Jim Justice signs a bill lowering the severance tax rate on steam coal from 5 percent to 3 percent over three years at a Murray Energy mine in Marion County. (Photo Courtesy/WV Governor’s Office)

CHARLESTON — Even with a cut to steam coal severance tax rates, it wasn’t enough for Murray Energy to avoid bankruptcy.

Murray Energy and Bob Murray played a large role in pushing state lawmakers to lower the severance tax on steam coal used in coal-fired power plants and the main kind of coal Murray Energy mines. Now, the state is seeing lower than anticipated severance tax revenue tied to the reduced demand for steam coal and the downturn in metallurgical coal exports.

According to the state Department of Revenue, coal severance tax revenue is down by 30 percent as of the end of September compared to the same period last fiscal year. The dip in coal and natural gas severance tax revenue has contributed to a $29.8 million hole in the budget.

Dave Hardy, secretary of the Department of Revenue, said state law prohibits him from revealing if Murray Energy is delinquent on taxes unless the State Tax Department places a lien on the company. He did say that if Murray Energy does owe the state money, the state would get first priority over any creditors.

“Claims for taxes have a higher priority than, generally, an unsecured claim does,” Hardy said.

According to Murray Energy, coal operations will continue as normal during the bankruptcy phase, meaning there shouldn’t be any interruption of severance tax payments. Hardy said the state is watching the Murray Energy bankruptcy closely.

“We are monitoring it and will monitor it very closely,” Hardy said. “In a Chapter 11 bankruptcy, the mines will at least remain in production, because if you don’t have the revenue from the mines, Chapter 11 will transition into a Chapter 7 very quickly. You can have a reorganization plan if you start shutting down your mines. We’re very interested in what’s going on with all the coal producers in the state, and Murray Energy is a very large producer.”

As a result of the lower than expected coal and natural gas severance tax revenues, the state is planning for mid-year budget cuts and preparing agencies for cuts to next year’s budget. The Department of Revenue is preparing agencies to cut $100 million from this fiscal year’s $4.7 billion general revenue budget which went into effect in July.

Agencies are also being asked to cut 4.6 percent for their budget proposals the fiscal year 2021 budget, which will be presented by Gov. Jim Justice during his 2020 State of the State Address in January and considered by the West Virginia Legislature. Department of Revenue officials have been meeting with state agencies since Labor Day to work on the cuts.

During the 2019 legislative session, Republican lawmakers proposed a 3 percent cut to the severance tax rate for steam coal. House Bill 3142 reduced the severance tax on steam coal from 5 percent to 4 percent this fiscal year, then to 3 percent in fiscal year 2021. The bill passed the House of Delegates in March 88-11, followed by the state Senate 19-12.

The cost to the state by year three of the steam coal tax cut is estimated at $60 million. Hardy said it is impossible to tell in the short term if the tax break will help Murray, but if the company comes out of bankruptcy it could mean the tax break made a difference.

“I think it’s an unanswered question whether that has helped them or hurt them,” Hardy said. “If they stay in business after a Chapter 11, that’s obviously a good thing. The worst-case scenario is they would shut down and lay everyone off, then there is no severance tax revenue for anybody.”

Both times the House and Senate passed H.B. 3142, the galleries were packed with Murray Energy miners, replete in work attire and bussed in from mines across the state. The bill was signed into law by Gov. Jim Justice in a ceremony at Murray Energy’s Harrison County Mine in Mannington March 27.

Justice received two $2,800 campaign donations Sept. 17 from the Murray Energy Political Action Committee, one listed for the primary election and one listed for the general election. Justice was also a guest at a fundraiser Bob Murray held for President Donald Trump, where Trump expressed his support for Justice’s election for a second term as governor.

Justice declined to comment through a spokesperson.