Utility Host Community Aid

High on my list of concerns for the city has been the issue of lost property tax values of the Sherco power plant in the city. The State of Minnesota, through the Department of Revenue, determines the values of power plants within the state. The way they determined value was a product of an outdated formula that was being challenged by utility companies. To address this concern the state hired a consultant to help the state develop a better way to value power plants and utility properties. The process of review and recommendation took about 2 years. Upon the conclusion of the study a draft rule was made, hearings held and an administrative law judge ruled in favor of the change. The governor signed the revised rule it into law.

The result of revised rule is a devaluation of utility property in Becker by 21.8%. The rule had provided for a phase in of the rule over a period of three years. The city had already seen a 20% reduction (of the 21.8%) for 2008. The next two years we were to see the value drop to 50% and then 100% in 2010. The net tax capacity that was being lost is $3,598,675, the largest loss in the state. Putting that in perspective the loss is in excess of that created by the new Medtronics campus in Mounds View.

Dealing with the resulting loss of taxes has been an ongoing concern for us and one year of cuts have already taken place for 2008. Looking forward we had developed a contingency plan to address the loss however we felt it nearly impossible to assume cost cutting measures that would be deep enough to make up the difference without raising taxes. More than $1 million is needed. This is particularly true when you factor in the amount of debt service we have as a percentage of the budget. Our overall levy is about $5.15 million where 31.6% of that involves debt service where no adjustment can be made.

During the past two legislative sessions the legislature has provided in the tax bill a provision to adjust the tax rate paid by utilities to make up for the change in value. Last year the governor vetoed the bill which included the change. This year it was again included in tax bill and through negotiations of the legislature and the governor in the final hours of the session a compromise was obtained which addresses the issue. The compromise provides the city with State Aid in an amount equal to replace the lost tax revenues formally paid by the utility companies. This aid is considered permanent aid and reduces over time until a threshold is met.

The budget issues as a result of lost value from utility property have been addressed with adequate aid payments from the State of Minnesota. Our hard work and those of legislators who assisted us in this effort have provided a solution. I thank everyone who played a part in getting this accomplish. I’m sure there will be other battles concerning utility taxation in the future but for now we have the resources to move forward.