Coal plant devaluation digs at bottom line for Moffat County, school district
February 18, 2017
Craig — The imperative for economic development efforts in Moffat County is mounting as county and school district officials figure out how to stomach the latest shortfall in energy industry tax revenues.
And though 2017 may be a tough budget year for tax-funded entities, it is local property owners who will ultimately make up the difference in funds.
This month, Moffat County Commissioners learned that the county will likely owe $240,000 in tax refunds to Salt River Project, a partial owner of Craig Station coal-fired power plant, and will lose an additional $78,000 in expected tax revenues due in 2017. They have until March 9 to consider filing a protest.
Moffat County School District, Colorado Northwestern Community College and three other special taxing districts will also likely face a shortfall. The total impact county-wide will add up to $840,725 less in the coffers for all six entities in 2017, according to Moffat County Assessor Chuck Cobb.
"That's a significant reduction and potential payback we'd have to incur," Cobb told commissioners Tuesday.
Salt River may grant a multi-year payment plan for the tax refunds, however, which would soften the impact in 2017, according to an email from Scott Harelson, manager of media relations for Salt River.
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Ripple effects of coal industry decline
The news comes after Salt River Project successfully appealed for a reduction in its state assessed value — and therefore also its tax burden — resulting in a 40 to 50 percent decrease in its value for 2014, 2015 and 2016.
Originally assessed at a value of $11.7 million in 2014, the Arizona-based company's reduced valuation for 2016 is $5.2 million.
The reduction in assessed value was based on the omission of certain deductions and an economic obsolescence factor, according to Salt River.
"It reflects the fact that coal plants do not have a ready market if an owner were to try to sell and they have significant economic pressures," said Salt River Manager of Media Relations Scott Harelson in an email.
Colorado assesses value based on income, cost and market value, he added.
"This reflects the decrease in the market value of the plants," Harelson said.
Salt River owns 29 percent of units 1 and 2 at the 1,303-megawatt Craig Station, one of a dozen power plants in which the company claims full or partial ownership throughout the west and southwest. It also owns 32 percent of Trapper Mine, which provides coal to Craig Station.
Assessing local impact
MCSD will take the biggest hit from the revaluation, if accepted, to the tune of about $408,000. Though the amount reflects tax abatements for all three years, the impact could potentially be felt primarily in 2017.
"It is hard to find out you're going to get $400,000 less than expected, especially considering that school districts like Moffat County are running on a thin margin as it is," said MCSD Superintendent Dave Ulrich, noting he’s still waiting on final determinations. "We'll do our best to take what we've got and work with the resources we have."
Craig Rural Fire Protection District, Upper Yampa Water District and Colorado Water Conservation District are also dependent on tax revenues from Salt River. Respectively, they'll receive about $46,000, $24,000 and $3,300 less than expected this year to offset their portion of Salt River's tax refund. CNCC's taxing district will lose $40,000.
The commissioners are considering joining forces with Routt County Commissioners to hire a professional but cursory review of the 2014 and 2015 revaluations before a March 9 deadline. The review would cost around $3,000 to $5,000.
"If we decide to do that, it's looking after our interests for our county," said Moffat County Commissioner Ray Beck. "We have a fiduciary responsibility to protect the taxpayers' money."
Salt River also owns about one third of the capacity of the 446-megawatt Hayden Station in Routt County. Hayden School District, a fire district and library district stand to be impacted most.
If the commissioners find any discrepancies in the revaluation, they could choose to challenge it before March 9. Moffat County and Salt River have faced off at least four times in the past over the company's assessed value; in a 2004 protest, the county emerged with an additional $66,000 in tax revenue from the revised assessment.
If the county lost the challenge, however, it could be liable for an additional estimated $108,000 in interest, which Salt River is legally entitled to but has offered to waive if the affected taxing districts accept the revised valuation.
"I do have a lot of confidence in state department and their assessment division," Cobb told commissioners, suggesting the revaluation might be difficult to challenge.
The 2016 revaluation — which dings this year's tax revenues by $210,000 — has already been finalized by the state Board of Assessment Appeals and therefore cannot be challenged.
If the county accepts the new numbers, the tax refunds to Salt River could squeeze 2017 budgets for all the local entities affected, but tax districts can recover those funds in 2018 through abatement levies. In other words, the county, school district and other entities can levy extra property taxes to make up for the abatement, leaving taxpayers to make up the difference.
"It's essentially a fail safe," Cobb explained, for entities like the school district that have already spent past years' tax revenue on salaries or building repairs.
Tax abatements are a routine event and happen every year, he added, but short term, Salt River's large abatement request “is going to cause a cash-flow scenario for different districts."
Adjusting to a new reality
Long term, the revaluation means tax revenues from Salt River will likely remain lower than in years past.
"Once value is lost, it's hard to get it back," Cobb told commissioners.
There's also cause for concern that other Craig Station owners could seek similar tax relief. Salt River appealed, however, because certain factors were already applied to other power station owners but not to Salt River, according to Harelson.
Nonetheless, the appeal may set a new precedent by determining assessed value based on market resale value, not on revenue-generating equipment. The recent decline of the coal industry could therefore bring assessed values of coal-based power companies down considerably, according to reporting by the Steamboat Pilot.
"(Other owners) may look a little harder at their review next year," Cobb said. "I'm a little more concerned not for this year, but what it could do in the future."
Craig Station's operator and largest owner, Tri-State Generation and Transmission, Inc, said the Salt River decision has no bearing on Tri-State and that it's "business as usual," according to Senior Manager of Communications and Public Affairs Lee Boughey.
Regardless, the decision adds another tally to instances of revenue decline from Moffat County's energy industry, adding fuel to the fire for city and county leaders to develop new economic drivers to carry Moffat County through the 21st century.
"We're still trying to recover from the 2008 and 2009 recession, which we haven't done yet," Beck said. "It's just one more hiccup in the budget process that we have to consider along with all the other things… and we have to figure out how to work through this."