If Illinois' “King Coal” is deposed as many predict, his subjects should herald the peaceful revolution.
The economics of the state's coal economy have remained virtually unchanged since Francis Peabody founded Peabody Daniels & Co., now Peabody Energy Corp., at age 24 in 1883 and became fabulously wealthy buying coal from established mines and selling it for use in Chicago's homes and businesses. Then as now, miners in southern Illinois helped create wealth for others at the expense of their own health and safety. Their land is strip-mined, their water poisoned.
The state's policymakers always have responded favorably to the coal industry's special pleadings. Recently enacted legislation has green-lighted a surface mining operation in a state park and eased the permitting process for strip mines.
Illinois gives tax credits to coal investors and generous grants to coal companies and researchers. Unlike other states, it has never enacted a “coal severance tax” on companies that sell Illinois coal out of state, often at enormous profits. The Center for Tax and Budget Accountability estimates that a severance tax on coal extraction would raise $100 million in annual revenue. What's more, those out-of-state coal sales escape Illinois sales tax.
The arguments in favor of state subsidies for the coal industry are familiar. Not only does the industry contribute to the public coffers through the payment of taxes; it also generates significant economic activity. While coal needs to remain an integral part of our national energy strategy, any claim that coal is cheap, clean and creates jobs is pure fiction.
When revenues, subsidies and the expenses of regulation are netted out, the coal industry actually cost Illinois taxpayers $19.8 million in 2011, according to a recent report published by the CTBA. And that doesn't include legacy expenses in health care and education that will be incurred in future years.
But the drain on the state's budget at a time of fiscal crisis is only part of the story. There is no deadlier power source than coal. Miners tend to die at an early age because the air they breathe contributes to heart disease and respiratory problems. Black lung disease alone kills hundreds of miners and retired miners every year.
Most scientists agree that, over the long run, burning fossil fuels poses an existential threat to the planet. And even many onetime advocates of "clean coal" now admit that carbon sequestration isn't economically viable.
As alternative sources of energy are earning broader acceptance in the marketplace and the U. S. Environmental Protection Agency is committed to limiting carbon emissions from new and existing coal-fired power plants, coal's share of the American energy market is shrinking. But, for now, the nation must rely upon a mix of energy sources, coal prominently among them.
Still, Illinois' policies must protect its environment and its residents' health and financial security. Let's kill the state subsidies that prolong King Coal's unchecked and less-than-benevolent reign.
The world's first social impact bond, or SIB, was introduced in 2010 to fund innovative social programs that realistically might reduce recidivism by ex-offenders in Peterborough, England, and, with it, the public costs of housing and feeding repeat offenders. Prudently building on the strengths of that initiative, Illinois Gov. Pat Quinn is rolling out SIBs to help solve some of the state's most vexing social problems.
A SIB isn't a traditional bond where investors are guaranteed a fixed return but a contract among a government agency that agrees to pay for improved social outcomes, a private financing intermediary and private investors. SIBs shift the risk of experimenting with promising but untested intervention strategies from government to private capital markets, with public funds expended only after targeted social benefits have been achieved.
Peterborough's problem was daunting: Sixty percent of prisoners serving short-term sentences historically had gone on to re-offend within a year after their release. But policymakers were confident that a solution was within their reach. They attracted private investment to pay experienced social service agencies to provide intensive, multidisciplinary support to short-term prisoners, preparing them to re-enter society and succeed outside the penal system.
The government decided which goals would be supported, but exactly how those goals would be achieved was left to the private sector. It was the investors, through a bond-issuing organization, who ultimately endorsed the allocation of investment proceeds — how much would be invested in job training, drug rehabilitation and other interventions.
If the Peterborough plan eventually shrinks recidivism rates by 7.5 percent or more, the government will repay the investors' capital and share the taxpayers' savings with them, delivering up to a 13 percent return. If the target isn't hit, the investment will have failed and the government will owe the investors nothing.
Illinois' SIB effort was spearheaded by the state's Task Force on Social Innovation, Entrepreneurship and Enterprise — the governor's think tank on social issues, which I am privileged to chair — with support from Harvard University's John F. Kennedy School of Government, the Rockefeller Foundation and the Aurora-based Dunham Fund. A request for information issued by the Office of Management and Budget on May 13 yielded responses from service providers eager not only to reduce recidivism here but also to create jobs, revitalize communities, improve public health outcomes, curb youth violence, cut high school dropout rates and alleviate poverty.
Now the governor has issued a request for proposals intended to spur better outcomes for Illinois' most at-risk youth — by increasing placement stability and reducing re-arrests for youth in the state's Department of Children and Family Services, and by improving educational achievement and living-wage employment opportunities justice-involved youth most likely to re-offend upon returning to their communities.
Kudos to Mr. Quinn for bringing SIBs to Illinois. May they soon start delivering on their promise.- See more at: http://www.chicagobusiness.com/article/20131007/OPINION/131009850/a-new-kind-of-futures-contract-for-illinois#sthash.ThgxeiFt.dpuf
Marc J. Lane is a Chicago attorney and chairman of the Illinois Task Force on Social Innovation, Entrepreneurship, and Enterprise.
Reprinted from Marc Lane's February 25, 2014 editorial which appeared in Crain's Chicago Business. Crain Communication Inc.'s permission is gratefully acknowledged. Copyright © 2014 by Crain’s Communications Inc.
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