Michigan county gearing up for fight with top corporate taxpayer
Monroe County, Michigan, has mounted a defense fund to fight a property tax appeal by its biggest taxpayer, saying its double-A bond rating may be at risk.
DTE Electric Company filed a property tax appeal for its local plant with the Michigan tax tribunal at the end of June requesting a reduction in its taxable value by $537 million, slashing what it owes the county in half.
DTE is the largest taxpayer for the county and for the city of Monroe. If the Michigan tax tribunal were to decide in favor of DTE, the result would be a 29% reduction in the taxable value of the city. For the city of Monroe, that's 48% of its general fund revenue, said Michael Bosanac, the county administrator and chief financial officer.
The company claims that the city’s assessment of the property valuation is too high. DTE also filed a tax appeal on its nuclear power plant Fermi 2, located in Monroe County.
If the appeal succeeds, the county would be forced to draw down reserve funds from either its unreserved fund balance or budget stabilization fund to make up for the lost property tax revenues from DTE, Brosanac said.
In that scenario the county’s credit ratings would be at risk, Brosanac said. S&P Global Ratings rates the county at the AA level.
The county has about $68 million in outstanding general obligation debt it has issued on behalf of local jurisdictions or the County Drain Commissioner/County Agent.
“On these issues, the county is not primary on the debt payments, rather the rate payers for water and sewer projects make the payments or for drainage projects, the property owners through assessments are the ones primarily responsible for the debt payments,” Bosanac said. “Unless they fail to make payments, the county is not responsible.”
The county has developed an initial defense fund of $1 million for the power plant appeal. Bosanac said a similar amount can be expected for the nuclear plant.
“This is expected to cost a significant amount of money for the local jurisdictions to defend the case and valuation before the Michigan Tax Tribunal,” Bosanac said.
DTE has said that the appeals are "merely protective," and it intends to negotiate with city and county officials.
"DTE’s goal is to reach a reasonable agreement regarding the amount and timing of any reductions before the tribunal makes its decision," the company said.
Bosanac said that it is important that the county remain open to engaging in some real discussion of the issues and methodologies that would avoid a lot of protracted litigation.
“This litigation is complex and for local governments, it is ultimately a taxpayers’ expense in an effort to resolve our disagreements on the valuation of the DTE plants,” he said.
He said that the county was receptive to other avenues in working towards a resolution of this matter short of litigation.
“We have enjoyed a long and mutually beneficial relationship between DTE and our communities and would like to rely on that valued partnership to reach an accord without litigating our differences,” Bosanac said. “However, we owe an obligation to our other corporate citizens, residential and other property owners/taxpayers that taxes throughout our county are paid based on the value of the property owned and in accordance with uniform assessing/valuation practices. As of right now, that means preparing to respond to DTE’s appeal through litigation.”