Minnesota officials have settled a long-running tax case with Enbridge Energy, agreeing to pay the oil and gas company more than $45 million for overvaluing pipeline property after losing in state court.
In conjunction with the deal, state lawmakers approved almost $30 million on Wednesday to cover the share owed by local governments along the pipeline routes. Even though the Department of Revenue had made faulty evaluations, the refund bill threatened to blow a hole in the budget of 13 counties, plus numerous cities, towns and school boards if the Legislature hadn’t picked up the tab.
The bailout money surfaced on Sunday in last-minute negotiations between the Republican-led Senate and House-majority Democrats. Lawmakers will also direct the Revenue commissioner to review how the agency values utility and pipeline property in the wake of the tax cases.
Kyle Holmes, the Carlton County assessor, said the settlement and state cash “should be a win for all the local communities,” as well as Enbridge. His county is slated to get $2.57 million paid from the Legislature under the plan.
Deals cut to settle litigation, help counties pay refund
In 2018, Enbridge won its first major judgment against the state in Minnesota Tax Court, leading to a reduction in taxes on a corridor of pipelines in northern Minnesota from 2012 through 2014. Then, in 2019, Enbridge also won a case tied to the company’s 2015 and 2016 taxes.
Those cases bounced around courts for several years, but the state decided in May to appeal only a Tax Court ruling on the 2012 case to the Minnesota Supreme Court. That meant a property tax refund was due on four of the five years in question.
The bill for all five years, not including interest, was estimated to be more than $30 million in April. The state was on the hook for some of that refund, yet the bulk of the payback was set to fall on local governments along the pipeline route because those governments receive a large share of the taxes.
County officials said such a cost would force some towns into bankruptcy and cause huge financial damage to other local governments. Holmes said earlier this year a plan to build a new jail in Carlton County required by the Department of Corrections was “hanging by a thread” because of the Enbridge ruling. The potential refund owed by Carlton County for 2012-2016, including the state’s portion, was worth about 10 percent of the county’s annual levy, Holmes said.
Enbridge and Revenue said Wednesday they negotiated a settlement on the tax issue for 2012 through 2016, as well as two more years in 2017 and 2018 in which litigation was still pending. Enbridge Spokeswoman Juli Kellner said the settlement was nearly $47 million. Revenue officials pegged the state’s share at $15.8 million including interest, which would mean the total, including the local government portion, would be a little more than $45 million.
The state agreed to drop its appeal of the 2012 case as part of the agreement, and Kellner said the company made concessions on taxes in 2017 and 2018 and forgave interest in those two years. Holmes said had Enbridge pursued a judgment in court for those two years, it likely would have won a larger refund.
“We are pleased to have come to an equitable conclusion to this issue,” Kellner said.
Lawmakers from northern Minnesota, who have long pushed for the state to shield counties from paying any price for Revenue’s valuations, scrambled to insert money for local governments in the final budget deal.
The cash wasn’t in an initial agreement released by lawmakers. But by Sunday, it was amended onto a taxes bill before a final vote by the House and Senate early Thursday morning.
Sen. Paul Utke, a Republican from Park Rapids who sponsored legislation this year for the state to pay the local government share of the Tax Court bill, said the issue “was just something we couldn’t let lay till next year.”
“We needed to protect our small government units,” he said.
Rep. Mike Sundin, a DFLer from Esko who pushed the issue in the House, explained the last-second agreement this way: “Sometimes I don’t know what kind of magic goes on behind the doors but we’ve been pushing hard.”
The state approved $29.3 million for local governments’ share of the tax refunds. Itasca County will receive the biggest share, at nearly $5.6 million. The small Clearwater County, which faced a refund bill potentially bigger than its annual tax levy and is particularly reliant on Enbridge taxes because of a terminal in the county, will receive $3.69 million.
Lawmakers won’t have to approve extra money for the state’s share of the settlement, said Sen. Bill Weber, a Luverne Republican who chairs the Senate’s Subcommittee on Property Taxes and helped broker the legislative deal. Counties will instead collect taxes in the future as usual but hang onto enough of the cash to make them whole instead of remitting the state’s full share of money, Weber said.
Tax valuations an ongoing issue
Holmes, the Carlton County assessor, said the deal was a “big win,” especially since the county has been forced to pay back money tied to several other smaller utility tax cases where the state was found to have overvalued property.
The tax case frustrated some government officials in northern Minnesota who thought Enbridge shouldn’t penalize counties and cities that had supported the company’s push to build the controversial Line 3 oil pipeline.
In a statement, Kellner, the Enbridge spokeswoman, said that “from the beginning we have acknowledged that counties were caught in the middle on this tax issue, and have been committed to working with them to ensure undue hardship does not result.”
“We are pleased with this resolution of the 2012-2018 property tax issues, and to see legislation passed early this morning allowing the state to pay the county, township and school district portions of money owed to Enbridge as a result of the Tax Court’s decisions,” Kellner said. “Once the replaced Line 3 comes online Enbridge will pay an additional $35 million in taxes in the first year of operation.”
Ryan Brown, a spokesman for the Revenue Department, declined to comment on the legislation, but confirmed the settlement with Enbridge.
Some, including Utke, said DOR was to blame for the property tax cases. The Republican said he felt the agency hasn’t been transparent about how its property valuation has been so often wrong, citing the ongoing litigation. Utke introduced a bill earlier this year that would have required DOR to write a report for the Legislature on tax appeals, as well as the qualifications of its staff and corrective action taken to address judgments against the state in such cases.
The final bill instead directs the agency’s commissioner to review the “framework for valuations” of utility property. Holmes, Utke and Sundin all said they supported the provision. While Enbridge is the largest utility property tax overvaluation case of its kind, there have been others in the past and could be more in the future, said Matt Hilgart, government relations manager for the Association of Minnesota Counties.
“We solved a short-term problem,” Hilgart said. Shoring up the state’s methodology is “paramount for our near-term future.”
Hilgart said counties will still collect less in taxes going forward if Enbridge’s property is valued lower, which could shift the burden to other residents or businesses or leave local governments to figure out how to handle the hit to revenue. Some local governments also told him they may have to cover a small portion of the Enbridge refund still, though the state payments are expected to cover the vast majority of the cost.
State Rep. Paul Marquart, a Dilworth Democrat who chairs the House Taxes Committee, said on the House floor Wednesday that he considers the refund money for counties and other local governments to be a “one-time” payment that doesn’t set a “precedent” for state action.
“We need to come back on this next year and really look at some long-term issues on this,” Marquart said.
Still, Hilgart said he was grateful money for Enbridge refunds was one of the few issues in a politically divided Legislature that garnered bipartisan support. It didn’t hurt that the state was flush with cash because of higher-than-expected tax collections and billions in federal stimulus money. “I think folks are seriously just so happy that they’re seeing the state step up,” Hilgart said.