[image_credit]REUTERS/Mark Blinch[/image_credit][image_caption]State tax courts earlier this year ruled the Minnesota Department of Revenue had overvalued Enbridge’s property between 2012 and 2016.[/image_caption]
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.
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.
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.”
“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.”
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.
Well, gosh, this is really a local problem. There is no reason tax payers in outstate MN should pony up for Minneapolis.
Uh, hold on…
State screwed it up state pays
Nope, sorry. Majority Leader Gazelka is on record that the hardy folks in outstate MN are self-reliant, and really, really, really do not want or need interference from the evil government in Saint Paul.
Maybe those self reliant folks should demand their local elected officials hire an auditor to make sure MN Revenue is on the up and up. There is no reason that the Personal Responsibility crowd cannot put on their big boy pants. If their hand selected auditor finds the the pipe line owners will be overpaying, they can put the estimated overage in an escrow account.
Every week I put some money in savings, so that if I need to pay the IRS or MN Revenue when I file my taxes, I’ve got it covered. This is the “kitchen table economics” that conservatives love to tout.
Of course, then the local officials would have to either ask the locals to pony up more, or just head to Saint Paul, hat in hand, looking for an even great subsidy from the State Treasury, which in reality means Metro taxpayers.
Hard-working taxpayers in the metro subsidize those freeloaders in outstate Minnesota enough as it is. When will it end?
Exactly right.
It’s tough to give a hoot after the recent bellowing from Gazelka atop his highchair.
Frank, I appreciate you.
This is problem is so much bigger because Minnesota chose to force localities to rely so much on property taxes. Allowing cities and counties the option to diversify revenue streams beyond property taxes could have helped this be less of a catastrophic burden, although something this scale to these counties and townships will need some aid.
Wait until their big box stores actively begin their “Dark Store” tax appeals.
I love Frank’s point. I’d love for northern outstate Minnesota to self-reflect about their dependence on wealth transfers from the metro counties. Decades living with resource-curse economies seems to instill the behavior of extracting the resource like hitting a money tree, not nurturing it to growth. And the metro counties are outstate Minnesota’s money tree to control and smack around, and if anything cut social services in metro counties for the aid transfer to outstate.
Speaking if wealth tranfers, how much of that taconite/ore money stays in rural country? Somebody is making a lot of money on farming (Cargill, Pillsbury, General Mills, Hormel etc) but it isn’t family farms (and don’t forget the pollution subsidy these corporations do not pay for).
That resource curse money tree is shaking so vigorously it is sure to eventually collapse… But it isn’t rural country where most of that wealth is falling. The supposed subsidies returned to outstate pale in comparison.
Gee, another outstate project that is pushed through with shaky financial assumptions that we are supposed to pay for down here. I couldn’t agree more with Mr. Phelan. The range ALWAYS over promises and underdelivers and their politicians frequently pressure agencies to give them the numbers they need to push through their desired deal, by threats, budget cuts, etc. more local control means more local responsibility. We can arrange a longer term payback plan, but a deal is a deal Mr. Sundin.
What puzzles and disturbs me about this outcome is not just the fact that Enbridge is getting a refund and that these relatively impecunious local governments have to foot the bill for it but the process by which it was achieved. The amount at stake was essentially a rounding error for Enbridge and the State. The Tax Court’s decision which is being appealed here but without any evident issue about this process being raised will be catastrophic for each of these local governments who relied on the taxes paid to support local services.
What I don’t get is why the Commissioner/Department of Revenue was wrong in assessing the taxes against Enbridge in the first place and why the the original valuation was even wrong so that a refund is necessary. In my understanding and experience, the general rule in judicial review of government decisionmaking is that the decisionmaker is entitled to great deference by the judiciary and that it is not overturned except for abuse of discretion or “clear error” in fact finding- both of which carry heavy burdens. And, even where the judiciary overturns a government official’s determination, the usual procedure is to remand to the government decisionmaker to correct its determination in light of judicial review. Enbridge lost twice in the appeals to the Minnesota Supreme Court except on one issue as to how much weight was to be given two or three complex methods of valuation. But the Supreme Court remanded to the Tax Court to make this adjustment. Why this was not remanded to the Commissioner/Department to make this adjustment is nowhere explained. The upshot of this was that it fell to a single judge on the Tax Court who revised these valuations retroactively and evidently came out with different results than the Commissioner based upon a discretionary determination-how much weight was attributable to each of two or three methods of valuation.
There is no reason this matter should not have been sent back to the Commissioner/Department of Revenue to make the final valuation and adjustment if necessary. It should not have been up to a single unelected judge of the Tax Court to “second guess” the Commissioner/Department’s valuation taxation. That judge should have given final presumptive weight to the Commissioner/Department’s exercise of discretion. Maybe the Commissioner/Department of Revenue intends to finesse this issue by attacking the inclusion of 2012 based taxes in the calculation. But if anything needs correcting here, it is by the legislature to prevent the judiciary, including the Tax Court (though part of the executive branch) or the Supreme Court, from overinvolving themselves in the fine legislative function of weighing policy in imposing taxes.
If I understand correctly, the state values the property tax owed by Enbridge, collects the tax, and distributes it among the state and the local units of government in the relevant outstate counties. The court ruled that the state overvalued the Enbridge property, and so the state and local units, over the several years, received about $30M to which they were not entitled.
This is not the circumstance of an unexpected financial obligation resulting from a liquidated liability. Rather, the state and the local units wrongly received revenues in prior years, and now have to return them. Had the local units not received the Enbridge revenues, they would have used other levies to generate the funds needed for their budgets. In the relevant years, then, local taxpayers were undertaxed in the amount of the wrongly levied Enbridge taxes. If the state were to assume the full reimbursement responsibility, it would be a pure metro-area taxpayer subsidy of the local outstate taxpayers.
So there isn’t an argument that the state should assume the reimbursement obligation. The nut of the problem is the unavailability of funds for the local units to repay on the schedule that the court/law may require. As a metro-area taxpayer with an interest in the well-being of my fellow Minnesotans outstate, I wouldn’t object to the state’s financing the reimbursement for the local units over, say, five years at a reasonable rate of interest. But I’d rather not have the outstate hand in my pocket yet again for one more subsidy.
“after Line 3 is in service, tax payments will significantly increase, benefitting the affected counties”
If the state does bail out those counties (and I’m pretty sure they will) they should also put a lien on this anticipated benefit. No reason for Carlton county to get a bail out AND get the increased future tax revenue.
Well, if it weren’t for the State Enbridge would probably have paid no taxes at all. These “local” government’s would no doubt have given Enbridge as free a ride as possible in return for the big boom to their economies. Obviously they spent the money, and as Gauthier points out, when was the last time an Iron Range project actually produced the jobs and the boom they promised? And you can complain about Gazelka if you want (I can get behind that) but last time I checked Tom Bakk was the big king maker from the Iron Range, and HE left the Party because he wasn’t happy with the tax money he was getting from us.
Sure, the State screwed up, but that only happened because the State was trying to deliver critical financial assistance to these towns in the first place. These guys didn’t have the tax base to begin with and Republican wouldn’t let them raise their own local taxes, or otherwise budget the money. One way or the other these guys rely on the metro area for their funding. So these guys better start thinking twice and three times about this rural division thing of theirs because we’re not actually obligated to pay for this crap. If the “market” decides a town dies… the town dies right? I don’t HAVE to care about your town anymore than you care about mine. Next time the metro area want’s to set a little money to pay for security, let’s remember this eh?
I don’t know what is more depressing, the idea that the tax court and our government are servants of a foreign corporation(s), or the fact that so many of these comments reflect a general malice toward outstate Minnesotans, and a basic indifference to the idea that we are a State and can charge this foreign corporation to run a private pipeline through Minnesota WHATEVER WE WANT.
Dependence breeds contempt. Outstate has contempt for the metro because they know they depend upon the metro to pay for things.
The metro has contempt for outstate because they’re sick and tired of paying for it and being rewarded with…contempt.
End the rural subsidies, end the contempt.
And in the history of every empire that has come before, rural lands are plundered of people and resources for the cities, until the resources are no more, the cities are overrun by “barbarians” and the empires fall…
Meanwhile the tax court and the government bow before this foreign corporation, to the silence of most Minnesotans….
What resources are being plundered? Who profits?
Do barbarians just ignore rural areas?
To suggest that we must continue to subsidize outstate lest barbarians overrun us is ludicrous.
Give them what they voted for……less government and less government aid.
And tax the heck out of any resource extraction.
Iron ore. Taconite. Soon likely copper and nickle. Topsoil is mined in such a way as to kill it and send it downstream in the growing of gmo corn, soybeans and potatoes. The forests increasingly treated like GMO corn fields. Aquifers everywhere emptied and polluted. Many blame rural people for this, but they are captive to corporate and private equity expectations. And of course, the “best and brightest” most often remove themselves to the cities to assist knowingly or not in the plunder.
The irony is that the DFL metro legislators are the ones who want to protect the rural environment, while the rural Republicans they elect are just fine with the plunder.
There are not many legislators DFL or Repub who seriously question industrial, corporate defined agriculture, the most egregious example of pollution in the State. But yeah, DFL legislators at least pay lip service to environmental protections, while their Republican counterparts tend to see nature as a thing to turn into profits and waste.
You make several good points.
I am in favor of helping rural areas in ways that increase the health and wealth of all the residents. The problem is that far to many do not wish said help. And contempt
Hmm, Q3 spending has been allocated it seems. Campaign season comes earlier and earlier it seems…
Yes indeed, campaigning for working people, soil, water, pollinators and species generally is for all seasons.
You’ve got it backwards. The metro is heavily subsidizing outstate Minnesota. Which would be fine if the Republican politicians didn’t run solely on contempt for the metro.
Maybe if the profits made by farming, logging and mining mostly stayed where that activity takes place, then there would be little need for subsidy? But most of that profit leaves the place, then a comparative pittance returns as subsidy.
Economics in this country is bankrupted by neoliberal “there is no alternative” ideology, more for the few and less for the many. The liberal of the city as ill-informed as the rural conservative, most of each getting gradually fleeced.
We can end the subsidies but that won’t end the contempt, it will just convert it into a different form of contempt. Outstate MN will resent the wealth and amenities that city folk enjoy if we just end the subsidies. Manipulating the subsidies one way or the other won’t end the contempt.
It’s important to realize that this rural/urban divide is a manufactured hostility, not a natural one. Republicans have manufactured and promoted division, hostility, resentment, and contempt for decades now because they think that “works” for them… it wins them elections. Of course this fundamentally sociopathic behavior but we’re stuck with it.
We CAN remember the fact that we’re all adults here, and we can live in a community and a State wherein we share necessary resources without resentment and contempt. We used to do that before Republicans invented their culture war and attacked everyone. Caring about neighbors and fellow citizens is actually a defining feature of human beings, it’s how we survived as a species, we organize communities and care about them.
The only way to end this contempt… is to stop being resentful, toxic, and hostile. We can actually do that if we recognize the fact that this toxic hostility isn’t a natural feature of our society and political system, it’s manufactured and exploited for political gain.
I’m not sure malice towards rural MN is the issue here, some of us just remember and react to rural behavior. Sure it may be depressing but memory is an essential component of the “glue” that holds society together. The reason you don’t throw hand grenades into your neighbors living room is that they will remember this assault when you need help with your roof. If you expect to treat people with hostility, resentment, and intolerance, and then expect them to forget about all of that when YOU need some help and understanding… you’re probably a sociopath, or at the very least you’re acting like a sociopath.
I can’t say I have any malice towards outstate Minnesotan’s, but after spending decades of my life being concerned about their welfare, economy, safety, and education… when they come back at me with manufactured and toxic accusations of division and judgements regarding my values… I can stop caring so much. That’s not malice, it’s just indifference. Some people around here should understand that once people stop caring about something, it can be really difficult to get them to care again.
Meanwhile as rural and urban people are encouraged to have this animosity toward each other, the tax court, the courts generally, the legislature and our esteemed governor most often do the bidding of corporations and banks foreign and domestic, at the expense of working people, the soil, waters, pollinators and species generally.
Divide and conquer.
I get that you want to call it animosity on both sides. It’s not. Although, I don’t disagree that it’s an intentional distraction to allow others to have their hand in the cookie jar without real scrutiny. Who’s distracted isn’t “both sides” though.
I think that most urbanites would generally ignore the fact that we get back, on average, less than we put in. It benefits the whole state, which ultimately benefits us, so long as we have a say in how it benefits us on a regional basis. The problem is that outstate gets to tell the metro “no” on the things we want and could otherwise pay for if the kitty weren’t divided so unevenly. Like metro transit improvements (that might help preserve the resources you are concerned about).
And better yet, all those things that you say that foreign entities are plundering because we’re all distracted by “animosity”, outstate just wants to give away for the promise of…what? Temporary jobs? A little more money? The metro is already giving outstate more money and we already get little say over our natural resources as a state because outstate needs whatever it is that plundering our natural resources will bring.
Many of us metropolitans would even be sympathetic to the idea that outstate might need more money if it weren’t for the fact that many of the outstate folks will, without hesitation, point at any money used to subsidize metro income/wealth gaps as undeserved boondoggles, but embrace the absolute same thing for outstate income/wealth gaps as perfectly fine. Adults are supposed to grow out of the “don’t judge me (while I do selfish and foolish things)” phase, but collectively (not without exception, though), outstate isn’t. Judgement isn’t malice or animosity, it’s what happens when you do things in front of other people. Fortunately, some of use can walk and chew gum at the same time. We are just outvoted by the “don’t judge me” crowd.
As I have said elsewhere, the plunder is dictated by the likes of Cargill, Pillsbury, General Mills, Hormel, Bayer, Enbridge and perhaps soon Antagofasta and Glencore. What is their and their shareholders take compared to small farms, farm workers and miners and local government aid? What do they pay for the pollution they create? The habitat they destroy? Who seriously on either side questions it? It seems to me it is taken for granted that this is progress, left and right. While most people’s complaints are directed at each other.
Department of Revenue made the mistake, shocking, so the State is on the hook. I see gas prices rising, America is drilling less and we are buying oil from Iran again for the first time in years, a pipeline carrying North American oil would help. Only folks who have never dealt with State red tape and regulations would say to put the costs back on Enbridge. Ineptitude from Government employees should not fall back on private businesses.
Yes, Trump absolutely made this country weaker. It will tale a long time to fix the damage he did.
Went from exporting oil and gas under President Trump to importing oil and gas under Biden. Which one makes us stronger?
Putting aside the falsity of the claim, obviously Trump made us weaker by simply focusing on fossil fuel production while the rest of the world is moving away from fossil fuels. Trump put us even further behind the rest of the world.
Again, it will take a long time for this country to recover from the damage Trump did. But when you elect a guy who has been a loser and a failure his whole life, that’s what you get. I actually didn’t expect Trump to be a traitor and terrorist supporter, but we got that too.
Facts being mostly absent in this political conversation. We are importing more than we did during Trump’s presidency because Fracking, the only reason we are/were the leading global producer, has never been profitable, a ponzi scheme basically, collapsed finally because of the pandemic, which evidently left and right are oblivious about.
As for the rest of the world leaving fossil fuels behind, that simply isn’t true. Global consumption of fossil fuels shows no sign of meaningful decline, aside from a pandemic loss of demand blip. Fact is, the only decline in fossil fuel consumption that will happen will be supply, on this finite planet in this no-limts global consumer economy.
I am well aware of those facts. And the world is a long way from being free from fossil fuels. But a lot of places are making progress toward that goal. But under Trump, the U.S. went backwards. That’s how miserable failure Trump made us weaker.
Well, if we are being factual, the Law of Diminishing Returns on Investment particularly as it relates to energy, suggests that Techno/Industrial society is well on it’s way to going backwards, it just isn’t obvious to everybody yet, and most will deny it until they can’t.
If we are stronger under Biden why are gas prices going up and why are we importing oil from Iran?