Council Minutes
MINUTES
COMMITTEE OF THE WHOLE
Monday, April 30, 2001
The city council met as the Committee of the Whole on Monday, April 30, 2001 following the special city council meeting at 7:00 p.m. in the council chambers in City Hall with Mayor Brown presiding. Present at roll call were Council Members Brooks, Bjerke, Stevens, Hamerlik, Burke, Glassheim, Gershman, Christensen, Klave, Kerian, Bakken, Kreun, Martinson - 13; absent: Council Member Lunak - 1.
Mayor Brown announced that when addressing the committee to please come forward to use the microphone.
2.1
Appeals of the assessor’s 2001 values:
1. Fred Madsen, 1501 North 4th Street.
Council Member Christensen asked to be excused from voting on this matter, and it was so moved by Council Members Klave and Kreun. Carried 12 votes affirmative.
Mr. Madsen reported he purchased piece of ground from the City in December adjacent to his property, paid $300 for the property and property assessed at $4,800 - that this is a small parcel and can’t be used for building, that his adjacent property is also limited in this usage even though it’s a commercial building - because of the zoning can’t use as a commercial property, and that is reason for protesting the valuation, and asked for review of the valuation.
Mel Carsen, city assessor, stated this is a small lot, 50’x 60’, that Charlie’s Bakery building sits on back part of this lot, front portion is vacant (had a building on it that was bought out and demolished); that they have valued the entire site as any other site in the location assuming he can use that front part in conjunction with his current building and value consistent with other commercial land in that area, slightly lower than residential land adjacent to that, property in R-4 zone; believes property could be used for parking lot to serve building next door and have valued property in that manner.
Howard Swanson, city attorney, reported in their capacity as a Board of Equalization they are to determine whether the determination by the city assessor as to the value for each of the parcels that have appealed is appropriate and consistent with the manner which other properties of similar usage, size and likeness are comparably assessed. He stated that the council will be acting on this at a later date, and whether they choose to make a motion for preliminary approval and recommendation is at their discretion. Board of Equalization will meet on May 7, 2001. There were no additional comments.
2. J. Donna Miller
a) 212 North 9th Street
b) 214 North 9th Street
c) 222 North 9th Street
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Mr. Carsen reported these properties were re-appraised for 2001, and since the appeal they have made another appraisal and find that values on 212 and 214 North 9th Street are appropriate, and are recommending a reduction in value of property at 222 North 9th Street from $35,000 to $25,600; that they have discussed that with the owner and she is agreeable with that.
It was moved by Council Member Gershman and seconded by Council Martinson to uphold the assessor’s value on 212 and 214 North 9th Streets in the amounts of $36,900 and $33,900, respectively, and to reduce the value on the property at 222 North 9th Street from $35,000 to $25,600. Motion carried.
3. Grand Forks Leased Housing Associates I & KK - Dominium
a) 2049 30th Avenue South
b) 2149 30th Avenue South
Jerry Meagher, 1928 Prairie Rose Court, distributed information to the council members, and stated he is representing Dominium Partnership, general partner of Southview I and II, multi-family housing under Section 42 program. He stated Section 42 units are created as a way to help developers raise equity in order to provide affordable housing to the communities, and operate under restrictions as specified in Section 42 - that Southview I and II apartments have rent limits for low income housing requirements, that the rent limits for the Grand Forks market are below the rent limits set by Section 42 requirements.
He stated that Section 42 restricts the ability to transfer property because the tax credits are subject to recapture if the property is sold, therefore, limiting the value and Dominium is stating it’s harder to sell property under this Program (10-year program initially and continues on indefinitely). He stated Dominium is saying that the income approach is recognized as the most reliable and appropriate method for determining the fair cash value of the property of this type, esp. in situations where the property is limited by income restrictions; the cost approach is not appropriate due to the difficulty in estimating obsolescence; and market value is not appropriate as it evaluates market rate and Section 42 properties equally even though the continued long term restrictions on use and occupancy by low to moderate income household does not affect competing non-Section 42 properties. He stated that the low rents affect the value. He also reviewed comparison with Amberwood I and II who also operate part of their properties under a similar program; that they operate only 41% under Section 42 while Southview I and II are 100% and have more restrictions; and reviewed rentals. He stated that the income approach is the only appropriate valuation method for
Section 42 properties, that the real estate taxes for Southview I are overvalued by $276,000 and for Southview II by $337,000. He also showed evaluating tax burden in comparison to their competitors, and that Southview I and II have been valued unequally for tax purposes in
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comparison to other similar properties of the same class of the same taxing district resulting in an unequal share of the tax burden being cast upon the subject property.
Terry Hanson, Urban Development, reported these are low income housing tax credit units, that there is a federal regulation and a formula for computing the maximum rent (30% of 60% of the median income). Council Member Bakken stated that competition is keeping them from charging the max. but that doesn’t have anything to do with the value of a building. Mr. Meagher stated that the value is based on the income that it can generate, and whatever that is at the time is what the value is at the time. Council Member Klave stated that these owners opted to do 100% Section 42 housing when they built the buildings. Mr. Hanson stated there is a total of 8 low income housing tax credit units in Grand Forks, and also subsidized units through HUD that fall under the same - if you consider lowering these as a result of limited rent, also other units in town where rents are restricted to the fair market rent. He stated that when a developer enters into a project under Section 42, low income housing tax credits, that is the only advantage that comes with it, the advantage is that because it’s a low income housing tax credit, the investors are assured of the return OF their investment and the return ON their investment through tax credits, that is off-set by the stringent requirements in the regulations.
Council Member Christensen reviewed figures on net operating income of the property, depreciation, amortizing and capitatlization rate, etc. in determining value.
Mr. Swanson stated that the law in North Dakota is fairly well set out as to what you must consider in arriving at a valuation of property - there are two leading Supreme Court decisions which require where they exist consider the market approach, the income approach, and the cost approach - you may use your discretion in determining which of those three approaches most reliably and accurately depict the value of the property; and in that regard with respect to the handout from Dominium on Evaluation Approach, where it suggests that the only proper valuation approach is the income approach, that would not be true as to a legal analysis but a persuasive statement for you to consider, rather you can evaluate all three forms of valuation and determine which of those three give you the most accurate information.
Mr. Carsen stated that Section 42 properties get income tax benefits when they construct the building, those income tax credits are actually saleable so the property sells independent of the tax credits - the restriction here is the rent cannot go above the regional
maximum - the rents they are getting from these properties are well below that yet, and it’s almost $100/per month/per unit below what’s set by federal law as being the maximum. These properties have been mis-managed in his opinion for at least two years, vacancy has been
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very high because of that; that typically these units are almost 100% full; these were managed to the extent that their rents not being collected, there was trouble with tenants that were not removed, etc.; aside from that to use the income approach on Section 42 properties may not be the best approach - the income approach assumes a certain market rent and assumes a certain capitalization rate that you apply against that to arrive at a market value - in order to get a proper capitalization rate for Section 42 properties, you should use capital-ization rates that are arrived from Section 42 properties - to use a 14% cap. rate is ridiculous - it is way too high, should be more like 10%, but then you also have to use a market rent, these rents are below market rent - and to use an income approach at the restricted level of rent would be improper, and they have valued them like they do all Section 42 properties and all subsidized projects, use the cost approach as a primary indicator of value. If they had enough information to derive cap. rates for subsidized projects and for Section 42 projects from the market, then they could use the income approach effectively. The State Legislature this year addressed this very issue, how should subsidized and Section 42 properties be valued - there were 2 bills that dealt with this, and both bills wanted to limit the process of valuation to the income approach, and both bills failed. He stated that he thinks that the value should be comparable with other properties, to compare to Amberwood is not a good compari-son, Amberwood is 20 years older and went through two floods and now the floor has been leveled up after the second flood and main floor refinished, but they were conservative on those buildings because they didn’t know if he foundations were going to hold, having settled twice - that they plan to reappraise those building for this coming year along with a lot of other apartments; these are valued higher than Amberwood, that there shouldn’t be as much difference as the property owners says but Amberwood too low and these are approx. right in comparison with other properties.
Council Member Christensen stated using the income approach Mr. Carsen would be close to right on, the only issue would be the cap rate 10 vs. 14 - the rule of this is that the higher the cap rate the lower the value because dividing and that he thinks that Mr. Carsen’s appraisal is right where it should be.
Council Member Martinson stated that the vacancy ratio now in apartments is at an all time high of close to 9%, norm for over the past 8 to 10 years is about 3.5%. Information.
It was moved by Council Member Christensen and seconded by Council
Member Bakken to uphold the assessor’s valuations. Carried 13 votes affirmative.
4. Barnes & Noble, 715 Hamline Street by UND
Mayor Brown stated that this item has been withdrawn.
Council Member Bjerke stated that according to the NDCC 57-11-06, that
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if we don’t decide this issue by next Monday night as a Board of Equalization, the assessment is set as is and they can’t come back unless they can prove that they were not subject to that taxation at all. Mr. Carsen stated what the Board of Equalization is doing and has the authority to do, is to change the valuation; if they choose not to change the valuation, there is still the application for abate-ment route that is opened by the property owner; (part of the discus-sion here might well be an Attorney General’s opinion to determine the taxability of the Barnes & Noble store) and if we found that the Attorney General’s opinion rules in favor of the property owner and against the City, the City wanting to tax and Barnes & Noble not wanting to be taxed, and if that attorney general’s opinion came early enough, he could make a correction in the assessment before it became a tax bill, but they are giving up their right to appealing before the City Board of Equalization.
Mr. Swanson stated that what the council is acting upon next week for the business that requested is a tax exemption for new or expanding businesses, a tax abatement is an opportunity for a property owner to come before the council and demonstrate that either the valuation was in error or classification of property was in error and can go back two years on a tax abatement. He stated that in this case if they were to come back and argue or suggest that this is not leased property but rather a management agreement as opposed to a lease and therefore not taxable, you could consider that in the same manner as are tonight.
Council Member Hamerlik stated that the letter distributed this evening from Mr. Gallager, UND, states that they are withdrawing from consideration by Committee of the Whole agenda this evening, and asked if was the intent that it’s being withdrawn or withdrawn this evening and will be back up Monday, and if so, is that the way the process goes. Mr. Swanson stated the correspondence he has which is dated April 30, 2001 reads that they are deferring their appeal which he interprets that they are suggesting that they will not appear to support their appeal tonight but that they are reserving their oppor-tunity to appeal before you next week when you take final action; that he doesn’t know what discussions led up to that or conclusions that were reached but that he is aware that the University of North Dakota through communications with Dean Davis (School of Law) that they are suggesting that they are not subject to tax at all because it is not a lease but a management agreement for the book store; they are sug-gesting that portion of the building is not taxable by virtue of the use of the building or sales that they conduct; the University
through Dean Davis has suggested to him that perhaps we attempt to evaluate the statute under which the city assessor has placed a value on that; that may be why they are asking to defer but has not had an opportunity other than preliminary discussions with Dean Davis to get into any detailed discussion with them, but that he is aware that
there is a suggestion of an Attorney General’s opinion and would be
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somewhat surprised if the Attorney General would render an opinion in this regard because it does not appear to be a question of law, but appears to be a question of fact; typically the Attorney General will not render opinions on questions of fact. Council Member Hamerlik stated that at the point of $1.6 million the City was consistently told that the University would be paying $60,000/yr. for taxes as we built the Barns & Noble and will reaffirm that and go into more detail next Monday if appropriate.
Mr. Carsen stated the Board of Equalization will meet next Monday night, their intent was to pull it off the table currently and discuss the matter later on.
Council Member Christensen stated this is a matter of process, this is a public hearing for reasons for objecting to the assessment, they appear so we receive the information and it is done here. Mayor Brown stated they are not here because they requested that it be pulled off the agenda. Council Member Christensen stated that if there’s going to be an Attorney General’s opinion and the question of whether or not the State land can be taxed or not, then they should defer on the Engelstad also because we should not go forward on that. Mr. Swanson stated that there is a clear distinction between the two, what the University is arguing here with respect to Barnes & Noble is that there is no lease; that it is clear that the Engelstad Arena is a property lease, a real estate lease, but the Barnes & Noble have a lot of the attributes of a property lease in a little different language and wouldn’t take much to the rest of the Bronson Property and turn it into management-type agreements in an attempt to defeat any taxation efforts. He stated that any time you use the income approach that you can manipulate the income approach up or down depending upon what you include in the income or expenses and how prudent you are in the management of property, and that this is the type of discussion he had with Dean Davis as it relates to is it a management agreement or is it a lease; they want to discuss it more but they are not asking to simply defer it, they are actually withdrawing it from future consid-eration. Mr. Swanson stated that the letter uses the word defer; Mr. Carsen stated it was his understanding that they were withdrawing their appeal.
5. Arena Construction, Inc., 801 North Columbia Road
Mr. Carsen stated they have a written communication from the Engelstad people drafted by Jim Kobetsky stating that they wish to
withdraw the appeal on the above described properties.
Council Member Christensen stated that if this moved forward and an attorney general’s opinion was requested and something came down contrary to the assessor’s interpretation of the statute, could the Engelstad people come to us and request an abatement. Mr. Carsen stated they could, they have two years to file an abatement.
MINUTES/COMM.WHOLE/APRIL 30, 2001--Page 7
MAYOR AND COUNCIL COMMENTS
1) Council Member Gershman stated he would like the council to consider a study of the new water plant size and design prior to making a decision - that because of the condition of the water plant and building a new plant in 2010-2011, it’s possible with a study by an outside source we may find that the size of the plant could be reduced with expandability for less money, may be able to move up a new plant to 2006-2007; and requested that we look at that as soon as possible.
2) Council Member Gershman stated that in correspondence with Roger Foster, Transportation Department, who has been communicating with the company on the trolley, that we have an opportunity now that there are a couple trolleys that are available for purchase, and would like a presentation on that as soon as possible to hear the benefits, the maintenance issues and come to a determination; and if don’t do it now could be 18 months to 2 years and virtually the same amount of money for us. Todd Feland stated they will be discussing this at tomorrow’s meeting at 1:30 and at Wednesday’s budget meeting, and looking to see if the City is interested.
3) Council Member Bjerke asked Mayor’s staff to look in the policy at public works, that he was there last week and a person received a ticket and had one of the employees in tears, that you couldn’t negotiate a ticket with a policeman so why negotiate tickets for parking for street cleaning with public works employees; maybe just tell them to see the judge.
4) Council Member Martinson asked what impact the forcemain construction wil have on DeMers and for how long. Mr. Feland stated he couldn’t answer that question as not involved in the project, but that they will be taking down the 7th Avenue South fence. A memorandum will be sent to council members.
5) Council Member Bakken stated he didn’t have problem with study on the water plant, but we do have to watch that if we do have a study, that we still have excess capacity for economic development.
6) Mr. Carsen stated he had distributed some information concerning the two-year new home exemption which will be considered next Monday.
ADJOURN
It was moved by Council Member Hamerlik and seconded by Council Member Brooks that we do now adjourn. Carried 13 votes affirmative.
Respectfully submitted,
Saroj Jerath, Deputy City Auditor