Anchorage has returned more than $1 million in property taxes collected from one of its big taxpayers, Enstar Natural Gas Co., after settling a dispute over the value of the company's pipelines.
The settlement, reached in June and paid out in July, resulted in the protest resignation of the city's long-time property assessor, Marty McGee.
It was McGee's work as assessor that resulted in a big tax increase for Enstar. In 2010, he determined that the utility's pipeline network was undervalued for tax purposes. A review board sided with his higher valuation, though a judge later questioned it.
But it wasn't Enstar's legal challenges that led him to resign the job he held for 13 years, he said in a recent interview. Rather, he said, he quit after being undermined by a top official in the administration of Mayor Dan Sullivan, who, he charged, caved in to the utility rather than fight it. Some administration officials, including his former boss, he said, have a cozy relationship with the oil and gas industry.
McGee's former boss, municipal Chief Financial Officer Lucinda Mahoney, said her decision to close the case was completely appropriate, supported by staff and based on the city's best interests. While her husband, a lawyer, has represented the owner companies of the trans-Alaska pipeline in a valuation dispute, Mahoney said that had nothing to do with the Enstar settlement.
Sullivan said his chief of staff, who had a three-decade career with Enstar, was not involved in the case.
Under the settlement, the city will continue to collect an additional $300,000 a year in taxes from Enstar, based on a higher value of the pipelines. But the agreement forfeits Anchorage's right to collect another $300,000 a year, which the city had been receiving since 2010. The overpayments were refunded, with interest, in July. The check was for $1,051,723.45.
The move to revalue the pipeline was an ambitious one, McGee said. He said he knew his office was probably in for a fight with the gas company.
The decision had been in the works for years, and had the backing of the Sullivan administration, McGee said in a recent interview.
Between 2009 and 2010, McGee raised the value of Enstar's pipeline from $78 million to $119 million. Because property taxes are based on a percentage of property value, Enstar's yearly bill jumped from about $1.2 million to $1.8 million
One basis for changing the value had to do with the estimated lifetime of the pipelines. The city had previously assumed they would last for 30 years, but McGee said it was clear to him that the Enstar pipelines, and others, would last far longer.
"They aren't worn out. They aren't obsolete. They're being used," McGee said. It wouldn't be fair to the rest of taxpayers, he added, to allow Enstar to "get away with paying a fraction of what their value is, when we're going after homeowners for 100 percent."
So for the 2010 tax year, McGee adjusted the formula he used to value the pipeline.
The increase was painful for Enstar, which was taken by surprise, said spokesman John Sims. "Utilities aren't used to sudden change," he said.
As a regulated utility, Enstar is generally allowed to pass on its costs to customers. The company's new tax burden likely would have been borne indirectly by city taxpayers, through their gas bills -- though in proportion to the amount of gas they use.
McGee acknowledged that, to a certain degree, his move could be seen as "shifting coins from one pocket to another." But, he added, that's "not part of the logic that goes into the job."
Enstar appealed its tax bill a month after McGee's new assessment. The case ultimately ended up before Superior Court Judge Mark Rindner.
Rindner issued a split decision in August 2012, agreeing with some of the city's arguments, and saying he didn't have enough information to rule on others. The judge sent the case back to the city's property tax appeals board.
McGee maintains that the costs of sticking with the case -- which likely would have ended up back in court -- would have been manageable, since most of the legal research had already been done, he said.
"The pump was primed. The attorneys on both sides are schooled up on the case, and the issues, and the precedents," he said. "All they're doing is polishing up and poking each other in the eye, the way attorneys do."
Mahoney, however, said she felt that the appeal was taking too long. Enstar, she said, had paid the disputed taxes for 2010, 2011 and 2012, and the city was on the hook to refund the money, plus 8 percent interest, if it lost the case.
McGee said he and the city attorney's office had been discussing a settlement with Enstar this spring, but then, "the rug kind of got pulled out from underneath us," he said. Mahoney "demanded that I come to a conclusion in the month of May."
Doing so, McGee said, would have required too many concessions to Enstar. Instead, he resigned in early May.
"If you settle out a case for half of what you think it should be, you've done a disservice to the other taxpayers," he said. "I felt that it was unethical and inappropriate, in the practice of my profession, to do what she was asking to do."
He did acknowledge that, in his opinion, Mahoney was under pressure to close the appeal from Assembly members who he said want "100 percent accuracy" in tax collection, and no money to be held in reserve by the city to protect against a losing appeal.
Mahoney ultimately approved the agreement. In an emailed statement to the Daily News, Mahoney said she made the decision after consulting with her staff.
"I do not make decisions like this in a vacuum. Based on advice from the legal department and appraisers, we all believed it was appropriate to re-evaluate our methodology," she said. "It was better to adjust the value than to spend taxpayer funds litigating a very uncertain case for years."
Mahoney also pointed out that nearly a year had passed between Rindner's ruling in Superior Court and the city's settlement of the case in June.
"I hardly consider that a speedy close of a matter," Mahoney said. "My role as CFO is to ensure that matters get addressed timely, especially when 8 percent interest is accruing on an overpayment of taxes by Enstar, and when legal efforts have been unsuccessful."
Pam Weiss, the assistant municipal attorney who handled the case, said Mahoney had given staff in the assessor's office "a level of encouragement" to close the appeal. But she said nothing was done too quickly, and everything was vetted by the city's legal department.
"From my end, it got concluded in a manner that was reasonable, and in the end, the time that was needed to develop a valuation was taken," she said. "We made an adjustment that we believed was a reasonable one, and apparently Enstar agreed, because they withdrew their appeal."
McGee said he was concerned about the work Mahoney's husband did for the oil industry in a case over the disputed value of the trans-Alaska pipeline. He said Mahoney should have had someone else work on the Enstar appeal, given the potential for a court decision in the city case to set a precedent affecting the trans-Alaska pipeline.
Mahoney, in her email to the Daily News, said there was no need to recuse herself from the Enstar case.
"My husband had no involvement in it," she said. "I am not an adjudicator, nor were there any conflicts."
McGee also raised concerns about Mahoney's contacts with Enstar officials. Mahoney said those contacts have been limited.
"Anchorage is a small town, and although I occasionally bump into (Enstar President) Colleen Starring at social functions, I did not discuss the substance of this case with her," Mahoney said.
Mahoney added that she was not involved in final negotiations on Enstar's appeal, and based her decision on advice from staff.
Enstar has connections to other city officials. Starring co-sponsored a campaign fund-raising event for Sullivan last year. Sullivan's chief of staff, Dan Kendall, worked for Enstar for more than 30 years.
Sullivan said Kendall had not participated in resolution of the tax appeal "in any way, shape or form."
Sullivan said his only role in the settlement with Enstar was at the very end of the case, when he was briefed on it by his staff.
Two paragraphs quoting Anchorage attorney Robin Brena were removed from the online version of this story. The paragraphs, in which Brena cited the differences between the Enstar case and the much larger dispute in which he participated involving the trans-Alaska pipeline, were not placed in proper context.
Reach Nathaniel Herz at firstname.lastname@example.org  or 257-4311
By NATHANIEL HERZ