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Williams School district on hook for $129,219
Transwestern Pipeline Company overpays property taxes, area school, fire, health and library districts must pay back money

Senior Civil Attorney in the Coconino County Attorney’s Office Bill Ring explains the tax settlement to the Williams Unified School District Governing Board at its July 9 meeting. Marissa Freireich/WGCN

Senior Civil Attorney in the Coconino County Attorney’s Office Bill Ring explains the tax settlement to the Williams Unified School District Governing Board at its July 9 meeting. Marissa Freireich/WGCN

WILLIAMS, Ariz. - Williams residents will see an increase in their property taxes this year because local school districts and other tax districts received too much tax money from Transwestern Pipeline Company and must now find a way to repay it.

Over a three-year period, the Williams Unified School District (WUSD) received about $129,219 in overpaid property taxes from Transwestern Pipeline Company.

Transwestern pays property tax based on the valuation of the pipeline it runs from Texas to California along Interstate 40. In 2009, Transwestern expanded the pipeline to the Phoenix area. The pipeline currently travels through seven counties in Arizona: Coconino, Mohave, Yavapai, Navajo, Apache, Pinal and Maricopa.

Originally, the Department of Revenue valued the pipeline based on the cost to construct it. However, because of a 2006 state law change, certain companies were allowed to use different assessment procedures to determine the value of their property.

Transwestern petitioned for the state to value the pipeline based on its economic value to the company, or the value of the natural gas that travels through it. The state agreed and changed the value.

At a July 9 Williams Unified School District (WUSD) meeting, Senior Civil Attorney in the Coconino County Attorney's Office Bill Ring compared the situation with a farmer buying a truck. The vehicle registration fees that the farmer would pay to the state would be based on the market value of his truck.

"What the gas company's done is said, 'No, you know what, the value isn't what the sale price of this truck is. It's the value of what I can load on it to take to market.' So if you're a farmer, suppose you're moving corn," he said. "It used to be that the truck was valued based on what the truck was worth. Now the truck's valued based on what the corn is worth and if the price of corn is high the truck is worth a lot because it's making him money. If the price of corn falls, then the truck is worth nothing because corn's worth nothing."

Because of the change in the way the pipeline was assessed, the new value of the pipeline decreased, since fracking started to occur in other states and decreased the value of gas.

Transwestern was able to go back three years, to tax years 2010-2012, to recoup the amount it overpaid in property taxes before the value of the pipeline was lowered.

The property tax money that Transwestern paid was distributed to various entities, including several school districts, fire districts, a health district and a library district. Countywide, these various entities now owe Transwestern $1,715,093.70 to make up for the additional tax money they received. According to a county press release, school districts will have to repay 74 percent of that amount.

WUSD had originally planned to repay the $129,219 it owed over three years at a 4.25 percent interest rate, which would have come out to $141,368.77. The district could either reduce its Maintenance and Operations budget or raise its property tax rate to generate the money.

However, the Arizona Department of Education (ADE) recently told school districts that they could have been eligible for more state aid during fiscal years 2011-2013 since the pipeline would have paid less in property tax, according to WUSD Business Manager Melissa Ellico.

"Your taxing jurisdiction is required to pay for a certain amount of your school," Ellico said. "Then the state kind of kicks in the additional based on your assessed values. So because that assessed value dropped we would have gotten more state aid payments those years."

The governing board voted July 23 to redo the budget worksheets for the years in question so that the district can regain the state aid it lost during that time. Ellico estimates the district should receive about $76,471 from the state for the three years.

With the restored state funding, the governing board voted at its July 23 meeting to repay the $129,219 to Transwestern in one lump sum rather than over a three-year period, which would save $12,150 in interest.

"We didn't do this, somebody else did it, but we're going to still try to save as much money as we can on it," Governing Board President Albert "Bud" Parenteau said.

In order to pay the remaining $52,748 to Transwestern after the restored ADE money, the district would need to raise the tax rate from its current 4.3971 to a proposed 4.4902. For a home valued at $200,000, that would raise the amount owed in property tax from $879.42 to $898.04. The Property Tax Oversight Commission and County Treasurer must still approve that rate.

Paying the amount in a lump sum will allow the property tax rate to decrease next year, as opposed to remaining high for the next three years to accommodate the additional interest costs.

Flagstaff Unified School District and Maine Consolidated School District are considering repaying the amount over the three-year period. Coconino County plans to repay the entire $1,715,093.70 settlement in October and then enter into a loan agreement with the two districts that will reimburse the county for their amounts over three years.

Meanwhile, the Williams Hospital District will be able to absorb its $39,515.24 portion through a contingency fund without having to raise its tax rate.

"It's a bitter pill," Ring said. "This is a big issue. It's a lot of pain that gets spread out. And some of your taxpayers are going to see it one, two, three, four times, because every one of their districts that they're in is in the pancake where they have to pay. So it's $10 for here and $2 for the other and pretty soon their bill is $30 and not $10.

Coconino County Supervisor Matt Ryan called the tax settlement situation with Transwestern unfortunate.

"It puts the burden on other taxpayers, usually residential, and/or it's a reduction to the budgets for different governmental jurisdictions that they had not planned for based on normal projections and normal assessments," Ryan said. "I'm disappointed in what's happening. Obviously our school districts need the money and they'll be challenged with this reduction that has occurred."

Ellico said people can petition for the legislature to switch back to the original assessment procedure.

"It's a pretty scary thing because it just basically shifts the tax burden from a major corporation to the individual homeowners of your town," she said. "So the corporation makes more dividends and profits and the homeowner buys less food for their family. So it's kind of an off center thing, and it's too bad that this has happened."


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