A property tax windfall that once seemed certain for area communities is now in question, as Summit Natural Gas is making a case that it should pay less than expected for a pipeline being built through central Maine.
At stake is millions of dollars for the municipal coffers of communities along the route of the $350 million pipeline project.
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In addition to affecting local budgets, the disagreement could set the tone for the relationship between the company and area municipalities, some of which are banding together to develop a common approach to maximizing the tax benefits of the project. A lingering dispute over tax assessments could end up before the Maine Board of Tax Appeals,
In Augusta, Ralph St. Pierre, assistant city manager and director of finance and administration, said the high range of what the city could collect from Summit in property taxes is about $672,000. But town officials say the company is arguing that the assessment should be valued-based, with the official valuation depending on the number of paying customers that actively receive gas delivered through the line. The new pipeline is operating at only about 1.5 percent of its capacity, and Summit has suggested that it should pay a proportional amount of taxes to Augusta — about $9,800.
The reduced amount would be bad news for communities through which the pipeline passes as it comes up the Kennebec River valley, crossing the river in Richmond and extending to Madison. Communities along the route are counting on pipeline tax revenues to help them grow their tax bases.
When crafting budgets this year, some municipal leaders saw the pipeline as a budgetary bright spot in an otherwise difficult fiscal year.
But about three weeks ago, assessors in some communities began getting letters from Summit with tax valuations that were a tiny fraction of what they expected.
Summit sent out the estimates in response to what assessors refer to as a “706 request,” referring to the section of Maine’s tax code in which assessors can require property owners to itemize property.
Oakland Town Manager Peter Nielsen said Oakland hadn’t put an official valuation on the pipeline according to formal assessing guidelines, but town leaders believed that its share of the pipeline would be worth several million dollars.
He said that impression dates back to discussions with other companies that sought to build similar pipelines though Oakland in which investments in that range were talked about.
In Fairfield, Summitt’s estimate of the pipeline value is $13 million, on which it could pay as much as $263,000 in taxes. The pipeline company’s initial estimate, sent three weeks ago, was for $143,000, on which Fairfield would collect only about $2,900.
Fairfield Town Manager Josh Reny said the towns want a fair assessment.
“We’re not trying to stick it to Summit,” he said. “We don’t want them to pay more taxes than they should be paying, but we’re not going to set an artificially low number either just to give them a break.”
Reny said that the money collected from Summit played an important role in the town’s revenue projections.
“We knew there would be an increase in the entire tax base and the gas pipeline was a major contributor of that,” he said.
Reny said that in addition to the consideration about customers, there are various other complex factors to take into account and that he expects will take some time and thought top resolve.
In response to the estimates from Summit, a work group of municipal assessors began meeting to try to come up with a valid way to estimate the pipe’s value.
It’s important for the towns to work together, Nielsen said, so that they can come up with assessment methods that is consistent from one community to another.
“If one town used a method that was different, you could wind up with equal amounts of pipe being assessed very differently,” Nielsen said.
On Tuesday afternoon, Summit sent communities including Augusta a revised filing of the value of its pipeline. The revised figures are much higher — St. Pierre said Augusta’s piece of the pipeline increased from an original estimate of $525,000 to about $36 million. But that doesn’t mean the company is offering to pay taxes on the higher figure.
“They’re still making the case that because they haven’t signed up customers that there should be some sort of value adjustment to the pipe,” St. Pierre said, which in Augusta’s case would bring the value back down to about $525,000, at least for this year.
Now, the city is trying to evaluate that argument and also to see if it agrees with the $36 million estimate. Augusta is unique among Summit’s customers because it is also home to another major pipeline — Maine Natural Gas has also filed a statement of the anticipated value of its pipeline with the city.
St. Pierre said it will take time to fully analyze out the differences between the two — Summit has valued the steel portion of its pipeline, about two-thirds of the total, at nearly triple the amount recommended in Marshall & Swift, a reference book used by assessors to help determine the value of buildings and other types of construction. But Summit has also valued the plastic portion of its assets at a rate lower than recommended in the reference book.
Maine Natural Gas, on the other hand, has submitted a valuation that is much more closely aligned to the reference book and has made no argument that it should be valued at a rate that is tied to its customer base.
Daniel Hucko, a spokesman for Maine Natural Gas, said pipelines are usually valued in a fairly straightforward way that is based on the cost of the pipeline, with depreciation projected out over the years.
The matter is further complicated by the fact that Summit’s business plan is different than other gas companies, which tend to expand into one community at a time to serve previously identified major customers.
“This is the first time in the state somebody’s done a major building-out of steel pipe, which isn’t cheap, quite a distance,” St. Pierre said. “We don’t have all kinds of experience with this. Most utilities don’t run pipe like that right out of the chute.”
Hucko characterized the expansion of Maine Natural Gas into a 180-mile system serving 3,000 customers in eight communities as “prudent.”
“We only invest in building more infrastructure when and where demand is sufficient for customers to pay for it at a reasonable rate,” Hucko said.
The conflict has come at a critical time in the ongoing relationship between the pipeline and the region’s municipalities, which has been mostly positive but is still relatively new.
Reny said Summit has been “receptive but not perfect” about working with municipalities to resolve previous issues, which have included complaints about traffic disruptions and late-night noise associated with the pipeline’s construction.
“The municipalities appreciate the investment that’s being made and what it’s going to do for this regional economy, our residents and their heating bills,” he said. “We’ve had good communication and a good relationship, but there have been bumps in the road.”
Reny said the companies and the towns are both invested in the relationship because the company is expected to be a presence in the region for many years to come.
In response to requests from the Morning Sentinel, Summit President Mike Minkos released a two-sentence statement on Wednesday afternoon.
“We have good communication with the town officials in the areas where we are currently installing our natural gas pipelines,” Minkos said. “As we continue to install miles of pipeline in these communities, we will be working together to assess the value of the pipelines across the region.”
The assessors will continue to meet as a group to decide what, if any, credit should be given to Summit for the fact that its natural gas infrastructure is still largely unused.
St. Pierre said that, while towns are working collaboratively, there is potential for disagreement among them.
“It’s a good idea that they’re getting together and discussing the issue, but in the final analysis, it’s an independent valuation for each assessor,” he said.
If a town and Summit can’t come to an agreement, the company can appeal the town’s determination to the Maine Board of Tax Appeals.
There is no firm deadline to resolve the issue, but towns are hoping to have a figure identified before their tax commitment date, which in Fairfield is mid-July.
Matt Hongoltz-Hetling — 861-9287
Twitter: @hh_matt
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