Energy

Revenue Department says it deserves 'deference' from pipeline tax board

FAIRBANKS -- The state Department of Revenue says it deserves more respect from the State Assessment Review Board.

It might get that with the shakeup on the board engineered by Gov. Sean Parnell, who fired the former chairman of the appeals board, former Anchorage assessor Marty McGee.

Parnell named two former oil company employees to the board, one from California who resigned from the Alaska board over a residency ruckus. Parnell has yet to put another nominee forward. A confirmation vote on his second nominee, Bernie Washington of Anchorage, is pending before the Legislature.

The SARB passes judgment on one of the key decisions each year by the department -- the taxable value of the trans-Alaska pipeline. In recent years, the SARB has repeatedly found the department's numbers too low.

In a 23-page decision released Tuesday, James Greeley, the state petroleum property assessor, defended his 2014 valuation of the pipeline, which is less than half of what the SARB said it should be last May.

On Feb. 28, the department issued its 2014 value for the pipeline -- $5.7 billion. The oil companies appealed, saying the right number should be $1.4 billion. Regional governments in Fairbanks, Valdez and the North Slope also appealed, saying the right number is $13.7 billion.

The debate is important because it determines how much the municipal governments and the state will collect in pipeline property taxes.

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In reaffirming its $5.7 billion value, the department set the stage for the next step in the process -- an appeal to the SARB with the oil companies arguing the number is too high and the local governments arguing it is too low. It's not clear how the board will act this spring, but with McGee out of the picture, the results could be much different.

Greeley said the state couldn't use the 2013 assessment of $11.9 billion from the SARB as a starting point because the panel "ran counter to sound appraisal practice and principles and the determinations of the Alaska courts."

For its part, the SARB last May said that the department had relied on sources of information rejected by the Alaska courts.

"The board reiterates its view that taxpayers and municipalities should be able to place some reliance on the findings and conclusions of the board and the Superior Court, especially in light of the extensive litigation of prior-year assessments," the SARB said.

Greeley argues that the proposed $6 billion decline in value is necessary because the SARB made errors, used flawed figures and didn't pay enough attention to the department reasoning.

He said stability in pipeline valuation matters must begin with the SARB displaying deference to the revenue department.

"This is self-evident in the department's view, but has been missing from many of the TAPS appeals at SARB when the department's position deviated too far from that of the municipalities," Greeley wrote.

"When deference to the administrative agency is lost, the SARB effectively takes on the role of the assessor in revaluing TAPS each year," he said.

"If deference is lost at the administrative level, predictably litigation will eventuate. This is where we are today. Only balanced dissatisfaction emanating from the administering agency, supported if appealed, will end this feud," he said.

The SARB, with members usually drawn from the ranks of Alaska assessors, is set up in state law to settle feuds when valuation decisions by the department are challenged by the oil companies or by local governments. The members are not paid and usually meet for several days each spring to hear the appeal.

In 2010, the SARB said that the department was not being transparent with the public and was withholding information. It said, "that process was close to broken and is headed in the wrong direction."

This week Greeley said his department "agrees that a process is broken," but blamed the trouble on the SARB.

McGee, the former SARB chairman, said the board never took the question of deference lightly. He said the entity that appeals a decision has to show that an assessor's valuation is unequal, excessive or improper before the burden of proof switches from the appellant to the assessor.

"The determination of the SARB was based on the finding that the burden had been met by the case presented by the municipalities," he said. "The foundation for the 2013 decision was the facts proven at the hearing by the parties to the appeal. All parties had an equal opportunity to present a case. The case presented by the state was found to be lacking in credibility and fact, as demonstrated at the hearing."

The municipalities made the case that the state has been "systematically undervaluing" pipeline properties, McGee said.

Dermot Cole

Former ADN columnist Dermot Cole is a longtime reporter, editor and author.

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