Kaiser can't pay its taxes Bankruptcy spells trouble for taxing districts

By Jim Camden

and Stacy Schwandt

Staff writers

Kaiser Aluminum has told Spokane County it can't pay nearly $2.2 million in property taxes for 2002, and doesn't know when it will.

The company is in federal bankruptcy court, which means it is "prohibited from paying any debts" it rang up before filing for Chapter 11 reorganization Feb. 12, Kaiser said in a letter to County Treasurer Linda Wolverton.

Kaiser, which owns an aluminum rolling mill in Trentwood and a smelter in Mead, is the county's largest taxpayer for a single piece of property, Wolverton said.

"We've never had anybody this big file for bankruptcy," she said. "The biggest issue is that it happened so fast."

The taxes will most likely be collected eventually, Wolverton said, after a bankruptcy judge sets up a repayment plan for Kaiser's creditors.

The company's total property tax payment is divided among 21 different funds and local taxing districts, going to everything from the county's general fund to the Weed Control Board.

The county's share is just a nibble -- $192,000 out of a $117 million general fund budget -- but for the Mead and East Valley school districts, the loss of Kaiser money is a bigger bite.

For East Valley's District 361, Kaiser property tax payments cover about 6.4 percent of the schools' local tax base -- which goes toward expenses like salaries, classroom supplies and books -- and a similar percentage of a $2.9 million payment the district must make this year on bonds it has issued.

The company's total tax bill to the district is more than $520,000 for 2002.

"We're not panicked," said Tom Crouch, head of the district's business office. "But it's eventually going to catch up with us."

The district will dip into its reserve fund to make up for the $166,000 shortfall in the current school year's general fund budget.

Then, administrators will have to cut even deeper into the 2002-03 budget to absorb the remainder of the losses.

The cuts will not be easy. The district is already facing a $375,000 reduction in state revenue and $100,000 in additional expenses to extend a voter-mandated 3.6 percent salary increase to teachers not paid by the state.

"We've got a double hit to handle," Crouch said.

The district has an $800,000 reserve fund to draw from to meet its bond interest and principal payments.

That's enough to cover Kaiser's $188,000 share of the bond debt, for a while.

"But depending on how long it goes, cash flow could be a problem and we'd have to borrow some money to pay the bills," Crouch said.

Wolverton said the county can loan money from its funds to the districts at low rates if they are unable to find other sources.

Kaiser's property taxes amount to about 2 percent of the Mead School District's general fund and about 2.5percent of its annual bond payment of $4.8 million.

Coupled with other budget problems, such as inflation, state cuts and rising energy costs, the district will have to reduce spending by as much as $1 million, said Al Swanson, associate superintendent.

"The percentage is small, but the magnitude is great," Swanson said.

District officials are meeting with various committees and bargaining groups to figure out how to cut costs without directly affecting educational programs in the classroom, he said. The district expects to have recommendations by mid-May.

Other major recipients of Kaiser property taxes are Spokane Valley Fire District 1, and Fire District 9, which covers areas around Mead.

Valley Fire has an annual operating budget of about $15.5 million, and Kaiser owes the district about $260,000 in property taxes. District 9 has an annual budget of about $5million, and Kaiser's property taxes cover about $128,000.

Although the bankruptcy filing prevents Kaiser from paying taxes assessed before Feb. 12, spokesman Scott Lamb said Kaiser would pay next year's assessment when billed.

Bankruptcy delays payments of bills run up before the filing, but requires the company to pay new bills.

Kaiser paid last year's property taxes in October, and those payments aren't affected by the bankruptcy. Lamb said he did not know the total property taxes paid by Kaiser on its various plants around the United States.

Spokane County Commissioner Kate McCaslin said the county is in a strong financial position with $17million in a reserve fund, so the loss of Kaiser's property tax payments is not going to cause any major adjustments.

"We nit-pick over a thousand dollars here and a thousand dollars there" during budget deliberations, McCaslin said. "But this is not something we're going to lose sleep over. We feel we'll get it at some point."

When a company is in Chapter 11 reorganization, a bankruptcy judge eventually sets up a repayment schedule for creditors. Governments that are owed taxes are near the front of line for repayment, Wolverton said.

"We're in first position. If there's any money, we get some," she said. "We just sit and wait."

More troubling is "the fact that Kaiser's in this position," McCaslin said.

The company, once one of Spokane's largest employers, has closed its smelter and struggled through a series of layoffs at the rolling mill. The high-wage jobs are hard to replace, she said.

The assessed value of Kaiser properties -- and therefore its tax payments -- also have declined in recent years as the aluminum business struggled. The company's 2002 tax bill was down about 13 percent from its 2001 assessment of $2.5 million.

The effect of that shrinkage is felt more dramatically on the schools and other small districts that have Kaiser within their boundaries.

The company remains East Valley's largest taxpayer. But when Crouch started working for the district in 1978, Kaiser's share of the district's tax base was about 33 percent; now it's about 6.4 percent.

When companies like Kaiser lose value, the tax burden on individual homeowners in a school district increases.

That's because levy amounts are determined by the state based on district enrollment and revenue. The amount is then divided among residents based on the assessed value of their property.

•Staff writers Kristen Kromer and Bert Caldwell contributed to this report.

-- Anonymous, April 26, 2002