No Taxation Without Misrepresentation
While most Coloradans are busy planning how to spend the state tax refunds they will receive thanks to our booming economy, residents of Huerfano County are anticipating the opposite: Homeowners in the southern Colorado county could actually pay higher taxes this year to make up for money their local government already collected and spent.
The unexpected tax bill comes courtesy of a decade-old math error by the Atlantic-Richfield Company (ARCO). Ever since it built a pipeline through southern Colorado in the early 1980s, the California-based oil company has paid millions of dollars in property taxes on land it owns in Huerfano and Las Animas counties.
In fact, two years ago an accountant for the company was stunned to see that ARCO's biggest operating expense in the two counties was property taxes. He recalculated the numbers and concluded that ARCO's tax bill actually should have been about half the size of what the company was paying. As a result, the state lowered the oil giant's taxes retroactively, leaving the counties responsible for the rebate.
According to Mary Huddleston, administrator for the Colorado Division of Property Taxation, such tax abatements are rare. Huddleston estimates that perhaps once a year, a large-property holder in a county will successfully protest its tax assessment and earn a rebate.
What makes the Huerfano County case even more unusual is the amount of money at stake in relation to the size of the county. ARCO's rebate from Huerfano County taxpayers would amount to just under $1 million--all in a county with an annual budget of only about $7 million.
"For a county like Huerfano, that's a significant amount of money," concedes Huddleston. Adds Garrett Sheldon, Huerfano County's attorney, "It's huge."
Unlike the calculation of most property taxes, which are set by the assessor in the county where the land is situated, a pipeline's local property values are determined by the state's property-tax division. The reason is that, like long-distance phone lines, airplanes and electric companies' wires, whose assessments are also set by the state, a pipeline runs through numerous local taxing districts.
In the fifteen years since ARCO built its pipeline, the oil company and Huerfano County have had a mutually dependent, although at times strained, relationship. Attorney Sheldon says that at one time the giant corporation was responsible for nearly half of Huerfano County's property-tax revenue.
The current dispute flared in 1996, when one of the oil company's accountants concluded that ARCO had been estimating its own pipeline's worth at approximately twice the actual value. The company quickly challenged the assessed value of the property in Huerfano and Las Animas counties. The state allows a property owner to question three years' worth of taxes, so ARCO disputed its tax bills for 1994, 1995 and 1996.
In June, after reviewing the company's figures, Huddleston agreed that ARCO had been wildly overtaxed. (She figured that in 1994, for instance, the company's property had been valued at more than $5 million over what it actually was worth.) ARCO then informed the two counties that they would soon be receiving a bill for the rebate it was due.
Predictably, the state's decision to grant the immense oil company a rebate from the pockets of local taxpayers has angered county officials, who are dependent on tax revenue from the oil company to run the regional government. "I think the state sold us down the river," complains Xavier Sandoval, chairman of the Huerfano County Board of Commissioners. Adds county administrator Andrew Negrini, "It's the state's mistake, but we have to pay."
Yet Huddleston insists that ARCO's figures were too convincing to be ignored. "The county wanted us to deny the abatement," she says. "But I would have looked silly going into a hearing."
Huerfano County is challenging Huddleston's decision at the Board of Assessment Appeals. In the meantime, however, officials are scrambling to figure out how to raise enough money to pay ARCO should their appeal fail.
Some of the county's taxing districts may squeak by without too much pain. For instance, the largest rebate check would have to be written by the RE-1 school district in Walsenburg, which, according to the new tax formula, owes ARCO $515,000.
That bill will probably be picked up by the Colorado Department of Education. The state agency has already agreed to pay off the approximately $500,000 owed ARCO by three school districts in Las Animas County, and it is considering doing the same for Walsenburg.
"It's one of the bigger bills brought before the state Board of Education in quite a while," acknowledges Byron Pendly, director of public-school finance for the agency. But, he adds, if the board were to decide not to pay the bill, Walsenburg students could fall behind, because the district would have less money to spend. "It would mean a huge hole in Walsenburg's budget," Pendly says.
The Huerfano County Fire Protection District, whose annual budget hovers around $60,000, had to come up with $23,560. So for the past two years the district has scrimped. "Instead of upgrading or buying new equipment, we did without," says Dick George, chairman of the district's board. The penny-pinching paid off, though, and last month the fire district paid its debt to ARCO.
The Huerfano County Hospital, which is supported partially through a local taxing district, also seems to have escaped without too much damage; it happened to have the $130,000 it owed ARCO sitting in an emergency fund. "We were very fortunate," admits Vonnie Maier-Valdez, the hospital's CEO.
Huerfano County itself may not be so lucky, however. If it loses its appeal of ARCO's new tax assessments, the county government will have to come up with about $260,000 to pay to the oil company. Commissioner Sandoval says the county doesn't have the money, so there's only one place to go: The commission has already voted, reluctantly, to raise taxes on county property owners for one year to produce the cash.
In that case, the owner of a $100,000 home could use his state tax rebate to pay the $31 he would owe to
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