Just three bankruptcies of American coal companies have added more than $800 million in costs to a federal government program that funds health care for disabled coal miners, the Government Accountability said in a report released Wednesday.
The report comes after a 2018 analysis by the same agency which found the Black Lung Disability Trust Fund faced significant financial challenges, and had borrowed taxpayer money to cover necessary expenses nearly every year since 1979. This new research shows that coal company bankruptcies have been a significant factor contributing to the fund’s financial debt, and lax oversight from the Department of Labor is partly to blame.
The report is “completely consistent with the strategy coal companies have used to evade pension, retirement, and environmental obligations,” said Josh Macey, a Cornell University visiting Assistant Professor and researcher of coal bankruptcies.
The Black Lung Disability Trust Fund provides monthly benefits and health care coverage for disabled miners whose own employer cannot cover the cost. Coal companies pay into the fund via a per-ton tax on coal. A coal company’s liability to the trust fund is the total cost of care for the lifetime of each miner disabled by black lung due to work in the company’s mine. If a company doesn’t have enough insurance or hasn’t put up enough collateral to cover those liabilities when it goes bankrupt, the cost of care falls on the trust fund.
Of the eight companies that declared bankruptcy between 2014 and 2016, three companies, Alpha Natural Resources, James River Coal, and Patriot Coal transferred $865 million in liability onto the fund. Alpha Natural Resources alone transferred $494 million in benefit liability onto the fund, making it the largest contributor to the problem.
“The GAO’s report details a decades-long failure by the Department of Labor to fulfill its duty to protect the solvency of Black Lung Disability Trust Fund,” said Rep. Bobby Scott, a Democrat of Virginia. Scott chairs the House Committee on Education and Labor, which conducted a hearing on the matter Wednesday. “The Department’s lax oversight allowed coal mine executives to shift the cost of paying black lung benefits onto the shoulders of the taxpayers to the tune of nearly a billion dollars, while those same coal executives rewarded themselves with tens of millions of dollars in salaries and bonuses.”
The companies that transferred liability onto the fund were self-insured, which means that instead of purchasing insurance, the company posted a small amount of collateral and promised it was good for the rest. The practice is falling out of fashion at the state and federal level as coal company bankruptcies reveal many self-insured companies cannot meet their obligations.
In the case of Alpha Natural Resources, for example, the GAO found that the company had posted collateral of $12 million at the time of the company’s bankruptcy, which was just 2.4 percent of the company’s total liability.
The GAO hammered the Department of Labor for its “limited oversight” of how or whether companies were sufficiently insured, even after July 2019 updates to agency policy. In addition to an incomplete review process, the GAO found that companies were still underfunding their liabilities.
“Once the coal industry really started to struggle, regulators found themselves in a hard position,” Macey said. “They had faced pressure not to force companies to fully fund all sorts of regulatory obligations. And then once the industry is in financial distress, they have an extremely difficult choice to make. Because if they force the company to pay out, they [the companies] face the prospect of liquidation.”
The Department of Labor has taken steps to strengthen its oversight, the GAO said, including requiring companies to post more collateral depending on their risk of collapse. But significant lapses in oversight remain: The DOL also failed to track whether or not coal operators had commercial insurance. “We found six operators (parent or subsidiary) that were not insured for the entire 3 year period from 2016 through 2018, according to our review of DOL data,” the GAO said in the report. “When we discussed our findings with DOL, agency officials had to research each operator individually and in some cases contact the operator or their insurer to find out whether or not they had been covered.”
In response to the allegations in the report, Labor officials said it agreed that further action was necessary. The Office of Workers’ Compensation Programs, which oversees the trust fund, “agrees with the GAO on the importance of improving oversight of coal mine operator insurance, and, as GAO acknowledges, has made major oversight improvements in recent years. OWCP… is committed to ensuring effective oversight of coal mine operator insurance.”
Coal companies have long argued the per-ton tax they pay into the fund has been an undue burden, especially as the demand for coal declines. In 2018, Congress cut the fee by more than half. As a result, there was significantly less revenue going into the fund, even as thousands more miners’ liabilities are being transferred onto it. The GAO warned that would push the fund billions of dollars further into debt. At the end of 2019, Congress restored the old tax rate, but only for one year, leaving the fund’s long-term fiscal future in question. That risk is compounded by the growing number of black lung cases amid an epidemic of the disease in central Appalachia.
Bills pending in both the House and the Senate would raise the per-ton rate companies pay into the trust fund for the next 10 years.
The GAO said the fund has borrowed from the Treasury’s tax-payer funded general fund to make its expenses nearly every year since 1979, and borrowed about $1.9 billion from the general fund in 2019.
Rebecca Shelton, Coordinator of Policy and Organizing at the Appalachian Citizens’ Law Center, which represents coal miners in black lung benefits cases, noted that major coal companies Arch and Peabody did not directly shed liability onto the fund. But, the spokesperson noted, “Patriot Coal was a company made up of troubled assets from these two companies. Black lung liabilities from Arch and Peabody were transferred to Patriot which, as many predicted, subsequently went bankrupt.
The GAO report shows that Patriot shed $230 million onto the trust fund while Arch and Peabody continue to operate. “Congress should act to change the code that governs bankruptcy processes so that bankruptcy protects people, not coal company executives,” Shelton said.
Law professor Macey said the behavior fits a larger pattern in the coal industry. In a 2019 article in the Stanford Law Review, Macey argued coal companies masterfully use the bankruptcy process to spin off debts onto new companies loaded with poorly performing assets, increasing the likelihood that the environmental and employee-health obligations never get paid. “We allow coal companies to basically invoke bankruptcy as a way to externalize regulatory obligations,” Macey said.
“OWCP is wide awake,” said Julia Hearthway, the director of the Labor Department’s Office of Workers’ Compensation Programs, which administers the trust fund. “The self-insurance approval process for coal mine operators has been completely revamped. The process today is robust, it’s financially sound, and it’s designed to protect the trust fund. I also want to stress at the outset that no miner is at risk for not receiving the benefits they deserve.”
Alice Hayes is the widow of a coal miner, Douglas Hayes, whose black lung disease made him too sick to work at the age of 43. Hayes has been receiving Douglas’ monthly check from the trust fund, about $650, since his death last October. “I think it’s bizarre that there is not something in place to oversee that that money is going in there for the purpose of the miners,” she said.
Hayes said the cost of her husband’s month-long hospital stays and at-home care could run into the hundreds of thousands of dollars, and the trust fund helped her cover those costs. “When you’re sick, the last thing you want to do is be jerked around and have to fight for something that you shouldn’t have to be fighting for.”