Traverse City Record-Eagle

December 15, 2013

Counties oppose oil and gas tax exemption

By MICHELLE MERLIN mmerlin@record-eagle.com
Traverse City Record-Eagle

---- — TRAVERSE CITY— Brad Heikkila worries about Kalkaska County’s finances.

Heikkila heads the county’s equalization department, and used to be excited about an oil and gas boom in the county, particularly by five deep wells spread across the county and another 30 pending permits.

His excitement shifted to fear and anxiety, now that a state Senate bill could exempt some costs associated with drilling wells from local tax rolls. Such cuts could rip hundreds of thousands of dollars from local government coffers.

The bill, introduced in September, would retroactively affect 2013 tax collections.

“I’m nervous about it because I see what we’re having to do just to go into 2014, and we have to make cuts the way it is,” Heikkila said. “Then something like this comes through, and with no other source of revenue to make up for it, this could be a fiasco.”

Grand Traverse and Kalkaska County commissioners unanimously voted this week to express their opposition to the proposed law.

“Our opposition to this bill is not that they’re reducing taxes, it’s that they’re reducing tax revenue for local governments,” said David Benda, Grand Traverse County’s administrator.

Potential reductions would hurt most in small communities that struggle to make ends meet.

Heikkila estimates revenue from taxes on oil and gas drilling generates between $300,000 and $500,000 for Kalkaska County’s budget, which totals between $6 and $6.5 million. Heikkila was unable to estimate a more exact amount because what would and wouldn’t count in the exemption isn’t clear, he said.

Individual townships and schools also could lose out, too.

Jim Baker, director of Grand Traverse County’s equalization department, said he was unsure how the county could be affected because oil and gas companies don’t itemize their assets and costs when they report them.

The new rule is in response to a 2012 State Tax Commission bulletin that spelled out how to assess the taxable value of oil and gas companies. Heikkila said oil and gas companies historically under-reported their assessed value.

At issue with the senate bill is whether costs associated with drilling, such as pouring concrete to line wells, should be considered installation costs, said David Zin, chief economist at the Senate Fiscal Agency. Generally, installation costs are assessed as personal property in Michigan, but there was no rule defining taxable oil and gas personal property prior to 2012.

“If you have assessors that have been doing it, there is a loss,” Zin said. “If they’re not doing it, this is new and (oil and gas companies) are making sure they’re not doing it.”

Michigan Oil and Gas Association officials said the legislation won’t hurt local governments.

“The idea here behind the bill is to clarify what the oil and gas industry believes is an error on the part of the tax commission,” said Deb Muchmore, a spokeswoman for the Michigan Oil and Gas Association.

Baker views the proposed legislation as just another measure that’s slowly chipping away at local government funding.

“We’ve been expected to do more with less for so long, it actually has started weighing heavily on the local government official,” Baker said.

The proposal is co-sponsored by state Sen. Darwin Booher, who represents Kalkaska, Leelanau and Benzie counties.

Booher could not be reached for comment.

Heikkila was surprised his representative sponsored a bill that could cost his county.

“I was taken back that he was one of the sponsors because in the past he’s shown more concern over small governments,” Heikkila said.

“We’re no sooner a year into a comprehensive investigation or inventory and then this new law or Senate bill comes up exempting it; we’re just wondering if the oil companies started noticing we were catching on,” Heikkila said. “They have lobbyists and bigger friends in Lansing than the county government.”