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Northern Minnesota counties could be on the hook for millions after state’s latest move in Enbridge property tax saga

Officials say the only thing that could keep some local governments in the 13 affected counties out of bankruptcy is the Legislature. 

An Enbridge high pressure oil pipeline sign standing near Kinosis, Alberta, Canada.
REUTERS/Mark Blinch
State tax courts earlier this year ruled the Minnesota Department of Revenue had overvalued Enbridge’s property between 2012 and 2016.
A group of northern Minnesota counties, cities, towns and school districts are now on the hook for a massive bill from Enbridge Energy after a long-running court saga over the oil and gas company’s property taxes was largely resolved this week.

State tax courts earlier this year ruled the Minnesota Department of Revenue had overvalued Enbridge’s property between 2012 and 2016, and the state on Wednesday appealed only the ruling for 2012 to the Minnesota Supreme Court.

The bill for all five years is likely more than $30 million, according to preliminary estimates made in April by DOR. While that’s not an enormous sum for the state to handle, local governments, at least for now, have to pick up most of the tab, even though DOR was responsible for the problem.

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Matt Hilgart, government relations manager for the Association of Minnesota Counties, said some counties may be able to raise taxes enough to cover the costs, even though doing so would bring a huge bill to areas that are largely poor. But “many others are just not in a position to make that up through a levy,” Hilgart said.

“It’s literally impossible,” he said. “There’s certain townships where the pay back is 200 or 300 percent more than their annual levy. What do you do there?”

County officials say the only thing standing between bankruptcy for some towns and huge financial pain for other local governments now is the Legislature. Some lawmakers are scrambling to make the state pay for the entire property tax refund.

Tax refund could be massive financial burden

The first major ruling in the case came in 2018, when Enbridge won a judgment reducing taxes from 2012 through 2014. In 2019, the company, which runs pipelines through a northern Minnesota corridor, prevailed on a case over their 2015 and 2016 taxes, too.

The cases have bounced between the state Supreme Court and the Tax Court for years. But most of the Tax Court’s latest rulings, made earlier this year, will stand. The Department of Revenue is appealing the ruling for 2012, arguing Enbridge failed to appeal a DOR decision within a required 60-day window. But it’s not appealing for years 2013-2016, according to agency spokesman Shane Delaney. Enbridge does not plan to appeal any of the rulings.

In April, DOR estimated the final bill, not including interest, from 2012-2016 is about $30.3 million. The state’s share of that is about $10.9 million. Even though Revenue made the assessments, local governments receive a large share of the taxes, and so they must pay back the rest of Enbridge’s refund. Delaney said the state doesn’t have final numbers and it doesn’t know how much the bill is for just 2012.

With interest, Kyle Holmes, the Carlton County Assessor, said Thursday their expected bill including 2012 is $3.1 million (including the state’s portion). That’s worth about 10 percent of the county’s annual levy. He said he didn’t know how much just the 2012 portion of the county’s bill was worth. It was reduced by a lower amount than other years, but has also collected more interest.

By mid-July we’re going to owe money,” Holmes said.

Holmes said the county has already had to pay refunds or other costs in eight similar tax utility cases worth about $1 million over the last few years and said the Enbridge bill would make their reserves perilously low.

The county has to build a new jail because its current one is being closed by the Department of Corrections, a project that would be the largest in county history but is “quite literally hanging by a thread now” because of the ruling and because the ongoing Enbridge tax case is threatening the county’s credit rating.

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Holmes said Silver Brook Township has a roughly $98,000 annual operating levy, and its portion of the Enbridge refund is about $164,000.

“What are they going to do, raise taxes 164 percent?” Holmes said. “We’ve got townships talking about going bankrupt.”

In all, 13 counties are affected by the ruling: Aitkin, Beltrami, Carlton, Cass, Clearwater, Hubbard, Itasca, Kittson, Marshall, Pennington, Polk, Red Lake, and St. Louis. Hilgart noted many have limited tax bases because of a lack of businesses and a wealth of public land that isn’t taxed. They also tend to have higher health and human services costs.

The Star Tribune in March reported that, after the Tax Court rulings, Red Lake and Clearwater Counties could also have to pay back more than their annual tax levies.

Should Enbridge forgive the costs?

Some are frustrated with Enbridge for pursuing the refunds from small governments that have largely backed the company’s controversial new Line 3 pipeline project. Holmes said he knows the Fortune 500 company answers to stockholders and won’t likely walk away from the cash, but he said Carlton County has “supported all their pipelines.”

“Ultimately, $30 million to them is a drop in the bucket,” he said.

State Rep. Mike Sundin, a DFLer from Esko in Carlton County, said “regardless of whose fault it is, the only people who can afford to fight battles like this are the ultra wealthy corporations that can manipulate the government system to their benefit.”

Hilgart, from the Association of Minnesota Counties, said he believes Enbridge could just not collect the tax refund, or at least agree to forgive the interest. Holmes said the company has talked before about not wanting to burden the local governments, but so far hasn’t made any concrete moves to do so.

Asked Wednesday if Enbridge has considered not collecting the money from local governments, Mike Fernandez, Enbridge’s Senior Vice President, said “that’s not even our right or authority.”

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“It all rests with the state,” Fernandez said. “If there’s an awkward situation here, that’s it. If it were just us having to negotiate with the communities it might be a different ball of wax.

“The other element though is the tax rules are what they are and they’re going to have to be refined in order to meet the measure of what’s now required given this court ruling.”

On Friday, after the DOR appeal decision was made public, Enbridge spokeswoman Juli Kellner said the state was wrongly relying on a formula to calculate its taxes and not proper evidence. Revenue did not comment on the merits of the case Friday or give its reasoning for not appealing much of the Tax Court orders. Enbridge is committed to working with counties to ensure undue hardship does not result from these proceedings,” Kellner said. “We have provided counties with regular updates about the progress of the tax cases and will continue to work with them moving forward.

In a follow-up email, Kellner said the company is willing to work with counties to create a plan that does not involve immediate repayment. She also noted that after Line 3 is in service, tax payments will significantly increase, benefitting the affected counties.

Lawmakers want state to pick up the tab

Sen. Paul Utke, R-Park Rapids, meanwhile, said he blames DOR, not Enbridge. “They’ve got to do their job correctly,” Utke said.

Both he and Sundin introduced legislation this year to make the state pay for the refunds. Neither the DFL-led House or the majority-Republican Senate included any measures to pay for the full property tax bill in their most recent budget proposals, but the two northern Minnesota lawmakers said they’re working to have legislation in the two-year budget still under negotiation.

Top legislative leaders and Gov. Tim Walz struck a partial budget deal in mid-May that broadly set spending levels for state government. But much of the details of that spending, and of other state policy, are still being debated behind closed doors. The regular session adjourned May 17, though lawmakers are expected back in a special session in mid June.

The Senate had a hearing on the Enbridge tax issue in early May, when lawmakers didn’t know if DOR would appeal the case and delay the refund bill.

Utke said there is a lot of support for his legislation within Republican leadership. Before the DOR decision on appeals was made public, Utke said of a bill to make the state pay the entire refund: “for the protection of our local governments I feel we need that now.”

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He noted while the current case involves 13 counties, it’s a widely held belief other utilities across the state are likely to challenge their taxes as well because of the outcome.

Sundin said he was planning to talk more with House DFL leaders about the issue, and said there is “fierce competition for attention” from the Taxes committee. Despite his frustration with Enbridge, Sundin said “we have to make it right” by having the state pick up the tab.

“I’m insistent that this needs to happen,” he said.