Approximately three years ago the NaturEner Wind Farm appealed its taxes. While I would never support legislation that prevented such an appeal as property values change over time, the impact on Toole and Glacier County local governments and schools was enormous. Why?
Let’s begin by defining the process. Certain properties that cross county lines, such as power lines, railroads, and wind farms are centrally assessed by the state in order to ensure the appropriate percentage share of the tax is received by each county. The appraisals are done by state appraisers, and, as the projects are multi-county, all tax appeals are completed through the state tax appeals process.
In contrast, a local home or business tax protest would be addressed by the local county tax appeal process. Bottom line: local government has little input into the resolution of centrally assessed tax appeals.
As part of the appeals process, NaturEner paid a significant portion, in some places 75-90 percent of its taxes, under protest. Taxes paid under protest are not guaranteed to ever be real income to a local entity. If a local entity were to expend these protested taxes, they risk being required to repay them. As centrally assessed property tends to be a large part of the tax base, the shortfall created by protested taxes can be significant.
For example, let’s consider a scenario where the tax protest represented 20 percent of the tax base. Schools utilize about 70 percent of tax dollars, so if 20 percent of the taxes are paid under protest, then a school has a 14 percent shortfall (20 percent of 70 percent). Schools allowable General Fund maximum reserves are 15%. Thus, after one year, school reserves would be depleted.
Given tax protests are litigated over 5-10 years, local government has a real dilemma.
Local School Boards, Commissioners, and Aldermen are not able to increases taxes elsewhere to compensate until the litigation is resolved. If the protest is large as exemplified above, local government ultimately has no option other than cut services. Shelby Schools, for example, cut both staff and programs.
My HB636 is designed to mitigate this problem. It simply says that, as the appraisal is done by a state expert qualified appraiser, the state guarantees that 75% of the protested taxes can be utilized without risk of local repayment consequence. The theory is that, while no appraiser can be 100 percent accurate, we do expect at least 75 percent, or C level performance.
It also asks that a centrally assessed company that protests more than 40 percent of its taxes pay a 2.5 percent fee. This fee is fully refundable if the company is proved correct, and the state is more than 40 percent off.
However, if the state was not more than 40 percent wrong, then the fee goes to local government to help offset the interest money and opportunities lost in the often 5-10 year centrally assessed-appeal litigation process.
To be brutally honest, this fee is also intended to discourage the current practice where a centrally assessed property has no downside risk when protesting 90 percent of its taxes. A severe protest has the side benefit to the company of engaging the citizens in aggressively pushing the Department of Revenue to settle the case quickly and often at a lower value than they perhaps should as court cases take years. This has the net effect of transferring the tax burden to local homes and businesses as the mills automatically shift.
HB 636 will be heard on March 22. Companies will oppose. This is legislation that I drafted at the request of local folks to address a real local issue. For me, this is the best kind of work.
My thought for this week, “A visionary is someone who works hard to keep an idea alive long enough that the impossible becomes the inevitable.”
Thank you for allowing me to be your legislator.