Mine growth’s effect uncertain
Big production increase likely to be felt in county economy
July 16, 2005
The news this week that Peabody Energy will increase production dramatically at Twentymile Coal Company ensures that one of the foundations of Northwest Colorado’s economy will continue to be vital for years to come.
Production at the mine southwest of Steamboat Springs is scheduled to increase during the next three years from the current annual output of 8.7 million tons to 12 million tons.
“What’s exciting about this news is that you really like to see growth in a base industry,” economist Scott Ford said. “Since this money is associated with growth in a primary industry, bringing new money into the valley, the pond we all swim around in will get a little bigger because ‘new’ money is pouring in. True economic growth only happens when primary industries bring in more money.”
Ford is director of the Small Business Resource Center at Colorado Mountain College. On the surface, he said, Peabody’s plan to add 80 employees at its underground mine at Twentymile appears to have the potential to add significant buying power to the local economy. But the economic repercussions of Twentymile’s expansion are complex and broader than just payroll impacts.
Eighty new mine employees making an average salary of $67,000 equates to $5.36 million that could turn over in the local economy. But it’s necessary to look deeper to gauge the economic impact.
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First, there’s the fact that at the same time Peabody is adding 80 miners at Twentymile Coal Company, the employment status of 100 employees working nearby at Seneca Coal Company is in doubt. Peabody told Seneca employees last fall it would close the surface mine by the end of this year. The company raised the possibility that some of the 100 employees could remain to carry out mine reclamation work. But those plans aren’t firm. And it’s not valid to assume that the 80 new employees at Twentymile will come from among the ranks at Seneca, company spokeswoman Beth Sutton said this week.
“Twentymile and Seneca are two unique operations,” Sutton said. “If an employee of Peabody wants to apply for a Peabody affiliate in Colorado or another state, it’s the individual’s decision.”
Seneca historically has been a union shop, and Twentymile has not. In addition to that cultural divide, the skills sets among employees at the two mines vary simply because one is a surface operation and the other is an underground mine.
Ford said the changes at Peabody’s mines could have repercussions in the construction industry in the region.
He predicted that the hiring surge at Twentymile might attract heavy-equipment operators seeking the big salaries at Twentymile, taking them way from area excavation companies. On the other hand, some Seneca employees may fill openings in the construction sector.
So, it’s difficult to predict whether Peabody is adding or subtracting jobs in Routt County.
On one hand, Peabody is adding 80 new jobs at Twentymile. But it could be viewed as subtracting 20 net jobs when the future of 100 jobs at Seneca is considered. The most accurate count would take into consideration what Seneca employees will do in the future.
“My guess is that with the Seneca job loss, some of those folks will actually move into local industries where their skills are transferable, i.e., construction-equipment operation,” Ford said.
“Some will start their own businesses, and some will just retire. With each of these three, the money stays here,” he added. “Some folks would have just moved and followed the next rainbow. What the Peabody expansion means is that instead of following the next rainbow, they will stay here.”
Ford has collaborated on a variety of economic studies designed to paint more details into the existing picture of the Yampa Valley’s economy. A 2003 consumer preference study found that local wage-earners tend to spend as much as 60 percent of their purchasing power outside the valley. The extent to which families spend their money outside the valley is referred to as leakage.
Assuming those filling the new mining jobs follow that trend — buying children’s clothing and sporting goods online or by catalogue, for example — it would substantially dilute the impact of their jobs in the local economy, Ford said.
The consumer preference
survey doesn’t take into account the spending habits of coal miners, or, for that matter, of any occupation. So a breakdown on how the family of a new miner might spend that paycheck assumes their habits match those of Routt County wage-earners as a whole.
Ford said the average wage for jobs in Routt County’s mining sector in 2003 was $61,021. That number includes bonuses and overtime. Adjusted for inflation, that average could have grown to $67,000 in 2006, he said.
But nearly one-third of take-home pay would leave the valley, Ford’s research indicates. Area families typically spend 31 percent of their household income on housing, and the survey shows that all but 10 percent goes out of the valley to mortgage companies in other states.
The biggest spending category after housing is transportation, and Routt County families spend 60 percent of that amount out of county. On a positive note, local families spend almost all of their auto repair budget locally.
The numbers also are more positive when it comes to spending on groceries — Routt County families spend 13 percent of their income on food and all but 15 percent of that amount remains in the valley.
Of course, there’s a chance that, as a group, coal miners are more or less likely than the rest of the population to spend their hard-earned money locally.
Increasing the workforce at Twentymile Coal Company is just one aspect of Peabody’s effort to ramp up production at the underground mine, Sutton said.
During the next three years, it will spend about $60 million to replace the existing “longwall” underground mining machinery with a newer, more efficient model. The new longwall is essentially the same size as the existing machinery but will allow more coal to be mined faster, Sutton said.
Routt County Commissioner Dan Ellison said the coal industry helps diversify the area’s economy by providing career jobs that aren’t dependent upon tourism.
And the dollars returned to the local economy from mineral severance taxes help local governments and school districts. The severance taxes, returned to communities in the form of Energy and Mineral Impact Assistance grants, have been applied to a wide variety of projects in Northwest Colorado
“The energy impact grants that come from severance taxes helped the Hayden School District remove asbestos, and they’re helping with (the plastic surface for) the ski jump in Steamboat,” Ellison said.
The plan to increase coal production also will mean more business for Union Pacific Railroad.
Each train headed to Denver through Routt County typically takes 10.5 tons of coal. Sutton said Twentymile currently loads two to three Denver-bound coal trains a day. The number of rail cars loaded with coal bound for distant markets is destined to increase.
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