Taxpayers could be on hook for tens of millions of dollars in refunds if county loses court case
A curious thing happened on the way to the bond market: the Intermountain Power Agency disclosed to potential investors details of it’s ongoing tax dispute with Millard County—details not even local elected officials feel comfortable talking about in public.
The story emerges on page 71 of a 340-page disclosure document released as part of IPA’s recent $797.6 million municipal bond sale, which closed on May 12.
The bonds represent the first tranche of financing for construction of IPA’s massive $2 billion transition project underway at the Intermountain Power Plant. As a political subdivision of the state of Utah, IPA has the authority to sell tax-exempt bonds.
In its disclosure documents, under the heading “Litigation,” IPA revealed to potential investors the existence of a $500 million chasm between it and state tax authorities dating back to 2014. The dispute centers around the value placed on IPA’s assets by the state Tax Commission’s Property Tax Division. IPA is a centrally-assessed entity and pays fees in lieu of property taxes. The fees are based on its valuation.
In 2014, the division placed a value on IPA’s assets of $829,450,170, according to IPA’s bond disclosure. Counties with IPA assets within their boundaries then used that figure to asses their own fees—IPA is effectively Millard County’s largest taxpayer. But then the tax division later admitted it made a “computational error” and increased the value it placed on IPA’s assets to $1,031,520,000 for 2014. IPA disputed that evaluation—and every evaluation made since— reporting that it believed its fair market value for the 2014 tax year was less than half that amount, or $499,000,000.
IPA appealed the 2014 valuation set by the division and won a reduction of sorts from the Tax Commission, which agreed to place a value on the entity’s assets of $751,495,000. That set off a flurry of appeals and cross appeals both lodged by the county and IPA. The dispute soon enough landed in Fourth District Court. The ongoing litigation has reportedly cost county taxpayers about $500,000 a year in legal fees since.
That case remains in the discovery phase, according to IPA’s bond disclosure. And agreements have been made to ensure “that the proceedings in the appeals are to be protected from public disclosure,” though both sides face enormous costs depending on how the courts finally rule.
IPA admits in its bond documents that if it loses the case, it could impact the entity’s financial condition, though it can’t estimate what those losses would look like. One reason an estimation of potential losses is difficult, the bond disclosure documents state, is the court could decide to place any value it wishes on IPA’s assets, regardless of what the Tax Commission previously did. And once that decision is made, it cannot be appealed.
But from the perspective of Millard County, a defeat in court would likely spell losses into the tens of millions of taxpayer dollars across multiple taxing entities, particularly hitting the school district and the county’s general fund.
Eight years worth of refunds could be owed IPA from fees the agency has already paid, monies local governments have already spent.
Sheri Dearden, the county’s treasurer, was asked by the Chronicle Progress to make a general calculation based on the numbers provided in IPA’s bond disclosure documents.
She reported county taxpayers could be on the hook for about $33 million in refunds—that’s assuming IPA’s own self-assessed value of $499,000,000 remains static for all eight disputed tax years since 2014, likely making Dearden’s calculation a conservative one.
Just one year of refunds could cost the county’s general fund, for example, some $1.25 million. Over an eight-year period that comes out to nearly $10 million, or more than 2.5 times annual spending on local law enforcement, or five times more than annual spending on recreation.
The school district stands to lose even more, close to $15 million if it had to pay back eight years of inflated fees. And that’s in addition to another almost $5 million in basic school levy funds it could owe over the same eight-year period.
County Assessor Pat Manis said a loss in court by the county would likely trigger a judgment levy— an additional amount collected from local property owners on top of what they already owe in regular taxes. He said the impacted entities could also dip into any financial reserves to pay some or all of any refunded fees.
“The standard way most entities do it if they don’t have that money set aside is through a judgment levy. That could be substantial. That could increase everybody’s tax burden 30, 40, 50 percent,” he said, adding that once the 2014 case is decided, that decision would “likely ripple through the other years.”
If such a levy comes to pass, it would goose an already stark shift in the local tax burden. Property taxes are already rising thanks to sharp increases in market values alongside the impact of expected normal depreciation of IPA’s assets.
Curiously, IPA would see a levy, too, meaning its own future taxes would rise along with everybody else’s if it were to win in court.
Superintendent David Styler was asked Monday whether the school district has an extra $18 million or so on hand to pay back fees IPA had already paid. He said it did not have such reserves. He said, without wanting to sound presumptuous, that the district would likely go to IPA and attempt to negotiate a deal both could find acceptable, saying the entities have had an overall positive relationship.
Negotiations are underway for a settlement of the tax issues between the county and IPA.
John Ward, a spokesman for the agency, said recently IPA was anxious to get the issue behind it. A settlement offer was made to the county in February, he said.
County Commissioner Evelyn Warnick confirmed earlier this month the county sent over a counteroffer, the terms of which were not disclosed. One county official said the counteroffer required several weeks of due diligence before it was ready simply because of the complex nature of IPA’s offer.
According to an agenda for Monday’s regular meeting of IPA’s board of directors—the Chronicle Progress was given access to the meeting as part of a new mandate by the state legislature that IPA must conform to the state’s open meetings and open records laws; previously it did not—the board was scheduled to go into closed session to discuss “valuation litigation.”