Wednesday, July 2, 2014

Kewaunee County Faces Financial Challenge

The challenges facing Kewaunee County are many, but one in particular has jumped to the top of the list.  That challenge is the financial impact the closure of the Dominion Kewaunee Nuclear plant will have on the county. 

This gets to be a bit complicated, so pardon the length of this description.  Several years ago, legislation was passed at the State that dealt with the possible event of closing of the nuclear plant and how that closure would impact our county financially.  Kewaunee Co. annually receives $713K (6.5% of the total Kewaunee Co. levy limit) from the State, for the power agreement that is in place with Dominion. 

Overall, the financial closure arrangement was fairly well thought out by the legislators.  But, as we learn over and over with big government, when they pass laws, they do not think of all the eventualities that face counties, townships and municipalities.  As long as the plant was generating electricity, Dominion was not paying real estate taxes on the plant with exception of certain farm land that was taxed at agricultural land rates.  The entire Dominion site is just over 905 acres.

The legislation that was ultimately passed was designed to lessen the financial impact to the county.  In the event of a plant closure, a provision reduced the annual power agreement payment by 20% annually over a period of five years.  That would mean the county would lose $142K each year.  So, for example (following closure), year 1 the revenue shortfall would be $142K, year 2, $284K, year 3, $426K and so on until year 5 when we would have felt the total impact of a $713K revenue shortfall.  Although that is not a positive scenario, it lessened the financial blow.  However, one more provision in the legislation was, that, any real estate taxes paid by Dominion to the county would reduce dollar for dollar the amount of dollars paid the county for the power agreement.  So, if an assessment of the plant turned out to be in excess of $66M, the entire $713K of the power agreement would be lost, year one.  At the time this is written, this eventuality is quite real.

Kewaunee County, by law, cannot raise their tax levy, we have a frozen levy limit of $11.1M.  There are three ways we could increase our revenue in the county.  One would be to put in place a sales tax (this sales tax, by law, is supposed to be used to decrease real estate taxes, but as typical with government, in counties where the sales tax has been instituted the money is spent on other expenses). Another would be to have county wide referendum to increase our taxes to cover the shortfall of the revenue.  And a third would be, in the event of new construction in the county.  New construction increases our overall equalized value and thus increases our tax revenue.  Kewaunee County has a $7.77 tax rate now, the 5th highest in the state, so any idea of increasing taxes once again is not very palatable.

Now, keep in mind, Kewaunee County zoning lies with the townships, not the county.  So, assessing the value of the nuclear plant for tax purposes lies with the township of Carlton where the plant is physically located.  The Department of Revenue, State of WI. (DOR) ruled the Dominion plant was not “new construction”, so that ruling effectively negated any idea the county equalized value (and taxes) would be increased.  So, this is where we are at the moment.

There could be one more complication, that being in the event any property assessment placed on the nuclear plant being contested by Dominion.  Here is an example of how that would work.  With an assumed value of $100M, the property tax paid by Dominion would be in excess of $1.6M (county and township, etc.) annually with the county receiving in excess of $757K.  On the surface that looks to be a good scenario as the county is made whole with the tax increase.  But, wait a minute…..remember we have a frozen levy at $11.1M and we would lose the entire $713K power agreement money.  Also, in this instance, the county would be required to reapportion the taxes across all land owners in the county.  So, it would be conceivable the tax rate could decrease.  But we’d have to find $713K to cover the budget gap.  By the way, our finance committee is working on that scenario right now.

Now let’s take that to the next extreme.  What if, Dominion were to contest the assessment in court.  After all, right now that plant is not generating any power and it is really a liability to Dominion.  Perhaps they believe the value is not that great.  If they won that contest?  Now the county would have to go back out and recover the taxes from all parties and this, I am convinced would be a real bad experience for all involved.
At this time we are exploring all options that may in part resolve some of the shortfall we may experience.  We are working with all parties involved to hopefully come to a resolution that is good for all parties.

We are working on a number of fronts internally to deal with the possibility of the loss of the $713K.  For to include a re-evaluation of our county health insurance which is a high cost ticket item for the county.  We have assembled a working group of 16 employees who are working with our insurance consultant and the Finance Committee to determine how we can save a targeted $300K on our plan without severely impacting the overall health care plan for our county employees.  The finance committee has instructed our Administrator to come “find” additional savings in our budget to deal with the lost revenue issue.

A few other “hot issues” in the county we are working on include; the implementation of Family Care sometime later this year, Land and Water, in concert with Health Services put forth a Resolution dealing with the impact of the application of manure to our groundwater (that was passed by the full board in June) and are now working on a new ordinance that will deal with the application of manure on our shallow Karst featured land.  First reading of that ordinance will hopefully be completed at the July board meeting.  In addition, we are in the process of re-evaluating the long term mission of our highway department and determination of landfill future after our current cell is filled.

Our new board and new committees are serving the county well, they are engaged and, in my opinion are dealing with the challenges in a professional, logical manner.  Thank them as they are putting in the extra time to get the job done.

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