Most of Tuesday’s Becker City Council meeting consisted of conversations about an expected production tax bill being introduced in the senate associated with the taxing power generating plants.

 

City Administrator Greg Pruszinske presented the memorandum from Flaherty/Hood to council that summarized the proposed change to the Energy Generation Facility Taxation bill. Pruszinske said the senate has proposed and may be debating “SF 1636” as the end of the session draws near.

 

SF 1636 would substantially change how generating facilities are taxed.

 

Pruszsinke said Sen. Rod Skoe (DFL-Clearbrook) authored the bill and the Coalition of Utility Cities analyzed the effect of the bill and recommends support of it with some conditions.

 

Under current law, the land and buildings at Sherco are subject to a real property tax and the electric generation equipment (EGE) is subjected to a personal property tax. The equipment constitutes a large proportion of the taxable value at Sherco.

 

The Minnesota Dept. of Revenue (MDR) determines the taxable value of the entire plant based on a “unitary value” system (electric generation, transmission and real property), taking the value of the company’s entire system and allocating the value out to each individual city.

 

Because of the complications of this system of taxation, there has been constant pressure at the legislature to make changes that reduce property taxes on utilities and shift the burden onto other local property taxpayers that host cities.

 

Last year, when the solar energy industry approached legislature about a system of taxation for solar power, the Senate Tax Committee Chair, Rod Skoe, recognized the opportunity to reform the entire piecemeal system of taxing energy generating property. As a result, the MDR was charged to conduct a study outlining the state’s system of taxation, the views of various taxholders and a comparison with other states’ systems of taxation.

 

The study — released in February and included Becker participating as a stakeholder — made no recommendations but illuminated the patchwork nature of the state’s taxation of energy production. Sen. Skoe then authored the SF 1636 bill to create a comprehensive and orderly system of electric generating taxation — focussing on making valuation more stable and predictable.

 

SF1636 eliminates the personal property tax on EGE as well as the pollution control exemption from that tax and the sliding scale exclusion. In its place, the bill creates a new method of valuation — the electric generation tax base. The bill sets the terms of this tax base to create a market value close to the current value of the personal property tax on EGE.

 

In other words, the terms of the bill strive to hold local communities harmless as a result of the change in the law.

 

Under this proposal, the MDR would annually assess the tax base of electric generation machinery under a formula created in the bill. The new valuation is based on a combination of an individual facility’s nameplate capacity, average energy production and the amount of nuclear waste storage (Red Wing and Monticello).

 

It is noted, some cities would see a reduced tax base under the new system. For these cities, the bill provides for state transition aid. This aid would operate similarily to the current Utility Valuation Transition Aid and compares the tax base of a city’s electric generation machinery before the law changes (2015 value) under the new system.

 

This transition aid will continue until the EGM tax base is greater than the 2015 value.

 

Flaherty/Hood said the legislation does a number of positive things including the resolution of long-standing tax concerns of host utility cities, decreases valuation volatility and adds stability over time, locks in the value of new, undepreciated improvements to a number of plants, provides transition aid and the adjustment factor increases valuation over time as residential utility rates increase.

 

The Coalition of Utility Cities — who consulted with elected officials and city staff — said they recommend the passage of a resolution in favor of SF1636 on condition they keep the transition aid and adjustment factor as drafted.

 

Pruszinske said he “wanted to get this taxation bill in front of council” to see if they were interested in supporting the bill, not supporting, adding any ideas or give Pruszsinke some direction. He noted Rep. Jim Newberger and Sen. Dave Brown reviewed the bill and were neutral on the subject at this time.

 

Adam Oliver agreed with the Minnesota politicians saying he “prefers to stay neutral at this time.” Lori Keller said she feels the same way and would prefer the city not decide until the details are hammered out and they could review the information more diligently.

 

“It’s quite complex,” said Keller.

 

Rick Hendrickson, Tracy Bertram and Mayor Lefty Kleis agreed to take no action at this time.