Editor's note: Luke Johnson of Pipestone, Minn., is chairman of MN Rural Counties and a Pipestone County commissioner. Dan Larson of St. Paul is executive director of MN Rural Counties, an advocacy organization that supports 34 member counties.
Thirteen northern Minnesota counties got some bad news recently when they learned the clock is ticking on a court-ordered payback on tens of millions in overcharged property taxes covering half a decade of Enbridge pipeline assessments.
It was news they had been expecting and that has serious and unrealistic carry-over implications for affected local property taxpayers at the school district, township, and special taxing district levels along the alignment. The alignment is along the northern third of the state, through some of Minnesota’s poorest and most deeply rural areas.
As local taxing authorities, those entities had nothing to do with assessing the properties or setting the values the tax court has now found faulty. The values were set solely by the state, and the state should solely be responsible for the payback.
The payback order emanates from Enbridge Energy running the table on a multiple-year tax-court challenge to the Minnesota Department of Revenue pipeline assessment rates for tax years 2012 through 2016. Enbridge is appealing the 2012 assessment, but the meter is still running on tax years 2017 through 2020, and the decision sets precedent for all utilities in the state.
That means every other pipeline, electric utility, and railroad in every other corner of the state, armed with the Enbridge ruling, are revving up their own legal challenges. And the odds are in their favor.
Without a state-pays solution, this is a problem that, for the first time, has smaller and deep-rural counties, townships, and school districts asking about the process for bankruptcy.
Tiny Silver Brook Township in Carlton County is a good illustration of how serious this problem is: To cover court-ordered payback costs, the 600 township residents would be hit with a 5% increase in the county levy and devastating increases of 40% in the school district levy and 165% in the township levy, for a total tax increase of 200% — which is on top of the current average annual tax of $3,000 per household.
The payback for two counties, Clearwater and Red Lake, would be larger than their total annual operating levy — and out of the question in terms of ability to pay. Pennington County estimates an 8% levy increase, or the equivalent of $800,000 for the payback. This is enough to seriously jeopardize community-building fundraising efforts for a much-needed new hanger at the Thief River Falls airport and an operating levy in the fall for the Thief River Falls school district.
Taxpayers along the alignment have paid an inflated premium on school levies since the Department of Revenue introduced the contested valuation change in 2012, due to the inverse relationship between property values and equalization aid. Artificially inflated Department of Revenue-driven property values resulted in less equalization aid for school districts, shifting the difference to local property taxpayers to make the districts whole.
Counties, rural school districts, and townships operate on lean budgets and don’t budget for unforeseen court orders to repay tens of millions in revenues already spent. It’s unrealistic to expect them to. Each of the affected local entities acted in accordance with the law and built budgets for the years in question with values certified to them by the state.
Unlike the state, they have no general fund to fall back on, and reserves are precious savings accounts where hard-earned revenues are set aside to meet cash-flow needs and pay for high-cost items like a new road grader, bucket loader, squad car, emergency rig, or school bus.
Without a state-pays solution as part of the negotiated settlement to end the 2021 legislative session, the burden of the Department of Revenue payback order unfairly and unrealistically falls on the taxpayers of the affected counties, cities, townships, and school districts. They are penalized for faulty values they did not set. Legislators must end the Enbridge settlement anxiety and agree to a state-pays solution when they meet in the June special session.