West Virginia's Billionaire Governor Owes Kentucky Millions in Back Taxes

by | February 27, 2018

By Bill Estep and Will Wright

Coal companies linked to the billionaire governor of West Virginia owe $2.9 million in delinquent property taxes in Kentucky, shorting schools and local government programs of money at a time many are struggling with tight finances.

The biggest outstanding debt is in Knott County, where a company called Kentucky Fuel Corporation is $1.92 million behind on taxes on real estate, mining equipment and coal reserves, according to local records.

The taxes are overdue from a time when Kentucky Fuel was controlled by James C. Justice II, who was elected governor of West Virginia as a Democrat in 2016 but later switched his registration to Republican. Justice's son and daughter became controllers of the company in April 2017, according to federal mining records.

Kentucky Fuel also owes $119,221 in 2017 taxes in Knott County that are not delinquent, but began accruing penalties in January and will be delinquent in April if not paid by then.

The state gets a share of property taxes collected at the county level, but the money also helps fund local governments, libraries, health departments and other local services. Most of the money goes to schools.

In Knott County, the school district's share of the $1.92 million in delinquent Kentucky Fuel taxes would be more than $1 million.

The district has seen an annual drop of more than $900,000 in revenue from a tax on unmined coal, which has declined because of difficult market conditions, causing it to cut jobs through attrition and put off buying buses. Still, the draft budget for the 2018-19 school year projects a $100,000 shortfall, said Greg Conn, finance officer for the school system. The district will likely have to cut jobs.

The delinquent taxes owed by Kentucky Fuel would be a great help in weathering the crunch, Conn said.

"We wouldn't be nearly as strapped as we are right now," he said.

Justice companies also owe delinquent taxes in Pike, Floyd, Magoffin and Harlan counties, according to county clerks' records.

The debts total more than $570,000 in Floyd County; $250,891 in Pike; and $54,842 in Magoffin, according to county clerk records. The outstanding debt in Harlan County is $85,372, according to the county attorney's office.

The debts were not that high originally. The totals go up each month because of interest.

For instance, the biggest delinquent tax bill Kentucky Fuel faces in the state, currently $955,551 in Knott County, was originally $487,264.

Justice companies have agreements in some counties to whittle down delinquencies, but Knott County has had to seek court orders to enforce them.

"The problem is intentionally not paying," said Randy G. Slone, the assistant county attorney.

'Our No. 1 problem by far'

The coal industry has taken a beating in Eastern Kentucky and Central Appalachia since 2011. Production plummeted and companies laid off thousands of workers.

Justice's coal operations suffered like others in the region.

Federal records listed Justice as the controller of 154 coal mines or facilities, such as preparation plants, in the fall of 2016 in Kentucky, West Virginia and other states.

Now, the U.S. Mine Safety and Health Administration lists Justice as the controller of 39 mines or facilities. All are listed as abandoned, non-producing or idled.

The records indicate control of many of Justice's coal properties switched to his son, James C. "Jay" Justice III, and daughter, Jill Justice, a physician, in 2017.

The two are listed as controllers of 117 mines or facilities. Only a handful of the mines are in operation, according to the database.

There are no Justice mines open in Kentucky, but the company is close to re-opening a surface mine in Pike County, Jay Justice told the Herald-Leader.

Justice-family companies are not alone in having delinquent taxes, but Kentucky Fuel's debt is the biggest in Knott County, said Slone.

"Kentucky Fuel is our No. 1 problem by far," Slone said.

Jim Justice's wealth and varied business interests also set him apart from many coal operators.

Justice headed 102 companies before being elected governor, according to his office. His interests other than coal included agriculture, golf courses, Christmas tree farms, timber, and real estate.

He owns The Greenbrier, a luxury resort in West Virginia that hosts a PGA Tour golf tournament, and his corn, soybean and wheat operations make him the largest farmer east of the Mississippi River, according to his office.

Forbes magazine estimates Justice's net worth at $1.7 billion.

A spokesman for the governor deferred to Justice's private companies for a comment on why Justice doesn't settle his delinquent taxes with money from other businesses if the coal companies are struggling.

Jay Justice said much of his father's estimated worth is in assets, not cash that he could lay his hands on immediately.

Jay Justice said the family's companies have fixed hundreds of reclamation violations in Kentucky in recent years and paid off delinquent taxes from several previous years.

Efforts are underway to sell assets in order to raise cash to settle tax debts, he said.

"We've never bankrupted any company and we will always make good on our obligations," Justice said. "Sometimes it takes awhile."

However, Justice said he believes assessments have been too high on the family's coal properties in recent years because mining equipment and coal reserves lost value as a result of the market downturn.

He said he has asked attorneys and engineers to assess the debts and figure out the "right" number, with an eye toward trying to negotiate settlements with counties.

"We're trying to get it under control," Justice said. "I know these counties -- they depend on this money."

'It's been a mess'

Local officials have faced frustrations at times in trying to collect delinquent taxes from Justice companies.

In Harlan County, Jim Justice's companies agreed in 2015 to pay $70,000 a month to settle delinquent taxes, but didn't send the first payment. They eventually paid after the county sued in October 2015.

In Knott County, Kentucky Fuel pledged to pay $1.2 million by mid-2015 to settle delinquent taxes, but stopped after paying $800,000, according to court records.

The company satisfied the remaining debt after Slone got a court order to sell its property.

However, some of the checks Kentucky Fuel sent bounced, according to local officials.

Sheriff Dale Richardson said he called the company and indicated he would get an arrest warrant for the person who had signed a cold check. The company wired money to cover the payment, he said.

"It's been a mess," he said.

Knott County's latest lawsuit seeking to collect back taxes from Kentucky Fuel is pending. Counties must wait two years to file such lawsuits, so the taxes at issue are from 2015.

Slone said Kentucky Fuel's standard business practice, even when times were good, has been to drag its feet on paying bills -- not just for taxes, but to vendors -- and then try to get the debt reduced.

The company has not contested assessments on its property in the county, Slone said.

In its answer to the lawsuit, Kentucky Fuel denied the county's claim. The company asked Judge Kimberley C. Childers to dismiss the complaint and award the county nothing.

But in a motion this month for summary judgment, Slone argued there is no question Kentucky Fuel owes the money.

The county should not be forced to sue Justice's company repeatedly to collect taxes, Slone said in an interview.

"It's ridiculous," he said.

(c)2018 the Lexington Herald-Leader (Lexington, Ky.)