Corporate Tax Protests Eroding Education Budgets

By Beacon Staff

Since 2006, records show that the Columbia Falls Aluminum Company has regularly protested property taxes for its now idle facility, tying up hundreds of thousands of dollars that would otherwise go to fund School District 6 and county functions.

This trend has depleted the district’s reserves, dried up funds intended for supplies and upgrades, and forced other hard budget decisions, according to school officials.

The company’s recent application for a 95 percent tax reduction through an obscure law represents the third consecutive year that CFAC has made an effort to reduce its property taxes, using different methods. If successful, school officials say other taxpayers will have to make up the difference.

The state’s lead industrial appraiser believes the aluminum company is the first large-scale commercial enterprise in the state to try to take advantage of 15-24-2102, a law enacted in 2009 that allows for a 95 percent reduction on taxable value of commercial property that has not been in operation for six months and will not be in operation for another six months.

For a school district not to receive funds from one of its largest taxpayers on a near-annual basis is uncommon in Montana, according to interviews with school business managers and tax officials. In Columbia Falls, both the elementary and high school general funds have been impacted.

“That means less money in the classrooms,” Dustin Zuffelato, School District 6’s business manager, said.

Last week, Flathead County Treasurer Adele Krantz announced her department would be releasing $296,000 of Columbia Falls Aluminum Company property taxes tied up in protest since 2009. While the appeal process is carried out, property taxes are still paid and are diverted into a fund at the county treasurer’s office until a decision is made.

In this case, CFAC won an $82,000 adjustment. The company also won a significant adjustment after the 2006 appeal, which ultimately left School District 6 with a shortage of $115,000, Zuffelato said. The 2010 appeal is yet to be determined and a total of $185,000 is being held by the treasurer.

Krantz said it’s rare for one entity to accumulate hundreds of thousands of dollars in protested taxes. In the past, corporations such as Alltel and AT&T have appealed large amounts.

“We don’t usually see figures this big,” she said.

About 70 percent of the $296,000 will go to the Columbia Falls school district, which was relieving news for Zuffelato, who said the district was fortunate to have stimulus funds last year to offset the loss of CFAC’s taxes.

“We had planned to use that stimulus money to purchase technology and upgrade textbooks; instead, we used it to backfill tax reductions,” Zuffelato said.

Columbia Falls Aluminum Company spokesman Haley Beaudry sent a letter to Flathead County commissioners on March 15 announcing CFAC’s application for a 95 percent reduction of taxable value on qualifying portions of its property.

In an interview, Beaudry said a long-term contract must be worked out with Bonneville Power Administration before a restart is possible. In the meantime, high property taxes are a prohibitive burden, he said.

“We’re asking for property tax relief because our property tax bill is very high and actually it increased when we laid off everybody and curtailed production,” Beaudry said. “So we’re trying to get what we believe is a fair property tax. It’s another – I don’t want to say obstacle – it’s just another challenge to restart.”

County commissioners and school district officials are meeting on May 9. Both sides must approve the reduction, according to Superintendent Michael Nicosia.

Conrad Peterson, the lead industrial appraiser for the state Department of Revenue, said it’s the first time he’s aware of that a big industrial operation has taken advantage of the 15-24-2102 property tax reduction law, which was passed by the 2009 Legislature and is only available through 2011.

“We’re kind of going in the dark,” Peterson said. “It’s kind of a new deal for everybody.”

Beaudry was told that at least several businesses have applied.

“I know that all of them who have applied were successful,” Beaudry said. “I asked that at the Department of Revenue. I do believe it’s not an extensive list.”

Beaudry said the frequency of CFAC’s protests is related to the demise of the aluminum plant, which once employed 1,500 people and now sits dormant. The state dropped the market value of the facility from $46 million in 2009 to $33 million in 2010, Peterson said.

“It’s kind of our policy to allow additional depreciation until they can open the doors and begin operating again,” Peterson said. “Apparently it wasn’t enough because they’ve appealed that.”

Before the 2006 appeal, Beaudry said he met with the superintendent, county commissioners and mayor to discuss the potential financial impact. He did not hold similar meetings in 2009 and 2010.

“To manage your business, you owe it to the community to do everything in your power to stay viable, to stay alive,” Beaudry said. “It was a business decision.”

Zuffelato estimates the reduction would cost the district just under $190,000 for 2011, on top of the $185,000 withheld from 2010. But, unlike regular appeals that can drag on over years, the application had to be submitted by this month and will be decided upon before the fiscal year starts in July. If the appeal were to go through, taxpayers can expect higher bills, Zuffelato said.

“Basically the gist of this is that the burden would be shifted from this entity (CFAC) to other taxpayers,” he said. “We would still get the money.”

Peterson works with a variety of industrial enterprises, including Plum Creek Timber Company and the state’s largest mines. He said companies are free to appeal their taxes annually if they choose, though few do it with any regularity.

“We haven’t gone down the appeal road with Plum Creek for a number of years,” Peterson said. “They’ve allowed us to kind of look at their income and expense information, which has helped us coordinate our values with their several properties.”

“We’ve requested info in the past from (CFAC parent company) Glencore,” he added, “and they’ve been pretty hesitant to provide that kind of information.”

The Department of Revenue also has two current property tax appeals from oil refineries in eastern Montana: CHS in Laurel and ConocoPhillips in Billings. A third refinery, operated by ExxonMobil in Billings, dropped its appeal after meeting with the local school district, Peterson said. Tax protests from large industrial companies significantly impact school district budgets, he said.

The business managers for school districts in Whitefish and Kalispell said they don’t have problems with tax protests. Danelle Reisch in Whitefish said the appeals they do have are “pretty minimal, so we don’t even have to worry about them.”

“Our school district, knock on wood, has not been impacted by any major tax protests ever,” she said. “It’s mostly residential property here. It’s not the case like Columbia Falls where you have a major taxpayer who hasn’t been paying their taxes – that has a major impact.”

Todd Watkins, business manager for Kalispell schools, said his district’s reserves, which are kept around 10 percent, are enough to offset the small losses incurred by tax protests.

“That’s why we keep those reserves, to offset those peaks and valleys and other crazy tax things that happen,” Watkins said.

But Zuffelato said CFAC’s 2006 successful appeal dropped the district’s reserves down to 5 percent. At the beginning of this year, reserves were at 5.8 percent.

“Most schools are right at 10 percent,” Zuffelato said. “We’ve been way below 10 percent because of this.”

In general, the corporate tax base in Columbia Falls has declined, Zuffelato said. Corporate taxes once represented more than 50 percent of the district’s base and that has fallen to about 20. Because of its decline in property value, CFAC is no longer the district’s biggest taxpayer, Zuffelato said. It now trails Plum Creek and Flathead Electric Cooperative.

Beaudry hopes to get CFAC reopened again, so that it will again be a moneymaking cornerstone of the community.

“We’re trying every way we can,” Beaudry said.

Zuffelato believes CFAC can turn the corner: “It’s not like their product is obsolete. Their product is needed.” But he feels it will take a shift in philosophy and he thinks education is a part of the equation.

“I would challenge them to reassess their business strategy,” Zuffelato said. “I would say it would be a better, prudent business choice to invest in education. I feel like 30 years ago they needed our graduates to operate their machines. Now they need our graduates to make their machines, to make them more efficient and help their business.”

“We need more educated people, not less,” he added. “I wish we could work together instead of constantly being shunned by them.”

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