Tax paybacks continue to sting across the county

They are Carlton County’s number crunchers. No-nonsense. Often unheralded if even noticed. Cogs in the government machine.

So when something has assessor Kyle Holmes and auditor Paul Gassert spooked, it’s a big deal.

The 300-pound gorilla both men are facing, as are all taxpayers in the county, is the repayment to utility companies for years they were deemed as overtaxed on their properties. Notably, Enbridge Energy, which has a huge footprint in the county as its pipeline network skims across the northern townships on the way to Superior.

Millions of dollars are at stake across the state, and those who took in the taxes — cities, counties, townships and school districts — are all on the hook for repayment. Which ultimately means taxpayers will pay the price.

Holmes said townships in the county that are heavily dependent on the taxes Enbridge pays on pipelines that cross border to border could face bankruptcy, if that is even an option. Taxpayers could see property taxes triple.

“This is the largest issue facing taxpayers in my lifetime,” said Holmes, a county native.

Gassert has similar dire notions.

“We have people now who can’t afford their property taxes,” he said.

A big fix

How we got here is a long and complicated story hinging on how the state values utilities. Judges have ruled that the state has erred in how it treats pieces of utilities as they cross over jurisdictions. Court rulings have sided with utilities in cases going back 10 years.

Utility companies are piggybacking on a ruling finalized earlier this year in state tax court and the Supreme Court saying that Minnesota Energy Resources Corporation’s (MERC) natural gas pipeline system for the years 2008 through 2012 was overtaxed.

For assessors and auditors across the state, the MERC decision has led to a gold rush of utility companies demanding paybacks. Holmes calls it the “worst-case scenario” playing out.

Enbridge is awaiting a decision on state tax court findings through the Supreme Court, which heard oral arguments in early November. Enbridge has two sets of three-year periods — 2012-2014 and 2015-2017 — it is disputing. The court ruled in its favor on the earlier period in May, a decision the state then appealed. Holmes said it is likely the tax court ruling will be upheld. The court has not yet ruled on the 2015-2017 case.

The state tax court ruled in May that Enbridge pipelines were overvalued by $3.2 billion from 2012 to 2014. It meant that the company was overtaxed by $15 million to $20 million in that same period.

Enbridge is the top taxpayer in the county and Gassert has calculated the impact of the first Enbridge ruling at about $750,000. The impact in three townships alone is about $115,000 total: 40 percent in Silver Brook, 20 percent in Twin Lakes and 30 percent in Perch Lake. These townships rely on Enbridge taxes for their budgets, more than half in Silver Brook.

School districts are also responsible for $275,000 in payback to Enbridge.

Gassert said that Enbridge paid more than $4.7 million in taxes in Carlton County in 2016. It compares to Minnesota Power at $3.13 million and Northern Natural Gas at $1.14 million. Sappi in Cloquet paid about $2.37 million in 2016.

Enbridge is largest pipeline operator in North America with six pipelines that move about 2.5 million barrels of oil per day from Canada to its terminal in Superior.

Holmes said about half of the utility cases affecting Carlton County have been decided and paid out through the multilayered property tax system. Some of that may go unnoticed but Enbridge won’t, he said.

“We are beginning to see that this is going to be a very significant problem that could cost the taxpayers of Carlton County significantly in the near future,” Holmes wrote in an update on the tax crisis in November. “As I have feared, our worst-case scenario on these cases is starting to come true.”

Impacts go deep

Holmes pointed out the insidious nature of the payments. While Carlton County could cover the Enbridge costs by tapping its reserve budget, that could cause a downgrade in the county’s bond rating. That would mean less-favorable terms when borrowing money for projects like the proposed new county jail.

The looming paybacks are also affecting the Wrenshall school district, which has seen two increased levy votes fail in the past year. Taxpayers are in no mood to voluntarily increase their burden.

“It’s been difficult,” Wrenshall Superintendent Kimberly Belcastro said. She said the district has been “hostage” to the tax increases. The district is meeting with Enbridge representatives soon. Becastro said she wasn’t sure what the company will discuss.

In May, Enbridge released a statement saying it “recognizes counties are caught in the middle of this state-initiated tax dispute. We do not want to cause any hardship on them and are committed to work with each county if needed at the appropriate time.”

Who is responsible?

Rep. Mike Sundin proposed a bill in the last legislative session calling on the state to remedy the problem it caused. The bill didn’t go far, Sundin said. He will bring it up again next session.

The bill “allows a taxpayer to collect a refund directly from the commissioner of revenue, if the property subject to the reduced valuation determined by the court was assessed by the state (utilities and railroads). This bill also appropriates an amount sufficient to pay the refunds from the state general fund.”

Sundin said that metro-rural gap of understanding may have played a part. Counties are “staring at the barrel of a gun,” he said, and “there’s no apologies that will make things right.”

Holmes said there is a slippery slope to consider with the notion that the state simply fix its problem by dipping into the budget. It would have to apply funds to every county, an amount it simply can’t cover. “You can’t pick winners and losers,” he said.

Holmes said that despite the huge headache, he finds no fault in the taxpaying companies. If they were overtaxed, they deserve paybacks, he said.

“Enbridge is just like a regular taxpayer,” he said. “I’m mad at the state of Minnesota.”

Advocacy groups supporting assessors, auditors and state counties are all working on a statewide fix.

For silver linings, Holmes said the impact on Carlton County is “medium” compared to other pipeline counties with lower populations and less diversity in business property tax bases.

“We’re lucky to have Enbridge,” he said. “There have been benefits over the years.”

Gassert said he wishes he could fast-forward a year in order to provide clearer answers to the question he gets all the time these days: “What’s my impact?”

Your voice

The issue of utility property tax overvaluations isn’t going away any time soon in Carlton County. The Pine Knot News plans to keep you informed with continuing stories on the problem.

Do you have a story to tell when it comes to the impact on your tax bill? Let us know and we will tell the story and find perspectives. Email [email protected] or call (218) 878-9332.