Millions of tax dollars are at stake as the owners of the Sandy Creek coal-fired power plant in Riesel sue the McLennan County Appraisal District to lower their tax values.

The owners filed the lawsuit this week in 170th District Court in Waco, claiming that the district’s valuation of $884.5 million is “excessive and unlawful.”

Sandy Creek owners in June asked the local Appraisal Review Board to lower the appraisal by $631 million, saying that a downturn in the coal industry has devalued the year-old plant. The independent three-member board upheld the original appraisal.

The plant was completed in 2013 at a cost of $1.2 billion, but Sandy Creek officials say it is now worth only $253.5 million, which would reduce the company’s local taxes by about $2.5 million.

MCAD Chief Appraiser Drew Hahn said he believes this is the biggest appraisal challenge in McLennan County history. He said the lawsuit could drag on for a year or more and cost the tax-supported district some $300,000 in legal fees.

Until the lawsuit is resolved, Sandy Creek’s owners are obligated to pay taxes only on the undisputed portion of the plant’s value.

The lawsuit doesn’t specify that amount, but local taxing entities say they fear it will be the $253.5 million valuation sought in the appraisal board hearings. Edward Kliewer, an attorney for the owners, declined comment on the case until he gets authorization from all plaintiffs.

The plaintiffs are Sandy Creek Energy Associates, a subsidiary of LS Power; and Brazos Sandy Creek Energy Cooperative, a subsidiary of Waco-based Brazos Electric Power Cooperative. A third owner, the Lower Colorado River Authority, is exempt from property taxes and is not a plaintiff in the suit.

Riesel Independent School District has the most to lose from the withheld taxes.

The school district in 2010 passed a $25 million bond with the expectation that tax revenues from the new power plant would cover about 80 percent of the bond payments.

“Something’s not kosher here,” Riesel Superintendent Brian Garner said. “My concern is for my kids and my community to make sure we get the best deal for the buck. . . . If it’s $1.2 billion when they built it and now it’s only worth $250 million, that’s not good math to me.”

Garner said he has not yet analyzed how the withheld taxes will affect the district’s annual bond payment of $1.8 million. He said it would be a blow to the school district’s finances, but the district has set aside reserves that would help in the short term.

The plant is the largest taxpayer for McLennan Community College, which stood to receive $872,841 from the plant under the original valuation.

Meanwhile, McLennan County offered a nine-year tax abatement to the plant. Under this year’s original MCAD valuation, the abatement was set to reduce county taxes from $3 million to $246,671. That abatement will be reduced for this year if the challenge is successful, County Judge Scott Felton said.

The governing bodies of both McLennan County and McLennan Community College this summer have opposed an MCAD request for a budget increase intended in part to fight taxpayer lawsuits.

But Felton supports the budget increase, saying that the district needs to be prepared to defend its valuations against well-funded corporate legal challenges such as this one. He said when companies such as Sandy Creek win big tax cuts, the tax burden is shifted onto homeowners.

“My concern is that we cannot show weakness,” he said. “We need to be financially strong enough to battle these battles. . . . I’m encouraging the appraisal district to go all the way.”

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