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Downturns in gas, coal battering state tax collections

CHARLESTON — A global oversupply of natural gas is creating a domino effect that is causing natural gas and coal prices — and demand for coal — to plunge, contributing to a $33.26 million state budget shortfall through October, Deputy Revenue Secretary Mark Muchow told legislators Monday.

“There’s just a flood of natural gas out there. It’s keeping prices low, not only for natural gas, but for the coal industry,” Muchow told the interim Joint Committee on Finance.

As a result, year-to-date state severance tax collections are down 44.5 percent from the same point last year, missing revenue estimates by $33 million.

Coal production has remained relatively steady to date, but Muchow said he expects that to drop as power plant stockpiles max out.

Demand for metallurgical coal, used in steel production, has also dropped, as the global economic slowdown has created steel stockpiles, he said.

“There’s excess steel in the global market, and with excess steel, there’s less need for metallurgical coal,” he said.

Muchow noted that natural gas and coal companies are “hurting significantly” with the drop in prices and production. “Certainly, in the stock market, the worst performing sector is energy,” he said.

Natural gas is also contributing to a downturn in state personal income tax collections, which are running $37.47 million below estimates for the 2019-20 budget year, as natural gas pipeline construction projects have wrapped up, or are being held up in litigation, he said.

“Last year, we had a whole bunch of construction workers in the field,” Muchow said. “That’s not true now.”

While tax collections in August, September and October leveled off after July collections started off the new budget year with a disappointing $33 million shortfall, Muchow said November tax collections will come up short because of timing issues.

“There are certain months of the year I hate, and one of those months is November,” he said.

That’s because many taxes are due on the last day of the month, and state offices will be closed after Nov. 27 for the Thanksgiving holiday.

Meanwhile, Revenue Secretary Dave Hardy said state officials are continuing to monitor the revenue shortfalls, adding, “There’s no definitive plan on what kind of budget cuts, if any, need to be made.”

In October, Gov. Jim Justice directed state agency heads to identify a total of $100 million of spending cuts they could make if state revenues do not improve, and had previously asked them to build spending cuts into their 2020-21 budget requests.

On a positive note, Muchow said Internet sales tax collections are on pace to reach the estimated maximum collections of $50 million for the 2018-19 budget year.

DHHR chose most expensive firm to handle foster care lawsuit

CHARLESTON — Despite bids from West Virginia firms at less than half the price, the West Virginia Department of Health and Human Resources chose the most expensive law firm to handle the pending foster care lawsuit, according to documents obtained by Del. Brandon Steele, R-Raleigh, after a Freedom of Information Act request.

“While I am still reviewing the documents in detail, I must say that I am astounded at what I have found so far concerning the hourly rates of the firms that responded to the request for proposals in this case,” Steele said in a press release Monday.

Based on established procedures, the DHHR used the bid process through the state Attorney General’s Office to solicit requests for representation in the federal class-action lawsuit alleging the state is neglecting and violating the rights of the nearly 7,000 children in the state custody. The Washington, D.C.-based firm of Brown & Peisch PLLC was selected at an hourly rate of $575.

The firm was chosen because it met all of the criteria listed in the request for proposals, or RFP, including expertise in child welfare systems, Title IV-E of the Social Security Act and federal child welfare law, the DHHR says.

A spokesperson for the department said in a statement the department stands by their decision.

“The track record of Brown & Peisch, PLLC was seriously considered as this firm defended DHHR on another highly complex class action lawsuit and saved the State of West Virginia millions of dollars,” the statement said.

DHHR Deputy Secretary Jeremiah Samples said Monday that he was sure all the other firms that submitted bids were fine law firms, but the lawsuit required highly technical knowledge that Brown & Peisch has. Along with saving the state money in a past class action lawsuit, he said it helped mobilize initiatives the department wanted to do to, like reduce the wait time on the disability waiver.

Steele, an attorney, announced at the beginning of November he wanted to know more about the selection after being shocked by the hourly rate. Thursday he received the documents after filing a Freedom of Information Act request with DHHR.

The state received five bids:

  • Barnes and Thornburg, LLP (offices in Indianapolis, Ind.) $645, $675, $495 per hour from member attorneys; $225 to $395 per hour for paralegal support and associate attorneys.
  • Brown and Peisch, PLLC (Washington, D.C.) $575 per hour.
  • Bailey & Wyant, PLLC (Charleston, W.Va.) $200 per hour.
  • Pullin, Fowler, Flanagan, Brown and Poe, PLLC (Beckley, Charleston, Morgantown, Martinsburg, W.Va.) $225 per hour.
  • Hissam, Forman, Donovan and Ritchie, PLLC (Charleston, W.Va.) $260 per hour.

“Of note to me is not only are the West Virginia firms significantly below the cost of the Brown and Peisch firm, but all three are highly qualified to handle this litigation, several have represented DHHR in the past and achieved favorable resolutions for the state, and all three have significantly larger staffs that are better equipped to handle class action cases within the state of West Virginia,” Steele said.

Steele also said he was concerned by the internal communications turned over in the FOIA request regarding the law firm selection.

“I am severely disappointed in the myopic selection process displayed by the DHHR’s internal communications, which reveal precious little concern for the significant costs this case could present the state at $575 per hour, as well as travel costs associated with utilizing an out of state law firm,” he said. “In fact, it is so myopic that it begs the question of what rational person would spend three times the public funds on out of state representation on a firm that is not even peer rated? Why would the DHHR secretary select this firm at this inflated price when highly rated, highly capable, larger firms are offering to handle the litigation at almost one-third of the cost? The people of the state of West Virginia demand these answers.”

He said the selection also raises eyebrows, considering the recent mid-year budget cut request from the Governor’s Office.

“At a time when we are seeking to reduce our state’s budget by almost 5 percent due to budget shortfalls, Secretary Crouch’s office has demonstrated a considerable lack of budgetary restraint,” Steele said. “This decision could cost our state millions of dollars in unnecessary legal fees paid to beltway insiders with no ties to West Virginia – let alone a West Virginia Law License.”

Steele said he hopes to speak to Attorney General Patrick Morrisey and Gov. Jim Justice soon to encourage them to correct what he said was a clear error, and he will also request more information from DHHR.

Central Park lit once again as a Winter Wonderland

ASHLAND — The switch has been flipped, activating the 2019 Winter Wonderland of Lights Festival in Ashland, which is full of events from now until after the new year.

A project of the Ashland Alliance, Winter Wonderland of Lights is, at its core, a large, free holiday light display in the city’s Central Park. The display will be up from now until Jan. 5, 2020.

Other events include Winter Wonderland Express train rides, which take place from 6-9 p.m. Nov. 22-24, Nov. 29, Dec. 1, Dec. 6-8, 13-15 and 20-22 at Central Park and 22nd Street. Rides are $3 per person.

The annual Christmas parade will step off at 7 p.m. Tuesday, Nov. 26, with a theme of “Candy Cane Christmas.”

Other seasonal festivities include breakfast with Santa on Dec. 7 and evening visits and photos with the Jolly Old Elf at the Central Park Log House.

For the full schedule of events and details about the festival, visit the event page on Facebook or contact the Alliance office at 606-324-5111.