Monday, October 10, 2016
[Amador County] Assessor Rooney responds to Grand Jury
Re: Response by the Amador County Assessor
2015-2016 Grand Jury Special Investigation – Health and Human Services Building Lease
Dear Judge Hermanson:
As an initial matter, neither myself nor the Assessor’s Office had anything whatsoever to do with the negotiation, review, approval, or implementation of the March 4, 2008 Amended and Restated Lease for the Health and Human Services Building, which is the subject of this Report, and none of the Grand Jury’s Recommendations appear to involve either myself or the Assessor’s Office in any way.
However, the Grand Jury has specifically requested my response to this Report in its June 20, 2016 letter. Therefore, as required by Penal Code Section 933, I have prepared the following responses to only those findings that possibly pertain to matters under my control or that possibly pertain to matters under the control of the Amador County Assessor’s Office. Since the remainder of the findings do not pertain to matters under my control, I have not responded to them.
Finding #17: The County had two methods to assess the property tax for the HHS building and property. The first property tax assessment method which was used for the LLC was based on the market value. The second property tax assessment method for the new owners was based on the value of the HHS building’s guaranteed twenty year income from the lease. The two tiered system favored the LLC which had the same lease as the new owners, but they paid about 25% less property taxes. If the LLC did not sell the HHS building, the LLC would have paid approximately 25% less in property taxes each year.
Response: The Assessor partially disagrees with Finding #17.
To clarify, the County Assessor does not assess property tax and there are no property tax assessments, but rather, the Assessor assesses property for property tax purposes.
Concerning methods to assess property, there are three primary approaches, or “methods”, to appraise property in the assessment process, not two. They are the Cost Approach, the Market Approach and the Income Approach. These approaches are commonly used throughout the state to determine accurate values of properties resulting in proper assessments.
There is not a “two tiered system”. Rather there are different types of events that trigger a new assessment. Two of the most common reasons for assessment are change of ownership and new construction.
The first event (not a tier) was when the new construction was completed for the subject. The Cost Approach was the only approach used for this event, not “market value”. This is common practice for new construction, which has not yet sold.
The second event (not a tier) was when the property sold. All three approaches were used and each approach was given consideration. However, due to the subjectivity of the cost data and the scarcity of market data, other than the subject sale, the most consideration was given to the Income Approach which supported the negotiated sales price. All three approaches created a value range that bracketed the sales price, so the sales price value was enrolled as the assessed value as specified under Rule 2 of the Revenue and Taxation Code.
No group or individual was favored with a “two tiered system”. When an entity purchases undeveloped property and builds on it, they generally sell it for more than they put into it or they hold on to it. The buyer then receives a new assessment that, most of the time, is based on the sales price. This situation is extremely common and is essentially what motivates contractors to stay in business. Also, due to the complexities of Prop 13 and its limitations for increasing existing assessments, it is not advisable to rely on assessed values for fair market value purposes and it appears that this has been done in Finding #17.
Finding #18: On May 25, 2010, the County Counsel, the BOS acting as the BOE, and the County Assessor clearly believed that pursuant to Article 6.5 of the March 4, 2008 HHS building lease that the LLC and the new property owners of the HHS building did not pay the property taxes on the first $13.6 million of assessed value but rather that these taxes were paid by the County. This is [sic] belief was one factor as to why the BOE believed the HHS building lease is “gold”.
Response: The Assessor partially disagrees with Finding #18.
After looking at the data concerning the appeal hearing of May 25, 2010, it is apparent that I did interpret the property tax payment portion of the Amended and Restated Lease Agreement incorrectly, which led me to believe that the new property owners of the HHS building were not responsible for the property taxes on the first $13.6 million of assessed value. It is difficult to understand how this item might be important or relevant. The negotiation of the “Amended and Restated Lease Agreement” signed March 4, 2008, occurred over two years prior to the hearing and the purchase of the property for $16.9 million occurred just less than two years prior, on June 6, 2008. I would also find it difficult to speculate that an incorrect or ill-advised statement, made
more than two years after the Amended and Restated Lease Agreement was signed, had bearing on the subject lease or even the valuation of a property that sold for $16.9 million and was assessed for $16.9 million. Additionally, I would not speculate this to be a “belief’ of the BOE members, considering the extensive amount of cost, market and income data that was presented at the hearing.
Finding #19: While the new owners contradicted the county’s claim that the County was paying the taxes on the first $13.6 million of assessed value, this conflict was not resolved by the BOE prior to their ruling against the new owner’s appraisal appeal. The Grand Jury has determined that new owners were correct in stating that they were paying the taxes on the first $13.6 million of assessed value and consequently that the BOE based their decision in part on the BOE’s misunderstanding of property tax payments. Note that this misunderstanding was not simply a misinterpretation of the terms of the Article 6.5 of the lease but rather was a fact whose truth or falsehood could have been determined by an examination of the tax payment records by the BOE and County Assessor’s Office either prior to the BOE hearing or prior to the July 13, 2010 BOE finding to deny the reduction in assessed value of the HHS building.
Response: The Assessor partially disagrees with Finding #19.
Many aspects of the valuation of the property were discussed by the appellant and the Assessor in the appeal hearing. The Cost Approach was discussed briefly as the least reliable of the approaches. The Market Approach was discussed at greater length concerning individual comparables and general market conditions. The Income Approach was also discussed at length giving consideration to the general terms of the lease.
There are three approaches used to determine the value of real estate. Who ultimately pays the property tax bill is not an indicator of value and is irrelevant in the determination of value. The owner’s agent in the appeal hearing also considers it irrelevant at 51:00 minutes into the hearing when he says:
“The point you made that I think is irrelevant to this discussion but if… if this value is lowered it actually will save the county a little bit of money in terms of property taxes. So it doesn’t just save us money it saves the county some property tax money. But again, as far as I understand the rules and regulations, that is irrelevant.”
The explanation of payment of taxes was essentially used to demonstrate that the assessment had increased, resulting in a higher property tax bill and the appellant wanted to pay less in taxes.
The May 25, 2010 statement regarding payment of property taxes certainly had no bearing on the Amended and Restated Lease agreement of March 4, 2008, and the speculation “…that the BOE based their decision in part on the BOE’s misunderstanding of property tax payments.” is a speculation of a circumstance that I do not think is accurate and can be verified by the findings of the appeal.
Thank you for giving me the opportunity to respond to the 2015-2016 Grand Jury Report regarding the Health and Human Services Building lease.
James B. Rooney
Amador County Assessor
September 21, 2016
Amador Ledger Dispatch
Posted by Jerry Budrick