BEMIDJI-Area counties are concerned a recent decision by a Minnesota Tax Court regarding Enbridge Energy's oil pipeline system could leave them paying out potentially large refunds to the company.
On Tuesday, tax court Judge Joanne Turner ruled the Minnesota Department of Revenue had overvalued Enbridge's pipeline system that runs through 13 Minnesota counties by $3.2 billion from 2012-2014.
While pipelines are assessed by the state, tax proceeds go to the counties. As a result, there's a potential the counties may have to refund large sums of money to Enbridge.
The 13 counties the pipeline system runs through are Beltrami, Aitkin, Carlton, Cass, Clearwater, Hubbard, Itasca, Kittson, Marshall, Pennington, Polk, Red Lake and St. Louis.
In Beltrami County, officials have been regularly monitoring the situation with its own concerns over potential refunds.
"It's been on our radar for a few years now. When a petition is filed in tax court, the counties are notified right away," Beltrami County Administrator Kay Mack said. "We've been aware that it's been a big issue and the local county assessors have worked with the Department of Revenue as closely as they can to see what we can do to influence the way in which the variations are assigned."
Mack didn't know the exact amount Beltrami County may have to refund, but said, if the ruling were to stand, it would be a significant challenge for the county.
"There's a very strong possibility that we would seek some legislative relief, instead of local taxpayers having to pay the whole brunt of that," Mack said. "Since it was a state valuation, it feels right that it would be a state solution as well."
Cass County is also keeping an eye on the situation, said county administrator Josh Stevenson and has already started a process of preparing for the litigation's outcome.
"There have been a group of counties working on this and we've known about this for years, which is why we're now carrying a fund balance for uninsured claims," Stevenson said. "The estimated liability for us is about $1.5 million. Based on what we know right now, once our 2016 audit is finalized, we're going to go before the commissioners and tell them to increase our uninsured claims reserve from $1.3 million to $1.5 million."
Could take years
Stevenson said, with the appeals process, the matter could take another year or two to be settled. However, when it the final ruling is made, Stevenson added that townships might be hit more hard than counties.
"Something that's not being talked about as much is the impact on townships," Stevenson said. "We have a couple townships in Cass that could be put under by this, because half of their valuation is just on pipelines. The townships just have the numbers stacked against them, they're not financially set up to handle something like this."
In an emailed statement after the tax court ruling, Enbridge spokeswoman Jennifer Smith said the company will work with affected counties.
"Throughout this entire process, Enbridge has been focused on trying to find an equitable solution to the tax dispute with the State of Minnesota Department of Revenue. Enbridge does not plan to take any immediate action on this ruling as all parties now have 30 days to file an appeal," Smith said.
In a statement, the Minnesota Department of Revenue wrote, "we disagree with the Minnesota Tax Court's decision. We understand the concerns of the affected counties. This is not the end of the litigation and we are exploring our options for appeal."
According to the Minneapolis Star Tribune, Clearwater and Red Lake counties could end up refunding more money than they raise annually from taxpayers. Red Lake, the third-smallest county in the state, has a total tax levy of $2.6 million and could have to pay $3.5 million, the Star Tribune reported in March 2017.
Facing the biggest hit financially, the Star Tribune reported, is Clearwater County, as it's home to an Enbridge tank farm and terminal along with the pipelines.
"It's scary for us. If Enbridge wins its appeal the (tab for the county) will be $7.2 million and our levy is $6.8 million," Clearwater County Auditor Allen Paulson told the Star Tribune in 2017.
Along with 2012-2014, the Star Tribune reports that Enbridge is also suing the state for tax years 2015-2017, but the cases haven't been heard yet.
In addition to the tax lawsuits, Enbridge is waiting on approval from the Minnesota Public Utilities Commission to decommission and replace its Line 3 oil pipeline. Minnesota agencies have been reviewing the $2.6 billion project since 2015 and a decision is expected by June 27.