If Contura Energy is successful in a bid to reacquire two Powder River Basin coal mines, it could become even more difficult for Campbell County to collect $37 million in unpaid taxes on the properties.

Campbell County lawyers objected to last week’s proposal in a West Virginia bankruptcy court on Friday. The court has had control over the mines’ fate since the mines’ operator, Blackjewel LLC, crashed into bankruptcy with hundreds of millions of dollars in unpaid debts on July 1.

Campbell County will be “left holding the bag,” said Jeffrey Liesemer, an attorney hired to represent the county, during Friday’s hearing. “These taxes go to fund schools, they pay teachers,” he said. “We’re not trying to protect a profit margin here.”

The county’s mounting difficulty collecting ad valorem taxes is no surprise to county commissioners and officials there. It’s a problem they’ve been pleading for help with for years. But as the coal bankruptcies and unpaid tax bills mounted, elected and appointed state officials left Campbell County to fend for itself again and again, county officials say.

Recent WyoFile reporting reveals that county officials, trying to head off these dire financial losses, sought state government support for their collections efforts, only to be brushed off.

Now, several years, several coal bankruptcies and tens of millions of dollars in jeopardized ad valorem taxes later, the county is left with diminishing recourse as bankruptcies proceed.

Contura Energy seeks to buy the Eagle Butte and Belle Ayr mines back from Blackjewel after selling them to it two years ago. The deal Contura proposed last week lets it acquire the mines without most of Blackjewel’s unpaid debts, including staggering tax debts to Wyoming. Bankruptcy filings indicate the company owes $37 million to Campbell County, $11 million to the state of Wyoming and $60 million to the federal government in taxes and royalties. Around half the money owed in federal mineral royalties is due back to Wyoming. The total revenue at risk for state coffers could be as high as $78 million.

Despite objections from several creditors including the federal government, Judge Frank W. Volk allowed Contura’s bid for the mines to go forward. The judge has struggled to protect the roughly 1,700 workers left unemployed by Blackjewel across mines in Wyoming and Appalachia and saw the deal as the best way to put miners back to work, he said in the hearing. The mines are now set for an auction on Aug. 1 — if no one makes a higher offer than Contura’s, the company could get the mines back following a final court hearing on Aug. 3.

Blackjewel isn’t the only ongoing bankruptcy where Campbell County is struggling to collect unpaid bills.

A judge’s recent order in Cloud Peak Energy’s bankruptcy put Campbell County near the back of the line to collect unpaid taxes in the neighborhood of $30-40 million, according to two Campbell County commissioners. In the same order, the judge ruled that Big Horn County, Montana, where Cloud Peak also operates, would get priority for its unpaid taxes.

But before Cloud Peak and Blackjewel, there was an early round of three coal bankruptcies in 2016. Some industry observers called them the canary in Wyoming’s coal mines, and the threat to tax dollars prompted Campbell County to turn to the state for help.

Rebuffed in Cheyenne

In the summer of 2016 with $19 million in unpaid ad valorem taxes on the line in Alpha Natural Resources’ bankruptcy, two Campbell County commissioners and a county attorney made the trek from Gillette to Cheyenne to meet with the Wyoming attorney general.

Campbell County had hired a law firm to try and secure the unpaid taxes through bankruptcy proceedings. The county commissioners hoped the AG’s office might add the state’s weight to their legal filings by signing onto the case, help educate eastern lawyers in western coal questions or offer other assistance.

Ad valorem taxes are based on the assessed value of the minerals in a company’s holdings. The tax is collected at the county level, but the majority of the money from Campbell County goes back to the state and is distributed to fund public education.

Over the last two decades, Wyoming coal mining, the majority of which is in the Powder River Basin, has produced hundreds of millions in ad valorem taxes for public schools each year.

As such, it felt natural for the county to turn to the state, said commissioner Mark Christensen, who attended the meeting.

“I didn’t think we were going to get a ton of relief, but I did think we’d get some help and consideration,” Christensen said. He was wrong.

The travelers from Campbell County went to the attorney general’s office accompanied by Michael McGrady, then a policy advisor to former Gov. Matt Mead, and waited in a conference room, Christensen recalled. The meeting that followed was brief. Then-Attorney General Peter Michael came in and read a section of statute that dictates when the AG’s office can get involved in a legal proceeding for a branch of state government. Campbell County’s tax problem didn’t fit the bill, Michael said. That was it.

“It was like going on a date with somebody and they were like ‘we just want to be friends,’” said Campbell County Commission Chairman Rusty Bell.

McGrady, today a deputy attorney general, said he brought the county commissioners to Michael but did not play a role in the state’s decision not to help. Though Michael cited statute, McGrady said agency heads typically have the option to offer assistance to local government entities or not.

“I wouldn’t suggest looking at the statute necessarily would elucidate what would have happened,” McGrady said in an interview this week.

The commissioners said Mead expressed an interest in helping the county. McGrady demurred, saying Mead had not assigned him to help the commissioners get state assistance. The governor was aware of their meeting with Michael, McGrady said.

“He was briefed up on it,” McGrady said. “It’s not something I would expect the governor to micromanage.”

Through his assistant, Mead declined an interview for this story. WyoFile was unable to reach former AG Michael, who is retired according to other former officials of the Mead administration. WyoFile did not receive a response to an interview request sent to Michael through the AG’s office.

Back on the elevator after the brief meeting, the Campbell County group was stunned, Christensen recalled. “We were like ‘what just happened?’” he said. “It wouldn’t have cost them anything to sign on” and give the county the state’s weight in court, he said.

Campbell County, not for the first time and not for the last, was left on its own to collect a tax on Wyoming’s natural resources that benefit all the state’s citizens. The county ultimately spent nearly $1 million on bankruptcy lawyers to secure the funds, and left $4.4 million in unclaimed taxes behind in order to avoid further legal entanglement. A bill brought by Campbell County lawmakers and passed in 2018 allowed the county to reimburse itself for attorney fees out of the tax money it collected.

Permits as leverage? Not here.

Last year, as the Wyoming Department of Environmental Quality processed a transfer of mine permits from Contura to Blackjewel, county officials made inquiries into whether the state could use the process to pressure the company to settle its taxes, they said.

“Why don’t you guys hold up some of their permit transfers?” is how Christensen described the appeals. “You [state officials] have a lot of leverage,” he said.

DEQ spokesperson Keith Guille said his agency did not discuss taxes with county officials, and a records request from WyoFile showed no objections or written communications sent by the county to the permit transfer. But the agency couldn’t stop a permit transfer over unpaid taxes anyways, Guille said.

“That goes way beyond our authority,” he said.

Christensen, however, suggested a clause in mine permits could provide a catchall lever based on compliance with state laws, including tax law. “The operator shall conduct his operation in a manner which prevents violation of any other applicable State or Federal law,” the permit clause reads.

That language “reflects environmental law and regulations,” Guille said.

After Michael declined to help the county in the Alpha case, commissioners asked McGrady to hold up the permits Alpha was preparing to transfer to Contura, Christensen said. The then-advisor declined, saying it would be “inappropriate,” Christensen said.

McGrady did not pursue leveraging the state’s authority over mine permits to get Campbell County’s taxes paid, he told WyoFile.

“I’m not familiar with instances where the state has kind of played those kinds of games,” he said.

Legislative fixes

Coal companies can go bankrupt with millions in unpaid ad valorem taxes because the companies don’t have to pay the taxes until more than a year after production. Severance taxes and federal mineral royalties, by contrast, are paid monthly, and as a result those unpaid obligations are typically smaller at the time of bankruptcy filings.

Some lawmakers and advocates in Wyoming have for years sought to make ad valorem taxes also payable monthly. But energy and banking interests have proven powerful opposition to such measures. Coal companies — much more secure in the early years of reform efforts — argued that they were good for the tax money and there was no need to impose stricter laws.

Cloud Peak was one such lobbyer, Christensen said.

“They were the good actor they had always done what was right,” he said. In the end, while some companies made arrangements to pay taxes before entering bankruptcy court, Cloud Peak did not. “They screwed us more than anyone,” Christensen said.

A related reform effort sought to give counties better standing in bankruptcy court by enshrining ad valorem tax debts as a high priority in law. That effort was opposed by banks and financiers and failed several times as well, most notably in the 2017 Legislative session. The bill passed the House 54-6, but did not become law.

After passing the House, the bill died in the hands of then Senate President Eli Bebout (R-Riverton). He told WyoFile at the time that bankers raised objections to the bill and said not having a lien priority over county governments would give them pause when considering loans to energy companies. Bebout, himself an oil and gas operator, said hurting the ability to get financing would crush smaller energy companies. He killed the bill by not introducing it to the Senate floor.

“That bill not passing at that moment possibly just cost the state of Wyoming upwards of $30-40 million,” Bell said, referring to Cloud Peak’s bankruptcy.

A version of that legislation did pass in the 2019 legislative session, but it was too little too late. The new statute doesn’t apply to liens from the county made before January 2021. It doesn’t impact the current bankruptcies, said one of the bill’s sponsors, House Majority Floor Leader Eric Barlow (R-Gillette). The delayed implementation was part of a compromise with the lending industry, Barlow said, to give them time to prepare and understand the statute’s impact.

“I’m not saying it wasn’t a fine compromise at the time,” he said this week, “except now we’re living … with the reality of the liens on taxes not being a priority.”

In 2016, Bebout said he preferred monthly ad valorem payments to collection priority in bankruptcy. He maintained that position in an interview on Monday. “It was a good idea then and it’s a good idea now,” he said.

The two potential solutions have chased one another in circles through the years, with neither making any headway — when a bill to make ad valorem payments due monthly comes out, opponents say the bill would hurt good companies and that a lien priority on operators in bankruptcy is a better method. When lien priority legislation appears, opponents suggest monthly payments would have less adverse effects on the energy industry.

The judge’s decision in the Cloud Peak bankruptcy perturbed Bebout, he said. “It just irks me when a judge makes a decision that takes Campbell County out of being a secured creditor on taxes that are owed,” he said. “My goodness I don’t understand that.”

Still, Bebout said he didn’t regret his opposition to the lien bill in 2016. He opposed last year’s effort as well. “That would have created a lot of hardship on small business,” he said. Bebout called on companies to pay their ad valorem taxes and set aside money throughout production to do so. He would be open to a monthly ad valorem payment requirement if it came forward in the 2020 legislative session, he said.

“No one ever envisioned what would happen with coal. I never thought [bankruptcies] would have this impact,” he said. Still, the state shouldn’t forget coal’s contribution over the years. “They owe the money I totally agree with it, but let’s not forget the billions of dollars they’ve paid over the years,” Bebout said.

Barlow is among the lawmakers who unsuccessfully sought reforms for years. He and other Campbell County lawmakers are considering next steps, he said, but at this point it isn’t clear that any statute changes could help the county collect taxes from the mines caught up in Blackjewel and Cloud Peak’s bankruptcies.

“I don’t know if we can change anything,” Barlow said. “We’re just going to take the beating and the loss.”

Growing losses

Contura Energy was a spinoff from Alpha Natural Resources. In the two years before the company handed its mines off to Blackjewel, Contura ran up $20 million in taxes. Contura paid Blackjewel $20 million to cover those taxes when it “sold” Blackjewel the mines in 2017.

Blackjewel fell behind on its taxes right from the start. The county eventually worked out a deal with the company to make payments, and collected $5 million before the company filed for bankruptcy, according to Campbell County Deputy Attorney Carol Seeger.

Though Contura’s move to repurchase the mines could bring short-term stability for both miners and the communities, the company didn’t show much interest in operating them before. The company’s fire sale to Blackjewel was viewed by industry analysts as a way to escape expensive reclamation obligations looming at the end of the large strip mines’ lives.

Blackjewel’s bankruptcy came before Contura could wholly escape those liabilities in Wyoming. In May, an environmental oversight board delayed transfer of the mine permits — and the reclamation responsibilities — from Contura to Blackjewel after an objection was filed by landowner group the Powder River Basin Resource Council.

Blackjewel’s bankruptcy came before that transfer could be completed.

Cloud Peak Energy’s bankruptcy also galls the commissioners, said chairman Rusty Bell. Cloud Peak filed for bankruptcy just before its tax payments from the second half of 2017 production were due. Not only does the company owe the county $8 million from that year, but the mines are still in production.

“Cloud Peak is mining coal right now that they have no intention of paying any ad valorem tax on,” Bell said. Through the bankruptcy proceeding, the company is likely to try and sell its mines “free and clear” of any tax obligations, like in the proposed deal between Contura and Blackjewel, he said.

“It’s really hard to take,” Bell said. “I love the miners here and I love the people that are working here and that’s not the issue. [The miners] are paying their taxes on their homes, on their cars, their sales tax yet the people they’re working for are not going to pay the taxes that provide the services that their workers are using and that they’re using.”

Too little too late?

Barlow wants the Legislature to look at several areas going forward, he said. That could include both freeing up the attorney general to help counties in bankruptcies or reviewing whether the mine permitting process can be used as leverage for unpaid taxes.

“Education is a state’s interest,” he said. “Well, [the AG] said they didn’t have a mechanism to do it, so that’s another thing we should take a stab at.”

Of mine permits he said: “What obligations do [companies] have as conditions of their permit not only to not make messes … but also to follow the rest of the laws of the state of Wyoming? I would argue that payment of their taxes is part of that.”

Christensen also said the Wyoming Attorney General’s office should prepare to get more involved. The court fights are unlikely to go away, he said.

“As this continues, the attorney general’s office does need to get somebody in there who has really good knowledge of bankruptcy,” he said.

County officials are in discussions with the new administration of Gov. Mark Gordon and have found him receptive, they said. Court filings do not yet indicate the state has gotten involved in the pursuit of unpaid taxes in either the Cloud Peak or Blackjewel bankruptcies.

New Wyoming Attorney General Bridget Hill said in response to a WyoFile inquiry that her office would offer assistance to the extent “law and statutes allow.”

“I don’t have any comment on what happened in the past with AG Michael,” she wrote in an email. “Obviously the current bankruptcies are of concern to the State of Wyoming and my office. In that regard I intend to be as helpful to the counties as the law and statutes allow. Under statute, if called upon, I am authorized to be the legal advisor to county attorneys.”