Tesoro tax assessment to cost borough $80,000

Posted: Friday, December 03, 2004

The Kenai Peninsula Borough's Assessing Department has asked for $80,000 in supplemental funding to cover the cost of appraising the value of the Tesoro Refinery property for the upcoming 2005 tax year.

The Kenai Peninsula Borough Assembly will hold a public hearing on the appropriations measure, Ordinance 2003-19-22, at Tuesday's regular meeting in Soldotna. While the ordinance is written generically that is, it seeks the additional funding for valuing "certain property owned by an oil and gas company," that property is the Tesoro Refinery in Nikiski.

In the current 2004 tax year, the borough assessed the refinery based on an estimated value of $131 million. The borough reached that conclusion with help from an appraising firm, Dudley Pratt & Associates, whose three-year contract has recently expired.

Tesoro appealed the $131 million appraisal to the borough's Board of Equalization, claiming the real value it should to be taxed on was only $50 million, said Shane Horan, director of the assessing department. The board set the value at $93,352,000. In September, Tesoro filed papers in Anchorage Superior Court suing the board in an attempt to overturn that decision.

Meanwhile, Horan said, Dudley Platt & Associates has said it did not want to be involved in assessing the Tesoro Refinery for the 2005 tax year if it should be rehired by the borough, given its recent experience before the equalization board. Horan wants to hire an appraisal firm specifically for handling the Tesoro plant, as well as other independent companies to then review and audit that appraisal, all in an effort to produce as accurate an appraisal as possible, he said.

"It is estimated that the borough will incur $80,000 in costs in excess of the current available budget to hire the professional firm(s) needed to represent the borough's best interest at establishing and reflecting the full and true value of certain property owned by oil and gas companies in the borough for the 2005 tax year," Horan said in a memo to the assembly.

The appraisal itself would cost an estimated $40,000. An independent review of that appraisal would cost another $10,000. A financial audit, to be done by still another company, would cost $20,000. Horan wants an additional $10,000 as a kind of contingency for further consulting, if needed.

Not all oil and gas properties are assessed by the borough. Some are assessed by the state.

The borough assesses properties involved in producing finished products, such as the ConocoPhillips LNG plant, the Agrium fertilizer plant, BP's Gas-To-Liquids plant, Tesoro's refinery and Tesoro's products pipeline. The Alaska Department of Revenue, meanwhile, assesses properties used or committed to exploration and production of gas and unrefined crude oil, including maintenance facilities and associated pipeline transportation systems.

While all properties assessed by the borough are sent a tax bill every year, most are not inspected and reassessed annually, but rather revolve on a five-year assessment cycle. That's typical of residential properties, for example.

Large properties such as Tesoro's refinery, however, are done more often, typically yearly. That's done to take into account how their values can fluctuate, influenced as they are by world oil prices and other factors. Horan said it was vital for the borough to be confident it is assessing the Tesoro plant at its "real and true" value.

"This is a good time to pursue this, with profit margins as high as they are and with the current (high) prices of gas and crude, and their increased production capacity," Horan said.

If the borough assembly approves, any new appraisal resulting from the outside help would apply only to the 2005 tax year. It would not or at least should not influence the dispute over the current year. Each annual assessment is considered a separate matter, Horan said.

But what happens if the assembly turns down the assessor's request?

"If they don't approve, I'm kind of left out there alone," Horan said. "I'd have to regroup. These are big players who put up a good fight. I'm just trying to garner good and credible support to sustain that full and true value that I believe is there."

Horan said he remained confident in his original $131 million appraisal for 2004, but he declined to second-guess the decision of the board to lower it to the current, disputed $93.3 million.

Horan also said it was no negative reflection on Dudley Platt that it did not want to handle the Tesoro plant again. In fact, Horan said he intended to ask Mayor Dale Bagley for an OK to sole-source a new contract with Dudley Platt to handle everything but the refinery. Sole-sourcing means not seeking competitive bids.

Meanwhile, the borough has put out requests for bids to do the appraisal, appraisal review and audit for which he is seeking the $80,000 supplemental appropriation.

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