Date: 10-11-2015

No Justice for Justice?

Coal companies controlled by a billionaire running for governor of West Virginia owe $3.5 million in delinquent property taxes in Eastern Kentucky, shortchanging schools and other public agencies at a time many are struggling…

The companies controlled by Jim Justice have delinquent taxes on mining equipment, land or coal reserves — or all three in some cases — in Pike, Floyd, Knott, Harlan, Magoffin and Breathitt counties, tax records show.

Jay Justice, the son of Jim Justice and an executive of a coal company controlled by his father, vowed that his father’s companies ultimately will satisfy their tax debts.

“We will make good on all our obligations in Kentucky,” Jay Justice said.

Jay Justice said he understood the companies have agreements in place to pay the back taxes.

That was true in some counties, but officials in Pike and Harlan counties said no such payment plans were in place as of Oct. 8.

In Pike County, a Justice subsidiary called Kentucky Fuel Corporation agreed to pay delinquent taxes after the Herald-Leader contacted a company official last December about the debt, which then totaled $527,000 with interest and penalties.

The company paid some smaller bills after that, but did not pay a large delinquent bill on equipment by the March deadline, according to County Attorney Howard Keith Hall’s office. The payment agreement was canceled.

With interest and penalties, Kentucky Fuel now owes $620,000 on a delinquent 2013 bill in Pike County, plus $446,000 in delinquent 2014 property taxes, a total of just more than $1 million, according to records.

Property taxes are a key source of funding in Kentucky’s counties for schools, local governments and services such as libraries and health departments.

For instance, the Pike County school system’s share of the original 2013 tax bill on Kentucky Fuel’s equipment would have been $136,000. That would cover the annual salary and benefits of more than two teachers, said Nancy Ratliff Grubb, the school district’s finance director.

That’s no small consideration in a school system that has had to cut staffing as enrollment declines.

“Anytime that you can fund a teacher, it’s a big deal to us,” Grubb said. “They should pay. It’s the kids that are suffering.”

In Knott County, a representative of Kentucky Fuel said the company would pay hundreds of thousands in delinquent taxes after the county sued early this year, said Randy G. Slone, assistant county attorney.

Kentucky Fuel made two of three payments — totaling more than $800,000 — but did not make the last payment, Slone said.

With the remaining balance on 2013 taxes and unpaid 2014 taxes, Kentucky Fuel’s delinquent taxes in Knott County totaled $1.27 million the first week of October, local records show.

Jim Justice’s companies are not alone in failing to pay their property taxes on time during a sharp downturn in the coal industry in Eastern Kentucky and Central Appalachia.

Hundreds of mines in the region have closed since 2011 because of a combination of factors, including competition from cheap natural gas; cheaper coal from other U.S. regions; tougher rules to protect air and water quality; and the depletion of thicker coal seams after more than a century of mining.

The U.S. Mine Safety and Health Administration lists Justice as the controller of 158 surface or underground mines and related facilities, such as coal-preparation plants, in several states. However, nearly all of Justice’s mines are listed as temporarily idled, non-producing or abandoned.

Still, Justice — who has some of the largest delinquent tax bills among coal companies in Eastern Kentucky — has resources many coal operators do not.

When Jim Justice announced in May he would run for governor in 2016 as a Democrat, his estimated net worth was reportedly $1.6 billion, a fortune he amassed in coal mining, agriculture and timber.

He has been lauded for his support of youth sports programs, his millions in charitable contributions and for efforts to save The Greenbrier, an iconic West Virginia resort in danger of bankruptcy before Justice bought it for $20 million in 2009.

Justice has since spent tens of millions on the property, adding a casino, a medical institute, a football practice facility and other amenities. The resort hosts a PGA Tour golf tournament each year.

However, Justice also has faced lawsuits in Kentucky and other states from suppliers complaining of non-payment, and criticism over environmental violations and unpaid safety fines at his coal mines.

In August 2014, Justice acknowledged hundreds of reclamation violations at mines in Eastern Kentucky and agreed to post $10.6 million in bonds to fix the problems. That deal came after the state threatened to suspend his company’s permits.

He also agreed to pay $1.5 million in fines. He owed $4.4 million, but the state dropped the total as part of the agreement.

Justice and his son pledged their personal assets to guarantee payment of the fines and reclamation work, state regulators said.

Dick Brown, spokesman for the state Energy and Environment Cabinet, said Justice has posted the required reclamation bonds and has paid $950,000 of the $1.5 million fine. Justice is current on his fine payments.

‘We need the money’

Justice has made efforts to pay down his delinquent property tax debt in Kentucky and elsewhere, but it has taken prodding by local officials, and his companies are still millions behind.

Kentucky Fuel did not file a response after Knott County sued the company early this year in an effort to collect delinquent property taxes. A judge issued a default judgment in March in favor of the county for $1.2 million, which included taxes and other costs.

Slone, the assistant county attorney, said that after that, an attorney for Kentucky Fuel called him and they worked out an agreement for the company to settle the debt in three payments. The company made the first two, but not the third, according to a court record.

Slone filed a motion Sept. 15 asking a judge to order a forced sale of the company’s assets in the county to settle the debt.

In a letter dated the next day, a Justice company official notified Knott County Clerk Ken Gayheart’s office that Kentucky Fuel would pay $40,000 a week until its tax debt is settled.

The office has so far received three $40,000 checks, the most recent one on Oct. 5. At that pace, Kentucky Fuel would satisfy its delinquent taxes before next summer.

Slone said he hopes that happens, but is keeping a watchful eye. Justice’s companies seem to have a pattern of not paying bills, he said.

“I’ll have to see the money before I’ll actually believe it,” Slone said.

Companies controlled by Justice also owe delinquent taxes in West Virginia.

Martin West, the sheriff in McDowell County, W.Va., said Justice paid about $1 million in taxes after West threatened to sue, but still owes about $300,000 in delinquent taxes.

West said Justice called him, apparently to see if he was serious about pushing for collection.

“He said, ‘I wish you could be a little more compassionate,'” West said.

The sheriff was not moved, noting that Justice reportedly gave out handfuls of cash at a golf tournament at The Greenbrier this year — enough to have made a big dent in what he owes McDowell County.

“We need the money to run this county,” West said. “Jim Justice tries to get by with everything.”

Some have questioned why Justice doesn’t use money from other companies to pay the taxes for his coal properties. His campaign website says he is president and CEO of 47 companies.

However, Jay Justice said all the businesses are operated as separate entities. The plan is to have the coal companies stand on their own in paying their taxes, he said.

The companies have significant tax debts, he said, because of the “really tough situation” in the coal industry.

He noted that unlike many companies, some Justice-controlled coal operations are still running and providing jobs.

Jay Justice said Kentucky Fuel has one mine operating in Kentucky — the Beech Creek surface mine in Pike County — and plans to resume production at the Bevins Branch surface mine in the county around the end of the year.

‘Track them down’

Having a payment agreement in place, as Justice said he believed was the case in all the Kentucky counties where his father’s companies owe delinquent taxes, protects a taxpayer from having the delinquent bill sold to a third-party investor. Such a sale would bring even higher costs to ultimately settle the debt.

Local officials confirmed Kentucky Fuel is under payment agreements in some counties, but not all.

In Magoffin County, for instance, assistant county attorney Travis Joseph said Kentucky Fuel made a payment of nearly $100,000 earlier this year on delinquent taxes, then signed an agreement a few weeks ago to pay off its remaining delinquent 2013 and 2014 taxes.

“We had to track them down,” Joseph said.

The company owes $183,372, according to county Clerk Renee Arnett-Shepherd.

Joseph said Kentucky Fuel is due to send its first check under the payment agreement this month.

Records in Floyd County show that many delinquent Kentucky Fuel bills on real estate, some dating to 2011, are under a payment plan as well.

However, county Clerk Chris D. Waugh’s office said the company does not have a payment agreement covering its delinquent 2014 tax bills on unmined coal, which total more than $160,000.

Altogether, the company owes more than $500,000 in delinquent taxes in the county.

The office of Hall, the Pike County attorney, said Kentucky Fuel has no payment plan in place with the office for its delinquent taxes.

And in Harlan County, three Justice-controlled companies do not have payment agreements in place to satisfy their delinquent taxes, said Denise Williams, who handles those plans in the office of county Attorney Fred Busroe.

Sequoia Energy, Virginia Fuel and Infinity Energy owe a total of more than $450,000 in delinquent 2013 and 2014 property taxes, according to local records.

Williams said that beginning last December, she worked with Justice corporate officials for months in an effort to set up a payment plan on the coal companies’ delinquent taxes. She made changes as they requested and sent new versions.

She couldn’t get responses at times, however, and the contacts she was dealing with kept changing, Williams said.

Justice’s corporation finally signed an agreement in April that called for an initial payment of $70,000 in May.

It didn’t come, Williams said.

“Maybe they’re waiting for next May,” she said.

By Bill Estep

Lexington Herald-Leader