Report that the events of the 1980s are more likely to generate agricultural outcomes which fall between the High Demand and Baseline scenarios than between the Baseline and Low Demand scenarios. 220 place some limits on evaluating the likelihood of the alternative pro- jections reviewed in the Summary Report, but does not impede sound economic analysis of competing uses for land in Illinois from which projected land use patterns can be ascertained. To this end, the rest of this study is directed. 221 CHAPTER 7 •ENVIRONMENTAL EFFECTS OF MINING The importance of agriculture and coal mining to the Illinois economy has been described in Chapters 3 and 4. These activities are thought to result in conflicts based upon the change in land use pat- terns and economic development of an area. Since mining operations were recorded up through June 1980, approximately 210,615 acres in Illinois have been affected by mining activities. The current rate of surface mining impacts approximately 4,800 acres per year throughout Illinois; however, Illinois coal resources underly 65 percent of the state's land area. The 6.1 billion tons of economically recoverable strippable reserves are in 38 counties and extend over 1.5 million acres (5 percent of the land area). Only 14 counties now have active surface mine sites, and 20 have never been mined on a large scale basis. There are currently 141 billion tons of coal reserves that can only be mined via underground mining techniques. The magnitude of the mining effect upon soil disturbance depends upon numerous geological, technological, and chemical factors. There are five determinations which must be made to evaluate these effects: 49 a) assessment of the productive potential of the natural soils before mining. b) identification of the physical and chemical characteristics of the overburden that will be disturbed by mining. c) estimation of mining on soil erosion and sediment loss. d) evaluation of the physical and chemical properties of reconstructed soils. e) evaluation of the productivity of reconstructed soils. 222 Within the geographic boundaries in 111 i hois there is a wide range in geological, physical, and chemical properties of soils. Soil itself is a complex substance composed of various zones or soil horizons which vary according to the parent soil material and in accordance with 49 the climatic, biologic, and topographic conditions. Briefly, there are four main groups--0, A, B, and C soil horizons. The horizon is organic leaf litter and humus; A horizon consists of organic material, living and dead, mixed with mineral particles; B is minerals, and C is unaltered parent material. The identification of soil horizons 49 provides an indication of soil productivity. In discussing the effects of mining soil productivity, the varia- tion in soil attributes and qualities must be recognized. This variation contributes significantly to the uncertainties which exist regarding reclamation. It is important to delineate the magnitude and longevity of environmental effects associated with surface and underground mining activity. Although land is the primary concern, there are also impacts upon water resources, noise, and aesthetics for adjacent land owners and communities. For land reclamation the state-of-the-art is briefly described herein as well as state and federal requirements. Information available on subsidence as a function of underground mining activity is also presented. 7.1 Status of Land Reclamation Coal mining and farming cannot occur simultaneously on a parcel of land but rather surface mining preempts existing land uses until the coal is extracted and the land begins the reclamation process. The extraction of coal requires that the overburden or soils 223 and rock strata overlying the coal seam be removed and stockpiled. After mining the soil is replaced and regraded by bulldozers. This process of displacing soil results in a final product which varies in quality from the natural soils. Historical reclamation efforts did not differ- entiate between the upper and lower soil horizons, which have far differ- ent physical and chemical properties. As reclamation requirements became more stringent, the reconstruction of the soil for post-mining land use has been emphasized. Illinois had established reclamation requirements as early as 1962. These original rules, however, simply called for grading of the spoil. In 1971 the Illinois Surface-Mined Land Conservation and Reclama- tion Act was enacted, and this act required "grading to the approximate original grade of the land." In 1972 the act was implemented by Rule 1104 specifying row crop lands were to be graded to original grade of land and "of prescribed texture compliance." An amendment effective in July, 1975 additionally required 3 to 18 inches of surface soil to be segregated and replaced on agricultural lands which were mined. The particle size of materials up to a depth of four feet was limited to ensure an adequate medium for crop growth. The federal government enacted more stringent reclamation specifications in 1977. Standards promulgated from the Surface Mining Control and Reclamation Act (SMCRA) (PL 95-37) in 1977 have specified the following reclamation requirements: a. Restoration of mined areas to original contour. b. Affected areas restored such that they are capable of supporting pre-mininn l»nri use activities. 224 c. Changes in post mining land uses are closely scrutinized and must be justified by the mining firm. d. Highwalls, spoil piles, and pits eliminated. e. Permanent vegetative cover must be established. 1. commercial forest land - 450 trees or shrubs per acre (75 percent commercial species) 2. forest uses - 90 percent of live woody plants on reference area for Prime Lands and Cropland f. Separate removal and handling of A and B horizon* g. Surface replacement of A and B horizon h. Return to percent of productive capacity of pre-mining level. The intent of the SMCRA is to reduce the adverse impact of mining upon soil quality to the lowest level technologically possible. The two most important problems in re-establishing crop yield are soil reconstruction adequate for rooting and compaction of soil . The recon- struction of prime farmland soil depends upon the characteristics of the soil, reclamation management, and a sufficiently long planning horizon, Lands designated as prime farmland vary in quality from nearly ideal to those with characteristics which cause management problems and limit productivity. The range in yields on "prime" soils is 96 to 197 bushels per acre. According to Dr. Ivan Jansen reestablishing soil productivity depends on the type of prime soil: Mines operating on some of the best soils have a yery high objec- tive to achieve in trying to construct postmine soils that equal 225 or exceed surrounding unmined soils in productivity. Since the undisturbed soils have nearly ideal properties, one does not have the opportunity to try correcting soil problems during the mining and reclamation process. By contrast, mines operating on prime farmland that have less productive soils will have a lower productivity objective to be achieved by their constructed soils. Constructed postmine soils having a corn yield capability of only 0.6 kg/m 2 (96 bushels per acre) will be acceptable under the "equivalent or higher levels of yield" provision of the federal Surface Mining Control and Reclamation Act if that is the yield capability of surrounding undisturbed prime farmland soils. Also, there may be an oppor- tunity to ameliorate some undesirable features of these less than ideal soils. Hence there is potential for positive effects from the soil disturbance and reconstruction process to offset negative effects. The reestabl i shment of soil productivity requires a time interval which extends from a minimum of five years to a maximum of 100 years. Dr. Jansen, who has conducted research on soil reconstruction at the University of Illinois summarizes the prognosis of soil reconstruction: 00 Effect of Soil Development Over Time Soil development over time is certain to improve well con- structed soils. The degree of improvement that should be expected and the rate at which the improvement will take place is not well known. Certainly the rate and degree of improvement can be increased by intensive management. Natural improvement of constructed soils will continue over a considerable period of time, probably for more than 100 years in most instances (Hallberg, et al . , 1978). It is questionable whether productivity equal to that of premine soils can be accom- plished at all sites within five years. If productivity equal to premine levels was achieved within five years after mining, superior productivity should be expected after 25 or 50 years. Thus, although lands are returned to the capability of row cropland, time is required for the reestabl i shment process. 226 Even though there is still uncertainty regarding the ultimate time interval and success of reclamation at the 1977 standards, his- torical reclamation results are available. Some of these results have been reported in the literature and utilized at Illinois hearings regarding reclamation plans. The Land Reclamation Division of the Illinois Department of Mines and Minerals in approving a surface mine application noted that equivalent yields had been attained on land in Fulton County which was mined 25 years ago. At that time only bucket wheel excavation soil was used, and the soil replacement requirements are more stringent today. Table 7-1 summarizes the results from test plots submitted by the Midland Mining Company in support of their 1979 mining application in Knox County. Most of the test plots had not been reclaimed to levels as stringent as the existing regulations. The average yield for plots AA, BB, GG, anG II, which were planted in corn in the second year, was 87.7 bushels per acre compared to the test plot of 130 bushels per acre. If the data of Table 7-1 are rearranged to present yields as functions of time, then the following pattern emerged: Years After Mining Year Mined Average % of Check Plot 1 1978 39.5 2 1977 48.2 3 1976 60.8 227 Table 7-1. Test Plot Data on Reclaimed Soil Test Plot Reclamation Standards Year Mined Year Graded Yield, 3 bu/acre % of Plot Check Check Unmi ned -- — 130.1 100 AA 12 in topsoil on old 1104 texture 76 77 90.6 70 BB ii 76 77 103.4 79 CC it 76 78 49.2 38 DD 4 ft topsoil 77 78 66.4 51 EE 2 ft. topsoil over 1 ft B horizon and 1 ft cast over burden 77 78 69.2 53 FF 4 ft topsoil 77 78 82.2 63 GG 12 in topsoil on old 1104 texture 76 77 86.2 66 II H 76 78 70.6 54 JJ H 76 78 75.9 58 KK 12 in on cast over burden 77 78 43.9 34 LL 4 ft topsoil 77 78 51.6 40 MM ii 78 78 52.3 40 NN ii 78 78 51.0 39 Notes: a) Yield per acre based on corn as crop. SOURCE: Illinois Dept. of Mines and Minerals. Land Reclamation Division. Synopsis on Conclusions on Reclamation Plan and Public Hearing Comment in the Matter of Applications of Asarco, Inc., Midland Coal Co. Division, App. No. 823,824 228 It should be noted that testimony presented indicated the yields of the check plot were low compared to the county average. However, even if the percent yield is reduced, there is a clear trend with time of increased land productivity. One particular document referenced in the Division of Land Reclamation's opinion is that by Alten F. Grandt 52 describing row crop yields on lands mined in 1954-1955. In 1955 these lands were graded and seeded to alfalfa and bromegrass without topsoil replacement. In 1974 approximately 15 inches of topsoil were placed on the mined land. The three-year average yields of corn were as follows Yield, bushels/acre Original Muscatine silt loam 126 Topsoil 121 Graded spoil only 76 Under basic levels of management,* corn yields on Muscatine silt loam average 91 bushels/acre and a high management level** produces 145 bushels/acre. In all three years studied the yield on topsoiled land exceeded the basic level of management. Other testimony presented in mine permit hearings and studies have corroborated the feasibility of attaining high yields on reclaimed *Basic level of management is defined as partial drainage, 10-15 pounds of available phosphorus per acre, 150-200 pounds of available potassium per acre, 50 to 75 pounds of nitrogen per acre for corn, plant population of 12,000 to 14,000 plants per acre, inadequate weed and pest control, and excessive soil-loss tolerances. **High level of management is defined as optimum drainage, 40 to 50 pounds of available phosphorus per acre, 240+ pounds of available potas- sium per acre, 125 to 175 pounds of nitrogen per acre, plant population of 20,000 to 24,000 plants per acre, adequate weed and pest control, and acceptable soil-loss tolerances. 229 farmland. The time required and material inputs in soil reconstruction represent the factors with greatest variability. The ultimate return of lands to alternative uses occurs after mining. SMCRA requires that land be capable of supporting agricultural activity if that was the previous use; however, the land is not required to be planted. It is important to realize that only half of the lands mined between 1972 and 1979 were utilized for crops prior to mining. According to Table 7-2, the pre-mining land use averaged 47.9 percent cropland, 22.0 percent pasture, 27.6 percent forest, and 1.4 percent industrial. Other land uses not included in Table 7-2 are water, roads, and homesteads. Another important aspect is the use of previously mined lands for refuse (gob and slurry) disposal. Refuse disposal acreage in Illinois over a five year period consisted of 136 acres of inclines and pits and 103 acres of virgin lands. Thus, 57 percent of the refuse disposal sites consisted of filling in mined areas and ultimately improving land use over existing conditions. In assessing the impacted acreage for refuse disposal, such techniques reduce total acres of virgin lands impacted. 230 Table 7-2. Pre-Mining Land Use Year Permit Issued Crop Pasture Forest Industrial 17.0 21.2 1.3 28.9 20.0 0.1 21.5 29.0 0.3 15.0 30.3 0.9 16.8 30.5 0.2 23.8 31.5 0.7 30.5 41.0 1.6 22.1 17.2 5.9 22.0 27.6 1.4 SOURCE: Department of Mines and Minerals, Coal Report of 111 inois , 1979. 1972 60.5 1973 51.0 1974 49.2 1975 53.3 1976 52.5 1977 43.8 1978 23.3 1979 49.6 Eight Year Ave (Percent) rage 47.9 231 Land uses after mining follow pre-mining patterns in terms of total acres for most categories excepting forest land. Proposed land use patterns for acreage to be mined indicate the following distribution: Use Percent Wildlife 5.6 Forest 9.6 Industrial 3.2 Crop 47.2 Pasture 28.6 Water 5.8 Thus, the land use pattern after mining will ultimately return a similar number of acres to agricultural production. Although forested areas are reduced, wildlife habitats have been planned to provide addi- tional shelter for animals. This maintenance of land use patterns is specifically urged by federal surface mining legislation although the placement of such uses within the mined area can be accomplished to enhance the ultimate uses. The basic concern with surface mining and refuse disposal sites is the quantity of land removed from agriculture for an unknown time interval. There is still uncertainty regarding the length of time required to reestablish soil productivity as present research indicates. Individual site characteristics, mining techniques, and management 232 levels account for some of the variability in recovery time. The most important aspect, however, is that recovery of the land is assured by law and attainable by technology. 7.2 Water Quality Aspects of Mining During surface and underground mining there is a collection of water as surface runoff, pit water, or groundwater drainage which is treated and discharged. Presently there are federal and state effluent standards which require a specific quality of mine water prior to dis- charge. In addition, there are water quality standards in the stream which must be maintained. Table 7-3 summarizes the existing limitations on mining discharges. The coal companies receive National Pollutant Discharge Elimination System (NPDES) permits which encourage compliance. The levels specified prevent acid or other pollutants in the discharge from adversely affecting the receiving stream. The flow of such mine dis- charges varies from 10,000 gallons per day to over two million gallons , 2 per day. In addition to maintaining the chemical characteristics of the receiving streams, coal mining companies, according to state and federal specifications, must protect drainage patterns as well as the physical characteristics of the stream after mining. Thus, there can be temporary alterations of drainage patterns during mining but these are required to be minimized in the long run. 233 >> oo 4- A3 o +J •r- >> E -t-> •^ •i— __i t— rO +-> 3 c cr cu 3 4-> r^ c 4- CD 4- 3 ra 4-> 1^- s_ r-~ QJ CTi '""' Cn 4- x: '_ o c rO ■T5 -3 3 u O l/J CO oo -o •T— •^ i. Q S_ ro (Q -c s_ CL 3 O) E (0 -M o -M T3 UV13 on i OJ ja 03 c O) 3 oo i— 3 4- O r0 Q_ -r- >1 3 i/ip e •i- c o O CD ■<- 3 3 4J •i— i — ra ,— 4- -M r— 4- -i- •— I UJ £ o O cn i «3" CO on ro o C\J CO ■o S- i- 0) 13 rO C — - 3 , X 3 -t-> 'o o oo 00 co CT> ■a 'o CO • CO 00 -a ra o a co cn CO a> ro 4- 3 CO cn 00 CD -o '_ o c o 00 — z: •r— o — • -M s_ ■— « ra +j r^ 3 3 O • CD O 01 01 CO cc 4- 0J O 3 c <=r ra o 2 en ■f- 1_ >s i— C aj i — ro cc -o O -3 c Q. O Cj ro •i^ 1- •< E 3 rjj co o o •*-> 3 C im ra o o — « 3 •<- u +J 1 t 1 « 4- ro 00 O f— -a v 3 3 -a ro en ro i- 01 i_ i- cc: r— O 01 ro i — +-> c (J -3 a. o 1- O ro -i- 3 .3 -l-> .3 •> C_) 3 CJ 00 •**— ' f— - CD co O ra +J Q_ 4- C • pH ro S_ _l 3 r— O) CO Q.+-> • ro _J - C0 3 CO 3 '•a •i- 00 4- -t- 00 •!— 4- r— co O 3 O CD 3 X co U 1- O r— • • i_ f— UJ Q_ H o cc 35 ^— "v^— -. o ro -O CO 234 Another concern of residents near surface mining operations has been the impact upon shallow wells. Shallow wells have been tempor- arily affected in some instances as the pit face moves through an area. These wells, however, are usually only a few hundred feet deep and the water supply is reestablished after the mining passes through the area. A beneficial result of surface mining operations has been the development of additional water areas, which may in the future be utilized for recreational purposes or alternative water supply. Twelve represen- tative final cut impoundments in Illinois were selected and studied to determine their yield potential and potential use. These twelve impoundments were located in Knox, Fulton, Perry, Randolph, St. Clair, Will, Kankakee, and Grundy Counties. The results of this study concluded that for 10 counties the yield potential of final cut impoundment exceeds the estimated 2020 water demand for the entire county?3' Table 7-4 sum- marizes the water demand and supply projections. Based on published water quality requirements, only 2 of the 12 lakes have water suitable for public water supply. Three are suitable for irrigation, and all 12 impoundments could be utilized for livestock watering. The authors noted that "the quality of water from these impoundments is treatable and often comparable to the quality of alter- native water sources. 235 Table 7-4. Water Demand and Supply Estimates for Surface Mined Counties Average water demand (mgd) Po tential water sicDvlu (mad) Ground- Stream- Existing Potential Existing final 2000 2020 water flaa reservoirs reservoirs cut impoundments Adams 9.823 10.860 196.1 3840 0.07 58.1 0.78 Brown 0.421 0.427 19.2 4090 0.09 64.7 Bureau 4.856 5.368 147.2 2801 60.9 6.22 Clark 1.668 2.006 56.9 550 27.4 Crawford 2.284 2.607 32.2 550 9.0 0.02 Edgar 2.352 2.742 30.2 0.8S 16.3 0.07 Fulton 6.026 7.199 50.6 3050 2.74 52.5 75.66 Gallatin 0.585 0.662 137.0 13313 27.2 0.64 Greene 1.649 1.622 67.9 4092 0.06 14.6 0.22 Grundy 32.1 2860 2.3 28.83 Hancock 2.246 2.543 93.8 3240 0.06 85.4 0.07 Henry 8.148 8.569 69.9 1280 28.4 6.37 Jackson 7.469 9.095 107.2 18004 0.37 19.9 12.08 Jefferson S.002 6.137 14.6 1 1.19 44.4 0.27 Jersey 2.385 2.784 47.1 4090 23.5 Johnson 1.001 1.244 20.4 38.7 Kankakee 14.841 16.357 95.9 383 6.4 11.02 Knox 8.662 9.742 18.7 14 21.0 24. S7 LaSalle 85.9 3047 23.1 1.33 Livingston 5.239 5.587 40.8 6 3.3 McDonough 6.527 7.667 20.3 2 0.12 15.9 0.02 Madison 94.2 17850 4.63 11.1 Marshall 1.2S7 1.337 60.3 2700 7.3 0.02 Mercer 2.127 2.374 148.6 3706 66.6 Morgan 4.874 5.726 33.2 4090 28.8 Peoria 58.3 2652 47.3 7.18 Perry 2.299 2.458 11.9 0.64 22.4 28.03 Pike 2.350 2.434 295.3 8530 0.79 48.8 Pope '0.364 0.431 51.8 13310 68.2 Putnam 0.569 0.607 47.8 2700 27.4 Randolph 4.242 4.788 1S2.9 19468 0.05 57.9 7.18 St. Clair 81.9 17908 7.8 21.79 Saline 3.099 3.452 10.7 0.18 38.3 11.31 Schuyler 0.795 0.801 31.4 4000 53.5 4.62 Scott 0.784 0.509 48.7 4090 19.7 0.02 Stark 0.473 0.441 9.9 4 27.5 2.S8 Vermilion 13.513 15.732 67.6 25 S.09 29.7 12. J4 Wabash 1.499 1.705 49.8 1050 Will 115.9 2800 16.1 19.58 Williamson 7.676 9.122 12.1 2 0.35 16.2 15.76 SOURCE: Bibb, James P.; Evans, Ralph L.; A Reconnaissance Study of Final Cut Impoundments . Illinois Institute of Natural Resources, Doc. 78/25, June 1978. 236 Presently the village of Astoria in Fulton County has relied on a final cut impoundment for public water since 1976. Problems with well water sources not related to mining activities and a small reser- voir resulted in the village negotiating with AMAX Coal Company to utilize the impoundment. Thus, the future use of such impoundments may be important to areas within the state where groundwater and sur- face water sources are restricted for public water supply. 7.3 Underground Mining Impacts 7.3.1 Surface Lands Utilized in Mining Underground mining also requires surface land even though coal extraction is conducted subsurface. A 1975-1976 inventory of the aban- doned underground mine problem in Illinois identified 4,076 mines in 70 counties. However, only 711 abandoned sites could be identified with continued land disturbance. Land disturbance of 6,955.6 acres was attributed to gob refuse (3,943.5 acres), slurry refuse (693.8 acres), tipple areas (813.2 acres), water impoundments (647.7 acres) and off- 54 site affected areas (857.7 acres). In addition to land disturbance, the water quality at 245 abandoned mines was poor due to mine drainage. Present mining effluent standards have practically eliminated the water quality problem; however, land is still required for mining operations. In fact, in the 1975/1976 inventory the 24 active under- ground mines in Illinois were utilizing 3,592 surface acres for various aspects of their operation. Table 7-5 summarizes the mining uses and associated land requirements for existing operations. The active mines 237 Table 7-5. Land Requirements for Underground Mining Activities ... . . , . ., ... r M . Total Land Affected, Average Acres Mining Activity Number of Mines acres per Mine 3 Gob refuse 19 disposal Slurry disposal 15 Tipple areas 24 Impoundments 12 Other 982 694 842 533 Total 24 3,592 52 46 35 44 150 Note: a) The average acres per mine are based on the ratio of column 3 and 2. Therefore, the 150 acre average per mine does not represent the sum of column 4 values. SOURCE: Nawrot, J. R., et al., Illinois Lands Affected by Underground Mining for Coal , IINR, 1977. 238 reviewed in 1975 and 1976 represented a composite of old and new mine operations. The acreage associated with tipple areas and impoundments would not vary greatly over the mine life; however, gob and slurry dis- posal acreage certainly would increase during the mine life. These gob and slurry areas would require restoration similar to that stipulated for surface mined lands. 7.3.2 Subsidence Impacts There are other impacts associated with coal mining which should also be recognized as creating externalities to adjacent land users and future land uses. Surface mining directly affects land use in a visible way; however, underground mining poses the potential risk of land subsidence. Subsidence is defined as a surface depression which may vary in magnitude. This is usually the result of underground mining roof supports collapsing. Two forms of subsidence are pit and sag sub- sidence. Pit subsidence is typically less than 30 feet in diameter, while sag subsidence is up to several hundred feet in length. Under- ground mining activities of less than 200 feet in depth have been respon- 5 sible for all subsidence cases reported in Illinois. Subsidence may occur anytime after mining has ceased but generally takes several years for sufficient deterioration of mine supports. The exception is long wall mining which plans simultaneous subsidence during mining. There has been research within the state and at the national level to formulate a predictive tool for the occurrence of subsidence. According to Hunt, the ratio of panel width to mining depth (W/D) and 239 5 extraction percentage affect the percentage of subsidence. The possi- bility of subsidence attributed to present mining techniques would be a function of these variables. Longwall mining techniques anticipate and plan for subsidence as part of the mining operation. The major concern is inactive mine sites which cause subsidence years after mining. Subsidence is an important issue where farmland with drainage tiles in place represent the surface land use. Under existing subsidence insurance programs, only structural damage is insured. The magnitude of existing subsidence in farmland areas has not been surveyed within the state, and in fact there appears to be no information available regarding costs to farms due to subsidence. Since underground mining operations will become the predominant form in the future, some assessment of the potential for subsidence occurrences is necessary. The SMRCA of 1977 also included a requirement that underground mining activities be conducted to prevent subsidence to the extent it is "technologically and economically feasible." Subsidence occurrences have been predominantly linked to abandoned mine sites. Of the 8 million acres undermined in the United States, 1.85 million acres or 23 percent have been affected by varying levels of subsidence. The future rate of unplanned subsidence from new mines cannot be predicted although it is expected to be much lower than the historical fraction of 23 per- cent because of better technology and deeper mines. An awareness of this problem is necessary, however, in identifying the future lands undermined. 240 7.4 Aesthetics Some additional concerns related to the mining activity are visible changes in the landscape, increased noise levels, and increased road traffic. These items primarily affect the residents in close proximity to the mine and are externalities which cannot be significantly reduced below existing levels. Blasting activities are regulated; how- ever, the actual timing of blasting has led to occasions of citizens' complaints. Discussions between the company, regulatory agency and citizen do occur to mitigate these effects. Coal companies usually do present specific information on changes in road traffic and road requirements which are coordinated with county and local governments. Repairs of certain roads, mining equipment used for snow removal, and construction of new roads for specific mining activity are actions taken by some companies to offset negative effects associated with transporting coal. Depending upon the company, county, and specific conditions the extent of private actions to reduce negative externalities may or may not occur. There are no values placed on these local effects although these impacts are an important concern of local citizens. In assessing environ- mental effects it is important to recognize such problems. 241 CHAPTER 8 ANALYSIS OF DETERMINANTS OF CONVERSION OF FARMLAND TO COAL MINING ACTIVITY IN ILLINOIS 8.1 Introduction Illinois is endowed with the nation's largest reported bituminous coal reserves of any state (see Chapter 3). Illinois is also endowed with about 19 million acres of prime, nonfederal farmland, which ranks third in total acreage of prime farmland. Conversion of these fertile acres to coal mining activity sacrifices all of the land's crop producing value during mining operations. Even with reclamation after mining, the mined land is recovered to a level nearly equivalent to its pre-mined productivity; however, again an extended period of time (5 to 100 years) may be required based on the discussion of Chapter 7. With undeveloped coal reserves beneath much of the farmland in Illinois, there exists the potential for constant competition between these two mutually exclusive uses for Illinois land. The implications of unre- strained conversion of farmland into coal mining activity have been the subject of much public debate. Both the state of Illinois and the federal government have passed laws regulating various aspects of this conver- sion. The purpose of this chapter is to develop an analytical framework for understanding the economics of land conversion in Illinois. The allocation of land between farming and coal mining will be assumed to 242 be governed by private decisions between land owners (farmers) and coal mining companies. The private market (or voluntary) allocation of land between these two competing uses that results from unregulated, private decisions will be analyzed on grounds of economic efficiency. Standard microeconomic theory concludes that the unregulated, private decisions will result in an economically efficient allocation of land between farming and coal mining if certain theoretical assumptions are valid. In par- ticular, the private allocation is efficient if coal mining does not impose significant external costs on parties not involved in the private transaction. Alternatively, if coal mining imposes significant external costs on local residents, for example, then the privately-determined allocation of land between farming and coal mining will be inefficient. The socially efficient allocation properly accounts for all of the costs and benefits of conversion of farmland into coal mining acreage. If the private parties who determine the actual conversion rate bear all of the costs and reap all of the benefits of conversion, then the actual conversion rate will be efficient. Section 8.2 will provide a simple example that highlights the manner in which the private market allocates land between farming and coal mining. In section 8.2.1, we consider the possibility that external costs of coal miningvitiates the conclusion that the private allocation (conversion rate) is socially efficient. In particular, we discuss the view that the state should constrain the rate of conversion of farmland to coal mining land on grounds that coal mining has significant external costs. 243 Section 8.2.2 explores some wealth distribution issues. These questions are independent of economic efficiency, are more political in nature, and concernquestions regarding an equitable incidence of the various costs of conversion of farmland to coal mining activity. Independent of the question about the efficient rate of land conversion is the issue of what groups (local communities, farmers, coal operators) gain and which lose from conversion. Included under this heading would be the tax base and revenue changes concomitant with land conversion. Also, we discuss the incentives of various interest groups to lobby with the state to restrain land conversion for reasons independent of economic efficiency. Chapters 9 and 10 describe in detail the anticipated magni- tude of these effects for various levels of governmental hierarchy. Section 8.2 in its entirety provides an analytical framework for understanding the economic determinants of land conversion and for gauging the economic and political consequences of land conversion. The remaining sections in Chapter 8 present data and statistical analyses on the private rate of return to farming and to coal mining in Illinois. Section 8.3 presents data on the private rate of return to farming and uses the modern theory of finance to statistically compute the financial risk of Illinois farming. The statistical analysis also relates the actual historical returns to farming in Illinois to measures of hypothesized determinants of this return, such as crop prices and inflation. Farming returns in Illinois are compared with historical returns to other assets in an effort to gauge the private rate of discount applicable to Illinois 244 farmland. Section 8.4 discusses the determinants of the returns to Illinois coal mining. This discussion contains few details on actual rates of return due to the lack of reliable data. However, output, price, and productivity data are analyzed to infer the effects of the major legis- lative initiatives over the last twelve years on the Illinois coal market. The final section of Chapter 8 is Section 8.5, and this section discusses the cumulative acreage of Illinois land that has been disturbed by coal mining over various historical periods and that projected through the year 2000. Utilizing the energy demand scenario of Chapter 5 and agricultural land demand of Chapter 6, the magnitude of land conversion impact is analyzed at the aggregate state level. Specific projections of land use changes within counties are examined according to projections of compatibility with the county land use patterns and economy. 8.2 Economic Determinants of the Conversion of Farmland to Coal Mining Activity Let us consider an acre of prime farmland, currently used in its most productive farming usage, that has a certain amount of coal deposits beneath it. Ecoromic efficiency requires that the land be allocated to the most productive usage, judged by comparing the present value of the net cash flows in each use. To be concrete, suppose the land will return $400 per acre if farmed each year, forever. Assuming that the appropriate discount rate for farmland is 10%, the present value of this acre in farming is $4,000. 245 Alternatively, suppose that the coal underneath the farmland has a value of $10,000 per acre at the current price for coal. Assuming that this reserve is mined within one year, for simplicity, at a cost of $5,000, then the coal producers would value this acre of land at $5,000, at least. Given these simple assumptions, even if coal mining destroys the land's farming productivity completely and immediately, it is economically efficient to mine this acre of farmland. The infinite stream of net benefits that emanate from farming this acre is less in present value than the net benefits of coal mining. Moreover, we can be assured that private bargaining between the owners of the farmland and the coal producers will result in the land being sold to the coal producers for mining. Both parties to this transaction stand to gain by this transfer. The farmer will receive at least $4,000 for the land, and the coal pro- ducer will pay at most $5,000. Therefore, private incentives of the current and the would-be property owners guarantee that this land will be put to its most efficient use. This simple illustration is sufficient to highlight several impor- tant points about the allocation of land between farming and coal mining. First, the purchase price of the prime farmland compensates the farmer (and society, assuming no externalities) for the foregone net cash flows from crop production over the entire life of the farmland (which is for- ever, we assume). The farmer is selling the right to this infinite stream of net cash flows, so the transaction price must exceed the discounted present value of this foregone stream of net benefits. Therefore, it 246 is perfectly consistent with efficiency that this acre of prime farmland, which promises good crop yields for the entire future, be destroyed of its farming capabilities in order to extract the coal from beneath it. The differential timing of the net cash flows to farming (a steady stream) and to coal mining (large early returns and then zero returns) is irre- levant given the discounted values of the land in each alternative use. The discounting operation accounts for these timing differences, and the private system that allocates land to its highest valued use can be expected to properly account for these differential time patterns of net cash flows. The second point one can make using the simple illustration of the market allocation process is the role of the various determinants of the net cash flows to farming and coal mining. In the example we assumed the acre of prime farmland returned $400 in net income per year. Major determinants of the net cash flow to farmland are the price for the relevant crop and the yield (productivity or quality) of the farmland, as well as other expenses for fertilizer, hired help, and capital equipment, Given the other factors, the more valuable the crop, the higher will be the net cash flow to farming. This will increase the value of the land in farming and affect the allocation decision. For example, if the price of the crop were to increase so that net cash flows were increased from $400 to $600 per year, then the value of the farmland would rise to $6,000 (assuming a 10% discount rate). Under these conditions, the land would not be sold to the coal producers, who would pay at most $5,000 247 for the land. Similarly, if the land were of high quality with large crop yields per acre, then the value of the land in farming would increase relative to the land's value in coal mining. Technological innovations that improve yields have the effect of increasing the value of farmland and reducing the rate of conversion of land to coal mining. The determinants of net cash flows to coal mining include the price of coal, the rate of production per acre, the total reserves per acre, the productivity and wage rates of labor, and the productivity and costs of capital equipment. Given the value of land in farming, increases in coal prices will increase conversion of farmland to coal mining, and reductions in output per manhour (productivity) reduces the conversion rate. In principle, one can understand the conversion rate through time by considering the changes in the determinants of net cash flows to farming and coal mining. Also, this theory should provide the basis for rational- izing the allocation at a point in time of land in various counties between farming and coal mining. For example, in southern Illinois the farmland is generally of lower quality (yield) than in central Illinois, whereas the coal deposits in southern Illinois are ample per acre and recoverable with less expense compared with deposits in central Illinois. This explains to a large extent why mining activity is intensive in the southern counties, such as Perry, Franklin, and Jefferson, whereas despite large resources in some central states, farming predominates. 248 This theory can also be useful for understanding how public regula- tions affect the converstion rates of farmland to coal production. The regulations mandating improved safety practices and reclamation of surface land can be expected to retard the growth of coal mining since those regulations effectively reduce the net cash flows to mining, holding all other factors constant. It is not necessary to assume that coal mining irreversibly destroys the crop-growing productivity of mined land. This simplification is easily relaxed to allow for the possibility of investing resources to recover or reclaim mined land of its crop-producing abilities. One might logically assume this reclamation technology is such that larger invest- ments in reclamation per acre yields greater restoration of mined land. Presumably the returns to reclamation investments are diminishing, so that it requires prohibitively large investments to restore the mined land to the yield quality of prime farmland while moderate investments can restore mined land to the yield quality of poor to average farmland. The private incentive for landowners, who are presumably the coal operators, to reclaim mined land is the increase in land value that results from the restored crop-growing qualitities. For incremental dollar invest- ments in reclaiming an acre of mined land there is a benefit in the form of increased land value. Wealth-maximizing behavior on the part of coal operator-landowners implies that for each acre of mined land, the optimal reclamation investment will be that dollar level that maximizes the dif- ference between the increased land value from reclamation and the cost 249 of reclamation. It might be useful to consider the value of mined land to be the salvage value of the pre-mined land. Once the coal operators have pur- chased the farmland for its coal reserves, they have private incentives to mine in such ways and to incur reclamation expenses that preserve the salvage value of the mined land. The coal mine operator has the same incentives to avoid unprofitable depreciation of the land as he does to avoid undue abuse of mining equipment. These reasons are similar to the ones that explain why farmers invest in means of preventing soil erosion; the investment pays off in the form of increased land value due to its higher yield. If we observe the coal operators "walking away" from mined land, leaving its value as farmland markedly below its pre-mining level, this indicates that a zero level of reclamation investment is the wealth- maximizing level for the coal operator. The increased value of land resulting from its restoration is not sufficient to compensate the operator-owner for the requisite investment. Moreover, unless reclamation has significant benefits external to the operator-owner, then the operator- owner's investments are, on average, the socially efficient levels of investment. On the other hand, if residents of local communities or neighboring farms are benefitted by reclamation, the operator-owner will not inter- nalize these external benefits. Therefore, the privately determined level of reclamation investment, which equates private marginal benefit 250 with private marginal cost, will fall short of the socially efficient level of reclamation investment, which equates social marginal benefit with social marginal cost. In this event, one can make a case on grounds of social efficiency for the state intervening in some manner to increase the level of reclamation investment towards socially efficient levels. 8.2.1 On the External Costs of Land Conversion The application of conventional microeconomic theory to the problem of the allocation of land between farming and coal mining con- cludes that the unregulated, private decisions of farmers and coal mining companies is expected to result in the economically efficient allocation assuming the absence of external costs. If, on the other hand, coal mining imposes significant external costs on some third parties, then the privately-determined allocation will be socially inefficient. If the private parties who determine the actual allocation of land between farming and coal mining also bear all of the costs and reap all of the benefits of conversion, then economic theory implies that self-interested landowners and coal mining concerns will be induced to convert land from farming to coal mining at the socially optimal rate. When a farmer sells an acre of productive farmland, he bears the foregone stream of net profits from future crop sales and land price appreciation. We expect the self-interested farmer to sell this acre only if the sale price adequately compensates him for this opportunity cost. The coal miner, of course, bears the costs of attracting farmland into coal mining activity. The self-interested coal miner will be able 251 to afford to bid for productive farmland only if the underlying coal reserves are sufficiently valuable. Therefore, ignoring external costs of conversion, the private incentives of these self-interested economic factors will ensure that the privately-determined conversion is socially efficient. The privately-determined conversion rate will deviate from the socially optimal rate if there exists important external costs or bene- fits of conversion. The popular view that the state should retard the conversion of farmland to coal mining land is supported by economic theory if conversion imposes significant costs on passive third parties. Adjacent landowners and community residents suffer from the several adverse effects of blasting noise and vibration, additional road traffic, and the frequently mentioned visual aesthetics of the typical mining operation. These effects impose real costs on third parties, in the form of reduced land and buildings values. These costs are incurred as a direct result of conversion yet the public determining the conversion rate do not bear these costs. In the absence of economical arrangements for side payments, the privately-determined conversion rate will be higher than the socially optimal rate, and this divergence from efficiency is directly related to the magnitude of the external costs. The private decision regarding the extent of reclamation invest- ment will, by a similar line of reasoning, be efficient barring the existence of important external benefits to reclamation. The strong case for government intervention that encourages greater investment in land reclamation rests on the premise that failure to reclaim land 252 foregoes significant external benefits, such as visual beauty, reduced disturbance to wildlife, reduced soil erosion, and reduced water run- off. The landowner-miner does not reap the value of these particular benefits from private investments in land reclamation. Therefore, the presence of these external benefits will result in less private investment in land reclamation than is socially efficient. Public policy that mandates a higher degree of land reclamation is in society's interests in the sense that it alters the private investment decision to conform more closely to the socially efficient decision. It is important to recognize that it is the presence of external benefits to reclamation and external costs to coal mining that supports the argument for regulations that restrict the conversion of farmland into coal mining activity. The foregone net cash flow from crop pro- duction upon conversion is an internal cost, so the privately-determined conversion rate is expected to efficiently incorporate this type of cost. Similarly, the landowner-miner will internalize the benefits of an increased stream of future net cash flow from crop production when determining investments in land reclamation. It is contrary to economic theory to argue for regulations to restrict conversion and/or to encourage land reclamation in order solely to preserve the future crop-producing potential of the disturbed land. These benefits yield cash income to owners, and the increase in the price of farmland due to land reclamation (or foregone coal mining) provides accurate incen- tives for private self-interested landowners to make decisions, which coincidentally, are socially efficient. 253 Another point worth mentioning here concerns the effects of external costs of farming on the efficient conversion rate. We noted that pro- ponents of regulatory restrictions of coal mining legitimately point to external benefits of farming which are lost to society without proper compensation upon conversion of farmland to coal mining activity. There are, no doubt, several external costs to farming, such as dust pollution during plowing, health costs due to crop spraying, odors from livestock, etc. which must be considered when evaluating the externalities of coal mining. The privately-determined conversion rate will be too low to the extent that these external costs of farming are of significant magni- tude. Before closing this brief discussion of externalities, some mention should be made of the extensive panoply of government policies and programs that serve to subsidize farming activities. Price support programs that maintain crop prices above market-clearing levels increase the private returns to farmland and reduce the privately-determined conversion rate. Subsidies to loans to agriculture has the similar effect of retarding the conversion rate by making it more costly to bid land out of crop production and farming. When analysts are considering the possibilities that the privately-determined conversion rate deviates from the socially efficient rate, the panoply of regulations that sub- sidize farming must be included as an important economic force that retards the conversion rate. Of course, the existing regulations of underground coal mining and the Federal and State regulations of surface mining also serve to 254 retard the rate of conversion of farmland into coal mining activity. It is difficult to imagine a procedure for computing the magnitudes of the many possible external costs and benefits of conversion. The effect of farming subsidies and reclamation standards is to reduce the conver- sion of farmland. In fact, on social welfare grounds alone, the current reclamation laws may well reduce the conversion rate below the economically efficient rate. If the need for government regulation is to be determined on grounds of economic efficiency, is it possible that current restrictions on conversion rates lower the rate below the socially efficient level? The answer to this question arises when one considers the wealth ^dis- tributive effects of altering the allocation of land between farming and coal mining. 8.2.2 On the Wealth Redistribution Effects of Land Conversion The issue of converting farmland to coal mining activity involves some important political or equity considerations. A simplified depletion of the conversion process highlights these equity effects. In response to an unexpected increase in coal prices, some acres of farmland with coal reserves beneath it now become more valuable in coal mining than in farming. Prospective miners bid for the farmer's land, and the ensuing sale transfers a windfall gain to the farmer, as compensation for his 255 mineral rights to the coal deposits. The coal firm extracts the coal, benefitting the coal company (its stockholders) and the consumers of coal (out-of-state utility customers). Let us assume that neighboring farms are harmed to some degree by this conversion, and perhaps it is reasonable to assume that local communities also are harmed on net to some nominal degree. It may well be the case that the ill effects to local residents and to neighboring farms are small compared with the net benefit to society from converting this parcel of farmland to coal mining activity. Yet, the distribution of the gains and losses from conversion are not equally shared across involved parties. The farmer selling out gains probably the lion's share, due to his fortuitous ownership of a now valuable resource--coal deposits. The coal company profits from its skill and expertise in extraction procedures, and the consumers gain from getting electricity at lower cost than would be the case if oil were substituted to generate their electricity. The losses, perhaps small compared to the net benefits of conversion, are borne by local farmers and townspeople. Interestingly, these people are concentrated geographically, unlike the faceless and numerous stockholders and consumers, and the losers are more numerous than the few landowners who sell their land to the coal companies. It is likely that local or state government might be induced to restrict this conversion by those who stand to lose. And this demand for political action to retard conversion, it can easily be imagined, can thrive even though the conversion has large net benefits to society. If local communities could by local referendum veto proposed 256 conversions, then it is quite plausible that this veto power would be used pervasively, independent of the net benefits to society of con- version. This example points out that politically-determined conversion rates are dependent on the existing political machinery that translates the various groups' desires into actual regulations governing the con- version rate. If the political process gives a large weight to groups who lose, then even though these losses (externalities) may be less than the social net benefits, the political process can be expected to hold conversion rates below the socially efficient levels. The particular manner in which laws retard conversion are also likely to be influenced by the nature of the political process. Suppose one has determined that coal mining involves a significant negative externality in the form of reduced visual beauty and recreational value of disturbed land. This externality is borne by local towns if left unremedied. This description of a valid social problem, although it strongly suggests government action to reach a remedy, does not provide a unique government solution. One can imagine several solutions that are equivalent on grounds of social efficiency, but which have different wealth redistribution implications. One remedy is for the state to require coal companies to reclaim the land to a certain level of quality. Alternatively, the local government of the townspeople could purchase the impoverished, disturbed land from the coal company, sans coal deposits, at a low price (due to its low market value) and hire sub-contractors to relclaim the land to a certain level of quality. In each case, the external cost has been internalized. But, 257 in the first case the coal company and, most likely, the farmer who sold the land bear the cost of reclamation. The local residents, who are taxed to finance the reclamation, bear the costs in the second case. Other remedies can be imagined, all with equal social efficiency effects, and all with different wealth redistribution effects. We can expect politically influential groups to propose and lobby for particular remedies that have favorable wealth redistribution consquences. Chapter 10 considers in detail the more important effects of inward coal mining on the economic welfare of various groups. Conversion of farmland to coal mining activity has several effects on employment, tax revenues, and business income to the population surrounding the site of conversion. By predicting and understanding the effect of conver- sions on the economic well-being of local business, residents, and landowners, we can address more fully the question of equity that accompanies con- version. Although the state of Illinois and the economy of our nation may benefit greatly from increased conversion in light of the price increase of coal, this activity may largely harm the economic well- being of those businessmen and residents who reside in the immediate vicinity of the expanding coal mines. While the national remedy for their damages may exclude legislation that greatly restricts conversion, it may be politically sensible to use methods of taxation to compensation those who bear significant costs from increased coal activity. 258 8.3 Private Returns to Farming and to Farmland in Illinois, Post 1950 8.3.1 Methodology for Computing Returns to Illinois Farmland It is estimated that of Illinois' 36 million acres in total land area, about 29 million acres are in farming. Illinois land is among the world's most productive farmland, with over 19 million acres being classified as prime, high-yield farmland by the U.S. Department of Agri- culture. In comparison with the acreage of Illinois land in farming, the amount of land in coal mining activity appears insignificant. Although Illinois land is underlain with vast reserves of bituminous coal, only a small fraction has been mined. To date, the cumulative acreage dis- turbed by coal mining is 200,000 acres, which is about one-half of one percent of the total land area of Illinois.* (However, coal mining is concentrated in relatively few counties, some of which have as much as 10 percent of their land areas in coal mining.) Chapter 3 specifically identified the regions in which mining has been historically important. The combination of low returns to coal mining and high returns to farming explains why the overwhelming allocation of fertile Illinois land is in farming. This section will present estimates of the yearly returns to farming and to farmland in Illinois since 1950, based on data *According to a 1974 study by Argonne National Laboratory for the Bureau of Mines, entitled "Surface Mined Land in the Midwest," 107,000 acres of Illinois land has been disturbed by ming activity prior to 1/1962, and 65,182 acres have been disturbed by mining between 1/1962 and 6/1972. It is further estimated that 4,800 acres have been disturbed per year since 1972 by coal mining activities, bringing the total to 1981 to about 196,183 acres. 259 published by the U.S. Department of Agriculture. This time series of returns will be compared with time series of returns to portfolios of other types of assets, including United States farmland, residential real estate, NYSE stocks, corporate bonds, and Treasury bills. The data indicate that the mean yearly return to Illinois farmland between 1950 and 1978 is equal to or exceeds the mean yearly returns to any of the other portfolios, and Illinois farmland is far less risky than NYSE stocks, and even less risky than long-term corporate bonds. The rate of return to farmland can be decomposed into two parts, the net income or profit (loss) from the production and sale of crops (and livestock), and the change in the market value of the farmland (capital gains or losses). We estimate here two yearly returns series— the returns to farms and the returns to farmland. Let us define each statistic in turn. The return to farms over period t (RF. ) is defined in equation 8-1. NIAF^ + AV RF t = rp (8-1) z Vi where AV = V. - V,_, = dollar capital gains per acre, NIAF, = (GI. - PC.) /A. = net income per acre to farms, V. = value of farmland at the end of period t, GK = gross income to farms over period t, PL t = production costs of farms over period t, A. = acres in farming over period t. 260 The first component of RF is akin to dividends on stocks or to coupons on bonds. NIAF is the net profit from producing cash crops. It is impor- tant to note that production costs (PC) do not include the opportunity costs of the farmers' (and their families') time, which is spent working without actual wages. The return RF, therefore, is to the farmland and to the farm family (farms). The returns to farmland (RL) is identical to RF except that an estimate of this opportunity cost of farm family labor has been excluded to compute the pure returns to farmland. The second component of returns to farms RF is the capital gain (loss) from appreciation (depreciation) in the market value of the farm- land over the relevant time period. The dollar net income per acre over time "t" plus the dollar capital gains per acre over time t is divided by the beginning of period, t, land value to arrive at the estimated return to farms over t (RF,). The NIAF figure (sources are detailed in Table 3-1, footnote 1) is the difference between gross income to farms (61) per acre and production costs (PC) per acre. The major component of gross income to farms in any year in cash receipts from farm marketing, which is 89 percent of gross income in 1977. The second largest component is nonmoney income (8 percent in 1977), which is the imputed value of farm products directly consumed and the rental value of housings provided by farm dwellings. Government payments and other income comprise the remaining 3 percent of gross income in 1977. The expenses deducted to obtain net farm income include all production 251 Table 8-1. Returns to Farms and to Farmland, and Its Components, Yearly 1950-1979 Annual Change Annual Return Annual Retucn Annual in Land Value to Farms 8 to Farmland J Per Acred Gains^ Net Income Net Income Annual Land Year to Farms, to Farmland, Value, $ in Land Value to Farms 8 to Farmland' Capital $ per acre 3 $ per acre Per Acre c * D " »*»»d *.i— 9 1950 23.14 9.14 190.35 24.30 0.286 0.201 0.146 1951 28.11 12.76 210.60 20.25 0.254 0.173 0.106 1952 25.96 9.46 222.75 12.15 0.181 0.103 0.058 1953 22.72 6.01 226.80 4.05 0.120 0.045 0.018 1954 24.70 7.89 230.85 4.05 0.127 0.053 0.018 1955 19.12 2.14 238.95 8.10 0.118 0.044 0.035 1956 23.77 8.48 255.15 16.20 0.167 0.103 0.068 1957 22.02 7.30 263.25 8.10 0.118 0.060 0.032 1958 24.15 9.24 279.45 16.20 0.153 0.097 0.062 1959 17.29 2.63 287.55 8.10 0.091 0.038 0.029 1960 18.59 4.24 283.50 -4.05 0.051 0.001 -0.014 1961 21.89 7.76 283.50 0.00 0.077 0.027 0.000 1962 21.72 7.28 295.65 12.15 0.119 0.069 0.043 1963 22.03 7.73 311.85 16.20 0.129 0.081 0.055 1964 17.57 3.53 332.10 20.25 0.121 0.076 0.065 1965 25.40 11.89 356.40 24.30 0.150 0.109 0.073 1966 28.56 15.17 409.05 52.65 0.228 0.190 0.148 1967 26.91 13.01 421.20 12.15 0.095 0.062 0.030 1968 19.91 5.37 429.30 8.10 0.066 0.032 0.019 1969 27.47 11.95 437.40 8.10 0.083 0.047 0.019 1970 20.94 4.77 433.35 -4.05 0.039 0.002 -0.009 1971 25.82 8.65 445.50 12.15 0.088 0.048 0.028 1972 27.76 9.32 502.20 56.70 0.189 0.148 0.127 1973 56.92 37.20 607.50 105.30 0.323 0.284 0.210 1974 49.58 28.96 785.70 178.20 0.375 0.341 0.293 1975 73.67 52.21 943.65 157.95 0.295 0.267 0.201 1976 36.08 13.43 1328.40 384.75 0.446 0.422 0.408 1977 46.35 20.94 1506.60 178.20 0.169 0.150 0.134 1978 47.10 21.83 1688.85 182.25 0.152 0.135 0.121 1979 54.34 36.55 1858.95 170.10 0.139 0.122 3.101 Notes: a) "Farms" includes land, buildings and farm operators. Net income is gross income minus the following farm production expenses: wages to hired farm workers, taxes, interest, production items, and overhead such as aepreciation, mortaage interest and interest on borrowing. Data from 1950 to 1977 are obtained from USCA, ESCS, State Farm Income Statistics, Supplement to Statistical 3u"i'etin '609 . September, 1978. Table 6, p. 12. Oata for 1973-79 are ootained 'rom Illinois Cooper- ative Crop Reporting Service, Illinois Department of Agriculture, Farm Business Records. 3ulletin 80-1, Annual Summary . 1980. Notes: b) Net Income per Acre to Farms is adjusted by deducting farm management exoense, which was approximated by multiplying hourly cash wage rates of hired labor without room and board by 40 hours per week py 50 weeks per year, and then by the numoer of farm family workers (defined as farm operators doing one or more hours of farm work and members of their families working 15 hours or more during the survey weex without casn wages. Source for wage data is Farm Labor , U.S. Crop Reporting 3oara, USDA, Statistical Reporting Service, selected issues. Source for farm workers is 'JSDA, ESCS, Agricultural Statistics, selected issues. c) "Land" refers to Illinois farmland and farm buildings. Buildings account for approxi- mately 17 percent of value. Indices for land values from 1944 to 1978 were obtained from USDA, ESCS, Farm Real Estate Market Developments , vol. 84, no. C0-84, August 1979, Table 2, pp. 20-22. Data for 1979 were obtained from Farm Real Estate Market Developments . March 1980 Supplement No. 1 to vol. 84, Table 2, p. 3. d) This series was computed by deducting the beginning of year Land Value per Acre from the end of year Land Value per Acre (Column 3). e) This series is the sum of Net Income per Acre to Farms and Annual Change in Land Value per Acre, divided by annual lagged land value per acre. f) This series is the sum of Adjusted Net Income per Acre to Farmland and Annual in Land Value per Acre, divided by annual lagged land value per acre. g) This column was computed by dividing Annual Change in Land Value per Acre by annual lagged land value per acre. Change 262 expenses (cash and in-kind wages to hired workers, seed and supply pur- chases, repairs, livestock purchases, and overhead items such as depre- ciation, interest, and taxes). Finally, an adjustment is made to reflect the value of the change in farmers' inventories of livestock and crop to obtain net farm income. This estimate of that farm income is divided by total acres in farming to obtain net income per acre to farms (NIAF). This NFIA figure measures the return to the farmer and his family and to the land owned by the farmer. To obtain the net return to land used in farming, we must deduct an estimate of the opportunity cost of the farmer and of the other workers who were not paid wages. The resulting figure estimates the yearly net return to farmland (RL). Equation (8-2) defines returns to farmland over period t (RL t ). NIAU + AV RL t = rf (8-2) *- v t-l where AV = V. - V. i = dollar capital gains per acre, NIAL. = (GI, - PC - FW )/A. = net income per acre to farmland FW. = farm family wages over period t. (See footnote 2 of Table 8-1.) Note that net income per acre to farmland (NIAL) over any given period equals net income per acre to farms (NIAF) minus farm family wages (FW). Comparing NIAF in Table 8-1 (first column) with NIAL (second column) indicates that estimated farm family wages (opportunity cost) is a large fraction of net income per acre to farms (NIAF). That is, most of what is normally considered profit per acre to farming is actually compensation 263 to the labor input of the farmer and his family, rather than net profit. 8.3.2 Comparison of Returns to Illinois Farmland with Returns to Other Assets, Post-1950 Table 8-1 presents yearly returns to farms and to farmland in Illinois in columns 5 and 6, respectively. Column 4 presents the dollar capital gains to Illinois farmland and column 7 provides the percentage capital gains both of which are based on the time series of yearly land values presented in column 3. Comparing NIAL in column 2 with dollar capital gains in column 4, notice that until the 1970' s, the net income from cash crops and the capital gains from changes in land value were of roughly similar dollar magnitudes. (1964, 1965 and 1966 are exceptions.) During the 1970's, although NIAL rose slightly from past levels, the dollar capital gains from land value appreciation are several times the magnitude of NIAL. We will argue shortly that inflation apparently caused the large capital gains to farmland in the 1970 's. Table 8-2 presents the mean return to Illinois farmland and its components, and the mean returns to various other assets for 5-year sus- periods (except the 4-year period 1975-78) and over the entire period 1950-68. Also presented for each yearly return series is the standard deviation over the 29 year period. This is a measure of absolute varia- bility about the means of the particular return series. The coefficient of variation (C.O.V.) is a measure of relative variability, and it is computed by dividing the standard deviation by the mean of the particular return series. (This statistic is expressed in percents.) 264 c ,— W. 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XI r0 - Q. o 41 VI L. •— c _l O XI O 1_ VI ■e xi c ■- XI , C — « T3 2 (^ r^ s_ ■^ o -o ■a i 41 _3 S r^ Cv ■o r^ 41 > !- XI cn c ■u c c «• U t- 3 u 41 — < TJ o o en i- 3 1_ U *J • o -c O 3 VI o •»- _3 VI o VI 41 *-> — > > -0 -: c s- k in oi -o '-3 41 K- 1 L» CO VI c - r^ cr 41 u-l C o ■o 41 io s. E • — 4-1 CJ ae. E u. • C u. u. o o O >»- VI t/l o l/l c s_ C a* vi >> 4> s- ■o «o "O ■o JC u- O 41 « -O 3 •*- C J-> -o c c u >l U — io i "O I CI/14) c C 41 4-1 ■»- cn TJ VI c l/l u -J xi E — ' 4-> 3 3 u > -o •a t- Jt O -UJ — o o -a -o u 3 *j *-> '_ ■a .o — •<-> -3 ^ ^e 266 Over the entire 29-year period from 1950 to 1978, the private rate of return to Illinos farmland is 11.75 percent (mean annual rate). This return to farmland is net of the estimated opportunity costs of farm family members' labor (being computed using NIAL). Breaking this total mean annual return into its two components, the contribution of net income from the sale of crops and livestock is 3.05 percent (mean annual rate), while the mean yearly capital gain return is 8.7 percent. The variation of the return to crop production is quite low, with a coefficient of variation of 58.82 percent. This risk factor is comparable to that of Treasury bills, which are considered to be very safe securities. The fluctuation in total returns to farmland is mostly attributable to the variation through time in the capital gains return, which has a coeffi- cient of variation equally 109.31 percent. Comparing the 29-year mean return to Illinois farmland to the returns yielded by other widely-held assets, it is noteworthy that Illinois land returned the same as did a diversified portfolio of farmland located throughout the United States--11.91 percent for U.S. farmland versus 11.75 percent for Illinois farmland. The portfolio of U.S. farmland was less risky, due to its greater diversification. Both Illinois farm- land and U.S. farmland yielded higher returns than did a diversified portfolio of residential real estate, which returned annually, on average, nearly 7 percent. A diversified portfolio of NYSE stocks did only mar- ginally better than Illinois farmland over the 29-year period while displaying more than twice the degree of financial risk. A pattern that emerges from the 5-year subperiod data is the positive 267 relation between the rate of inflation and the capital gains return to Illinois farmland. The 1970's have been characterized by relatively high rates of inflation, and during this period the capital gains to Illinois farmland have been very large, averaging 13 percent annually between 1970 and 1974, and 21.6 percent annually between 1975 and 1978. Recently published research by Fama and Schwert^S presents statistical evidence that the returns to short-term Treasury bills are determined primarily by expected short-term inflation rates. Also documented is evidence that real estate also is an efficient hedge against inflation, and in Table 8-2 inflation rates and returns to residential real estate are positively correlated. It appears from Table 8-2 that farmland in the U.S. and in Illinois has been an excellent hedge against inflation at least since 1950. Table 8-3 presents simple correlation coefficients between all of the variables presented in Table 8-2. The correlation coefficient is a standardized measure of covariance between two variables, having a value of unity for perfect positive covariation and negative unity for perfectly negative covariation. The correlation between returns to Illinois farmland and returns to U.S. farmland is 78%, indicating a high degree of positive covariance. Returns to Illinois farmland also covary positively, although to a lesser degree, with returns to residential real estate. Notice that the returns to residential real estate is highly correlated (90 percent) with infla- tion, which is characteristic of an inflation hedging asset. 268 i/i c 3 4-> d) QC CO I — « cn *— s t— I LO 0) c o o LO a. en E <— i o u S_ 0) i/> > -i-J o i— t GO ■a c c ■_ fD 3 1 — O) -O Q C <"0 >> r^ ^— E 1. i_ r0 13 a U_ >- S- 13 0) r— -2= CU +J s- o i- o o <_> +-> • co 1 CO OJ ^— .a U T3 C C O a; *— - 13 s_ • EK Q.I— CLr— < >-H 4-> GO c o to to '- s= a i 3 -i- O — < 4-> r— S_ CC a i— O » q; i— i c 4- o o 4-> _J a> 13 u_ _ i — ^ IQ <4- 1— I E£ c , — OJ o 4J •(— T3 +-> +-> -— s c ^ 00 UJ s. a uj cc 3 ■a cc *-> •r— r— CC OJ 00 rO ^— as OJ 0) cr: a: o +j -a c ra u_ s_ i/j r— LO 3 • E =5 4-J :=> s- cc ZJ ro o£ U_ cn en CM CO n LO to co O o LO to en LO o o o ^ i— < CM Lf> VO CO o tO CO CO CM o «3- co LO LO LO O cn O r-I O co co in C l-H cn co cn co o o o cn CO co +j to -a •r- C — c o IT) CM LO CM cn LO to o 1— < o o o o o O o o co cn CO CO LO r— 1 LO cn cn CM CO co •-H O CC cc cc cc o •— • cc to c > i- o o LO o aj OJ Lu u u (—4 •^ •r— CO -^ i. c o -a co 00 oo 0) s_ en a> a: T3 C £ O E re S_ r— o o c ■1 — a ^« +-> r— re — ' cc o -a +J c (0 l/l c c s_ f ~ 3 3 +J 4-1 0) 0) cc: ex: B ^r CO OJ ^— ^2 03 l QJ c c CO ■i- o WO -Q oo • S- -M O 3 re Q _3 -a -MT3 oo 3CM •'->cr: CJ £ M- O O i- +J O) re c a; s_ ^ cc: £ +J E 0) 0J r— C re Q. s- a> re O s_ co Q_ en o o CM <3- o o o r- CO CM CO CM CO U3 CT> ^3- O CM O LO o o O O O o 00 T3 c e c e •»— •f— •i- re r^ ^-* re i — ^ ^~ C7> E i— -a •— T3 i. e C r— re £ — S_ .— 4-1 3 £ 3 £ •t— — _ 4-> S_ £./— 0) re 0) re re i — a; <+- o; >+- o ,— i o cr> o cr> on r-^ in r-» cd CT> cr> cr> in o «o- co cr> o 00 f— a re 4-> (J re •P" u 4-> •f— 00 -a »F» C 4-> •r— re 4-1 oo CD jC 4-> <4- ir> o CL) '_ CO C3 3 ■n 1 — re re V > E i 4-J o < s £ u OJ '-— *r m 4-> U 'VI • r— ■r— M- 4-> 4- ■re 0J 4J O 00 a i 4-J c o 0) oo 00 _^ 00 re J_- 0) S_ "O 00 CD <4- ■ r- c o D £ ^ 01 s_ re u 3 Q. c — i re D c u s_ If" • r~ 4- 4-> 1) •i— ■V 3 C -^ r— CI s_ re •r— re => 00 s: re oo cu 00 re -a cu OJ ■a OJ re E >4- CM £ Of •P— -a H- a> O 4-1 00 d) 3 +J ■n re ■o cr: «-c 00 CO s_ 3 00 re a — 00 4-> re £ O 00 4-> re i £ i. 3 a co 272 and inflation is significantly positive. An increase of 1 percent in the inflation rate is associated historically with an increase of over 2 percent in the return to Illinois farmland. The regression with capital gains to Illinois farmland as the dependent variable shows that it is the covari=)nce between inflation and capital gains that is responsible for the covariance between inflation and total returns to Illinois farmland. The total risk of any asset can be decomposed into two components — systematic risk (beta) and unsystematic risk (residual variation)— according to equation (8-4) . a 2 (RL) = S 2 a 2 (RM) + a 2 (RES); where (8-4) a (RL) = variance of returns to Illinois farmland, 3 = systematic risk of Illinois farmland, o_ O -o a. OJ t/l ♦» oi e l/l -3<\J on CM "O CCL i • , S- (O O Q- o a> c u CJ> S_ -r- c o s- flUO. co CO KO O CM CO o o ^ c o o o en «3- <3- co o en o ^ o o O CM en en o co O <3- «3- CO O CM O <-'■ o ~ O ^H o ^ c o TJ 4- 0J s- S_ 4-) TJ O) s a: c TJ +-> 1/1 C o 4-> C 0) a> <— c tj a> •-- T3 O S_ oj a. <— I CM o o 1—1 en *r cm co tn wo in hc\j •— 1 r-~ cm co CO CM O CM >— 1 CM ^ CO CM CO CO CM O CO o O r-H o ^ O r-H .a TJ ^^ CM IT) co co .-* CO O CM WO CO O co s_ o s_ i- -o i- TJ TJ C TJ >1 -O. T3 O) ■a > ■0 ai o o O CM c o O CO T3 (/> -0 c c c TJ •(— T3 r— i/i +-> E 4-> i_ +J s- S_ 03 TJ r— (^ r— 3 3 • -t-> 1 — 4-J ■ — CL-(-> +j on 0) 1— O) 1— TJ ai in r*- cr> en cr> cr> un o *3- CO cn en r^ co cr> cn a> u T3 • O) +J 4-> c TJ a; E •^ •r- u 4-> •1 — 1/1 M- 0) <4- 0) II O U u ■r" T5 -M cu CO E tj 4-> to t/1 1 LU 1— 9J 276 This effect of inflation also holds up in the regression with capital gains returns as the dependent variable. Therefore, inflation increases the returns to farming (see regression 2, Table 8-5) and to farmland independent of the increase in crop prices that usually accompanies infla- tion. The same may be said about the returns to U.S. farmland, judging by regression 4 of Table 8-5. Table 8-6 presents regressions of net income per acre to Illinois farmland, which nets out the opportunity cost of the farm families' labor, and to farming on the prices of corn and soybeans, the main crops of Illinois. Consistent with expectations, the level of prices received for those crops is positively related to these two measures of net income. Also, 65 percent of the variation of net income to farmland and 79 percent of the variation in the net income to farms is explained (or accounted for) by these two measures of crop prices. The demand price for corn and soybeans is a critical determinant of the return from crop production on Illinois farms, and inflation is the most important determinant of the capital gains returns to Illinois farmland. Of course, Illinois farmland is not homogeneous. Rather, there is considerable variation across counties in the yield quality of Illinois farmland. These differences in yield quality are expected to affect the income received per acre of land, given the price of the relevant crop. Changing crop prices through time causes net income to change (directly), and given crop prices for a certain year, different yields per acre will cause net farm income to differ across counties. 277 CM U"> U3 cn •a < oi T3 C (O E r^ s. cn Ll_ o o ■*-> O cu m S. CTl <: aj cu a. u a s- E o. o U Q. c o 1—1 1> u CO c I CO -Q 4- O C CU CO O -Q — >> s- o a. oo o c a s_ u o •i- c_3 i- CL px r— i CO CM oo cn co co CM i— • *3- cn co cn co ^ CC F-l cn cm c o o C CO CO i— -a .a c fa CO -r- Q. i- C0 -a o CO a. i— i CO iO co • <£> <3" 1-4 o • • • i— 1 CM o o 1 1 — - a C0 i. S- u u +- CU o CO o o +-> o cn id r-^ cn cn o cn cn cn 278 Table 8-7 presents yearly data on mean crop revenue per acre for four classifications of farmland by yield quality. All counties with less than 25 percent prime farmland are in the lowest yield group, and all counties with more than 75 percent prime farmland are in the highest yield group. In any particular group, the income fluctuates through time directly with fluctuations in the prices of corn and soybeans. In any year, one can observe the effects of yield quality on income per acre by comparing the mean revenue of the four different classifications of farmland. Table 8-8 presents for a few counties from each of the four yield classifications, the market price per acre of farmland for 1964, 1969, and 1978. Consistent with the data of Table 8-7, which shows revenue per acre being highly sensitive to yield quality, the market value of farmland in high-yield counties is several times the value of farmland in the low-yield counties. In 1978, the mean revenue per acre in the lowest-yield group was $175, compared with $259 for the highest-yield group. In accordance with their different revenue-generating capabilities, the average market value in 1978 of high-yield farmland was about $2,600 per acre, compared with a market value of about $600 per acre for low- yield farmland. The implications that these data have for estimating a private rate of discount is that expectations of rising (higher) crop prices and/or of improved yields should increase the value of land in farming. The market value of the land in farming will be increased by these developments, 279 •o c (T3 LL. lo •r— o 4- » i- O a. lo oj _ U 4- S- •i- O o S- o Q. c j= +-> s-s - O O- o cn +-> r». en c l-H o '( — o ■M +-> u =3 oo -a VO c cn s. i— i a. E c o o _ s_ 4- o i- E T3 o _ >- 4- >^ 0) a> «T— cc 4-> ■r" c ^ rO r»» C ■!- 0) t3 i- 03 Q. o LD c o ujui ii a) E 3 "O ■- +-> c s_ a) 3- LO VO VO vo CM cn o c: a> i- Q. to to &« a; vo _J CM vovop^cococo^rcovor^-vovn i— I i— I CM CM CM i — i i— I r— i CO CM CMt-H<3-i-^CMCMU">^HLr>Lr)Cnr>% cn ,— i o <— ii — «3- •— « vo ^ co to cn i— t i— *i— (i— ICMCMCMCMCMCMCM cn «3- p^ LT) «d- *J- VO o CM o r^ «a- CM cn CM <3" 1^ r*. cn ID JO o id CM i — o ID o co CO CM P~- 1— 1 o vo <3" p^ cn co CM CO CM i—i •— i VO i — i id «3- CM CM «3" «3- co CO *3" CO CM CO CM co CO i — i CO vo in O ID CM CO vo "=3- CO VO i—i CM VO CO p-» CO VO CM O CO CO CO CM cn CO CO cn l-H o CM «3" C0 1 — 1 00 CM O CM O o CM CM CM •=3" VO CM JO co ID CO «3- LD CO «3" ID en -3- «3" CO VO co co CO en cn *3" O >3- ID r^. CO i—i LD i — i r-~ CO co c CO vo CO CM co CM CO co CO T3 cn CM «3" CO r^. O 00 LD CO CO o cn CM CM O CM VO «3- CO CM CO 1—1 rx. O CO cn i— i ID LD CO <3- CO VO VO LD o co «3" CM CM J2 LD CM CO VO i — i LD vo LD cn o o CM LD cn LD LD «3- LD cn cn co vo r— H ■— i CO r—i 1— 1 1—1 CM VO CO CM CM «3" CM CM CO l-H vo CO T3 VO CO LD en O vo ID cn 1—1 cn i—i cn CO ^3" CM i— 1 <—l co CO CO O vo O CO VO <3" VO o LO !-H "=1- i—i VO O vo CO VO *3- LD o CM CO VO cn cn o <— * cm lo p*. r»x r-» cn cn cn cn CO ■3- ID vo r~- co cn p»» r- r>- r^ i — r^ r-» cn cn cn cn cn cn cn to O) •1— —> c 3 o u !/) LO o i- u 3 0) C i_ CD > a. O) o s_ s_ u a. o S- -_ T3 u r— r— u- o o -a ai c s_ fO o aj ^3 ra > •1— > S- 0) itJ T3 r— r— -o O ■■- -a s: ld 75 554 688 1290 2745 28.2 Christian >75 0.15 464 618 1076 2376 29.4 DeWitt >75 469 620 1335 2478 30.6 Piatt >75 562 742 1383 2879 29.4 281 and thus the opportunity cost of converting farmland to non-farm uses is raised. The higher are crop prices and yield quality, the greater must be the returns to the non-farm alternative use required to justify conversion. 8.4 Returns to Coal Mining in Illinois 8.4.1 Price and Output Changes of Illinois Coal There have been several events recently at the national and inter- national level that have had an important influence on the Illinois coal market. The market price for the high-Btu bituminous, high-sulfur coal produced by Illinois mines has doubled since 1970. Rather than inducing a large increase in mining activity, Illinois coal production has fallen slightly since its peak in the late 1960s. The market forces responsible for this price increase and slug- gish production originate with the energy crises of 1973 and several legislative developments. The rapid quadrupling of world oil prices in 1973 and the subsequent moves towards energy "self-sufficiency" have stimulated production of coal in the United States. Total U.S. bituminous coal production has increased from 552 million tons in 1967 to 689 million tons in 1977, which is a 25 percent increase in supply. However, Illinois coal production has not contributed to this surge in supply for a variety of reasons. The most important reason is that recent environmental legislation has caused the greatest share of demand growth to go to the low-sulfur coal of the Western states. Illinois basin coal is high in sulfur content, averaging 3 percent 282 in 1975 compared with the less than 1 percent sulfur contained in Western coal reseves. The enactment of federal and state air pollution regulations in the 1970s limited sulfur dioxide emissions from industrial and utility sources. Whereas prior to 1966 virtually all of Illinois' coal consumption needs were met by mines in Illinois, imported Western coal has increased to over one-third of total consumption. Also, in the last fifteen years the major Midwestern customers of Illinois coal companies (utilities in Missouri, Wisconsin, Iowa, Kentucky, and Minnesota) have switched over large fractions of their demand from Illinois coal to the low- sulfur Western coal in response to the stringent air pollution regulations. Other regulations have affected the costs of coal mining activity. The EPA regulates dust discharges from new coal-cleaning plants under the authority of the Clean Air Act Amendments of 1970. The Office of Surface Mining established by the Surface Mining Control and Reclamation Act of 1977, oversees enforcement of reclamation regulations by states with programs that conform to Office of Surface Mining standards. The major requirements regarding land restoration were described in Chap- ter 7. The Coal Mine Health and Safety Act of 1969 and the Federal Mine Health and Safety Amendments of 1977 (both enforced by the Mine Safety and Health Administration, Department of Labor) regulate ventila- tion, roof construction, and clean-up activities of underground mines. These regulations, although passed in order to obtain certain beneficial results, have the side-effect of increasing the costs of coal mining. These supply-side effects act to increase the price of coal while reducing its output. 283 The increase in the price of oil and natural gas is a major demand-side effect that acts to increase the price of coal while increasing its output. However, this increased demand is met in large measure by increased supplies of low-sulfur, Western coal, rather than hiqh- sulfur coal like that of the Illinois coal basin. The net effect of these market and regulatory forces is an increase in the price of Illinois coal, an increase in the costs of Illinois coal mining activity, and an ambiguous effect on output of Illinois coal . Table 8-9 presents some data that summarize recent changes in the market for Illinois coal. There are two episodes of price increases in the time series of average yearly Illinois coal prices. Between 1973 and 1968, Illinois coal prices increased a total of 69 percent, while total U.S. production increased only 7 percent. This slow growth reflects the influence of the EPA regulations, which reduced the demand for coal as an energy source, and of the Coal Mine Health and Safety Act of 1969, which increased the costs of mining, especially underground coal. Also, the passage of more stringent state land reclamation laws in the early 1970s contributed to the increase in the cost of coal mining. Therefore, before 1973 these new regulations caused an increase in coal prices and a reduction in coal output. The year 1973 witnessed a dramatic rise in coal prices, due to the increase in the price (and reduced availability) of oil, a major substitute for energy production. Illinois coal prices increased 48 percent in 1974, and 59 percent over the three years between 1973 284 Table 8-9. Recent Changes in the Market for Illinois Coal rll l 1n S i -,oc t T i ST Illinois u ' s - Illinois Production Year uo , dl v ^ ces > [■"'*• Production Production as % of Total Mines, Avg. Value {m ) {m } u Production Per Ton v 1962 3.86 - 422 - 1963 3.80 - 459 - 1964 3.79 51.9 487 10.7 1965 3.74 55.5 512 10.8 1966 3.85 59.3 534 11.1 1967 3.88 60.5 552 11.0 1968 4.01 57.7 545 10.6 1969 4.32 66.7 560 11.9 1970 4.92 64.9 603 10.8 1971 5.46 58.4 552 10.6 1972 6.14 65.5 595 11.0 1973 6.77 61.5 592 10.4 1974 10.03 58.1 603 9.6 1975 14.64 59.5 648 9.2 1976 15.93 58.0 679 8.5 1977 17.28 53.9 689 7.8 1978 20.46 48.7 670 7.3 1979 22.75 59.5 - - 285 and 1976. This demand- induced price increase would be expected normally to encourage increases in production, and U.S. production does rise 16 percent between 1973 and 1977. However, Illinois coal production remains significantly below its peak years in the late 1960s. This is explained by the increased fraction of U.S. coal production accounted for by low-sulfur Western coal. 8.4.2 Financial Characteristics of Coal Mining Companies The returns to mining in Illinois directly affect the develop- ment and maintenance of coal production. Data on mining returns, however, are practically non-existent other than that available in annual reports. Coal companies are often subsidiaries of other energy or mineral oriented firms, and thus the coal profitability may be difficult to segregate. In addition, most coal companies are multi-state operations and the returns reported represent nationwide or diversified coal profits. To specifically determine returns to Illinois coal is thus an impossible task. To provide some indication of the national return to mining, the available financial statistics for coal companies were reviewed. One available financial statistic which has been presented is the net income as a percent of sales for coal operations. Table 8-10 summarizes the historic averages for a group of representative coal companies. The importance of this level of return can be considered as it relates to the returns on the land being affected. Utilizing a 286 Table 8-10. Net Income as a Percent of Revenue for Coal Mining Firms 1971 1972 1973 1974 1975 1976 1977 1978 1978 1980 Net income as percent of sales 3.4 5.5 5.2 16.3 19.3 15.4 N/A 13 12 14 for coal companies 1980 price for coal of $30 per ton and an average coal density of 1790 tons per acre foot in Illinois, the revenue generated per acre could range from $130,000 to $230,000.* The actual net income before taxes per acre could be estimated between $17,000 per acre to $30,000 per acre. This net income value, of course, is based upon an average value for all firms, mining techniques, and states. Realizing that there does not exist any precise method of measuring returns to the land from mining, it is important to consider some of the factors which affect these values. Net income, as reported by firms, may or may not include an amortized cost of land. In addition, mineral depletion allow- ances may affect the "accounting income" reported versus actual income, depending upon the company. To separate the return on land which is mined from the return on other components of capital (debt and equity) is not possible with existing information. All of these factors should be considered, however, when considering the return to land. *Revenue per acre = $30/ton x 1790 tons/acre-foot x 3-5 feet x 0.84 (removal efficiency) 287 8.5 The Economics of Conversion of Farmland to Coal Mining Activity The allocation of land between farming and coal mining is determined by the relative value of the land in the alternative uses. Section 8.3 presented a detailed examination of the returns to farming in Illinois over the last thirty years, and section 8.4 engaged in a suggestive dis- cussion of the determinants of returns to coal mining activity. Conversion is properly viewed as a natural consequence of this market allocation process. Illinois land that is very valuable as farmland relative to the value of its underlying coal reserves will not be mined. The market price of the farmland reflects its future stream of net returns from farming, and coal operators would not be able to profitably purchase this valuable farmland. Alternatively, if the coal resources are very valuable relative to the lands' value in farming, due to the high price of coal, the low cost of mining these particular reserves, or the low productivity of the farmland, then the land will be converted to coal mining activity. Events that effect the returns to farming or to coal mining will also effect the conversion of farmland to coal mining activity. We have discussed several economic and regulatory changes that have affected the returns to coal mining. The Illinois coal market has been characterized by reduced output of coal since the late 1960's as a result of these economic and political forces. A steady rate of coal production requires a steady conversion of farmland to coal mining activity. The amount of land used (converted) per ton of coal mined is influenced by the 288 geographical conditions of the coal reserves and by the regulations governing coal mining activity. Underground mines are far less land intensive than is surface mining. Surface mines with thick reserve seams are less land intensive than those with thin reserve seams. Regulations protecting the safety of miners could increase the land required per ton of coal mined, or reduce the productivity of land in coal mining activity. Data are available on the historic conversion rates of farmland to coal mining activity. Although it is often sketchy and approximate, it is useful to present some figures to gauge the relative magnitude of past conversion and to predict future conversion under reasonable assumptions. Currently, about 80 percent of Illinois land is in farms, with about 88 percent of this farmland in crop production and the remainder in wood- land, grassland, and farmsteads. Nearly 66 percent of the land in farms in Illinois is considered to be prime (high-yield) farmland by the U.S. Department of Agriculture. Compared with farmland, the land utilized cumulatively by coal mining activity to date is about 0.54 percent of the total land area in Illinois. Prior to 1962, about 107,000 acres of Illinois land were affected by coal mining activity. Between 1962 and 1972, during which period yearly Illinois coal output averaged 60 million tons, a total of 65,182 acres were disturbed by coal mining activity. During this period, yearly pro- duction of 60 million tons required roughly 6,500 acres to be disturbed yearly. Between 1972 and 1981, about 4,800 acres per year have been 289 disturbed by coal mining activity, while yearly output averaged 57 million tons over this period. These figures imply that 108 acres were disturbed for every 1 million tons of coal mined between 1962 and 1972. More recently (1972 to the present) about 85 acres were disturbed for every 1 million tons of coal mined. Between 1972 and 1979 the ratio of yearly underground to surface production has increased from 0.94 to 1.2, which probably accounts for the reduced usage of land per ton of coal mined in Illinois. If all of the land disturbed by coal mining activity since the beginning of coal mining in Illinois (about 200,000 acres) was converted from farm- land, then the rate of conversion over this century is about0.7 percent. That is, the total amount of farmland in Illinois would have been reduced from 29,000,000 acres to 28,800,000 acres. Between 1962 and 1981, a total of 93,000 acres have been disturbed by coal mining activity. Again assuming only farmland was converted for this coal production, this repre- sents a reduction in available farmland of about0.32 percent over the last 20 years, or about a 0.016 percent reduction in available farmland per year. At this rate of conversion, it would be 60 years before one percent of the total farmland in Illinois is affected by coal mining activity, or 600 years before 10 percent is converted. This method of predicting conversion rates is crude, but it can provide some perspective on what past conversion rates imply about reduc- tions in Illinois farmland. However, farmland is not the only source of land for coal mining activity. Indeed, between 1964 and 1974, the 290 period of relatively intensive coal production in Illinois, the total acres of cropland increased from 24.17 to over 25 million acres. This increase in cropland materialized despite an increase from 1.19 to 1.65 million acres utilized by urban areas. The land area devoted to woodland, grass land, and range was reduced from 7.2 to 5.6 million acres, and this reduction of 1.6 million acres between 1964 and 1974 accounts for the increased cropland and land used by urban areas (about 1.29 million acres) . In the past, urban development has been the major drain on Illinois cropland, yet new cropland was supplied by existing grassland and wooded areas. As of 1974, Illinois had about 5.6 million acres still in grass- land, range, and woodland. It is interesting to note that if land con- verted to coal mining activity was replaced by this supply of grassland, range, and woodland, then at current conversion rates (5,000 acres per year) this stock of land would last about 1,120 years. That is, the stock of Illinois land in farms that is not in crops is very large rela- tive to the current yearly land required for coal mining. If converted land for coal mining is supplied (directly or indirectly) by woodland and grassland, which presumably is relatively unproductive farmland, then it will be several centuries before coal mining begins depleting cropland. This conversion of relatively unproductive land to coal mining explains how between 1964 and 1974 there was an increase in the stock of Illinois cropland despite relatively intensive coal mining production. In view of the current reclamation regulations, it is misleading 291 to consider as totally lost land that has been mined for its coal. It is more accurate to consider mixed land to be lost to farming for a period of time during mining activities, and to be of reduced productivity to farming after reclamation. This is not the same as assuming mined land is lost forever to farming or to other productive uses. Therefore, cumulating over several centuries acreage that is affected by mining must be conditioned by the understanding that much of the land that is mined early in the period will be productive farmland after the passage of sufficient time within the period. Of course, using past conversion rates to predict the future allo- cation of land between coal mining and farming is conditioned by several implicit assumptions. The two key assumptions are that land requirements per ton of coal mined and that the yearly production of mined coal both conform to past trends. Production could differ depending on the future behavior of the net returns to coal mining activity. If coal prices rise significantly, due to another international oil cartel, to a war in the Mideast orto dramatic relaxations in the Clean Air Act, then the demand and resulting production of Illinois basin coal could exceed historical peaks. A more likely case, in view of the 1977 reclamation law, the stability of the world oil market, and the continued substitution of low-sulfur coal, is that future coal output will not exceed by significant amounts historical levels in Illinois. It is also possible that the land required per ton of mined coal 292 will change. If the current trend continues of increased proportions of Illinois coal output being produced by underground mines, then land requirements per ton are expected to continue to decline. Reclamation laws strengthen this prediction. Technological improvements in coal mining methods and in farming will influence the returns in each activity and, thereby, effect the allocation of land between these competing uses. Improved strip mining machines, for example, could reduce the costs of mining and increase the returns per acre. Improvements of this nature might change land requirements for coal mining. Two effects have offsetting implications for land requirements. The reduction in the cost of mining stimulates production and tends to- increase land conversion to coal mining. Conversely, the improved tech- niques often increase the productivity of land, allowing more coal to be economically recovered per acre of affected land. This tends to reduce land conversion to coal mining. In agriculture, yields of corn and soybean have increased dramatically, Between 1966 and 1970, the average yield for corn was 90.4 bushels per acre, and the mean yield of soybeans was 30.9 bushels per acre. Between 1975 and 1979, the average yield for corn was up to 113.4 bushels per acre, which is an increase in yield of 25 percent in a single decade. The average yield for soybeans over the period 1975 to 1979 was 35.8 bushels per acre, which is an increase of 16 percent in yield over the decade. Continued progress in the genetic improvement and yield potential 293 of both corn and soybeans is expected, as well as improved machinery and more effective weed control using newly developed herbicides. These technological innovations in farming are reflected in yield increases and in lower costs of labor, capital, and land per bushel of crop. The resulting increased returns to farming would tend to increase the output (supply) of crops and stimulate farm production. The land requirements are ambiguous, due to the offsetting influence of the sub- stitution and scale effects. The increased yields result in less land for given outputs, while the increased output requires more land. The net effect on land, a priori, is ambiguous. Other developments could increase the requirements of Illinois farm- land. International events, such as food shortages in other countries, may increase the demand for exports of U.S. crop production. Illinois is a major supplier of U.S. exports. In an event such as this, the land would be supplied by land in competing uses through the market process. That is, increases in crop prices would result from the reduction in world supply. This higher price would increase the returns to farming, and land would be bid out of competing uses. Land that otherwise would be mined for its coal would be farmed as a result of the new higher value of the land in farming. This discussion focuses on aggregate conversion rates for the state of Illinois. This perspective implies that Illinois land affected by coal mining, in the past and in the future under reasonable assumptions, is a rather small fraction of the total stock of Illinois farmland. With 294 land reclamation salvaging much of the productive farmland after the coal has been mined, the impression is that conversion of farmland to coal mining activity is a concern of negligible importance to the stock of Illinois farmland. However, coal mining is concentrated in certain regions and counties that coal reserves with characteristics rendering them economically recoverable. It is relevant, therefore, to compute past and future con- version rates on a region or county basis. While many counties are unaffected by coal mining, increased coal mining in response to future increases in coal prices or to technological advances in coal mining techniques could cause substantial declines in the stock of farmland in counties with vast mineable reserves of coal. For this reason, one should analyze the impact of projected production rates and land conver- sion on a county basis, as this study does in Chapter 9. 295 CHAPTER 9 LAND CONVERSION ATTRIBUTED TO COAL MINING The magnitude of future land disturbance is directly correlated with the extent and type of mining activity. In Chapter 5 the fore- casted rate of coal mining through the year 2000 has been presented for Illinois. For surface and underground mining the projected production level by county was summarized in Table 5-26. The economic factors which affect the decision to mine or to farm were specified in Chapter 8 and provide a perspective for the anticipated levels of land disturbance. The potential conflict is based upon the location of coal resources in Illinois and the distribution of prime farmland. Figure 9-1 depicts the locations of blocks of economically strippable coal reserves as well as those coal resources accessible through underground mining. Figure 9-2 illustrates the distribution of prime farmland in Illinois. Coal resources underlie over 75 percent of Illinois, although surface mining on a large scale has only occurred in 18 of 38 counties with strippable reserves. Approximately 45 counties with greater than 50 percent prime farmland also have coal resources. The quantity of land impacted by surface and underground mining varies according to the seam thickness, production level, and other site specific characteristics. Since surface mining and underground mining differ significantly in the land utilized during mining, the number of acres impacted were calculated for each method. 296 I A\ Strippable ' ^^ ' Reserves Deep Coal Reserves ]o- 30 (inches) E2 30-60 60+ Figure 9-1. Location of Illinois Underground Resources and Economically Strip- pable Coal Reserves SOURCE: Adoption of Illinois State Geological Survey Data 297 Figure 9-2. Distribution of Land Area That Is Prime Farmland 298 9.1 Surface Mining Land Requirements Surface mining, which is highly visible, has required, on average, 4,800 acres per year since 1972. This land requirement encompasses not only the active pit but also roads, ditches, sediment ponds, prepar- ation plants, and slurry ponds. In Chapter 3 the historical land require- ments were summarized in Table 3-8. Auxiliary facilities have averaged 5.7 percent of the land permitted since 1972. To calculate future land requirements, the forecasted surface mining coal production per county was combined with other factors affecting the magnitude of land use. The average thickness of coal seam for each county, the efficiency of coal extraction, and the average coal density all determine the number of acres required. The average density of Illinois coal according to the Illinois State Geological Survey (ISGS) is 1790 tons per acre- foot. The ISGS has also reported the seam thicknesses of economically strippable coal reserves for each county in Illinois. The average seam thickness per county was calculated as a weighted average according to the seam thickness and size of the reserve blocks per county. Table 9-1 presents the area of mining potential and average seam thickness for each county. The thickness of strippable reserves varies from 18 inches in Jefferson County to 83 inches in St. Clair with the average in Perry County of 68 inches. Although Table 9-1 contains average values, within any county there is variation in the seam thickness of particular blocks. The total area of mining potential represents substantial portions (^ 20 percent) of Fulton, Knox, Peoria, Perry, and Stark Counties. 299 Table 9-1. Strippable Reserve Characteristics in Illinois Counties County Average Seam Thickness, inches Area of Mining Potential , acres Percent of County Fulton Gallatin Jackson Jefferson Knox Peoria Perry Randolph St. Clair Saline Stark Vermil ion Will iamson 42 48 66 18 34 44 68 61 83 56 48 60 67 99,700 17.8 7,200 3.4 17,600 4.5 7,980 2.2 98,700 21.2 92,200 23.1 64,100 22.8 26,200 6.9 34,800 8.1 20,600 8.4 36,300 19.5 18,000 3.1 10,900 4.0 SOURCE: Calculated from data contained in Treworgy, C, Bengal, I., and Dingwell, A., Reserves and Resources of Surface-Minable Coal in I1 1 i no i s , Illinois State Geological Survey, Circular No. 504, 1978. 300 The efficiency of the coal extraction technique depends directly upon geographical and geological factors as well as the type of extraction equipment utilized. According to a U.S. Bureau of Mines analysis, the statewide average in Illinois was 84.4 percent. Future technological improvements could increase this value; however, this present efficiency would provide a conservative estimate for the analysis. The seam thickness, production level removal efficiency and coal density were all incoroprated 57 into an estimating equation adapted from Bernard: TA S = [P/R x 1/S x 1/D] ■ 1.057 (9-1) TA~ = total acres affected per county S = seam thickness in feet D = coal density, 1790 tons per acre-foot R = removal efficiency, 84.4% P = annual coal production, tons per year 1.057 = total land affected factor (Direct plus indirect) Table 9-2 presents the estimated rate of acres affected due to surface mining in each county over time. Because surface mining is forecasted as a declining industry in Illinois, the number of acres impacted each year is also declining. Perry County, which is the leading coal-producing county in Illinois, continues to be an important mining county. Although no mining currently occurs in Knox, Peoria, and Stark Counties and to only a small extent in Vermilion County, there may occur in the future new mining activity. Remembering that these forecasts are only approximations based upon coal reserves and that specific economic 301 Table 9-2. Annual Rate of Land Disturbance Due to Surface Mining Production County 1985 Total # Acres/Yr. 1990 Total # Acres/Yr. 2000 Total # Acres/Yr. Fulton 512 Gallatin 68 Jackson 362 Jefferson 224 Johnson - Knox 430 Peoria 126 Perry 1,187 Randolph 261 St. Clair 358 Saline 357 Stark 36 Vermilion 212 Will iamson 171 465 60 362 198 401 111 1,058 231 317 344 32 212 152 434 52 375 161 377 117 881 193 268 337 30 222 129 4,304 3,943 3,576 302 factors determine the ultimate location, it is evident that new counties may be affected by future surface mining activities. 9.2 Underground Mining Land Requirements Underground mining certainly utilizes smaller amounts of surface lands than surface mining for comparable production levels. Coal is extracted without disturbing the upper soils unless subsidence, planned or unplanned, occurs. Underground operations utilize land for roads, ditches, preparation plants, slurry ponds, refuse areas, and impoundments. Only since 1978 have underground mines been permitted by the Division of Land Reclamation in the Department of Mines and Mining for these surface areas. Most areas permitted are fixed for the life of the mine (from 20 to 30 years) with the exception of additional slurry or refuse areas. To estimate the surface acreage affected by underground mining operations, several recently opened mines or mines under construction were analyzed according to their land needs. Table 9-3 summarizes the production levels and permitted areas for eight mines. The permit areas ranged in size from 248 acres to 877 acres for these mines. The smallest surface area was required at the St. Libory Mine of Peabody Coal, which only has breaker refuse — no gob or slurry areas. All other mines included preparation plant areas in the permit application. Utilizing a 20 year mine life, which is considered a minimum value, the surface acres required per million tons of production was calculated. The average of 15.2 acres per million tons mined is then used to calculate the surface areas affected by underground mining. 303 TD o> 1-03 • r— LO 3 c cr o CU 4-J Q£ c tO c cu ■f — S_ 1 — U 1 — < •1— cu u s- fO - ro ai s- vi u ■r- e£ si (1) a. c CM CO 4- n cti o CTi co en CM Cn i—i CO tO CM 03 CO lO «3" ro ID CM CO .— I CO CM co <3- CM CO CM l£> CM CO i—l tO I — o co CM CO lo LO r->- CO r-1 O C71 U3 •3" LO « >> o c Q. o • *3- o 4-> • J2 CM • •r- fa ro ^ rO <0 CM 4-1 C O «3" «3" 1 o LO U o • i • • • • 1 3 •r- CM CM i — i CM CM -a r— en -O CO o r— • • • s_ • ^ f-H ^H 1—1 c_ e >> i_ o i—i -0 — .*■■■* — * •^ i— » j* 1-^ -J c 2 3 2 r— CM i—i 4-> O -*. o o >^ >^ C5 r— CU cu >) C o CO c to s_ s_ -a *-> -2 O) s_ o O) '_ C cz ra O) 5- a cu 3 o o ai s_ CU s- i- (— 2: s: a_ Li- :*: «c U- s- •* r0 ai -n CU a> s_ >^ JC ra o cu s- 4-> >i ai • •!— Q. to X3 o CM rO ro a a CU - (/) 4- S- (O T3 O ro » O O) -a s- s_ '4- cu 4-> 3 A i — u r— 4-> cu 00 c CU >4- T3 c: <+- r- ^« •r— ra o CL E en -O C >-, c o o jQ • r— en •r— -a -M ro •^ O a 0) > c i_ S- •i— 1 ra •=C T 1 CL cu CU 4-1 >i 00 s_ 'l Jd z: a. E T3 4- cu s- cu CU _ o Cu 4-> i+- • ra s- (/> C71 ^~ u i/i Z5 C Z3 -L. -a o •r- u ro c cu ■a r— CU ro c •f— ro L. r— ro > O ^3 a> , — TZ oo >) u CU •^ ^~ rO o >l - <4- 1/1 i3 00 O S_ •1 — c Z3 = TZ O T3 in 1! 4-J ro • -a — ' jm ^ r— c T3 c 4-J ^ ro i o a ■1 — ai t— r— s: a. > cu i/i ro •^ !T3 m "a Z3 u E >! U r— ZJ l 4- i_ r— 0J ^1 s- o c C U S. •r— cu ^2 c O C Q. 't— •1— •r* •f— « V. C —1 4-1 4-> ai ro ro o u U ro ■d CU CU — • zs ZJ CU c >1 L. 4-1 4-> ■a -a 1. O ra u 00 o o > Q. ZL4- >> CL u O -a •r— S_ a S- o r— CTl E s- ra 4- CLJZ r— r~- i- Z3 cu '_ rO ZJ cr. cu i— s_ 3 >1 cu LL. i—i a. to <: oo JC Q_ ro J3 O oo CU T3 CU 304 To estimate the farmland area which will be undermined, an equa- tion similar to 9-1 was developed. TA U = P/R x 1/S x 1/D (9-2) TAy = total acres undermined S = seam thickness in feet D = coal density, 1790 tons per acre-foot R = removal efficiency, 62% P = annual coal production, tons per year Again, the average seam thickness of deep coal reserves per county, as shown in Table 9-4, was utilized with forecasted production levels to obtain the number of acres undermined. The removal efficiency of 62 percent represents the combined efficiency from pillar and room extrac- tion of 58 percent* and longwall mining of 83 percent.* In Illinois 17 percent of the underground coal is mined by longwall methods. There- fore, the weighted average of removal efficiencies was utilized for Illinois coal production. Table 9-5 summarizes the annual rate of land undermined and surface acreage affected for underground operations. The steady increase in underground mining activity is evident in the greater utilization of surface acres and larger area undermined. Mining activity in Clinton, Douglas, Franklin, and Macoupin Counties will affect the greatest number *These removals efficiencies for pillar and room and longwall extraction are based on averages cited in the literature. See References and 305 Table 9-4. Underground Reserve Characteristics County Seam Thickness, inches Christian 11 Clinton 81 Douglas 83 Franklin 67 Gallatin 60 Hamilton 67 Jefferson 119 Macoupin 64 Montgomery 66 Randolph 78 St. Clair 80 Saline 61 Wabash 55 Williamson 74 SOURCE: Bernard, D. P.; Prime Farmland Disturbance from Coal Surface Mining in the Corn Belt, 1980-2000 , Argonne National Laboratory, Argonne. 306 CO 91 M CJ T3 • < TCT>o>n -—^ 00 O -H en cj u OC»CT\C"sl-3 - -HCOO u "»vOOC" r )f*l»j' vT ■H S ■H < cu *-H — < »-H CH "^ fs| *"^ »— * » i-l O "O VO t-l • c c -^ tH 4-1 •H :=> S a. ^ CU <-t J- Q M DO 01 Q. CO c 01 •H •H J-l O T3 CO O CU c 00 c < 0) 4-1 01 CJ co~T-*r--u">~3 - voi/*>cNO»nr'"> - < m co T3 o 3 0) — * 4-1 c ON CO J-l co 3 o\ 01 u-i -a O »-H JC 4-1 o )-i 3 o 4-1 00 -o o CU -H u 0) Q U-l tn E oi en c "■^n. 3 J-i -o 0) -H >oco^-iocNim-jcr»cNicnio— <\ocni en X o c < CU -—4 r-» CO CO 00 >> -o CO ^„ rH c JO c ^»«. ^ en 71 1 3 ~H CM c oi a -a ^o o 00 T-t 4J > O U-l J-i s- cu >> r> CQ i-i U_l CJ TJ U-l CJ — I 3 U-l < < 0) II a TJ c 4-1 * V u-i o o -a and CO O cj cu CO u-i vOi~^000">cooin«3-r»»»3-cNr»i/"i m •O en ai en C cu CJ ■H O i-i D. >> cu T3 > CU t-I CO«JC10^N^O- ■< CNI vO Ovl O 0O ro J U-l U-l -cmr>.cNi'- CTN cu jr p-4 cu 0) J-i ^^ i-i u cfl -o —1 00 o CD CO > CO CO j-i ^H -o E o r-A 3 cu CJ J3 cu -O CO E to c u to to en c c cu Oi o c CJ U-l H 0) -H OOiOONNl*inOCMN(NCO CT>| O 3 tn u CJ CO CO u S mcocsco-i^cooociov-iccN r^ -J- o cu CJ U ^vrvO(NNCN(^P»(NCM>J — m — ' CM u a II II u oi en < 0) -^ vO 00 a 3 T3 U CO ai a a- co ' c cu u-i -O =3 CO e ) Sur Lan ss c O) •• CO J3 C C t-i J-i o Ui •o to ceeoeoi.S'H en CJ CU -Hcen-rH-Hoen-HEceO E < 4-1 • • >» 4J O 19 rl u u u a. O H H 0) _T CQ u en 4_i n uHi <0f-< cu 3 oo o u c cn-H .—1 0) cu C •HC00C^H-HUJOU"O -i-tt0i— 1 <0 u_i 4-1 3 J-i-HScOrHEu-iCJCC • f-< .O ^H J-l U-l o O _Ci-4OlJr0njCUc0O 1 O u_ ao cd 4-1 s -0 01 0) VJ c - •— o> 2: a. a -a 01 0) U tfl N cm > u -0 0) 1 — cT3 B U — >*- 3 -3 13 U O i— 3- VO CD lO lO CC ^ CD CO ^ CD o cm o ao 00 VO CD «T 00 VO — CO O r-t CD 10 LT> CM UO VO vO O CO CO non-< CD vO CO CO co lc> CD co do'd- rs vo ^ cd 10 ps ^* ~ c i ~ -^ ^ o — < vo in ir> cootoo O O rs .-1 « CO O O vo co I ro d— I -' 0000 UO O CM IT) OOOO O CM Lf) — un cm O co OOOO in mix rs. — o OOOO O vO O l*» vo co cm in OOOO OO vO 00 VO CD CM CO PS CM VO CM CO Vf> O CD o o OOOO O rs —• ro ps co O LT) O 00 co 1 — o •— ■ 00 co vr> rs o o o CM 00 O O CM — ' VT> O OOOO O O CD CO CD CM VO VO CO CM CM UT) o o — I o CD a OOOO OOOO OOOO *T CD CD CO IT) rtlOfs •ST CO CM CM OOOO OOOO OOOO CD O CO VO IT) — PS CO VO CM CM CO OOOO OOOO OOOO PS ,— vO CO vO CM VO vO CO CM «T Lf) OOOO OOOO OOOO CM CD «T O U") CD 00 CO «T CO CM CO OOOO 00 OOOO 00 OOOO 00 CD VO VO vf) »— * CO CM ^ CO PS ^ PS «3" CM •-! VO — CM a <_> 01 — E , — JO s: «o 01 v/l u 01 01 s t- '_ CD 3 E o •- o Lf) «— C CD 3 O -a ao S. C CD CD r0 ■— 01 CM ■a 1 i- E CD HJ 3 S ■3 4) 3 Cf-ui a JO VJ 3 > U 3 O 3 u a ra 1- Ol CM L> v— 1 E ~ E 'O Lfl I CO 3 s: 01 e. u _ 1. <■ L4J vw 4J • a«< a. s. VO 01 >, vn l/l TO «T S- ul ■!■■ •^ 31 Oj 1 J3 -1— 01 O 3 c 01 ui ai a) Ol LO • — !_ s. — ^— 10 a. -a jz pm 1 Ol — — v_> CS-3» *-> — 1 uo c C 1_ i. c 10 c c = c u — — ■— C vo — •— c UlC •— = a. >a -^ *J - O Q. ^ 1 — r— O) ■— /I *J — -i O Uf- l/l 4) vrt 3 CD— >, O U =J<- 1- C Ol c •4-> 1 — -r- Jtf <*- B X O — > '- ■- T3 •- s- S i- ••- 3 a 4J « :> 309 the next 20 years are 98,300. The 98,300 acres affected by future mining represents 1.3 percent of the land area in these 24 counties. The projections of land conversion are based upon a forecasted level of coal production within Illinois. The specific allocation of land in farms and land in mining will be determined by the economic returns of each activity. Illinois land that is ^ery valuable as farmland relative to the value of its underlying reserves will not be mined. The conversion of farmland to mining in Illinois is restrained in general by the economics of coal mining within the state. Thus, even with the vast coal resources, there will be no dramatic increase in land conversion because of the general economic conditions for coal and because of the expected increase in underground mining. The effects of various legislative and economic impacts upon the conversion rate of land into mining can also be considered. Agri- cultural projections of Baseline conditions are associated with demand for new agricultural lands; however, High Demand conditions would result in demand for land and an ensuing increase in land price. The development of a High Demand scenario would thus indicate a possibly lower rate of land conversion, as the price of agricultural land and hence its return, is increased. If environmental regulations are liberalized, the returns on mining may be enhanced and conversion rates higher than that projected would be expected. The availability of increased supplies of oil and natural gas would act go dampen the demand for coal and reduce coal mining activity. Within the analytical framework developed, a variety of possible actions can be evaluated as they relate to impacts 310 on land conversion on a statewide basis. The distribution of land impacts on a county basis is perhaps of greater importance since any externalities will occur at the local level. Surface mining will be initiated in three counties— Knox, Peoria, and Stark--which presently have no active operations. Over 50 percent of the land in these counties is considered prime farmland. There are 11 other counties in which surface mining will continue. Perry County has been and continues to be the leading surface mining county. His- torically, 11.3 percent of the county area has been mined and the fore- casted mining level will ultimately affect an additional 10 percent of the county. The location, quality, and general characteristics of Perry County coal reserves favor extraction of coal. It is interesting to note that although Knox and Peoria Counties are third and fourth in reserves of the economically strippable coal no mining currently is occurring. Land uses thus far have been primarily agricultural in these counties. Knox County has been mined in earlier years, and 34,582 acres or 7.5 percent of Knox County CO is owned by coal companies. Approximately 18,000 acres have been stripped once, and the additional acreage is concentrated in three townships, which contain highly productive agricultural land. It can be inferred that the current economic condition of the Illinois coal market precludes this mining development. This may be the result of a combination of factors. Not only the economics of the coal removal (i.e., operating and transporting costs versus coal price) may not be favorable but also political pressures, reclamation cost expectations, and economic barriers 311 may reduce mining initiatives. In addition to the land which is actually mined, the coal companies hold lands for future development. A 1978 assessment of land ownership by Illinois South indicated that energy firms owned 377,188 acres in Illinois. ° This total reflects lands which have been mined, are currently being used, and those which are reserved for future use. Approximately 200,000 acres or 53 percent represent historical and future mining uses through the year 2000. This is probably an understatement; however, of the lands associated with a 20 year horizon since coal companies buy acreage not involved in mining or described in permit. This acreage may serve as a buffer zone or may be needed for access purposes. Corporate ownership of farmland has resulted in coal mining firms establishing farm subsidiaries to utilize these lands. One of the concerns expressed by various groups, such as the Illinois South Project, is that corporate ownership may disrupt rural communities by displacement of family farms. Many states have adopted legislation to restrict corporate ownership of farmland. Local effects of corporate ownership need to be considered in the socioeconomic impacts; however, little information currently exists to identify the magnitude of this problem. 312 CHAPTER 10 METHODOLOGY FOR ASSESSMENT OF STATE AND LOCAL IMPACTS ASSOCIATED WITH MINING ACTIVITY 10.1 Introduction Two issues associated with projected mining activities are the wealth distribution effects and the environmental externalities. A mining activity generates employment, income, and governmental revenue during the mine life. The distribution of these wealth effects among community, county, and state hierarchies influences the governmental perception of the coal mining activity. Since externalities of noise, traffic, aesthetics, and water quality all occur at the local level, the economic benefits of mining may not sufficiently offset the adverse impacts as perceived by the community. The magnitude of the wealth effects and externalities would vary for individual areas depending upon site specific characteristics. Table 10-1 depicts the relative timing of these various impacts during and after a mining operation. These impacts are based upon the general mining scenario described below: A coal mining company enters or extends its mining operation into a new area. The coal mining process utilizes land which was in agricultural or industrial use. Compared to its previous use there is an increase in employees, increase in direct income, and increase in retail purchases with the new activity. The demand for retail materials and services changes from an agri- cultural base to a mining base. That is, more gasoline and electricity is purchased, office supplies, building materials, truck parts, and hardware supply purchases would result in new business for local owners. At the same time, traffic increases on particular roads, noise due to blasting occurs, and the aesthetics of local residents may be affected by the coal mining operation. Population changes may be positive or negative. Farm families who were previous owners are gone; however, mining families are thought to be distributed over an area within a 20-mile radius. When mining is completed, there is a decline in local CO 3 13 S- \j X w o (O -o CO O) o o> >> ■(-> >> jzz >> 4-> to ■M •r- •r- c 0) -t-> <— c O to pv CD > J= 0> 3 4-> co > S •r- fO ■hi r— -r- a; E 0) -t-> +J 00 1— 1— O .— 3 i- CO 3 4-> 00 O A3 T3 > LU •<-} a c en u •^ TT > +J 0) oo o c C •<- r— T3 a> > +-> i > 0) 00 3 • (_) <1) 4-» ■M o 3 i- r- •o >> 3 fO a> o s- to co.o O o a co > 3 r— •!— a> i- -i- S_ r— •!■• CD i- o .Q > E -o a> to Q. a. s_ X 3 i— ea S- E c -o to E co ITJ cr a -(-> > S_ 3 cr 0) CO a> co s_ ITJ CD U (U co f- •f- to o O to -o tO +J > a) a» c 4-> 0) c CD U S_ CO E u -a co a) 01 u c 3 •<- -a ■M 0) o i- ■o e ai T3 > o C -a s- r— a t_ •r— •r» •r- aj Q. 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O CO 4-1 C -1= 13 en - 2: cci OVr- s- 2: 3 O XI s_ -c c en cu > CO 4-» E c (O 3 >^ •1— O S_ r— O i_ r— a •f— a_ 3 3 O u .-a o 4-> (T3 CO 3 CO < <+- o 4-> c •1- s_ 2 co ■u 1 — C O C_) CD C T3 CO 3 3 «J i- cn 4— 0) O U s- cj 0) o or: CL •T" +-> X ra ra a; i— ^riflq-LnocotTno CVCMCVCNJCVOJCNJCM (/) ra 0) to +J i — -M 1- i8 aa OO •<— ra O U co ai s. cri cc aj r-l Q. X ra CJ ns i-P 1) O O E U h- o 3 U O l-N CD £=+->>, ■i- C +J C 01 c ■<- O 3 s: $. o <— a. O 1/1 e o 4J O . rs co co i-< rn n ■ r-> rtCMOMo^ncocncocMpHinfninco-g- ! 2 C\JC\Jr-i^-i^H^-.^- l c\J^OvlCOC\J^HC\J^C\J rvi oaom cooo— ' CO G O CO o O • —. LD CM ZnS S^rt o cm O) NC\JOtf)LfHO^3C0 cncnvouKsjmooi QpHiHn^rNLrjio •*•»• n a m tk «« y3NOC0Lnosn oiinnooi^-Hio c 3 O CJ c O O) V) ■(-> T3 ■•- a> .,- 3 O <— CTC w f8 >> 3 i— C fl 5J D i- CTfl •<— CJ -4-1 i-coonaj>_i- < - 30) 1. ra fl] •>- < i r o U3 a C7I r— ra TJ S- i- 0) 3 > 4-» <£ u 4-> ai •«- C 3 S- 3 /— CD O fO eC O > ra > cr. ra i_ CJ > T3 4- C C o 2^i5^ (rsj0vjr ^^"'-'<^CDu30r3-r-.co £^^Or^i^ocncc^ocMr^ou->cnr< . . . . tv i C3 . co .°. NeCfn ir> co cn rL cm ^ocnrHinrxco^rskoo-H t" coVn n CM c i- o c « c •I- «/l •«- -r- O C P fl^ C4J*J o W i— .* O — UI •<— CD C 4_> , — t- _* i- 3 ra i — i — E U o i- 3 fa ra fa c cj a. o 3 CD O -u> u c T3 o (JQU.LH5X-3T2Z r- ,— l O O 3 to i- T3 •— ra s- c • .— .a a) ra ra a. cs: o-> oo 2 o on ■a > ai CD CD C fC 3 CJ ■•- > CJ — : 330 merchandise, food, drinking and eating place, apparel, furniture, lumber, hardware, automotive and filling station, miscellaneous retail and whole- sale stores, manufacturers, and other miscellaneous enterprises. Thus, the magnitude of tax receipts seemed indicative of the general business activity in the communities and counties. Per capita values were cal- culated to adjust for county differences in population. Table 10-5 presents the 1980 sales tax receipts per capita and the ratio of 1980 to 1970 tax receipts. The average values for mining counties of taxes received per capita was higher than that for farming; however, the standard deviation was also greater for counties in which mining occurred. The business growth of a county is related not only to mining but also to geographic factors, the manufacturing sector characteristics, and a combination of business factors. The percentage of county income derived directly from mining does indicate the significance of the coal mining activity within the county business structure. With the exception of Gallatin, counties with greater than 20 percent of their income derived from mining had a 1970 to 1980 ratio greater than 2.8. This value is 17 percent higher than the average of the agricultural counties. It is interesting to note that Perry County, which remains the leading coal-producing county, also has the highest tax receipts per capita of the mining and agricultural counties. Coal mining represents 36 percent of the employment income in the county and has been an important factor in the county for over a decade. The two smallest counties in Table 10-5 are Hamilton and Gallatin. The difference in sales tax receipts 331 for the two counties exemplifies the variation in business development, depending upon county location, resources, and other indigenous industry. Table 10-5 results indicate that counties with coal mining activity as an important economic factor may gain in secondary economic growth of commercial and retail enterprises. The distribution of this economic growth within the county, however, is important in estimating anticipated business growth of local communities versus the major business centers. The Western Illinois Regional Council analyzed sales tax trends for communities within Knox, Fulton, and McDonough Counties. According to their report, "larger communities registered large increases in sales taxes collected between 1971 and 1979, while the smaller communities r q have experienced either decreases or extremely small increases. "° y This trend is considered typical of retail and wholesale trends in the United States. Little correlation existed for mining activity and increased sales tax receipts in local communities of Knox, Fulton, and McDonough counties according to the same report. Small communities (less than 5,000 population) and the business centers of the counties listed in Table 10-5 were compared in terms of growth trends in tax receipts since 1970. Figure 10-2 compares the growth in business for agricultural and mining towns with a population greater than 10,000. Three of the five centers in mining counties had more than tripled tax receipts since 1970 while none of the centers in agricultural counties had experienced such growth. Canton and Ridgway, the other two major towns in mining areas, had grown at a lower rate than three major communities in agricultural counties. Recognizing 332 (0*1 =0/161) eiideQ Jdd sidiaoay xei sa|es u ! MVmojQ 333 the importance of other factors, such as manufacturing facilities and geographical location in accounting for business growth, it is important to consider the variation in growth rate. Mining income accounted for 10 to 23 percent of the county income for the three fastest growing communities. These communities increased tax receipts per capita or business 25 percent over the centers in important agricultural counties. Figure 10-3 depicts the historical growth trends for communities between 5,000 and 10,000 population. These smaller communities located near active mines were compared to similar towns in agricultural areas. The business growth of all towns in Figure 10-3 was similar. The change in tax receipts per capita over time varied from 2.2 to 3.0 for all communities in Figure 10-3 with small coal mining communities not sub- stantially different from small agricultural communities. Based upon the residential pattern and buying pattern information developed pre- viously, the smaller communities near mining sites do not seem to receive additional business activity but rather purchases are made in the larger county centers. Such implications are general and there certainly are local communities which benefit from mining activity. The variabil ity of impact, however, suggests that the specific business characteristics of the community and county measure their ability to attract buyers of goods. 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V£) IT) Lf) — CO cm — lD ("*"> to | cocrsC^cM^cncsiifJ — ' — lo -OCOTVO n c <-• en m| i o X CM «3" T CM CM m en CO «? . — .l£> l . . fO • CM o CM O— '— " 3 CO CO CO lO 1_ * io-i u: en i. m ^* r** en — i o nn — ■ — < «3- -<00> fOf" O O ■ — •— CM -C -Ull£ c — m en O — (M"T I °. ! o -3 (/> UJ a. o — o — i c cm m — ' ^PVfHinfNfflLnfN^Nlrtrs. cMCM«Tinir>Lr>^or».cococn« C30000000000 — I CM — • — icy in en lh en *— v^ r^ cc CO en -d c c -3 E - E 3 C — ■ C i/l — •«• a C l/l C — l/l<- -C o O £i- okaiaigiagocig uuoLLU.om-3^2 i. '_ c o cu f ■— 3 vl E a, « ••— O 'O 01 1— £ rz en — >, o o 3 -* •— k/1 «»- — > v. e. -a •f- - s *3 — c o i- c • <— t: t. _a ■— O 000 " 3(1,000)] = $475 per employee b) The corporate income tax paid is based upon the profits generated by coal production. According to Chapter 8, the historical value of operating income prior to taxes varies between 13 and 17 percent of the coal revenue. This, of course, has included depreciation and depletion allowances. In Illinois the corporate income tax rate is 6.5 percent of the net income before taxes. The actual income is estimated between 10 and 15 percent of total sales. Corporate income taxes are calculated as follows: Corporate tax = 0.065(0.10 to 0.15) Statewide coal revenue c) Coal sales tax is paid as 5 percent of the selling price of the coal. The state receives 4 percent of the tax and the county is paid the remaining 1 percent. This sales tax is only levied on coal produced and sold in Illinois. In 1978, 53 percent of the Illinois coal mined was consumed in Illinois. Therefore, only 53 percent of the coal revenue in Table 11-3 is used to project coal sales tax. State Coal Sales Tax = 0.04[Y a !"? °* ^ al ] 0.53 (mi 1 1 ion of dollars) d) Sales taxes generated from miners' purchases accrue to the state and local governments. The state receives a 3 percent tax on food and 4 percent tax on the remaining purchases. Assuming 57 percent* of a miner's income is spent on taxable items, and of that 22 percent** is for food and 35 percent is for other items, a statewide sales tax can be estimated. The average sales tax rate is as follows: Average tax rate as s ( 0#35 )( .04) + (0.22)(0.03) = 2.1 percent percent of income v JX ' x /x K *Actually derived for miner making S19,076 in Champaign in 1977. (From Reference **U.S. Dept. of Commerce, Statistical Abstract of the United States , 1979, p. 489. 349 e) Sales taxes from indirect income purchases are also calculated at the 2.1 percent rate. f) Mine purchases consist of electricity, gasoline, and other retail goods. The average sales tax assumed for these goods is 4 percent. Therefore, sales taxes on mine purchases are equivalent to 4 percent of the values in Section 11.2.2. Table 11-5 summarizes the tax revenues expected from these various sources for the state. According to Table 11-5, in 1985 there would be approximately $114 million to $130 million generated as tax revenue. This increases to over $200 million by the year 2000. The coal sales tax represents over 60 percent of the total tax accrued at the state level. The personal income tax, direct and indirect sales tax, and tax on mine purchases all contribute an equivalent amount. Coal mining accounts for approximately one percent of the total state revenue col- lected. This percentage would rise through the year 2000 as coal mining activity increases. 11.3 Anticipated County Impacts In estimating the statewide effects of projected mining activity, there is a general aggregation of employment, income, and tax effects across all counties. Because the local and county hierarchies do not obtain the full economic impacts (benefits) of increased coal mining activity, it is important to discern the magnitude of variation which might be expected. Chapter 10 discussed the historical residential and purchasing patterns of mining employees, and these factors are used to adjust the forecasted changes in employment and income. 350 Table 11-5. State Tax Revenues Associated with Mining (millions of dollars) 1985 1990 2000 State Personal Income Tax 9.1-11.3 10.5-13.1 18.8-23.7 State Corporate Income Tax 17.1-25.6 20.1-30.1 33.9-50.8 Direct State Sales Tax 8.9-11.0 10.2-12.7 18.3-23.1 Sales Tax from Indirect Purchase 14.0-17.4 16.2-20.1 29.0-36.5 Sales Tax on Mine Purchases 8.8 11.2 23.2 State Coal Sales Tax 55.7 65.4 111. Total Tax Revenue 114-130 134-153 234-268 351 11.3.1 Employment Effects The number of employees associated with surface and underground mining can be estimated for each county, according to projections in Table 11-1 and the productivity assumptions of Section 11.2.1. Utilizing the same assumptions as applied to statewide employment projections, Table 11-6 presents the number of mining employees per county. The range in Table 11-6 is associated with the range in productivity for underground and surface mining. Of the actual number employed within a given county only a certain fraction will actually reside there. According to Chapter 10, the percent may be as low as 20 percent to over 100 percent. The number of employees actually residing in any given county was adjusted according to available information on residential patterns. For counties in which a large fraction of the miners worked and resided, then the projected number residing there was assumed to be between 80 and 100 percent. The following percentage of employees residing in the county are listed below: Percent Employed Also Residing Christian 100 Franklin 100 Fulton 100 Jackson 100 Macoupin 85 Perry 85 St. Clair 100 Saline 85 Williamson 100 Wabash 85 352 Table 11-6. Employees in Coal Mining Number of Employees • in Coal Production County 1985 1990 2000 Christian 994 . 1260 1140 - 1450 2310 - 2940 Clinton 1120 - 1420 1440 - 1830 3090 - 3930 Douglas 1490 - 1900 2230 - 2840 4700 - 5980 Franklin 2460 - 3130 3000 - 3820 6260 - 7970 Fulton 530 _ 618 481 - 561 449 - 524 Gallatin 446 - 559 491 - 618 913 - 1160 Hamilton 466 - 593 998 - 1270 2140 - 2730 Jackson 589 - 687 589 - 687 610 - 711 Jefferson 1400 _ 1780 1590 - 2010 3110 - 3950 Johnson Knox 360 - 420 336 - 392 316 - 369 Macoupin 1440 - 1830 1760 - 2240 3670 - 4670 Montgomery 437 _ 556 501 - 638 1015 - 1291 Peoria 136 - 159 121 - 141 127 - 148 Perry 1990 - 2320 1770 - 2070 1480 - 1720 Randolph 1060 - 1310 1120 - 1380 1840 - 2320 St. Clair 1680 _ 2060 1800 - 2220 2950 - 3700 Saline 741 - 891 761 - 918 1040 - 1280 Stark 43 - 50 38 - 45 36 - 42 Vermil ion 313 - 365 313 - 357 329 - 384 Wabash 835 _ 1060 1030 - 1310 2170 - 2760 Will iamson 663 - 813 686 - 847 1100 - 1370 Total 19,200 - 23,800 22,200 - 27,600 39,600 - 49,91 353 For the remaining counties a range of 30 to 85 percent of the miners employed were assumed to live in the same county. Utilizing these estimations, Table 11-6 was adjusted, and Table 11-7 represents the expected range of mining employees residing in the various counties. In 1979 the counties with the greatest number of resident miners were Franklin with 3,319 and St. Clair with 2,114 miners. According to Table 11-7, the number of miners in Franklin is expected to grow through the year 2000 and to reach over 6,000 people. Other counties which will also be significantly increasing their mining population are Macoupin, Hamilton, Christian, Clinton, Montgomery, and Wabash. For Macoupin, Christian, and Wabash the existing number of resident miners is approximately 1,000, and this population is expected to double or triple by the year 2000. Coal mining activity is relatively new in Hamilton, Montgomery, and Clinton. Residing miners will increase in each from less than 100 in 1979 to over 1,000 by the year 2000. The projected number of residing miners for these three counties varies over a wide range since there is little information on expected living patterns within these counties. A possible decline in mining employment and residency is fore- casted for Fulton, Knox, and Perry Counties. These are counties where coal is accessible through surface mining, and the future production in these areas is expected to decline. The actual impact upon residing miners is not clear since many may continue to live in the county and commute to nearby areas. For example, Fulton and Knox County miners may work in Peoria or McDonough County and Perry County miners may work in Jackson 354 Table 11-7. Employees in Coal Mining Living in County Where Mining Activity Occurs 3 County 1985 1990 2000 Christian 994 - 1260 1140 - 1450 2310 - 2940 Clinton 3 335 - 1210 431 - 1560 926 - 3340 Douglas 3 447 - 1610 669 - 2410 1410 - 5090 Franklin 2460 - 3130 3000 - 3820 6260 - 7970 Fulton 530 - 618 481 - 561 449 - 524 Gallatin 3 134 - 475 147 - 525 274 - 982 Hamilton 3 140 - 504 299 - 1080 643 - 2320 Jackson 589 - 687 589 - 687 610 - 711 Jefferson Johnson 422 - 1510 477 - 1710 933 - 3360 Knox 108 - 358 101 - 333 95 - 314 Macoupin 1220 - 1560 1500 - 1900 3120 - 3970 Montgomery 3 Peoria 131 - 473 150 - 542 305 - 1097 41 - 135 36 - 120 38 - 126 Perry 1690 - 1970 1500 - 1760 1260 - 1460 Randolph 3 319 - 1110 335 - 1180 553 - 1970 St. Clair 1680 - 2060 1800 - 2220 2950 - 3700 Sal ine 630 - 757 647 - 780 884 - 1090 Stark 3 13 - 43 11 - 38 11 - 36 Vermilion 94 - 310 94 - 303 99 - 326 Wabash 710 - 903 876 - 1120 1840 - 2350 Wil 1 iamson 663 - 813 686 - 847 1100 - 1370 Notes: a) 30% to 85% of coal miners in county assumed to live in county, 355 or Randolph. The importance of the mining employees who are residents of the county was determined by comparing the number of miners to the total county employment as projected by the Bureau of the Budget. Table 11-8 presents the mining employment as a percent of the total county employ- ment. Depending upon the economic base, mining may be a small component, such as in St. Clair (1 to 2 percent), or mining may be a major source of jobs, such as in Franklin (20 to 25 percent of total jobs). Based upon the forecast of coal output there are several counties in which mining is a major business activity. Perry and Franklin Counties have been and will continue to rely on mining for employment. In Clinton, Douglas, Macoupin, and Hamilton Counties, the mining component may increase to a major factor in the county economy. 11.3.2 Income Effects Based upon the expected residential pattern of miners and a wage rate of $22,000 per year, the expected income from mining can be estimated in 1980 dollars. Table 11-9 summarizes the direct income within the county associated with mining. The variation in direct income is comparable to the employment trends previously discussed for indi- vidual counties. If the total direct county income of Table 11-9 is compared to the statewide direct income in Table 11-4, it appears that the mining counties accrue between 70 and 90 percent of the mining income while other counties receive the remainder. Based upon the historical residency data of Chapter 10, this appears to be a reasonable estimation. 356 Table 11-8. Percent of Total Employment Attributed to Coal Miners Living in the County 3 County 1985 1990 2000 Christian 6.9 - 8.7 7.5 - 9.5 14.4 - 18.3 Clinton 3.2 - 11.6 3.9 - 14.1 8.0 - 29.0 Douglas 4.8 - 17.3 6.9 - 24.7 13.8 - 49.7 Franklin 19.6 - 24.9 22.6 - 28.8 44.7 - 56.9 Fulton 3.7 - 4.3 3.1 - 3.7 2.8 - 3.3 Gallatin 4.7 - 16.8 5.0 - 17.9 9.0 - 32.4 Hamilton 4.7 - 16.9 9.9 - 35.6 20.8 - 75.0 Jackson 2.0 - 2.3 1.9 - 2.2 1.8 - 2.1 Jefferson 2.6 - 9.2 2.7 - 9.8 5.0 - 18.1 Johnson Knox 0.3 - 1.1 0.3 - 1.0 0.3 - 0.9 Macoupin 7.7 - 11.5 9.0 - 13.4 17.9 - 22.8 Montgomery 1.0 - 3.7 1.1 - 4.0 2.2 - 7.8 Peoria 0.03- 0.1 0.03- 0.1 0.03- 0.09 Perry 19.0 - 22.1 16.2 - 19.0 13.0 - 15.1 Randolph 2.1 - 7.3 2.1 - 7.4 3.3 - 11.7 St. Clair 1.7 - 2.1 1.7 - 2.1 2.6 - 3.3 Saline 6.3 - 7.6 6.1 - 7.4 7.9 - 9.7 Stark 0.5 - 1.6 0.4 - 1.4 0.4 - 1.3 Vermil ion 0.2 - 0.6 0.2 - 0.6 0.2 - 0.6 Wabash 10.0 - 12.7 11.7 - 14.9 23.2 - 29.7 Will iamson 3.2 - 3.9 3.1 - 3.9 4.8 - 5.9 Notes: a) Employees in Table 11-7 were utilized plus Illinois Bureau of the Budget employment projections for 1985, 1990 and 2000. 357 Table 11-9. Direct Income from Resident Miners (millions of dollars) County 1985 1990 2000 Christian 22 . 28 25 32 51 - 65 Clinton 7.4 - 27 9.5 - 34 20 -73 Douglas 9.8 - 35 15 - 53 31 -110 Franklin 54 - 69 66 - 84 140 -180 Fulton 12 . 14 11 _ 12 10 - 12 Gallatin 2.9 - 10 3.2 - 12 6.0 - 22 Hamilton 3.1 - 11 6.6 - 24 14 - 51 Jackson 13 - 15 13 - 15 13 - 15 Jefferson 9.3 _ 33 10 _ 38 21 - 74 Johnson Knox 2.4 - 7.9 2.2 - 7.3 2.1 - 6.9 Macoupin 27 - 34 33 - 42 69 - 87 Montgomery 2.9 _ 10 3.3 _ 12 6.7 - 24 Peoria 0.9 - 3.0 0.8 - 2.6 0.8 - 2.8 Perry 37 - 43 33 - 39 28 - 32 Randolph 7.0 - 25 7.4 - 26 12 - 43 St. Clair 37 _ 45 40 _ 48 65 - 81 Sal ine 14 - 17 14 - 17 19 - 24 Stark 0.3 - 0.9 0.2 - 0.8 0.2 - 0.8 Vermil ion 2.1 - 6.8 2.1 - 6.7 - 2.2 - 7.2 Wabash 16 _ 20 19 _ 25 40 - 52 Will iamson 15 - 18 15 - 19 24 - 31 Total 295 - 473 329 - 549 575 - 994 358 If the direct income associated with mining is compared to the total income generated in the county, the economic significance appears to vary from county to county. Table 11-10 delineates the anticipated importance of mining income as a percent of the projected 1985, 1990, and 2000 county income in 1980 dollars, as estimated by the Bureau of the Budget. The county income by place of residence includes personal income from work less personal contributions for social insurance by place of work plus dividends, interest, rent, and transfer payments (Social Security, Medicare, etc.). Thus, the total county income reflects more than the income generated by industrial, commercial, and agricultural sectors. The income derived from mining is considered "basic" or exogen- ously produced as discussed in Chapter 10. Purchases of goods and services by miners generate additional or secondary income and employment in the county. Table 11-11 presents the income/employment multipliers for each county. These multipliers provide the total income effects (direct and indirect) associated with mining activity. The multipliers are derived by dividing total county employment by basic employment (agriculture, mining, manufacturing, and government). This factor repre- sents the expected generation of secondary employment as new jobs are added to the basic sector. The resulting total income resulting from mining employment is calculated in Table 11-12. In addition to the income effects associated with mining employ- ment, there are direct purchases by the mine within the county. These purchases consist of a variety of goods including power, fuel, maintenance 359 Table 11-10. Direct Mining Income as Percent of Total County Income' County 1985 1990 2000 Christian 5.0 - 6.4 5.0 - 6.3 7.9 - 10 Clinton 2.3 - 8.3 2.5 - 8.9 4.1 - 15 Douglas 3.9 - 14 5.2 - 18.5 8.5 - 31 Franklin 12.6 - 16 13 - 17 22 - 28 Fulton 2.6 - 3.0 2.1 - 2.3 1.4 - 1.7 Gallatin 4.4 - 15 4.2 - 16 6.3 - 23 Hamilton 3.4 - 12 6.3 - 23 11 - 38 Jackson 2.4 - 2.8 2.1 - 2.4 1.6 - 1.9 Jefferson 2.5 - 9.0 2.3 - 8.8 3.7 - 13 Johnson Knox 0.4 - 1.2 0.3 - 0.9 0.2 - 0.7 Macoupin 5.1 - 6.5 5.4 - 6.9 8.6 - 11 Montgomery 0.8 - 2.8 0.8 - 2.9 1.2 - 4.4 Peoria 0.03- 0.1 0.04- 0.1 0.03- 0.09 Perry 15 - 18 12 - 14 7.6 - 8.7 Randolph 2.0 - 7.1 1.8 - 6.3 2.3 - 8.2 St. Clair 1.3 - 1.6 1.2 - 1.5 1.6 - 1.9 Sal ine 5.3 - 6.4 4.6 - 5.5 4.8 - 6.1 Stark 0.3 - 1.0 0.2 - 0.8 0.2 - 0.6 Vermil ion 0.2 - 0.6 0.2 - 0.6 0.1 - 0.5 Wabash 11 14 11 - 15 19 - 24 Will iamson 2.9 - 3.4 2.4 - 3.1 3.0 - 3.9 Notes: a) Total county income by place of residence in 1980 dollars 360 Table 11-11. County Income/Employment Multipliers Total Income/ Secondary Income/ Average Number County Employment Employment per Multipliers Multipl iers Household Christian 2.41 1.41 3.24 Clinton 2.58 1.58 3.53 Douglas 2.64 1.64 3.19 Franklin 2.68 1.68 3.74 Fulton 2.28 1.28 3.25 Gallatin 2.26 1.26 3.86 Hamilton 2.19 1.19 3.61 Jackson 2.46 1.46 3.34 Jefferson 3.45 2.45 3.43 Johnson 2.28 1.28 3.68 Knox 2.57 1.57 2.98 Macoupin 2.62 1.62 3.39 Montgomery 2.67 1.67 3.39 Peoria 2.96 1.96 3.02 Perry 2.32 1.32 3.38 Randolph 2.20 1.20 3.33 St. Clair 3.16 2.16 3.54 Saline 3.01 2.01 3.78 Stark 2.09 1.09 3.21 Vermilion 2.49 1.49 3.13 Wabash 2.61 1.61 3.10 Williamson 2.86 1.86 3.44 361 Table 11-12. Total Income Generated from Resident Miners (millions of dollars) County 1985 1990 2000 Christian 53 mK 67 60 - 76 120 - 160 Clinton 19 - 70 24 - 88 52 - 190 Douglas 26 - 92 40 - 140 82 - 300 Franklin 140 - 180 180 - 220 380 - 470 Fulton 27 _ 32 25 - 27 23 - 27 Gallatin 6.6 - 23 7. 2 - 27 14 - 50 Hamilton 6.8 - 24 14 - 53 31 - 110 Jackson 32 - 37 32 - 37 32 - 37 Jefferson 32 _ 110 34 - 130 72 - 260 Johnson Knox 6.2 - 20 5. 7 - 19 5. 4 - 18 Macoupin 71 - 89 86 - 110 180 - 230 Montgomery 7.7 - 27 8. 8 - 32 18 - 64 Peoria 2.7 - 8.9 2. 4 7.7 2. 4 - 8.3 Perry 86 - 100 77 - 90 65 - 74 Randolph 15 - 55 16 - 57 26 - 95 St. Clair 117 _ 140 130 - 150 210 - 260 Saline 42 - 51 42 - 51 57 - 72 Stark 0.6 - 1.9 0. 4 1.7 0. 4 1.7 Vermil ion 5.2 - 17 5. 2 - 17 5. 5 - 18 Wabash 42 _ 52 50 - 65 100 - 140 Will iamson 43 - 51 43 - 54 69 - 89 Total Income 781 - 1250 88: ! - • 1450 154C I - • 2670 362 parts, and so forth. As discussed in Section 11.2.2, the level of county purchases is estimated at $2.20 per ton mined in the county. The resulting values of mine purchases by county are presented in Table 11-13. Those counties with high production rates, such as Perry, Franklin, St. Clair and Jefferson, would be expected to benefit from mine purchases. Depend- ing upon specific county resources and the mining firm policy, these estimated amounts would vary. 11.3.3 Tax Effects County governments collect taxes from sales, property, assess- ments and mineral rights assessments. A one percent tax on food and retail goods purchased is collected by county or local governments. Companies pay taxes on land used and for mineral rights in undeveloped areas. In addition, the county receives one-twelfth of the state income tax collected on a per capita basis. The residency factor thus deter- mines the magnitude of the county's revenue from income taxes. The income tax effect cannot be calculated since the amount returned to each county is dependent upon the total collected by the state and the populations of the various counties. 11.3.3.1 Sales Tax Impacts The sales tax which the county or local communities collects depends primarily upon purchases by resident miners and mining companies. Utilizing the following assumptions, the magnitude of sales taxes col- lected within the county can be calculated: 363 Table 11-13. Direct Mine Purchases (millions of dollars) County 1985 1990 2000 Christian 7.0 8.1 16.4 Clinton 7.9 10.2 21.9 Douglas 10.6 15.8 33.3 Franklin 17.4 21.2 44.4 Fulton 5.6 5.1 4.8 Gallatin 3.4 3.7 6.7 Hamilton 3.3 7.1 15.2 Jackson 6.2 6.3 6.5 Jefferson 10.3 11.6 22.3 Johnson Knox 3.8 3.6 3.4 Macopuin 10.2 12.4 26.0 Montgomery 3.1 3.6 7.2 Peoria 1.4 1.3 1.4 Perry 21.2 18.8 15.7 Randolph 8.9 9.1 14.1 St. Clair 14.5 15.0 22.8 Saline 7.0 7.1 9.0 Stark 0.5 0.5 0.4 Vermilion 3.3 3.3 3.5 Wabash 5.9 7.3 15.4 Williamson 5.7 5.8 8.5 Total 157 177 299 364 a) 57 percent of the total income generated by coal miners (Table 11-12) is used to purchase goods all within the county. b) A one percent sales tax on purchases results in the following tax collection: County Sales Tax Revenue = Income(0.57) (0.01) (Table 11-14) c) Direct mine purchases are also expected to generate a sales tax return which is estimated as one percent of the purchase value. (Certain items, such as gasoline, may be taxed at a higher rate while others including electricity are lower or nonexistent. Therefore, one percent is used to provide a measure of the tax revenue within the county. d) Coal sales tax of 1 percent is levied on coal production in county if the coal is purchased in Illinois. There are counties which accrue "0" sales tax since coal goes out of state and those which receive 1 percent of the total coal revenue produced. Table 11-14 presents the sales tax revenue collected by counties due to direct and indirect income purchases within the county. The values of Table 11-14 are considered overestimates since certain types of purchases, such as apparel and furniture, may occur at major metro- politan centers located outside of the county. Chapter 10 discussed the expected distribution of purchases outside of the mining counties. The variation in tax revenues is a function of residency, number of miners employed, and business characteristics of the individual counties. Additional tax revenue is associated with mine purchases. Table 11-15 describes the taxes from mining transactions estimated for the 22 mining counties. The tax revenues from mine purchases are approxi- mately 25 to 30 percent of that which accrue from purchases of goods and services by miners and other secondary sources. Table 11-16 repre- sents the summation of sales taxes from Tables 11-14 and 11-15, and 365 Table 11-14. Sales Tax Revenue Collected by County and Communities (millions of dollars) County 1985 1990 2000 Christian Clinton Douglas Franklin 0.30-0.38 0.11-0.40 0.15-0.52 0.80-1.0 0.34-0.43 0.14-0.50 0.23-0.80 1.0 -1.3 0.68-0.91 0.30-1.1 0.47-1.7 2.2 -2.7 Fulton Gallatin Hamilton Jackson 0.15-0.18 0.04-0.13 0.04-0.13 0.18-0.21 0.14-0.15 0.04-0.15 0.08-0.30 0.18-0.21 0.13-0.15 0.08-0.28 0.18-0.63 0.18-0.21 Jefferson Johnson Knox Macoupin 0.18-0.53 0.04-0.11 0.40-0.51 0.19-0.74 0.03-0.11 0.49-0.63 0.41-1.5 0.03-0.10 1.00-1.3 Montgomery Peoria Perry Randolph 0.04-0.15 0.02-0.05 0.49-0.57 0.09-0.31 0.05-0.18 0.01-0.04 0.44-0.51 0.09-0.32 0.10-0.36 0.01-0.05 0.37-0.42 0.15-0.54 St. Clair Saline Stark Vermil ion 0.67-0.80 0.24-0.29 0.003-0.01 0.03-0.10 0.74-0.86 0.24-0.29 0.002-0.01 0.03-0.10 1.2 -1.5 0.32-0.41 0.002-0.01 0.03-0.10 Wabash Wil liamson 0.24-0.30 0.25-0.29 0.28-0.37 0.25-0.31 0.57-0.80 0.39-0.51 Total Sales Tax Revenue 4.46-7.07 4.99-8.31 8.80-15.3 366 Table 11-15. County and Community Tax Revenues from Mine Purchases (millions of dollars) County 1985 1990 2000 Christian 0.07 0.08 0.16 Clinton 0.08 0.10 0.22 Douglas 0.11 0.16 0.33 Franklin 0.17 0.21 0.44 Fulton 0.06 0.05 0.05 Gallatin 0.03 0.04 0.07 Hamilton 0.03 0.07 0.15 Jackson 0.06 0.06 0.06 Jefferson 0.10 0.12 0.22 Johnson Knox 0.04 0.04 0.03 Macoupin 0.10 0.12 0.26 Montgomery 0.03 0.04 0.07 Peoria 0.01 0.01 0.01 Perry 0.21 0.19 0.16 Randolph 0.09 0.09 0.14 St. Clair 0.14 0.15 0.23 Saline 0.07 0.07 0.09 Stark 0.01 0.01 0.004 Vermilion 0.03 0.03 0.04 Wabash 0.06 0.07 0.15 Williamson 0.06 0.06 0.08 Total 1.6 1.8 3.0 367 Table 11-16. Sales Tax Revenue From Mine Purchases i ind Empl Dyee Purcha ses for Counties and Local Communities County 1985 1990 2000 Christian 0.37 0.45 0.42 - 0.51 0.84 1.07 Clinton 0.19 - 0.48 0.24 - 0.60 0.52 - 1.32 Douglas 0.26 - 0.63 0.39 - 0.96 0.80 - 2.03 Franklin 0.97 - 1.17 1.21 -1.51 2.64 - 3.14 Fulton 0.21 _ 0.24 0.19 - 0.20 0.18 _ 0.20 Gallatin 0.07 - 0.16 0.08 - 0.19 0.15 - 0.35 Hamilton 0.07 - 0.16 0.15 - 0.37 0.33 - 0.78 Jackson 0.24 - 0.27 0.24 - 0.27 0.24 - 0.27 Jefferson 0.28 _ 0.73 0.31 - 0.86 0.63 _ 1.72 Johnson Knox 0.08 - 0.15 0.07 - 0.15 0.06 - 0.13 Macoupin 0.5 - 0.61 0.61 - 0.75 1.26 - 1.56 Montgomery 0.07 _ 0.18 0.09 - 0.22 0.17 _ 0.43 Peoria 0.03 - 0.06 0.02 - 0.05 0.02 - 0.06 Perry 0.70 - 0.78 0.63 - 0.70 0.53 - 0.58 Randolph 0.18 - 0.40 0.18 - 0.41 0.29 - 0.68 St. Clair 0.81 „ 0.94 0.89 - 1.01 1.43 _ 1.73 Saline 0.31 - 0.36 0.31 - 0.36 0.41 - 0.50 Stark 0.013 - 0.2 0.012 - 0.02 0.006 - 0.014 Vermilion 0.06 - 0.13 0.06 - 0.13 0.07 - 0.14 Wabash 0.30 _ 0.36 0.35 - 0.44 0.72 _ 0.95 Will iamson 0.31 - 0.35 0.31 - 0.37 0.47 - 0.59 Total 6.02 - 8.81 6.76 -10.1 11.77 18.24 368 these values indicate county and community tax revenue. The county receives the one percent sales tax for unincorporated areas or when communities have not invoked the one percent tax. The size of communi- ties and business centers within the county will be a factor in the actual tax revenue directed to the county government. In Table 11-17 the 1978 county receipts are summarized for the 22 impacted counties. The county sales taxes received presently repre- sent 5 to 15 percent of the total county receipts. Property taxes con- stitute 30 to 40 percent of the revenue for the county, and the remainder consists primarily of income taxes, motor fuel taxes, and intergovernmental funds. If Tables 11-16 and 11-17 are compared, it is apparent that mining varies in economic importance within the counties. If the county portion of sales tax revenues in Table 11-16 is considered to be 10 to 20 percent of the total (the remainder accrues to communities) and the 1985 values are considered comparable to 1978 levels, then mining may contribute approximately 10 percent of the total sales tax revenue. Counties in which mining is of greater significance are Frank! in, Gallatin, Jefferson, Perry, and Wabash. Counties such as Gallatin, Hamilton, Saline, Stark, and Wabash, for which county sales tax revenues are low may be affected to a greater degree by new purchases of goods and ser- vices. As coal production expands over time, the sales tax revenue also increases. The only counties with expected declines in mining purchases and thence tax revenues are Perry, Knox, Fulton, and Stark Counties. Such a decline is based upon a forecast of reduced surface 369 Table 11-17. 1978 County Receipts By Source (mill ions of dollars) County Property Taxes County Sales Tax Total Taxes' Christian Clinton Douglas Franklin 1.03 0.736 0.878 0.671 Fulton Gallatin Hamilton Jackson 2.18 0.21 0.32 1.58 Jefferson Johnson Knox Macoupin 0.67 0.001 2.17 0.93 Montgomery Peoria Perry Randolph 0.70 8.46 0.60 1.11 St. Clair Saline Stark Vermil ion 5.89 0.36 0.38 3.38 Wabash Williamson 0.36 1.55 0.614 3.42 0.246 2.35 0.290 4.55 0.257 2.59 0.416 5.31 0.055 1.33 0.08 0.98 0.32 7.29 0.390 2.51 0.07 1.27 0.199 6.52 0.330 3.58 0.386 3.25 0.95 20.8 0.50 1.98 0.79 3.43 0.61 18.7 0.18 2.03 0.005 0.92 0.46 9.12 0.06 1.21 0.70 5.63 Notes: a) Other sources contributing to the total include income tax, motor fuel tax, intergovernmental funds, licenses, fees and miscellaneous. SOURCE: Comptroller, State of Illinois, 1978 Statewide Summary of County Finance in Illinois 370 mining activity for these counties. Another source of sales tax revenue is that levied on coal pro- duction. For coal mined in a county and sold in Illinois, a one percent tax on the coal production value is levied. Some counties, such as Hamilton, receive no sales tax because the coal is sold to an Indiana firm. In Saline county only one- tenth of the production is taxable. Thus, the coal sales tax revenue varies significantly according to the destination of the coal mined. Table 11-18 depicts the range of coal sales tax which could be collected, assuming to 100 percent of the production is taxable. The disparity in collection of coal sales tax affects the magnitude of government revenues generated by mining. 11.3.3.2 Mineral Rights and Property Assessment 'j Mineral rights and property assessments also contribute to the county revenue. Coal companies pay assessments on land owned and on a mineral rights purchased. The property tax is basically distributed in the following way to various taxing districts:* 3 Taxing District Percent of Property Tax Schools 57.8 Municipalities 18.1 a 2 Counties 8.3 Sanitary Districts 3.9 Townships 3.8 Park District 4.7 Other 2.9 Total 99.5 *Based upon Illinois Dept. of Revenue, Illinois Property Tax Statistics , 1977. 371 Table 11-18. Range of Illinois Coal Sales Tax by County Range of Illinois Coal Sales (millions of dollars) County 1985 1990 2000 Christian 0-1.17 0-1.38 0-2.86 Clinton 0-1.32 0-1.59 0-3.82 Douglas 0-1.76 0-2.70 0-5.81 Franklin 0-2.91 0-3.63 0-7.74 Fulton 0-0.94 0-0.87 0-0.83 Gallatin 0-0.58 0-0.64 0-1.17 Hamilton 0-0.55 0-1.21 0-2.65 Jackson 0-1.04 0-1.07 0-1.13 Jefferson 0-1.72 0-1.98 0-3.89 Johnson Knox 0-0.64 0-0.61 0-0.59 Macoupin 0-1.70 0-2.12 0-4.54 Montgomery 0-0.52 0-0.61 0-1.26 Peoria 0-0.24 0-0.22 0-0.23 Perry 0-3.53 0-3.22 0-2.74 Randolph 0-1.49 0-1.56 0-2.46 St. Clair 0-2.41 0-2.57 0-3.99 Saline 0-1.17 0-1.21 0-1.58 Stark 0-0.08 0-0.07 0-0.07 Vermilion 0-0.55 0-0.57 0-0.61 Wabash 0-0.99 0-1.25 0-2.68 Williamson 0-0.95 0-0.98 0-1.49 Notes: a) Range in sales tax based on selling to 100 percent of the coal within Illinois and the following price of coal in 1980 dollars: 1985 - $36.70/ton 1990 - $37.60/ton 2000 - $38.40/ton 372 Property taxes are important sources for county, municipal, and school districts. Any changes in assessed valuation would thus affect all three levels of governmental hierarchy. Since 1972 there has been a trend for surface mining coal companies to buy and hold land involved in past, present, and future mining endeavors. In 1972 coal companies owned 75 percent of the land permitted for mining, and this percentage had increased to 93 by 1979. A survey conducted by Illinois South in 1977 and 1978 indicated that approximately CO 380,000 acres were owned by coal companies. Table 11-19 summarizes the land holdings for various counties. The values in Table 11-19 represent land holdings only and do not reflect the purchase or owner- ship of mineral rights. As expected, the counties in which surface mining is the primary form of extraction are the ones with greatest < acreage held by coal corporations. Perry, Fulton, Knox, Williamson, a x 3 and Randolph have between 7 and 20 percent of their land area corporately owned. The county in which underground mining occurs with the greatest •J number of acres corporately owned is Franklin County with 18,543. In 1979 there were 5 active mines in Franklin County, and in terms of future a production Franklin may become the leading coal producing county. Because the fraction of land owned by coal companies does con- tribute to the property taxes collected by the county, schools, and communities, it is important to consider any resulting changes in assessed valuation. There is only limited and conflicting historical data regarding effects upon the land assessment. The available information is presented 373 Table 11-19. Coal Company Land Ownership County Acres Owned by Coal Company Percent of County Area Owned by Coal Companies Christian Clinton Douglas Franklin Fulton Gallatin Hamilton Jackson Jefferson Johnson Knox Macoupin Montgomery Peoria Perry Randolph St. Clair Sal ine Stark Vermil ion Wabash Wil 1 iamson 1,738 2,501 831 18,543 47,552 9,817 5,001 16,150 5,901 34,582 3,402 1,151 18,194 55,579 27,351 11,6^2 23,057 2,098 8,278 4,317 32,255 0.38 0.78 0.31 6.7 8.5 4.7 1.8 4.2 1.6 7.4 0.61 0.25 4.6 19.6 7.2 2.7 9.4 1.1 1.4 3.1 11.8 SOURCE: Smith, J., Ostendorf, D., Schechtman, M. Who's Mining the Farm , Illinois South Project, Herrin, IL, June 1973. 374 herein as well as a discussion of the factors which can affect the mag- nitude of assessments. A 1974 study which was revised in 1979 by the Western Illinois 65 Regional Council examined the effects of strip mining on the local tax base. Relative changes in assessed values from 1935 to 1973 were compared for townships in Fulton and Knox Counties. Using the hypothesis that if surface mining had affected the tax base, then the total assessed valuation of townships should have decreased or remained stable, the relative change in assessments was calculated. Tables 11-20 and 11-21 present the results of comparing changes in valuation for stripped town- ships to non-stripped townships. The Western Illinois Regional Council (WIRC) report concluded that "the relative change in assessments of "rural lands" has remained fairly uniform throughout the 35 to 40 year period for both townships with strip mining activity and townships without 65 strip mining activity." Two reasons cited for this phenomenon are, first, that lands being stripped are assessed at the value of surrounding agricultural lands, before, during, and after mining. Coal companies have retained ownership to a large extent and typically have not requested reassessment of the land. If the land is sold to another owner, then reassessment would be likely. The second factor relates to the assess- ment of the personal property tax on mining equipment. If this is included in assessed valuation, then the township base could actually increase during mining. Although the personal property tax was in effect during this 1974 analysis, such a tax no longer exists and such a phenomenon will no longer occur. 375 Table 11-20. Comparison of Relative Changes in Assessed Valuation for Fulton County (percent) Township 1935 - - 1943 1958 1968 1973 Astoria a 3.7 3.S 3.6 3.8 4.1 Banner a 2.9 2. 4 3.1 3 .4 3 .6 Bernadotte 2.9 2.3 2.7 2.6 2.8 Buck heart 3 5.9 6. G 5.3 5.5 5.8 Canton (rural) 3 3.9 1.9 5.2 4.7 5.7 Cass 4.4 3.9 3.6 3.6 3.4 Deerf ieid 3.3 3.2 3.2 3.0 3.2 Ellisville 1.5 1.6 1.3 1.2 1.1 Fairview a 5.7 7.1 6.7 6.9 5.9 Farmers 3.9 1.7 3.2 3.3 3.1 Farmington a 6.1 6.7 6.5 7.1 6.6 Harris 2.7 2.3 2.3 2.2 Isabel 2.6 2.5 2.5 2.6 3.0 Joshua 6.8 7.0 6.5 7.1 6.6 Kerton 2.2 1.6 2.0 2.0 2.1 Lee 4.4 4 .4 4 .4 4 .2 4.3 Lewistown 5.3 5.8 5.6 5.6 5.3 Liverpool 5.7 4 .5 4.2 4.3 5.0 Orion 3.3 3.5 3.2 3.5 3.7 Pleasant 4.2 4.7 4.3 4.0 3.7 Putnam 3 4.3 5.0 5.0 4.1 4.3 Union 5.0 5.3 5.0 4.7 4 .4 Vermont 3 4.6 4.3 4 .3 3.9 3.9 Water ford 1.5 1.5 1.9 1.9 2.2 Woodland 3.1 3.5 3.4 3 .5 3 .7 Young Hickory 2.6 2.5 2.4 2.6 2.3 Assessed for all Stripped Townships 47.5 48.3 50.1 50.0 50.1 Assessed for Non- Stripped Townships 52.5 51.7 49.9 50.0 49.9 Notes: a) Surface mined townships. SOURCE: Percentage calculated from data taken from the "Fulton County Township Assessor's Report." 376 Table 11-21. Comparison of Relative Changes in Assessed Valuation for Knox County (percent) Township 1920 1940 1950 1960 1970 1972 Chestnut 6.1 6.0 5.8 4.6 4.6 4.7 Copley 3 5.2 5.6 5.5 5.8 5.3 5.4 Elba 6.4 6.3 6.3 6.2 6.2 6.1 Haw Creek 5.6 5.5 5.4 6.0 5.9 5.9 Indian Creek 7.6 7.5 7.3 5.7 6.7 6.5 Lynn 5.9 5.9 5.8 6.4 6.3 6.3 Maquon a 6.1 6.0 5.8 4 .9 4.9 4.9 Ontario 8.0 8.1 8.0 9.3 •9.5 9.1 Orange 5.8 5.7 5.6 5.5 5.4 5 . 5 Persif er 4.4 4.6 4.5 4.4 4.3 4.5 Rio 6.1 6.1 7.7 7.3 7.3 7.2 S a 1 em a 7.3 7 .1 7.1 7.4 7.3 7.2 Sparta 7.7 7.5 7.4 7.5 7.5 7.4 Truro a 5.4 5.5 5.5 5.1 4.9 5.0 Victoria 3 5.2 5.2 5.2 5.4 6.4 5.3 Walnut Grove 7.3 7.3 7.2 7.6 7.6 7.6 Assessed for all Stripped Townships 29.2 29.4 29.1 28.6 28.8 29.3 Assessed for Non- Stripped Townships 70.8 7 0.. 6 70.9 71.4 71.2 70.7 Notes: a) Surface mined townships. SOURCE: Percentage calculated from data taken from the "Knox County Township Assessor's Report." 377 An Illinois South report also discusses the effect of mining on the county tax base for Knox and Williamson Counties. According to Illinois South, ° the Knox County Zoning Department evaluated 53 parcels of stripped and 91 parcels of unstripped lands in four townships over a 31 year period. These results were as follows: Stripped Land Unstripped Land Difference (percent) (percent) (percent) A rr 6SS ? d ^! Ue "4.8 +43.8 48.6 (Equalized) Tax Dollars Per Acre +3.3 +69.0 65.7 Even though coal companies did not request reassessment, the county performed a reevaluation of lands and modified values according to existing productivity. According to Illinois South analysis, the coal companies owned 7 percent of the land but only paid 3 percent of the Knox County Tax Bill in 1977. In Williamson County the coal companies own approxi- mately 12 percent of the land; however, property assessments pay only 5.3 percent of the county bill. There are several factors which play a role in determining the assessed value. Lands mined between 1930 and 1962 did not have any reclamation standards and since 1962 successively stringent requirements have been placed upon mining activities. The return to productive use of surface-mined lands has been a goal of reclamation legislation and, in fact, is required under the 1978 SMCRA legislation. Thus, the valua- tion of pre-law lands are not indicative of future trends in assessed valuation. In comparing the percent of assessed valuation, coal mining 378 company lands contribute to the county base, the mixture of residences, business centers, manufacturing, and agriculture affects the magnitude of the total county assessed valuation. Thus, a percent land compared to percent assessed valuation may not be indicative of lower tax bases if there are major residential or business centers in the county. A better measure would be the percent of land held as a percent of only land valuations. Because of the stringent reclamation standards in place and company ownership policies, no change in assessments is projected for future lands to be mined. Mineral rights also contribute to the assessed valuation. According to the survey results described in Chapter 10, there are a variety of methods used to assess mineral rights. From fixed values to one-third fair market values, counties evaluate mineral resources. Table 11-22 presents the 1979 mineral rights assessments as a percent of the total county valuation. Currently mineral rights account for to 11.5 percent of the county assessed valuation. Four counties do not assess mineral rights, and in only two counties, Franklin and Wabash, do the mineral rights contribute over 5 percent of the assessed valuation. The total county valuation varies from S24 million in Johnson County to $1,120 million in Peoria County. Several counties are evaluating the mineral rights assessment procedure currently in use. Recent market transactions of mineral rights have priced such resources at $500 to $1,000 per acre, while values assessed per acre are much lower. 379 Table 11-22. Mineral Rights Assessment Compared to Total County Assessment 1979 Assessed Value of Mineral Rights, a 1979 Coun tyd Mineral Rights County Assessed Val ue, b as ; Percent mil lions of dollars millions of dollars of Valuation Christian 3.18 260 1.2 Clinton 5.71 108 5.3 Douglas 163 Franklin 10.1 87.7 11.5 Fulton 8.26 208 4.0 Gallatin 1.18 37 3.2 Hamilton 1.34 33 4.1 Jackson 0.15 144 0.1 Jefferson 1.66 115 1.4 Johnson 24 Knox 286 Macoupin 2.30 167 1.4 Montgomery 8.04 173 4.6 Peoria 2.59 1,120 0.2 Perry 3.22 84 3.8 Randolph 1.48 191 0.8 St. Clair 0.08 785 0.01 Saline 1.11 78 1.4 Stark 56 Vermil ion c 1.76 408 0.4 Wabash 5.04 61 8.3 Williamson 2.85 141 2.0 Notes: a) Values obtained through survey of county assessors. b) Values from Comptroller's Report, Statewide Summary of County Finance in Illinois , 1978. c) 1977 assessed mineral rights. 380 11.4 Summary of State and County Impacts Coal mining activity accounts for approximately one percent of the income and employment in Illinois. The distribution of income effects among counties vary according to residential patterns, county business characteristics, and county taxing policies. Less than 20 percent to more than 100 percent of the coal employees may reside in a mining county, and this is an important factor in determining the ultimate impact. Two factors which affect the county governmental revenue are the coal sales tax and mineral rights assessment. If coal sales taxes are available for the county, it can be an important contribution to the total tax revenue collected. Mineral rights assessments accrue to the county before production occurs, and the assessment may be nominal compared to present market purchases of such rights. Thus, the county income derived from their mineral resources varies substantially from county to county. 381 CHAPTER 12 LOCAL IMPACT ASSESSMENTS 12.1 Introduction Chapter 11 presented forecasted changes in income and employment associated with coal mining at the state and county levels. In assessing the range of impacts at the local level, there are several factors which determine the magnitude of change. Employment and income effects repre- sent transactions in the private sector. Yet, there are economic impli- cations for the public sector in terms of revenues generated and demand for services. State and county hierarchies provide some public services for the new mining residents; however, fiscal impacts are primarily incurred by local communities. Depending upon proximity to the mine, number of adjacent communities with attractive environments, distance from a major business center, and specific characteristics of the local community, the increased demand for services due to new residents and increased revenue will vary. Political jurisdictions may not be able to capture the economic benefits of increased income and employment , and yet the communities incur greater demand for services or the environ- mental externalities of the mining operation. It is not possible to project fiscal changes in local communities associated with 20 years of future coal production because of the variety of economic factors. However, a summary of community impacts is presented from 601 Energy Impact Plans prepared by several regional planning councils A three year horizon of coal mining activity is used to project housing and other needs of local communities. These analyses provide some 382 indication of the growth problems of local areas. Two fiscal impact methodologies are described as they relate to predicting coal mining impacts on communities within Illinois. These techniques were utilized in the 601 plans and thus seem appropriate for consideration. Also included is a general discussion of other analy- tical tools used in projecting energy development impacts. Section 12.4 describes a particular case history of communi- ties affected by expanding or declining coal mining activity. The his- torical changes in business activity of towns in close proximity to mining illustrates the financial effects of increased residents in an area. 12.2 Fiscal Impact Methodologies Development of an adequate fiscal impact analysis for communities and regions affected by energy projects has been the subject of much research and discussion. The standard fiscal impact methodologies have various flaws which may hinder their use, and the development of econo- metric models to describe the regional economic activity is occurring. Briefly in this section three standard fiscal impact methodologies are described as they have been applied to coal mine impact analyses. Then, a summary of efforts to generate more sophisticated modelling approaches is presented. The following six standard fiscal impact methodologies are utilized for a variety of community developments: Per Capita Multiplier Case Study Service Standard Comparable City Proportional Valuation Employment Anticipation 383 These six methods can be categorized as average costing or mar- ginal costing techniques. A brief description of these methods is excerpted from Burchell and Listokin's impact handbook. a) Per Capita Multiplier is employed in situations where service infrastructure bears a close relationship to service demand such that the average costs of providing services to current users is a reasonable approximation of the costs to provide similar services to future users. b) Case Study Method is suited for large or second order, stable/ declining cities or small, rapidly growing rural fringe areas. These are areas with significant over-used or under-used service capacities, respectively, such that if development takes place it does so either at minimal or substantial local operational or capital expenditures. c) The Service Standard Method, another average costing procedure, is typically employed when moderately growing suburbs or cities contemplate a poplation increment and would like a detailed estimate by service category of manpower, equipment, and capital facility requirements of such a population change. d) Comparable City Method is a marginal costing procedure which is used when there is excess or deficient service system capacity and it is felt that the experience of other comparably sized and similarly growing communities would be of assistance in providing insight to this system capacity as it relates to impact projection'. e) Proportional Valuation is only used in evaluations of the fiscal impact of nonresidential (commercial or industrial) facilities. This technique assumes that a share of costs are assigned to a development in proportion to that develop- ment's share of local property value. (It is used in similar situations as the Per Capita Multiplier and Service Standard methods. ) f) The Employment Anticipation Method relies on regression coef- ficients to specify expenditure impact to a particular service category based on a nonresidential facility's introduction of additional employees to a geographic service area. This method provides differing impacts according to city size involved. 384 Table 12-1 also from Burchell and Listokin summarizes the general applicability of these methods according to community and project cate- gories. Because most of the communities affected by new mining activities are small, rural towns, the application of the Case Study or Comparable City Method is utilized. Many small communities may have certain ser- vices with excess capacity, such as schools or sewage treatments, while water supplies, roads, or other facilities are overutilized. Thus, a combination of estimating techniques may be necessary to completely determine the municipal service costs of increased population. The Case Study Method and Comparable City Method have been applied in the regional planning commission analysis of fiscal impacts due to coal mine growth between 1979 and 1983. Specific information and impact estimates provided in these reports are described in the following section. 12.2.1 Case Study Method The Case Study Method is a detailed and time consuming approach to assessing the marginal costs of increased population for municipal budgets. Site specific evaluations of public service capacities and their ability to assimilate new growth are conducted for each individual community. Such a technique accounts for individual characteristics of certain regions and the variation among communities in public service capability. The following steps represent the general procedure in applying this method: 66 a) Contact key public officials, i.e., city manager, superintendent of schools. 385 > < Z < (- o < o. 5 O CO 10 < I- Q Z < to I- x UJ h- Z O o o I- to Q O £ in a i CXI a> -2 * £• = 111 " £ 5 x 5 % ■q e 5 2 « -s c » o ! I £ § Q 2 5 a ~ S 9 = 5 8 5J ° Q. S a O -. * > * Si U! It 53 o I I I *> 3 *" 5 a g J! c - 6 X * 2 S i£ c _ c 2 c o to U to 13 S O ■= ti 5 o o CJ in CJ - w > o O "= o 2 a> ■O °> - C 9 C n = 2 ? o •= a - > c a> CJ T3 O tO 3 r to O o s s £ £ 3 « -= a > "5 — = a 01 0> oi « t; i* « o a a > 5 .' r _ a — Z '■5 o - f-J 4) • — I! !! — ? 01 i_ a; - CD C_> a O o C E 5 u a o cc en c Q s > -c "2 2 a o — 3) u 3 — t> to u r » o. — en a cj < -* u 0J (5 e > c > D ai 0) ■3 o •o e o U a ai El 5 « « u nj ■3 u tTi T3 U — — "3 > — e "5 5 10 "3 C CJ > < e > -a c 01 -a B n -3 2 z a >. J5 ■o a 5 S CJ y > E o 5. 1! •3 01 a. i CJ II II CJ I £ n II 5 to to CJ > < CJ to CJ a. LU ^j ■a 3 n rQ •I- S -^ - 1 J o s +j t/i •> _l u • a Q O) to ■a cj • CJ cc c_ <— T3 -— j3 V - u 3 a OQ <+- LU C_) CC o 00 a a < 386 Categorize public service functions. Determine presence or absence, and magnitude of any existing public operating and capital excess or deficient capacity for various public services. Project population and student increases through the use of appropriate multipliers. Estimate population-induced service demand, using service standards and capital ratios. Interview public officials to determine how their respective departments will respond to growth. Project the costs that will be incurred by different public jurisdictions as a consequence of the manpower and facility expansion. Project total annual public revenues. Determine cost-revenue surplus or deficit by comparing projected total revenues to projected total costs. The use of such a site specific method may yield a detailed community analysis. For regional or county projections the time and expense of applying such a technique may be limited. The 601 Plans described in Section 12.3 provide an example of this method for energy impacted areas. 12.2.2 Comparable City Method A more recent fiscal impact methodology is that known as the Comparable City Method. This marginal cost technique utilizes expenditure multipliers which are categorized according to community size and growth rates. Thus, the projected change in expenditures is estimated by a multiplier developed from an aggregation of average expenditures for towns of similar size. As a town grows it may change population cate- gories, and thus its level of expenditures would be reflected in a new multiplier. This method is more simplistic than the Case Study Method 387 but provides an indication of the change in services for analyses limited by time and/or money. The basic assumption of the Comparable City Method is that public service expenditures vary according to community size and growth rate. It is also assumed that growth rates directly affect local expenditures. If growth or decline is rapid, a community would probably spend more per capita while moderately growing areas would distribute costs across the population. The procedure for utilizing this method is briefly summarized as follows: 66 a) Using multipliers for household size and school-age children, determine the magnitude and rate of population growth. b) Using the projected population, select appropriate expenditure multipliers and determine the rate of change in these multipl iers. c) Divide total operating and capital outlays for each service category by existing local population to calculate current average operating costs and capital expenditures per capita. d) Project future per capita costs by service category by multi- plying per capita expenditures of "step c" by the rate- of-change ratios of "step b." e) Determine future net annual costs by multiplying future expenditures per person by the communities future population and then subtracting costs incurred even if there were no growth. f) Project total annual public revenue. g) Calculate cost-revenue surplus by comparing total costs and total revenues. The data base available for medium-sized communities is quite extensive. Unfortunately, many of the towns affected by mining have populations of less than 1,000. Table 12-2 presents expenditure multipliers 388 Table 12-2, MUNICIPAL AND SCHOOL DISTRICT MEDIAN OPERATING EXPENDITURE MULTIPLIERS BY POPULATION SIZE AND GROWTH RATE Municipal Population (Use for (1) (2) (3) (4) (5) (6) (7) (Number Municipal 1.000- 10.001- 25.001- 50.001- 100.001- 500.001- Over of Residents) Functions) 10.000 25.000 50.000 100.000 500.000 1.000.000 1.000.000 General Government 0.80 0.87 0.97 1.47 1.90 N/A» N/A 0% Public Safety 0.63 0.98 1.25 1.70 1.95 N/A N/A to Public Works 1.16 1.23 1.18 1.16 ,1.20 N/A N/A 0.5% Health /Welfare 0.07 0.68 1.26 2.69 2.26 N/A N/A increase Recreation/Culture 0.52 0.77 1.20 1.59 1.89 N/A N/A Education 1.02 0.99 1.00 1.03 1.08 1.04 1.07 General Government 0.77 0.92 1.27 1.06 1.59 N/A N/A 0.5% Public Safety 0.62 0.98 1.35 1.21 1.50 N/A N/A to Public Works 1.14 1.33 1.16 1.05 0.99 N/A N/A 1.0% Health /Welfare 0.04 0.41 1.45 1.04 2.35 N/A N/A increase Recreation/Culture 0.46 0.73 1.10 1.29 1.06 N/A N/A Education 1.02 0.99 1.00 1.03 1.08 1.04 1.07 General Government 0.73 0.91 1.00 1.07 0.98 N/A N/A 1.0% Public Safety 0.59 0.95 \1.22 1.25 1.37 N/A N/A to Public Works 1.14 1.08 1.14 0.99 1.14 N/A N/A 1.5% Health /Wei fare 0.04 0.54 0.45 0.86 0.45 N/A N/A increase Recreation/Culture 0.45 0.91 1.13 1.02 1.99 N/A N/A Education 1.02 0.99 1.00 1.03 1.08 1.04 1.07 School District Enrollment Less (Number (Use for than 1 .200- 2.500- 5.000- 10.000- 25.000- 100,000 of Students! Education) 1.200 2.499 4,999 9.999 24,999 99,999 And Over 'Data not available. SOURCE: Burchell, R. W. and D. Listokin, The Fiscal Impact Handbook , The Center for Urban Policy Research, New Brunswick, NJ, 1980. 339 for towns of over 1,000 population and growing at various rates. For larger Illinois communities the projected population increase attributed to mining may be analyzed by the use of such multipliers. As long as the change is not a dramatic and sudden shift in population or economy, such a technique may be applied to gain general information. 12.2.3 Econometric Modelling In Chapter 11 the county income and employment projections illus- trate changes in total economic activity expected; however, there was no specific analysis of changes in sectors or on local community needs. Several approaches for assessing economic, fiscal, and demographic changes have been considered. Table 12-3 summarizes some of the more prominent efforts. These particular techniques were evaluated by Rubin and Solomon in developing the framework for a dynamic, integrated econometric impact assessment model . The basic problems with existing methodologies can be summarized as follows:" a) No single method exists which provides reliable information on all relevant impacts, economic, demographic, and fiscal b) There is no truly dynamic structure for evaluating the varying impacts over time. c) No analytical techniques have addressed the problems associated with migration of workers. The migration/commuting issue affects the expected change in local per capita income and employment. Rubin and Solomon proposed development of an econometric model to incorporate economic, demographic, and fiscal impacts. Such a model does not exist in a functional form although elements of various models may be useful for analysis. Thus, the state of the art in impact 390 o -o o JS 4-> 01 z: 0) 3 HI > -a: o s. o 4-) *4- — e <0 3 c oi -a S- O o U 0) O U ■4- in +■> 3 U iO o S. 01 •^ 01 i/l 1/1 >, 1/1 m i. c Oi 1- 1 — — Q. u ■— oi ja •— — 3 — <*- io <4- Q.<— •i- c o 3 U >i 4-> = oi -a t/1 u — *J OI OI i/i a; u r— OI *j 01 CI iO oi in 4-> -<=c l/l ■o L. 4-) 0) 01 01 3 u > • ■a O O 3 0) m 01 -= — TT 3 OJ T3 *J C O f l/l 3 ■~ a) •^ J= 4-1 ■w pan 2 — c (J <_> — ■o • « 3 « a SI ■•- c >> o c ■ ^ *j i/i 10 4-» <_> g -— OI iJ o in 3. u Q. C a c 01 01 O 01 3 s. — i- - u SI o •4- o. o (O in c — 13 OI IB V -J •^ iO • (J •^ E C in ^3 in 4-1 — ■o 01 01 a. O) c o c C~. in = "3 01 IO »— >. 3 "3 m •3 >)— •»— 4-1 4-) u 1— -o s_ U si m in m c c c c OI O O •— O 'O *. — '- u u U_ m o 01 ■3 VI 3 -J r— u u ie Oi c O >i ■o — in (J c •— -a •^ ■O = c 4- m •^ « l/> — u c u yi 01 • OI o •^ ro ■o s- a.-— JS 01 in *J C. in *o •— IO (0 OI C r— w S. I- c ro a. O OI ai-<- c •— o s C 4J E E s- O r- o 01 OI ■— 3 i/l o ■O 4J 4^ E OI » — i/i 01 10 - 3 CT1>«- T3 u c u ID OI 0) — >,— ID - —I S- oi q. O 0) c ^ ■- 4-1 3 = 1 4-1 O. vl o >, in o 3 u -a V40 c o •— ai 4-> O 4- —J — . in o o 01 in c c o t— * >> o -a O m 4-> SI ■a 4J •^ -^ ■o — o u u OI OI E « "■0 1^ in *o .a a. c a n O -3 c u T3 OI a -3 3 O o 4-> c u C O E u m T5 o OI = o 01 01 T3 01 c SI a TJ —J o 'ZZ> i— CJ a C fO 01 fO i ifl 4-1 ■a c — C T3 o m m 3 — o — ■T3 iyi ■— 3 •-- OI — ' U OI •»— O) O-. E OI 13 u S_ T! U ji 01 -f- oi a OI fO a a in CC SI ce. E SI S E oo IV SI ■3 PH •p- C «3 VI IO a >> m u IQ u <4- C f a O. on V) — > 4-1 C O s- a u -o «3 B»i- « <— a. a *j a. a. = S o E OI 01 — c ■o ■<-) a <4- a O • -_ >C 4-1 u a. u 4-> iO c u iO a. U -3 g •^ e ja IO a. IO SI C a u Ol u U f» SI a iO (O 4-1 •^ E a. a. -o <*- 01 i/1 = E S. ■3 4J •^ OI ■o c-l a • iO 4-1 4-i E (O 4-> a. - c = V 01 >— o OI — E «3 •a- E >. 4-> C E >>•— a in a a a « 01 •— c — u a. > OI a a. i^ B C 0) u E ■'" UJ — s- UJ UJ 4_ 391 assessments indicates that various approaches are available but all with recognized deficiencies. To adequately present in detail the dynamic effects on communities of increased coal production would require formula- tion of a model based specifically upon Illinois data. In the following section the detailed analysis of planning agencies for a three year horizon illustrates the complexity of accurately predicting impacts upon communi- ties. 12.3 Summary of Comprehensive Growth Management Strategies for Energy Impacted Counties The socioeconomic impact of mining activities was analyzed for 11 counties under a grant from the Farmers Home Administration of the U.S. Dept. of Agriculture. These studies conducted by the respective planning commissions evaluated the adequacy of housing and public facilities relative to the three year demand resulting from increased coal mining activities. The general format included assessment of the capability of present municipal services to assimilate new residents and new growth. Specific limitations of service components were identified, and the cost of upgrading or expanding critical facilities was identified. Table 12-4 summarizes the general components of these regional planning analyses. In each region the location of new residents was allocated according to existing residential patterns of miners. The group of communities affected in each county was then described, and the major municipal costs for accommodating the projected socioeconomic changes identified. The planning agencies then estimated future revenue asso- ciated with increased sales tax, property tax, and income tax. 392 CO a a 03 o o o •r- <_J OS Q. & ^ O Ol LU 1) > _ OJ 0) a *J -o TD 0) o u m 13 a Bi C 11 OJ C£ — a. us c a 11 a > •#— 11 r— a 01 OS — ' C us *f— 3 a. o oo 3 T3 C o US — O U c = •— 3 — O — (_> us OS 3) OJ 3 (X j ai c its c O Q.-— E ■O r- 01 q S 4-J .f— H itJ 4J B u c o a -o p— -o ai •— — «j > C Q.4-J o •— c .— *J -o u a. us a E S — ra >. oi x c 01 c 3 1- Q, 4) <4_ ai — z a +j a C I o a 01 -O T3 0) — 4-1 l/l HJ 0) s 01 1) o «j — <4- *j a. a •D 2 a. 0) l/l 3 us It3 Oi US — -3 4J a a a CJ ■— - ■- us L» 01 L. i. US ~J 11 0) 0) •*-» a Cl 01 ts >i a. = C o LO OI a. T= a -a E — •^ 0) 0) 4J — > — * c us it) 2 0) ■— u oi -a X a a t- us 01 I*. 01 s*. < O i- 3 — > .— .— i. a ~ 4-1 OI T3 V a US 4-1 OI = = ■r- — >. >i = X ts a c a u 0> 3. a. a. a r— E — us 4-J 13 n a; us a a OI4-1 a 2 _ a a u u ■— oi '_ a 03 -a ■a c ■_ ■— •4- ■O >■, a us 0) 'J j D -a — i a u _ u u 11 03 ■4-J oi -a S_ us — s »i« us Ol a a VI 11 a — i i. V ■o Q. i. 4-> S 13 *- 11 o -a — ' us a OI u a. = E/l 2 US 0) OI z OS US r— >, C 01 •»» S. •— — U i. O "4- oj us O USOI 01 •■- 01 -* "O S-T3 O a—i2' — _ '_ a -3 -o -a — 3 •;"> o. — a la'/i E 01 -j a us us 4-> 0) Ul (J a — u > s_ 4-> 01 U us OI s> 1 OS _ a a 2 i_ ■— o a. -a -4J L 4-1 01 U US 01 US i-5 O! B a 2 5- -i- O a.-o 4-> U i. "O •^ OS 01 i4- a.4J •— 3 O U 01 01 J. t- a. a >*- ■^ OS a a Q."0 C 01 ■— 3 a « oi i. — 1 1) a. us a u s- a. Ifl ^s Oi -a 4J a u •o u a 3 o ITS <4- X » OI US 03 X 3 0) 4-> US C — 4J 01 4J >, > •<- 4-> 01 OI c i. E 1- 3 no = a. u x S o a re a k^tl u a. - us -o "O x oi a oi its i— its +i*i ti (J us >, II US 4-1 •—> oi ■— a a — 03 3 5- « O O O. us o O •o a its •— oi -> a. a US OS T3 4-i a t3 1) US -f -o a -1 o XJ 01 itJ its U ID4J 2 '- J Ul t— 4-1 OS 11 01 4-> U O.H- f— Ul 01 3 «- its Ol ■<—> its us O 1- X - a a C itJ Cv>4- — ■<- 4-> (J "O Ul 01 >! — 01 11 US 4-1 it- N U ■ts s- us oi a o E > a - a. Ol 01 S- 2 u o a.4-i oi a s- OO '^- us *-> — a. o 3 a — a a • ts •■- 3. O O us a OTJ O 4-1 3 l— 4-1 — — a a 3 u > 1) u. a oi E •- o a. us o ii a oo — -o c 11 3 •- CI > •— us a n U US •— Q a ■— a = 03 a i— a <— 03 ■— | .— u oi os — 41 41U1 a us C 01 03 S. S- O 01 01 01 —4-1 *J 4J 4-> itJ us us 3 II oi oi o s. 3 3 00 C3 03 J3 (J TO 393 To illustrate the variation in impacts expected for communities near coal mining activities, several elements from the 601 plans have been aggregated and summarized. The regional planning commissions relied on coal company projections of future activity (up to 1983) to determine the possible extent of population growth. Not all companies provided information. Therefore, the employment projections for certain counties are understated. Table 12-5 illustrates the importance of two factors on total population of the community and projected rate of population change, for estimating the impact of additional mining employment. The miners added from 1979 through 1983 in the Greater Egypt Planning Area were located across a variety of town sizes. The population increases listed in column 3 were based on projections from the Bureau of the Budget. To compare directly the effect of miners on projected population increases, the mining employment numbers of column 2 would have to be multiplied by the county's average number of people in a household. For some communities in Table 12-5 a decline in population is expected. Thus, the entrance of new residents would mitigate these effects and add minimal incremental costs to public services. Other examples of increased population greater than projected growth are Pinckneyville and DuQuoin in Perry County. In each case the number of additional mining residents (mining employees x number in household) is greater than the BOB population projection and the demand for public services exceeds forecasts. Thus, even for a specific incremental increase in miners, the fiscal impact may vary with community. 394 Table 12-5. Projected M for Greater ining Employment and Egypt Communities Population Increases 1979-1983 1979-1983 1980 Population County City Increase in Population Mining Employment Increase Franklin Benton 45 467 7,693 Buckner 3 17 519 Christopher 21 171 3,060 Ewing 5 11 316 Mul key town 4 -- - Royal ton 7 (69) 1,134 Sesser 32 137 2,226 Thonpsonville 11 74 597 Val ier 5 (22) 530 West Frankfurt 30 415 9,285 Ziegler 11 146 1,888 Jackson Jefferson Total Carbondale Ava Campbell Hill DeSoto Dowel! Elkville Murphysboro Vergennes Grand Tower Total Bluford Bonnie Ina Mt. Vernon Waltonvil le Wood! awn Total 174 15 28 14 19 5 17 49 10 1 158 1,347 2,508 39 45 206 15 34 109 (46) 16 2,926 27,248 23,854 798 378 1,491 440 965 9,734 346 720 38,726 3 103 720 5 26 452 3 47 450 5 833 17,028 7 (31) 204 4 82 472 77 1,060 19,326 395 Table 12-5. (continued) 1979-1983 1979-1983 igg0 County City Increase in PoDulation a !,*,•«„ . . . . r . T - Population Mining Employment Increase K Perry Cutler 18 22 479 DuQuoin/St. Johns 171 118 6,532 Pinckneyvil le 182 197 3,238 Tamaroa 30 (8) 878 Willisville Total 16 417 56 607 385 11,734 Will iamson Cambria 5 108 1,066 Cartervi 1 le/Crainvil le 23 139 3,353 Col p 1 (6) 248 Creal Springs 11 (20) 843 Energy 5 117 1,134 Herri n 69 129 9,618 Hurst 7 (23) 928 Johnston City 21 4 3,849 Marion/Uhiteash/ Spil lertown 115 1,024 13,900 Pittsburg 6 23 607 Stonefort Total 3 266 (6) 172 1,489 35,713 396 Taking into account the distribution of mining employment in communities, existing public infrastructure, and projected costs and revenues, priority projects were identified by the planning commissions. These priority projects were determined according to communities' needs for expanded public services. Table 12-6 summarizes the projects to be incorporated into the 1981 budget requests for the 601 program. These projects were ranked according to importance in the priority communities (those experiencing high growth rates due to mining). Housing for low to moderate income families and for senior citizens was an important need in all planning regions. Other facilities requiring upgrading were landfills, water supply systems, parks, and fire department facili- ties. Other projects or deficiencies in community services were proposed for later funding or for community resolution. One of the major problems communities faced in accommodating new growth related to large capital expenditures. Frequently the com- munity could sustain existing services; however, major capital outlays were difficult to generate. Depending upon the specific community char- acteristics, the actual magnitude of fiscal impacts would vary. For communities located in the six planning regions* recognized as energy impacted in the next three years, an inventory of site specific information has been developed. The site specific evaluations provide the most comprehensive assessment of short run changes in the demand for municipal services. This data base may be helpful in assessing changes in other counties in which mining will be initiated in the next *Greater Egypt, West Central Illinois Valley, Southeastern Illinois, Western Illinois, White County, and Southwestern Illinois. 397 Table 12-6. Summary of Public Facilities Affected by Mining Growth (1980-1983) Regional Planning Commission Rank Prioritv Project' Total Cost, $ Greater Egypt 1-15 Housing 4 ,175,000 16 City park 50,000 17 Community center 40,000 18 Fire department and city hall 100,000 19 City center complex 250,000 20 Fire department 100,000 Southeastern Illinois 1,2 Housing 697,000 3 Landfill 120,000 4 Library 10,000 5 Community center 10,000 6 Senior citizen housing 13,000 7,8,9,10,11 Housing 1 ,146,000 12 County park 100,000 West Central Illinois Valley 1 Water supply 1 ,400,000 2 Housing on reclaimed site 264,000 3-8 Public housing 1 ,901,000 9 Drainage improvements 40,000 10 Recreation development - Western Illinois 1 Water supply 598,000 (b) Senior citizens housing 620,000 (b) Medical clinic 453,000 Notes: a) Only priority projects for 1981 funding are listed. b) Projects for future funding. SOURCE: References 59,60, 61, and 62. 398 20 years. 12.4 Site Specific Effects of Coal Mining The effects of mining growth have been analyzed for a three year period by several planning commissions. A few examples were also located which illustrated the effects of a declining mining activity. These examples will also demonstrate the importance of the economic characteristics of the community losing mining income. Morris Mine, Fulton County Coal production in Fulton County has been declining at a slow rate over the last ten years. Of the several mines located in the county, Consolidation Coal's Norris Mine began phasing out operations in 1975. Between 1975 and 1980, the number of mining employees declined from 196 to 0. At the same time within the county other mining operations were holding constant or expanding their number of employees. The three communities closest to the Norris Mine are Norris, Fairview, and Farmington. By reviewing available business information and population statistics the impact of this mine closing was evaluated. Table 12-7 summarizes the 1980 population, work force, and unemployment values for these three communities. The labor force and unemployed values were based on projected ratios and thus may not capture total unemployed. This, however, is the only available information. The best indicator of mining decline, perhaps, is business activity. In Table 12-8 the historical changes in mining activity and sales tax receipts in the communities are compared. 399 Table 12-7. Population and Employment Characteristics of Norris, Fairview, and Farmington Community Pop 1980 •ulation Labor Force 1980 Projected Unemployed Percent Unemployed Norris 274 147 12 8.2 Fairview 592 318 25 7.9 Farmington 3,075 1,654 132 8.0 SOURCE: Western Illinois Planning Commission. Of the three communities nearest the mine, Norris and Fairview are the ones which appear to be affected. While Farminaton, which is a larger city , doubled business receipts between 1971 and 1979, Fair- view's receipts declined and Norris' collections only increased slightly. Norris and Fairview, which have less than 1,000 population, had reduced business growth which correlates with a decline in mining. A loss in sales tax receipts is translated directly into lost governmental revenues. The municipal fund balance for Fairview and Norris were -55,808, and -$536, respectively, in 1980. Both communities have also exceeded their debt limit and thus cannot borrow funds at the present time. There may be additional factors which contribute to the existing conditions within these communities; however, the loss of the Norris Mine certainly was at least one detrimental factor. This example indicates the fact that mining growth and decline are spread across communities, and that the resulting impact depends upon many site specific factors. 400 Table 12-8. Changes in Business Activity with Mining Year Norn's M Production, ine mtpy Number of Employees Sal es Tax Recei pts, $ Norris Fairview Farmington 1970 1.8 - - - - 1971 - - 20,700 28,600 310,400 1973 - - 20,200 26,600 380,900 1974 0.8 - 24,400 - - 1975 0.7 196 28,600 62,800 491,200 1976 0.9 167 23,000 - - 1977 0.7 158 24,400 30,800 528,800 1978 0.5 155 25,700 - - 1979 0.4 107 28,500 25,000 625,500 1980 - - - 1979/1971 Ratio of Receipts Tax 1.38 0.87 2.02 401 12.5 Summary Regional planning commissions in Illinois have prepared site specific information regarding fiscal impacts for energy- impacted com- munities. Because there is such variation in community impacts due to mining growth or decline, evaluation methodologies which are site specific offer the most accurate results. Regional impact models have been formulated to project various energy development activities; however, data and analytical contraints must be satisfied prior to application for Illinois coal mining activity. 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Projact/Taak/Work Unit No. 80.214 It, Contract (Q or Grarrt(O) No. (a (G1 Sponsoring Organization Nama and Address Illinois Department of Energy and Natural Resources 325 W. Adams Springfield, II. 62706 Supplementary Nota* 13. Typa of Raport & Period Cohered 14. Abstract (Umlt: 200 words) "" ■ Illinois is a state with substantial energy reserves in the form of coal and is a leader in agricultural output. Of the 24.4 million acres available as the cropland base, approximately 80 percent or 19.1 million acres is considered prime farmland. Coal mining in Illinois has occurred since the 1860s and will continue in the future because of the vast quantity of reserves remaining. This report discusses the reserves and potential of both surface coal mining and prime agricultural land. It qoes on to analyze the potential conflict between these two activities in the future, as well as the environmental and economic impact of each. document Analysis a. Descriptors Coal Mining Agriculture *• Prime Farmland . Iderrtlflers/Open-Ended Torms Surface Coal Mining Assessment COSATt Field/Group 111 inois ..iiawnty stataman; No restriction on distribution, -liable at the II. depository libraries or from t National Technical Information Service, inqfield, Va. 22161 ISl-a9.18) 19. Security Claas (This Raport) Unclassified 20. Security Class >Thl« .Page) Unclassified 21. No. of Page* 406 22. Prlc* OPTIONAL FORM 272 (4-77) (Formerty NTIS-35) Oapartmont of Commarca LIBRARY U. OF I., URBANA-CHAMPAIGN