Wednesday, May 23, 2018
Business

Citrus County braces for long legal battle with Duke Energy over property taxes

Last month, Duke Energy offered to pay Citrus County $27 million of its $35 million property tax bill.

The local appraiser couldn't justify the lower amount and rejected the offer.

Duke's response: pay even less and go to court to figure out the rest.

Duke Energy handed the county a check for $19 million on Wednesday, and said it will file a lawsuit today that explains why it shouldn't have to pay the full amount.

It's a tactic, observers say, that big businesses use to pressure local governments in property tax disputes. It's a multimillion dollar, high-stakes game that can have dire consequences for small communities like Citrus County.

"For a lack of a better term, (Duke Energy has) a pretty big stick," said Roger Suggs, the immediate past president of the Florida Association of Property Appraisers.

Suzanne Grant, a spokeswoman for the utility, said reducing the tax liability is part of ensuring that customers are not overcharged.

"We've been working with the property appraiser," Grant said. "There were offers made and unfortunately those offers were rejected."

The bulk of Duke Energy's tax bill comes from the Crystal River power complex, which includes four coal-fired units and a broken nuclear plant, which has been out of service for three years.

The property appraiser valued the power complex and all of Duke's assets in Citrus County at $2.4 billion, which resulted in a $35 million tax bill.

Two of the coal units have more than a billion dollars worth of pollution control systems, including scrubbers that help clean up harmful emissions. Taken with the nuclear plant, that amounts to about $2 billion in taxable value alone, Greene said.

The property appraiser says a 1998 court ruling about how pollution control systems should be valued backs him up. That case overturned a 1967 law that allowed businesses to claim their pollution-control equipment had only salvageable value, not the higher market value.

Duke plans to challenge that.

Grant said the pollution control systems have consistently been overvalued and should be assessed at the lower salvageable value. On top of that, she said the nuclear plant has lost value because it is not operating.

The property appraiser "believes one way," Grant said. "We believe a different way. That's one of the impasses we've come to at this point."

• • •

Citrus County has long had property tax disputes with Progress Energy Florida, which became part of Duke Energy in July. But the negotiations had always proved amicable, Greene said.

This time around, Greene said there wasn't much sympathy from Duke about the impact the utility's actions would have on the local government. He said a Duke official told him the utility had a similar issue in Ohio and budget shortfalls would not change their minds.

"He said they already had heard all the stories about the kids not having books," Greene recalled.

Duke clashed with Ohio in 2010 when it told school districts there it would withhold $20 million in tax payments while it disputed its assessment with the state, according to the Cincinnati Enquirer.

The utility, which claimed the state had overvalued its equipment and property, said it reached a confidential settlement for the case in May. Gary Gudmundson, a spokesman for the Ohio Department of Taxation, could not confirm there was a settlement, citing confidentiality.

"It's behind us," said Sally Thelen, a Duke spokeswoman told the Tampa Bay Times. "We're moving forward."

A similar case is playing out at Top of the World, Duke's 17,000-acre wind farm in Converse County, Wyoming.

Earlier this year, Duke disputed the state's $414 million valuation of the farm, saying an independent estimate showed a value half the amount.

That case is ongoing. Wyoming's Board of Equalization is expected to hear Duke's appeal early next year.

Wyoming Department of Revenue director Ed Schmidt said it's not unusual for a big energy company in his state, the nation's leading coal producer, to dispute its tax assessment.

Attorneys for the state, he said, spar often with teams of tax specialists and accounting firms who question assessments and trim tax burdens any way they can.

"Little guys can do the same thing," Schmidt said, "but the bottom line is, usually they don't have the wherewithal to hire attorneys to challenge the thing."

• • •

The decision by Duke Energy to pay only a little more than half of its property tax bill plunged Citrus County into a budget crisis. Duke's operations, largely in Crystal River, make up 26 percent of the county's tax base.

Citrus County commissioners and the School Board have scheduled emergency meetings today to figure out how to deal with the $16 million shortfall – the difference between the $35 million bill and the $19 million paid.

Citrus County has tried to move away from reliance on one major taxpayer before the hostile relationship emerged over the tax bill. The county is developing a port and has been approved for an enterprise zone business development district, said John Seifert, Citrus County economic development director.

Seifert said battling the kind of tactics employed by Duke is "almost impossible." The county is assembling a legal team to handle the case.

"It's a very poor reflection on the company," Seifert said. "We are bracing ourselves."

For now, Duke wields enormous power. The case could go on for years, if the case makes it all the way to the Florida Supreme Court. All that time, Citrus goes without the additional money.

"This is just the beginning of what can be a very long process," said Suggs, the former property appraiser association president and Clay County property appraiser.

Another potential problem for Citrus: The case could affect future property tax payments. Duke could win, setting a precedent for lower valuations.

Also, in the short term as the case is working its way through the court system, the property appraiser might feel pressure to lower future assessments to avoid even more litigation.

"It could tend to have a bit of a chilling effect," Suggs said.

Ivan Penn can be reached at [email protected] or (727) 892-2332.

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