Kentucky lawmakers are calling for new tax breaks to lure more cryptocurrency mining operations to the state, although critics say the large industrial facilities consume much energy while creating few permanent jobs.
The Senate Natural Resources and Energy Committee on Wednesday approved Senate Bill 255, which would offer a variety of tax incentives for cryptocurrency mining companies that purchase and upgrade existing buildings inside the state and that earn income and create jobs here. Companies would have to make a capital investment of at least $1 million to qualify.
Another measure, House Bill 230, would offer a tax break on the electricity purchased by cryptocurrency mining operations. That bill is awaiting action in the House budget committee.
Neither bill has a fiscal note attached to explain how much state revenue could be at stake.
Mining cryptocurrency, such as Bitcoin, is a complicated process. Miners use high-powered computers to solve complex math problems and unlock new currency. Next, they clump the resulting transactions together in blocks; the combined public record is known as the blockchain.
The sponsor of the Senate bill, state Sen. Brandon Smith, told his colleagues on Wednesday that cryptocurrency miners are searching for places with cheap electricity, like Kentucky’s rural coalfields, to run their computers.
“We have got companies that are spreading across the country, and they really like Kentucky because, as these coal companies and other businesses have closed, it creates surplus power,” said Smith, R-Hazard. “And so the power companies are stuck with either raising your bill, which we’ve seen, or finding places that use it.”
“When you mine for Bitcoin, imagine some place the size of an airplane hanger filled with nothing but hard drives as far as you can see for 24 hours a day, seven days a week,” he said. “And when they burn out, they simply swap ‘em out and put another one in. It’s amazing what they’re doing. It’s part of the future, but it uses a lot of power and I’m happy that it does.”
Core Scientific announced two years ago that it was opening a blockchain facility in a huge, abandoned steel mill in Calvert City in Western Kentucky. The company told the Paducah Sun in at the time that it employed about 30 people on site.
More recently, in January, state officials approved tax incentives for Blockware Mining to open a cryptocurrency mining operation in leased space in Paducah, with a total investment of $28.4 million. Blockware Mining reported plans to create 10 jobs with an average hourly wage of $23, including employee benefits.
The problem is that cryptocurrency mining doesn’t come close to replacing the manufacturing jobs that Kentucky has lost, which makes it illogical to shower them with tax breaks, said Pam Thomas, a state budget analyst with the Kentucky Center for Economic Policy in Berea.
And lawmakers should recognize that existing state tax incentives already are available, as evidenced by Blockware Mining’s application this winter to the Kentucky Economic Development Finance Authority, Thomas said.
“Total of 10 jobs paying $23. Tax incentive of $200,000 over 15 years,” Thomas said.
“In short, I cannot in any way see why it would make sense to offer economic development incentives to these types of operations as they use a whole lot of energy and hire very few people — especially one that has already located in Kentucky and is currently operating,” Thomas said.
John Cheves is a government accountability reporter at the Lexington Herald-Leader. He joined the newspaper in 1997 and previously worked in its Washington and Frankfort bureaus and covered the courthouse beat. Support my work with a digital subscription