With the Minnesota Supreme Court set to rule on the Enbridge tax settlement later in May, Carlton County officials are working to minimize the tax impact the settlement could have on local property owners.
Carlton County Assessor Kyle Holmes told county commissioners during their committee of the whole meeting Tuesday, May 4, he expects a decision setting how much counties will have to repay the energy company in the next few weeks.
The case began after Enbridge appealed its state-assessed property tax valuation by the Minnesota Department of Revenue (DOR) from 2012-18 to the Minnesota Tax Court. The court ruled in favor of Enbridge for the years 2012-16, while the case involving 2017 and 2018 is still making its way through the courts.
The Revenue Department is responsible for assessing the value of utility companies like Enbridge in Minnesota. The Tax Court ruled the department overvalued Enbridge’s pipelines in all five years.
The Supreme Court is expected to settle exactly how much Enbridge’s assets in Minnesota were overvalued. Holmes said there will be 30 days to appeal after the decision is released, but neither side is expected to do so.
If that is the case, counties and jurisdictions that have Enbridge’s pipelines running through them could have to issue massive refunds to the company by early July, Holmes said.
In Carlton County, Holmes estimates Enbridge overpaid by nearly $2.4 million. When adding in the $675,000 interest to those overpayments, the total comes to more than $3 million, of which Carlton County would owe approximately 47%.
The Carlton, Cloquet and Wrenshall school districts could owe a combined $450,000, including interest, and some townships, like Silver Brook, Perch Lake and Twin Lakes, could owe amounts that could be significantly more than their 2021 levies.
Holmes testified before the Minnesota Senate Subcommittee on Property Taxes on Thursday, May 6, supporting a bill that would put the burden of issuing the refunds solely on the state.
Holmes noted the county has already issued more than $1 million in refunds to eight utility and railroad companies that appealed their valuations, but the size of the looming Enbridge settlement is a different matter.
“In tight fiscal environments, the paybacks we have made thus far have stung,” Holmes said, “But the ones we are facing in the near future are sure to be disastrous and we look to you as leaders of this great state for solutions.”
Four of the top five taxpayers in Carlton County are public utilities, with Enbridge being “by far” the largest, according to Holmes. These companies do not increase revenue for local taxing districts. Their payments lower the tax burden for other individuals and businesses.
Holmes said the looming refunds are hampering the county’s ability to address other needs and move forward with important projects, including its planned jail project that could cost as much as $70 million — the largest single building investment in the history of Carlton County.
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“These potential paybacks are crippling us from being able to conduct business in the interest of our taxpayers as we need to,” Holmes said. “Like everyone, we have other issues and building needs that need our attention, but due to these potential obligations, everything from our bond rating to our reserves are beholden to these cases and their resolutions.”
Silver Brook Township Board Chair Duane Laveau, who said his township’s portion of the refund will far exceed its annual budget of approximately $100,000, laid blame for the settlement on the Revenue Department.
“We run a tight ship and operate with no excess in the general fund to pay this back,” Laveau said. “We’re not the ones who created this problem; the state created this by overtaxing.”
Likewise, in written testimony submitted on behalf of the Carlton County Board of Commissioners, Chair Tom Proulx implored the state to intervene.
“Minnesota counties and all their subsidiary jurisdictions play no role in establishing (Revenue Department) certified values, yet they are obligated to rely on these values when assessing and collecting property taxes,” Proulx wrote. “Your leadership … is necessary now more than ever to help reduce the serious hardships these court decisions will have in the provision of essential services to all taxpayers at the local level.”
Schools disproportionately affected
While the estimates of what school districts may owe were much less than counties, taxpayers in those districts have already seen higher taxes because of the Revenue Department’s valuation, according to Tiffany Gustin, associate director of the Minnesota School Board Association.
Gustin said the values provided by the Revenue Department for pipeline infrastructure and other utilities are included in school calculations that estimated wealth per student in a district.
“Based on that calculation, the state provides equalization aid, which reduces the levy, resulting in property tax relief,” Gustin said. “Because these inflated values were used to calculate the property wealth-made entitlements by each of the school districts, they received less equalization aid. So the end result? State aid was lost, which resulted in higher property taxes for each taxpayer in the school district in each of the affected years.”
Gustin singled out the Carlton School District as being particularly affected. With a pumping station located in the district, it could owe up to $280,000 including interest, Gustin said. The amount represents an 18% increase to its overall levy, based on the amount set for 2021 and 40% increase without the district’s debt service obligations.
“Without a solution, taxpayers and these school districts, cities, townships and counties will pay millions — in fact, tens of millions — of dollars, creating a financial burden to address a problem they had no part in creating,” Gustin said.
She said equalization aid will increase for school districts going forward, but will come “nowhere close” to Carlton’s liability in the Enbridge settlement.
Bill has bipartisan support
During the county board meeting, Holmes expressed optimism that the message has reached members of the Minnesota Legislature and that bipartisan support is building.
The Enbridge settlement isn’t simply a Carlton County problem or even a problem for the 13 counties involved in the case — it affects taxpayers across the state.
“This isn’t a Democrat or Republican issue; this isn’t a metro or an out-state issue. These cases are going to touch all corners of the state and taxpayers,” Holmes said. “We do have large buy-in now of senators and House members that believe the state should pick this up and pay for it. Whether we can get this home and get them to pay for it, that’s another story, but at least we’re sitting in a position where the state has a reserve.”