Two major natural gas pipeline systems built across Ohio in response to America’s fracking boom could generate far less tax revenue than promised for area schools, townships, parks, senior centers, and other services.
Owners of both the Rover and NEXUS pipeline systems have filed separate requests with the Ohio Department of Taxation to have the values of their respective pipelines lowered significantly.
Values vary from county to county and are ultimately determined by the state. But, in many cases, those two pipeline owners are hoping to get the values of their assets reduced about 50 percent and 30 percent, respectively.
Department spokesman Gary Gudmundson said he could not provide exact figures because “taxpayer information is confidential by law.”
The lengthy appeal process creates more uncertainty among cash-strapped local school districts that were depending on those taxes as a new source of income to help stabilize their finances, county auditors said.
Some may have no choice but to seek higher property tax levies from voters to offset the difference between the dollars they expected from the pipelines and the dollars they’ll get. Valuations are what auditors use as a basis for charging property taxes.
Pipeline companies can, by law, seek to have them lowered annually. Requests for the next taxing year were due by Dec. 6. Rover pipeline owner Dallas-based Energy Transfer LP and NEXUS pipeline co-owners DTE Energy and Enbridge, Inc., all exercised that option before the deadline.
While the companies are within their rights to seek lower valuations on their assets and, thus, save on their property taxes, the process makes it especially hard on school districts — the units of government often most dependent on the windfalls — to plan ahead, said Mike Kovack, former president of the County Auditors’ Association of Ohio.
Appeals typically take months. The state taxation department does not have to choose between the original valuations it sets itself and much lower figures the companies want. The agency can settle on a number somewhere in between, Mr. Kovack said.
Either way it’s hard for school districts to plan if they’re counting heavily on those pipeline property taxes, he said.
“The oil and gas lobby in Ohio is tremendously strong,” Mr. Kovack said. “Certainly taxing districts are at a disadvantage, when we do these things.”
This past year is the first one that those two pipeline systems were fully operational, meaning that the counties with pipeline easements were counting on a banner year for property tax revenue from them.
The pipeline companies will be Wood County’s highest-paying taxpayers next year even if they win their appeals, Matthew R. Oestreich, Wood County auditor, said.
Last year’s appraised value of the 713-mile Rover pipeline’s segment in Wood County was $57.5 million. That generated about $4.2 million for schools and county programs.
But the state-calculated tax value of that pipeline shot up to $266 million this year because it became fully operational.
The Rover system consists of two 42-inch pipes that run from West Virginia through Ohio and on to Livingston County in Michigan.
The much greater valuation would bring $19.5 million in tax revenue to the county. But if the state taxation department agrees to the company’s lower figure, tax revenue from the Rover pipeline will drop to $11.1 million. About $7.1 million of that will go to Wood County school districts.
The Elmwood Local School District in Bloomdale, Ohio, was hoping to get half of its tax base from Rover property tax revenue.
“Now, if the appeal goes through, that would be 25 or 30 percent,” Mr. Oestreich said. “The hard part for us is setting the bond rates. We don’t want to overcollect [from homeowners and businesses], and we don’t want to undercollect.”
In Wood County, Rover and the 256-mile NEXUS are seeking valuation reductions of 46 percent and 38 percent, respectively, according to figures provided by Mr. Oestreich.
Mr. Oestreich said that during the appeals process, companies are billed on the lower-appealed amounts. If a company loses its appeal, it is billed the difference plus interest, he said.
“I would like to see the Department of Taxation protecting the local tax base and not siding with an out-of-state company poised to make billions [of dollars],” Mr. Oestreich said.
He also said the timing of the valuations could affect the state formula for per-pupil funding for school districts.
Bottom line: Don’t believe eye-popping figures until you see them in your county’s bank account, auditors said.
Anita Lopez, Lucas County auditor told The Blade the appeals were a big topic of discussion during a conference call that involved 30 of Ohio’s 88 county auditors recently.
The Anthony Wayne Local School District will be Lucas County’s hardest-hit school district if NEXUS succeeds in getting its valuation reduced, Ms. Lopez said.
Rover does not go through Lucas County.
She said the situation is “very frustrating,” especially with the state putting more pressure on school districts to find money through levies.
A year ago, in December, 2018, the state tax commissioner ordered Ms. Lopez to raise Lucas County property values higher than she planned or lose state funding, including as much as 50 percent of the state funding for Lucas County schools.
A compromise was eventually struck to increase values by an average of 9 percent countywide.
Ms. Lopez told The Blade she’s angry the Ohio Department of Taxation “had the audacity to order me to raise values on homeowners” and is now in a position to give pipeline companies a break for brand-new assets.
“If they give this company a break, they’re hypocrites,” Ms. Lopez said.
According to figures provided by Josh Russo, chief deputy tax accountant for Ms. Lopez’ office, Lucas County would get $3.9 million if the company’s figure is approved. That’s $2.4 million less than the $6.3 million the county would get if the original valuation is upheld.
“Our homeowners don’t have lobbyists at the state level,” she said. “The local businesses who employ people and support our economy are the ones that are going to get the short end of the stick. It's not like this is a 10-year-old pipeline. It's a brand new pipeline.”
Auditors can go to court to challenge whatever figures the Ohio Department of Taxation eventually approves, which Ms. Lopez said she vows to do if the agency veers away from the original valuations.
Through separate statements, the companies that own the Rover and NEXUS pipeline said their appeals were justified based on market conditions and what they considered to be inflated valuations on the part of the state taxation department.
Rover said townships in 15 Ohio counties will be affected, including some in Defiance, Fulton, Hancock, Henry, Seneca, and Wood counties.
NEXUS spokesman Adam Parker said DTE/Enbridge “is committed to paying a fair and justified property tax based on the true market value of the pipeline and looks forward to developing future economic and taxing opportunities in Ohio.”
Ms. Lopez said she believes pipeline companies “misled” Lucas County residents, and that the Ohio Department of Taxation will be “just as guilty” if it lowers pipeline valuations.
First Published December 13, 2019, 12:00 p.m.
