2017-04-12 / Front Page

Effort to require coal, gas firms pay county fees fails in tie vote

Ward: Lack of action helps rich firms at expense of citizens, county workers
By WILLIAM FARLEY

County residents may soon be forced to pay dramatically higher property taxes, County Judge/Executive Jim Ward warned this week after the Letcher County Fiscal Court voted down what Ward believed to be the best option for dealing with the county’s growing financial crisis.

In front of a packed Letcher Circuit Courtroom filled mostly with natural gas company employees, the court voted three to three against approving the second reading of an ordinance that would have placed a $2,500-per-year licensing fee on all businesses engaged in extracting nonrenewable resources in Letcher County. The measure was originally discussed in November 2016 as a $1,000 per year license fee on the county’s 1,492 operating oil and gas wells, but was amended to include the larger fee on all coal mines, rock quarries and gas and oil wells after Judge/Executive Jim Ward said the Kentucky Attorney General’s Office told him the fees must be equitable and fairly applied.

With the failure of the license fee, Ward said the fiscal court is out of options when it comes to taking action to generate enough income to cover a current $1.3 million budget deficit and prevent such deficits from occurring in the future. Because the county is required under state law to end its fiscal year with a balanced budget on June 30, Ward said it is almost a certainty that the state Department for Local Government (DLG) will move to take over the county’s financial operations and require that services be cut or revenue raised enough to fix the deficit.

“Either they pass something or DLG comes in and does what they want,” Ward said of the county’s five magistrates after Monday night’s vote.

Ward fears that under DLG control, county residents could see their property taxes rise from a total of 11 cents per $100 to as high as 30 cents per $100.

Ward entered Monday night’s meeting believing he had enough votes for the license fee to “finally keep (solving the financial crisis) off the backs of our people.” Instead, he said, three magistrates put the burden back on ordinary citizens instead of natural gas, coal, and rock companies “that have made billions and billions of dollars off of us.”

Ward said the vote against the license fee leaves him with no choice but to develop a plan to furlough the county workers “who are the ones that do the work to make the magistrates look good in the first place.”

Monday night’s meeting was moved from the downstairs Letcher District Courtroom to the larger Letcher Circuit Courtroom to accommodate the standing-room-only crowd. At the beginning, Ward asked how many opposed the ordinance and most of the crowd raised their hands. He then asked who favored it and about a dozen people showed their support. However, a number of the people who opposed the ordinance were wearing gas company logos on their clothing. When Ward asked how many were from Letcher County, a number of people vocally objected. The crowd became unruly several times and Ward warned that he would have disruptive members removed from the courtroom.

Ward also told the audience that only three people from each side would be allowed to address the court during the special meeting. He said most speakers would say basically the same thing, and added that he didn’t think anyone wanted to be there until 3 a.m.

Ward said that since cuts in coal and gas severance taxes have dried up the county’s finances, the court has to find a way to address the $1.4 million current budget deficit. He said the fiscal court’s options to address the deficit are limited, and that besides the licensing fee the only other option is a property tax increase since a proposed tax on insurance premiums already failed and magistrates refused to vote on a payroll tax.

The court took a recess to attempt to get the speakers organized, and when it went back into session, County Attorney Jamie Hatton read the ordinance. Following Hatton’s reading, Magistrate Fleming addressed the court and said that he is generally against taxes, and especially taxes that place an additional burden on the citizens of the country. He said he has bad feelings about the whole thing, and added that he wishes people from both sides of the issue could have gotten together to discuss other options, but that didn’t happen. Fleming said he cannot justify voting for tax increases on individuals, and for that reason, he would vote in favor of the licensing for on nonrenewable resources. “That’s the way I feel,” said Fleming.

Third District Magistrate Woody Holbrook said he had received 49 letters from gas company representatives objecting to the fee. He said the letters were obviously photocopies of the original, although they were all were signed by different people, adding that if they had that much time on their hands, they could possibly have worked out a solution themselves. He said the people of Letcher County have not gotten the amount of royalties from gas companies they deserve. He added that he had asked several of the gas company executives who had contacted him what they thought would be an acceptable fee, if $2,500 was too much. Holbrook said their answers were the same, not one cent.

Terry Adams then said he believes the county needs new jobs and that it had already received severance taxes and said he opposed the fees.

Matt Sawyers, executive director of the Frankfort-based Kentucky Oil and Gas Association, said that gas companies had paid over $70,000 in property taxes in Letcher County, along with severance and other taxes. Sawyers told the court the association represents more than 300 companies and the proposed license fee concerned all of them. He said the group had no choice but to oppose the measure and that the industry was the most heavily taxed and regulated in the state. He added that the companies pay the royalties specified in their agreements with property owners and often provide free gas to those landowners. Sawyers said that many wells vary in their production and not all are heavy producers.

The gas and oil association believes the fee is discriminatory and was aimed mostly at natural gas companies, Sawyers added. He said that 95 percent of companies that would be affected by the tax were natural gas companies and the ordinance therefore is illegal and unconstitutional. However, when asked if the ordinance was constitutional, Letcher County Attorney Hatton said the ordinance as he read it was in accordance with the Kentucky Constitution.

Magistrate Fleming asked Sawyers and other gas company representatives why they had waited to approach the court in the matter until Monday evening, when it had been discussed in November 2016 at a special meeting that was reported in The Mountain Eagle and was on Letcher County Channel 98 as well. If this had been done, Fleming said, it might have been possible to reach a solution that would aid the court without the fee. However, Ward echoed Magistrate Holbrook when he said he had discussed the matter with gas company executives who said they would not pay one extra dollar over what they were already paying. Fleming said he thought the relationship would be better if the gas companies were willing to negotiate rather than just opposing the measure totally.

Whitesburg attorney James Asher also spoke, saying he was neutral in the matter of the fees, but his interest lay in the fact that he owns part interest in a well that also provides natural gas to his home. Asher said he has converted most of his appliances to gas, and if the well serving his house were capped he would probably not have access to another supply.

(The cost of capping natural gas wells varies, but generally ranges from about $25,000 for an abandoned conventional well to as much as $250,000 for deeper horizontal wells like many of the ones that are producing here. The state of Wyoming has doubled the price of a bond before a well can be drilled from $75,000 to $150,000 to cover the cost of capping a well should it be abandoned.)

Letcher County resident Freddy Watts said people who use gas in their homes and who have arrangements with gas companies for wells or lines on their property that allow them to have gas service would be negatively impacted if the licensing fee were approved.

Ada Smith of Whitesburg spoke in favor of the fees, saying it’s obvious that citizens of Letcher County can’t afford to be taxed further and the county must figure out ways to be more productive and a fee on non-renewable resources is one of those ways. She said she has read estimates that Letcher County produces about 10 percent of Kentucky’s natural gas and the county needs the services the fees would pay for. Smith told the court she appreciates the hard decisions its members have to make.

Kim Stewart, a supervisor at the Letcher County Highway Garage, also spoke in support of the fee and told the court that it is very difficult for county employees to continue working each month while knowing that they may lose their jobs at any time. She added that spring is a critical time for the county road department, particularly around Memorial Day, as countless residents ask for help getting roads to cemeteries ready for visitors. She said the county road department is down to 11 employees and has one road grader that is in use right now. Stewart said the county garage receives calls every day asking for help and it is almost impossible to accommodate everyone.

Helena Jackson, an attorney from London, told the court she was there to speak on behalf of Revelation Energy, which operates coal mines in southeastern Kentucky and southwest Virginia. Jackson said that Revelation has 161 employees and that while many other small privately held coal companies have filed bankruptcy, Revelation has continued to operate. She said the $2,500 annual fee would probably prevent Revelation from opening new mines in Letcher County.

After Judge Ward cut off comments, a disturbance broke out with several progas attendees moving toward the podium demanding to speak. Ward asked Letcher County Sheriff ’s Department deputies to remove those who caused the disturbance and several were escorted out of the meeting room with no resistance.

Upon the request of County Attorney Hatton, the court voted five to one, with Ward casting the only no vote, to enter into executive or closed session to discuss gas company threats of litigation. After a short time, the officials returned and Ward made the motion that the second reading of the ordinance be approved. Third District Magistrate Holbrook seconded and Ward, Holbrook and Fleming voted yes, with First District Magistrate Bobby Howard, Fourth District Magistrate Keith Adams and Second District Magistrate Terry Adams voting no. Howard and Keith Adams had voted in favor of the first reading of the ordinance in March. Ward announced that the vote had failed and the meeting adjourned.

Before the court discussed the license fee ordinance, it also addressed an ordinance to increase sanitation fees by $5 a month. However, the ordinance was tabled as several magistrates asked that other options be explored.

Magistrate Fleming said he would oppose the ordinance as it stood, and called it a back-door tax. He added that he thought the court should have a better business plan for sanitation, and other magistrates asked if there were ways to ensure that everyone who is getting their garbage picked up gets a bill. The court voted unanimously to table the ordinance.

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