State orders South Routt water district to return $350,682 to taxpayers
The Morrison Creek Water District said it plans to return a total of $350,682 to taxpayers by year-end after the state District of Local Affairs found the local government collected more property tax revenue in 2024 than allowed by law.
“Basically, we overcharged, and we will have to issue a full refund, which we are working on,” said District Manager Geovanny Romero on Tuesday.
How the water district wound up overcharging its taxpayers by roughly 26%, and how it settled on repaying the funds directly, began with district board members and staff raising concerns last December over rising costs linked to a sewer treatment plant upgrade project that began in 2022, according to the district’s attorney, Thomas Sharp.
And it would become even more complicated by the district’s continued uncertainty over the state’s property tax laws and a fraught political climate linked to skyrocketing property assessments in recent years.
Sharp explained how the sequence of complications began as the district’s board worked to settle on deciding the 2024 mill levy late last year.
Looming large behind that discussion was “a real prospect” that the general contractor hired to complete the wastewater treatment plant was going to abandon the project with the work roughly 80% completed, added Sharp.
“That would have resulted in the district being in a terrible financial situation,” said the attorney, because funding for the project came with support from a state grant and a loan from the state — both of which restricted the amount of time and money that could be spent to complete the work.
“It would have been a lot to locate a contractor to come in and finish the project, and we would have been scrambling to try to find that money to pay that contractor,” added Sharp.
As it turned out, the contractor would eventually hire subcontractors to bring the work to 98% completion as of Wednesday, allowing the facility to operate at full capacity — but last December, such progress seemed unlikely to the district board, which went about examining options on how to handle the situation.
As a result of provisions handed down to the district in a 1978 federal bankruptcy case, Sharp said the district has maintained its ability to levy a 20-mill property tax to fund its operations.
Sharp said a 2003 ballot measure approved by district voters meant the district believed they were exempt from the state’s TABOR laws, which generally limit the amount of revenue governments in the state can retain and spend.
The district also believed the ballot question’s approval exempted it from complying with a state tax law, known as the “Annual Levy Law,” that restricts the amount of total property tax revenue a local government may collect each year to the previous year’s total property tax revenue plus 5.5%, and plus allowances for growth.
“After that, the district continued to have 20 mills levied but near the end of (2010) as things came out of the recession, the district started being able to go ahead and meet the 5.5% limit and chose to do so by way of a credit,” said Sharp.
The district applied that limit in the years following but with the uncertainty linked to the sewer treatment plant’s construction, Sharp said he believed the district could choose to apply a full 20-mill levy in 2024 without crediting 5.5%.
The state’s Department of Local Affairs, which enforces the “Annual Levy Law,” disagreed.
The county acknowledged the district’s explanation, which traced the history of the bankruptcy case and the 2003 ballot question, but Sharp said the state agency said it would further investigate the matter.
On May 16, the agency sent an official notice to the district indicating the agency disagreed with the reasoning behind the 20-mill levy.
“A comparison of the revenue levied to the calculated amount shows an excess of the 5.5% limit,” the letter read. “If this excess is not resolved, the (department) will order a decrease of tax revenues next year.”
The department subsequently denied an appeal filed by the district, explaining that language included in the 2003 ballot approval “cannot be viewed as voter approval for the district to wave the statutory property tax limit.”
“The 2003 ballot language specifically clarifies that property tax revenue limits cannot be exceeded, and the (bankruptcy plan) for indebtedness from 1978 does not appear to include an order from the court to impose a mill levy for this budget year,” the department said in its decision.
A spokesperson for the Department of Local Affairs said the agency could not respond to inquiries on the matter prior to this newspaper’s deadline.
‘Cutting Checks’
The appeal denial left the district with two choices for correcting its over-collection of tax revenue: Submit a ballot question to voters to gain approval for the waiving the 5.5% limit for the 2024 budget year; or comply with the mill levy credit order by the Department of Local affairs in its 2025 tax collection.
Sharp said neither seemed like good options. The board was hesitant to add a tax question to the ballot in 2025 because “we thought the chances of that passing in a political environment we are in today with the increased valuations, it was not going to be approved.”
On the other hand, by applying a credit to 2025 tax collections, the district felt uncertain over how potential changes to the state’s property tax laws could affect its revenue moving forward.
“We should have collection of about $550,000 (in 2024), so if next year we would have to go back to the $550,000, raise it by 5.5% and then reduce it to create a $350,000 credit, that would drop revenue down to roughly $250,000 for the year,” he said.
So, the district found a third path. According to Sharp, prior opinions issued by the state’s Attorney General “say you are permitted to do a refund by cutting checks to people that paid (the overcharged) property taxes.”
“There is so much uncertainty, the board said, ‘Look, we are going to comply with what DOLA required and the safest thing we can do is to cut checks to individuals for that additional excess money that we collected over and above what would have been a 5.5% increase,'” he added.
Sharp said the effort to return the money to roughly 2,500 taxpayers, who will receive 26% of what they paid on their property taxes this year, would not come without complications including how to ensure the 100 or so individuals who did not pay their tax bill do not receive credit.
There is also the matter of dealing with properties that have changed hands since the taxes were levied.
“We are going to try to get them all out, I think, before December,” said Sharp. “This is going to be quite a bit of work for (Romero) and his staff and for the county’s treasurer, who has thankfully agreed to help.”
“It’s going to be very complicated, but we are going to do our best,” he added.
Trevor Ballantyne is the city government and housing reporter. To reach him, call 970-871-4254 or email him at tballantyne@SteamboatPilot.com.
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