Wind farm tax feud leads to financial crisis in Toole County 

On March 23 the USA division of the wind energy company, NaturEner, announced it had donated $50,000 to the Sunburst School District to help the small Montana town avoid having to lay off one or more of its 21 school teachers.

“Our employees live here, they send their kids to school here, and it’s become part of our corporate mission to give back through service days and direct donations,” said NaturEner President and CEO, Jose Maria Sanchez Seara, in announcing the grant.

In accepting NaturEner’s $50,000 donation, Sunburst Superintendent Christina Barbachano noted that the school district’s budget shortfalls “are sorely felt by everyone in the community.”

“In one way or another we all feel it,” Barbachano added, “which makes it even harder to potentially lose good educators based on forces outside of our control.”

At first glance this may seem like a simple story of corporate largesse; an international company with deep pockets helping out when financial times get tough in small-town America. Peel back the onion’s layers and the truth is that a large component of the Sunburst School District’s current financial woes can be directly attributed to NaturEner’s objection to paying the full appraised value of its property taxes.

NaturEner, a majority Belgium-owned company headquartered in Madrid, Spain, became a major investor in north central Montana beginning in early 2007 when it purchased Montana-based Great Plains Wind & Energy, LLC. With the Montana company’s purchase, NaturEner gained the rights to develop Montana’s largest wind farm project, located on the plains between Cut Bank and Ethridge.

By Sept. 2012, NaturEner and its partners, including the San Diego Gas and Electrical Company and international financial services firm, Morgan Stanley, had invested close to $920 million into north central Montana. The three-phase renewable energy project includes 266 commercial capacity wind turbines capable of generating enough electricity to power approximately 109,000 homes.

The project drew widespread praise from both state and local officials, who originally forecast billions in international investments into a stagnant local economy.

“These wind projects have the potential to lower the taxes on every farm, every ranch and every main-street business and every household,” Toole County Commissioner, Larry Bonderud, poured forth optimistically in 2007.

Nine years later Bonderud’s enthusiasm was gone, replaced by a thinly veiled bitterness over NaturEner’s objections to its property tax bill.

“Toole County is not asked for input on the justice of a company protesting taxes,” Bonderud wrote in a public letter last September, “but we have repeatedly shared our feelings on the subject with both the company and the DOR (Montana Department of Revenue).”

Data from the DOR shows that over the past two years, NaturEner has been assessed a state property tax debt totaling slightly more than $8.8 million. Of this amount, NaturEner has protested payment on slightly more than $6.24 million.

Under Montana’s tax filing system, when a taxpayer protests payment on their property taxes, the portion they believe has been unfairly assessed is deposited into an interest-bearing account that neither the state nor the protester have immediate access to until the dispute is resolved. If the taxpayer prevails in their tax protest, some portion of their protested taxes are returned to them. If the Department of Revenue wins, the taxes are distributed to all the state and county recipients who would have normally received them.

In the time gap between when the taxes are due and when the protest is settled, the counties simply go without. In Toole and Glacier County’s example, the impact of NaturEner’s tax protest has been especially harsh. NaturEner’s property tax payment’s account for 18.6 percent of Toole County’s entire budget. $5.04 million that would have gone to fund road maintenance, law enforcement, fire and ambulance services in Toole and Glacier Counties has been held up.

“It’s had a huge impact on the county, but for the school districts to be able to make their budgets, that’s been an especially difficult problem,” said Toole County Commission Chairperson Deb Brandon. “For the Shelby school district alone, they’ve protested 93 percent of their taxes. You can imagine what that does to the school district’s budget.”

“This fall we had a shortfall of $308,000,” explained Shelby Public Schools Superintendent Elliott Crump. “We anticipate a grand total shortfall this year of double that – $616,000. By the start of next fall we will be pushing a $1 million shortfall over the past 18 months.”

“For the Shelby School District, that’s entirely based upon NaturEner’s protested taxes,” Crump added. “We don’t know who’s right or wrong in this situation. Is there a legitimate reason to protest this amount? Did the Department of Revenue make a mistake on how much they’re requesting them to pay? We don’t know. We just know that what they (NaturEner) have done is currently effecting us.”

While NaturEner’s protested property taxes in the Sunburst School District are considerably less, amounting to $428,000 over the past two tax cycles, a rapid drop in student enrollment and a sudden crash in oil and gas revenues have left the little school district in a desperate financial situation.

“Ten years ago we had 100 more students in this district than we do today,” Barbachano said.“Three school years ago we had about $678,000 in oil and gas revenue, and this year we’re anticipating about $160,000. We were already adjusting for that change in oil and gas revenue when we were hit with the protested taxes. We were managing, and then the protested tax piece hit and there’s just not enough room in our budget to adjust further.”

“It’s been a nightmare. It’s been a real nightmare,” Barbachano added.

Sunburst has been forced to make substantial cuts to its transportation and building reserve budgets, but the biggest crisis hit has been sustained within their general budget, from which the salaries and benefit packages of their teachers and support staff are paid. No new contracts to replace retiring teachers have been extended over the past two years, but even then, to meet the confines of their severely limited budget, the Sunburst School Board was faced with eliminating at least one more contract on a nontenured teacher.

“Last year we just didn’t feel it, because we had cash reserves and we had a little bit more oil and gas revenues, so it was something that was easily absorbed,” Barbachano said. “This year, when we started the year with essentially no cash reserves, the anxiety that the protested taxes evoked grew.”

From NaturEner’s perspective, the financial crises in the Sunburst and Shelby School Districts are the unfortunate collateral damage of declining energy prices and a lack of response from the Montana Department of Revenue.

“First and foremost, we have always paid our taxes in full and we keep paying our taxes in full, even in protest,” said Jose Maria Sanchez Seara, NaturEner’s President and Chief Executive Officer. “That is something that I want to make clear; we have always paid our taxes both in time and in full.”

“We are of the view that the Montana Department of Revenue is not properly applying the legislation and the current code when assessing the value of our properties,” he added. “We have no choice but to fight for our rights, as any other taxpayer would do when they think the Montana Department of Revenue is making a mistake. That happened after several years of attempts to convince the Montana Department of Revenue to properly apply that legislation.”

To some extent NaturEner is the victim of bad timing. Encouraged by large federal tax subsidies, the company closed the deal on developing the wind farm on the very edge of the financial collapse of 2008 – 2009. Fueled by a vast increase in domestic oil and natural gas production, energy prices quickly followed suit. According to a U.S. Department of Energy report, the price paid for wind generated electricity topped out in 2009 at 7-cents per Kilowatt/hour. In August 2014 it had fallen to just over a third of that at 2.35-cents per Kilowatt/hour – the lowest price ever in the U.S. market.

“The price that we realize these days is only a fraction of the price we realized back in 2007 and 2008 when we made the investment decision,” Sanchez Seara said. “That is bad for the value of our physical assets, and that has implications for all the stakeholders involved. I hope sometime in the future the prices of energy come back, and then our existing assets will realize more dollars for the product that we generate. That will drive the tax liability up, and we’ll be absolutely happy to meet our obligations as we have always met.”

The great frustration of this whole process is that it takes so long to resolve. Barbachano said that a representative of the Montana Department of Revenue advised her that a final resolution of NaturEner’s tax protest will likely take another five years.

Montana law permits school districts to access the disputed funds, but its a risky proposition. If the protest is ultimately decided in NaturEner’s favor, the school district will be forced to pay back whatever percentage of the taxes the courts have determined should be paid back to the energy company.

At this point, both the Sunburst and Shelby school districts are faced with little alternative but to take that risk and access those funds.

“We’re trying to access less than 50 percent of them, which we hope will put us in a situation when this is resolved to not owe NaturEner money back,” Crump said. “We believe that when its all said and done, maybe they get a 10 percent reduction, maybe they get a 20 percent reduction in their taxes, but the vast majority of it we anticipate still receiving.”

As for NaturEner’s donation to the Sunburst School District, Commissioner Brandon sees it as little more than a “public relations stunt.”

“If they would pay their taxes we wouldn’t be having this discussion,” Brandon said. “I wish it were that we could have a time frame for the state and NaturEner to figure this out, but its out of our hands. We, unfortunately, just pass this right on and the schools are definitely being hit.”

“It’s like putting lipstick on a pig,” Brandon added. “It still isn’t pretty.”

Barbachano said she saw few options but to accept NaturEner’s offer.

“I think NaturEner feels that pain. Certainly its been vocalized by their employees,” she said. “That’s the spirit in which we are collaborating, and I’m going to take them at face value on that.”

“I have little choice but to continue to take the (protested) taxes, and to hope and pray that the oil and gas money returns,” Barbachano continued. “We’ll try and squirrel away whatever we can and make as many efficiencies that we can, such that we can remain solvent, move forward and keep educating our kids. What else do you do? You buckle down, you pull your socks up and you move forward.”