More than $50 million in credits awarded to pipeline company

Duane Schrag

Nov. 7, 2009 (McClatchy-Tribune Regional News delivered by Newstex) -- Tax waivers granted to a multibillion-dollar Canadian energy company for a crude oil pipeline that will run through the state will cost local governments almost three times as much in lost property tax revenue than previously believed.

But there's some question whether local governments have any legal basis to challenge whether the project meets legal requirements for the exemption.

Meanwhile, the Kansas Department of Commerce has already decided the project does qualify.

"We did sign a contract (with TransCanada Pipeline) in June for $55.49 million in tax credits," said Joe Monaco, a spokesman for the Commerce Department. The credits will be issued to TransCanada in 10 installments over 14 years. No payment has been made yet.

On the other hand, there has not yet been a ruling on whether the pipeline will also be exempt from property taxes, an exemption that could be worth $1.2 million to Dickinson County, $1.3 million to Clay County and $1.9 million to Washington County in the first year, if approved.

The 36-inch pipeline, which is part of what TransCanada calls its Keystone pipeline, will run nearly due south through the state on its way from Steele City, Neb., to Cushing, Okla. It will pass through Washington, Clay, Dickinson, Marion, Butler and Cowley counties.

It is to carry crude oil from Canadian tar sands to Pakota, Ill., Cushing and the Gulf of Mexico.

FACTOID:

TransCanada told the state this summer that it will cost $740 million to build the 210-mile leg of the Keystone pipeline through Kansas. Based on that figure and estimates derived by the Kansas Department of Revenue, the loss in property taxes in the first year (based on current levies) to the six counties in the pipeline's path will be:

Washington $1.9 million

Clay $1.3 million

Dickinson $1.2 million

Marion $1.9 million

Butler $1.2 million

Cowley $1 million

No Kansas interconnects

At a meeting in Abilene on Wednesday of officials from five of those counties, a consensus emerged to question whether the pipeline qualifies for any tax exemptions.

The law creating the exemptions defines a qualifying pipeline as one "to which refineries ... in this state have access."

But there will be no interconnects in Kansas, a spokesman for TransCanada, Jim Prescott, said this week. Instead, Kansas refineries will use their existing connections to Cushing to access Keystone oil.

The law, which grants both income tax credits and property tax exemptions, lets the Commerce Department decide whether the pipeline qualifies for tax breaks. But existing regulations and case law require that property tax exemptions be handled by the Department of Revenue and approved by the Board of Tax Appeals.

"The pipeline company will file application with Revenue," said Tony Folsom, deputy director of the Property Valuation Division. "Staff will review it to make sure it's accurate. The director makes comments on the application; he can recommend it be granted or not."

The decision will be made by the Board of Tax Appeals.

May not get to argue

The county officials at the meeting Wednesday said they hoped to make their case before the board, arguing against an exemption. Folsom said that ordinarily the only parties to such a case are the state and the property owner, and it will be up to the board to decide whether to accept a brief or allow counties to join the case.

The estimate of property taxes changed almost three-fold because TransCanada has revised its estimate of how much the pipeline will cost.

When the Revenue Department was asked to compute the fiscal impact of tax credits and property tax exemptions, TransCanada said the pipeline would cost $271 million.

But this summer, when TransCanada applied for its tax credits -- the credits are a percentage of the project cost -- it pegged the cost at $740 million, or 2.7 times more than the earlier estimate.

--Reporter Duane Schrag can be reached at 822-1422 or by e-mail at dschrag@salina.com.

Newstex ID: KRTB-0104-39530248