Tax immunity hands funding dilemma to tribe

With 931 parcels coming off the county’s property tax rolls next year, the financial state of the La Conner School District and Fire District 13 and hundreds of taxpayers rest in the hands of the Swinomish Indian Tribal Community Senate.

On Tuesday, the Skagit County Board of Commissioners essentially directed County Assessor Don Munks “not to break the law,” in the words of Commissioner Ken Dahlstedt.

To that end, Munks said his office has removed from the county’s 2015 tax rolls all homes and other structures that were built on leased land that is held in trust by the government for the Swinomish Tribe.

That action, prompted by a federal court ruling making all buildings on tribal land tax exempt, immediately punches a hole totaling $1.8 million in the budgets of the nine public agencies funded by property taxes paid by homeowners in Shelter Bay and in the Pull & Be Damned Road neighborhoods.

Most of those homes in those densely populated communities are on leased tribal land. While the ground they sit on has never been taxed, the county has been collecting property taxes based on the value of the privately owned structures.

People whose property lies within the boundaries of the Swinomish Reservation but own the land their home sits on will still pay property tax. And, every other property owner in the La Conner School District and Fire District 13 not on tribal trust land will be paying more taxes to cover the amounts the county can no longer collect from the trust land.

That is, unless the Swinomish Tribal Senate establishes a tax code or figures out another way to keep the public services funded without placing the entire burden on the non-trust land neighbors.

And the tribe has been diligently working on it.

A year ago, the 9th Circuit Court of Appeals overturned a lower court’s decision allowing Thurston County to collect property tax from the Great Wolf Lodge, owned by a corporation and built on land held in trust for the Confederated Tribes of the Chehalis Reservation.

The 9th Circuit judges ruled that all structures on tribal land are tax exempt, whether or not they are owned by tribal members. Lawyers advising Skagit County maintain that the Swinomish tribe is the only entity with authority to levy taxes on tribal land.

“Tribal leaders and staff are working very actively to address the issues raised by the Great Wolf Lodge decision,” said tribal attorney Steve LeCuyer with the Swinomish legal department. “Over the past several weeks leaders and staff have had meetings on the issues with representatives and attorneys for the county and the La Conner School District and have heard from affected residents.”

The Tribal Senate met again yesterday to wrestle with the problem. “The issues raised by the decisions are very complex, and tribal leaders and staff are devoting a great deal of time and energy to developing an appropriate tribal response,” LeCuyer said.

For the La Conner area, not only does it mean that properties valuing $138 million will come off the tax rolls, but something that is a nightmare to the agencies that were depending on those taxes and the remaining taxpayers, owners of those properties could claim tax refunds going back three years.

“If some choose to get a refund, it would be taking money out of their neighbor’s pocket,” said Commissioner Ken Wesen.

Refunds that could total more than $5 million would come out of the agency coffers first and then be passed on to the remaining taxpayers.

That specter sparked a heated exchange among residents at the meeting, prompting the commissioners to call for order.

On Tuesday Pleasant Ridge resident Stacie Sutliff told the commissioners that with “a lot of discussion about refunds to Shelter Bay residents,” she’s worried about her home’s tax bill soaring.

Shortly after she spoke, Shelter Bay resident George Frye stood up and said, “I’m one of the people who wants to file for a refund.”

“Thank you!” Sutliff told him. “I’m more than happy to pay for your next ambulance service!”

Before the commissioners got them quiet, Frye said he’s paid plenty in taxes over the years. Sutliff countered that she will pay around $4,000 this year and expects she’ll have to pony up some $6,000 next year if she has to help pay for those now tax exempt.

The commissioners all indicated that they are opposed to issuing refunds, so it’s likely there won’t be any without lawsuits. Commissioners Wesen and Sharon Dillon both pointed out that the 2014 taxes are actually paying for services that were provided in 2013. And Dahlstedt said as far as he’s concerned, giving the money back would amount to “a gift of public funds,” which is illegal.

Many Shelter Bay residents have said they want to pay their taxes – they just want to know whether to write the check to the tribe or to the county.

Still, the commissioners worry that the issue has the potential to cause divisiveness in the La Conner community, which is the only area of Skagit County faced with this situation.

One of the considerations is whether people who aren’t paying for services, such as the Medic 1 ambulance service, should continue to receive them. But the agencies can’t just cut off services on the reservation because sprinkled among the homes on trust lands are properties held in “fee simple” whose owners will still be paying taxes.

Hardest hit will be La Conner School District which passed a $20 million construction bond last year. Now, according to the Skagit County Assessor’s Office, more than 43 percent of the 4,492 parcels in the district will be tax-exempt, knocking a $780,000 hole in the district’s budget.

Fire District 13, which increased its budget this year from $480,000 last year to $741,000 this year, will have $104,000 sliced off its property tax revenue. At its board meeting last month, the district’s chief said that 68.5 percent of the households within the fire service’s boundaries are on trust land. But the tax exempt households account for just under 39 percent of the 3,345 parcels taxed. The fire district’s territory on the east side of the Swinomish Channel consists of sparsely populated farmland and the Pleasant Ridge and Channel Drive neighborhoods.

The Assessor’s office doesn’t readily break down its figures by the actual number of taxpaying households – some farming families, for example, own several tax parcels.

Over the past several weeks, tribal officials have indicated that they intend to keep the schools and public services funded, most likely through a tribal tax code.

Will Honea, an attorney for the county, she he and Commissioner Wesen and School Superintendent Tim Bruce have been meeting with tribal attorneys and officials.

Although the county has had some contentious legal battles with the tribe over environmental issues in the past, Honea said it is wrong to assume that the county and tribe don’t get along. He said they’re working together to “help the La Conner community find a consensus in how to proceed.”

Wesen said it will likely take more meetings until the agencies and the tribe put a plan in place.

And it could be years before the effects of the federal court’s ruling level out the taxing problems in La Conner.