Editor's note: Earlier this month we asked readers to suggest topics for the Editorial Board to research and write about. We received more than 60 suggestions, and more than 1,600 votes were cast when we asked readers to pick a favorite. Thanks to Spencer Borchardt, of St. Paul, who asked: “How will Enbridge Energy’s appeal to reduce the taxes they pay to counties in which they have pipelines affect citizens of those counties?”
As part of a new reader-engagement project, earlier this month we asked readers what question or topic they’d like the Star Tribune Editorial Board to explore. When the votes were tallied, a question on the property tax dispute between Enbridge Energy, a Canada-based energy company, and 13 counties in Minnesota rose to the top.
We soon learned why. Enbridge, which pumps 2.8 million barrels of crude oil a day through its Minnesota pipelines, is embroiled in a yearslong dispute with the state over the way it values that property. And what emerges from the dispute could ripple far beyond the pipeline counties.
First, a little background. Unlike other properties they assess, counties must use state valuation guidelines for pipelines, utilities and railroads. But if the assessment is successfully challenged, counties are mostly on the hook for repayment, along with their school districts, cities and townships that benefited from the tax revenue. “State agencies create the valuation method, but they’re not responsible for the amount,” said Warren Strandell, a commissioner in Polk County, one of those affected.
This has created a potentially devastating conundrum for the 13 counties carrying transmission lines. Enbridge contends that its property taxes spiked 24 percent in 2012 — far above what it had anticipated based on previous assessments. Mediation talks broke down in March, and the matter now heads to Minnesota Tax Court on Oct. 3. The grand total for all the assessments in dispute, including those not yet included in the tax court case, is $50 million, according to Enbridge spokeswoman Jennifer Smith.
House Taxes Chairman Greg Davids and Rep. Pat Garofalo, who chairs a House energy committee, both are concerned that a judgment that favors Enbridge could prove devastating to counties. Clearwater County alone might have to refund as much as $7.2 million in back property taxes — more than its $6.8 million of total yearly property tax collections.
A proposed bill at the Legislature would have the state pick up the tab. Whether a majority of legislators will support that is unknown, and there is reason for caution, given that it could set a costly precedent for future disputes. Smith said Enbridge is prepared to work with counties on extended repayment plans, should it come to that. One possible avenue might be greater revenue from planned upgrades to Enbridge’s Line 3, now operating at about half its capacity. But those efforts are controversial and have drawn protests from environmentalists.
There is an even more important reason to pay attention to this seemingly dry tax dispute between an energy giant and the counties that carry the oil and gas on which Minnesotans depend. Other companies may be watching, preparing challenges of their own. “We know these large infrastructure property holders are watching this case,” said Julie Ring, of the Association of Minnesota Counties. Enbridge’s own dispute comes on the heels of a similar case involving Minnesota Energy Resources Corp., which resulted in a state Supreme Court decision that Enbridge believes bolstered its case.
The ultimate outcome is unknown. But the state Department of Revenue, which declined an interview with an editorial writer, would be well-advised to carefully examine its valuation practices and be prepared to justify — publicly — whatever methodology it uses. County commissioners and administrators, along with lawmakers and others interviewed, all expressed frustration at their inability to get straight answers.
“They don’t tell us anything,” said Charles Whiting, administrator for Polk County. “As a matter of public policy, it’s a bad system. We go through our budgets carefully. We set preliminary levies, tell the public. What do we go through all that for if someone else is making a decision about what we base our budgets on?”
Even when embroiled in litigation, state officials must be as transparent as possible about the details of how they arrive at their taxing decisions. Given their potential liability, the counties, legislators and taxpayers who may yet be called on to step up deserve to know how these taxes are being levied.
It also may be time to consider more authority for the counties that bear the ultimate responsibility for the pipelines that run through their land. “County boards generally favor pipelines over rail transport of oil because there are fewer accidents,” Whiting said. But if counties have to accept responsibility for years of refunds on taxes they cannot control, he said, “Hey, there might not be too many counties as willing to accept pipelines in the future.”