Committee Minutes

Minutes of the Grand Forks City Council/Finance-Development
Committee - Monday, May 10, 2010 - 5:30 p.m. _______________

The Finance/Development Committee met on Monday, May 10, 2010 at 5:30 p.m. in the council chambers in City Hall with Chairman Christensen presiding. Present at roll call: Christensen, Glassheim, McNamara.

Also present were Saroj Jerath, Candi Stjern, Greg Hoover, Council Member Bjerke, Mel Carsen, John Herz, John Warcup, Peter O'Neill, Roxanne Fiala. Pete Haga, Todd Feland, Daryl Hovland, Emily Fossen.

10. Demolition and redevelopment of 732 and 816 N. 4th Street.
Greg Hoover, urban development, reported these are some of the Neighborhood Stabilization Program properties, were in very poor condition and decision was made to demolish the houses. Buildings will be two-story, front porches and are compatible with the neighborhood. Bids were opened on April 22, bid tab attached and asked for recommendation to the council with Craftsman, LLC to do both demolition and building of the properties - $128,079 for 732 N. 4th Street and $130,129.00 for 816 N. 4th Street - They are hoping 9 month construction for demolition and construction and completion would be this year.

Mr. Hoover stated they would send pictures to the committee tomorrow along with mock up of neighborhood after completion of buildings and include with packet on Monday - that Mr. Glassheim had asked that the elevations be included with the report that goes to council and if approved, would do that.

Motion by Glassheim and McNamara to approve award of the bids as noted. Motion carried.

1. Appeal of assessor's 2010 value of Wal-Mart Store, 2551 32nd Ave.S.
2. Appeal of assessor's 2010 value of Sam's Club, 2501 32nd Ave.S.
Mel Carsen, city assessor, reported appeal was filed by Fred Bunch, senior tax rep. for Wal-Mart Stores, Inc. and since receiving the report on comparison of similar stores in Grand Forks showing Wal-Mart to be very favorable with Target, Sears, Menard's and Lowes, and of the Wal-Mart and Target Stores state-wide, Mr. Bunch indicated to him by phone that he was willing to accept the value on this property and on Sam's Club for 2010. He also stated to Mr. Bunch that they are low on these two properties and would perhaps increase them for 2011 as they need to be adjusted upward. Mr. Carsen recommended that they uphold the assessor's value. Motion by Glassheim and McNamara to uphold the assessor's value on these two properties. Motion carried.

3. Appeal of 2010 value of Settle Inn Motel, 1211 N. 47th St.
Mr. Carsen reported that Lee Neuschaefer, Core Solutions Group on behalf of Grand
Forks Lodging Limited, had distributed 30-page report but not all of it included in the packet; report only looked at income approach for value and included one sale of motel that happened two years ago in Wahpeton, that there were sales of 3 motels in Grand Forks in last 15-18 months but two are guarded sales so can't share sale price with him nor publicly. In process of doing that an appraiser came to his office who is doing an appraisal on the Settle Inn and Guesthouse Motel for the owner, possibly for refinancing; and suggested to Mr. Neuschaefer that we hold off until see those appraisals which are not finished. That if not finished before the County Board of Equalization, could take that matter to the County Board, and even if not finished by then, could take still file an abatement based on the appraisal and compare that to the assessor's value - rather than using limited information that he provided, would make sense to wait for the appraisals and is asking that the committee uphold the value.
This afternoon Mr. Neuschaefer e-mailed him that he wanted to be on the phone, discussed that
and our policy is that we don't offer that opportunity to anybody except elected or appointed officials and declined Mr. Neuschaefer's request. Committee asked what were reasons for declining as they felt that the more open the process is. Mr. Carsen stated that the policy is that they don't, unless based on the city attorney's opinion. McNamara stated he would like to hear the city attorney's opinion relative to not allowing somebody to appear by phone in something that was material to the council and that the more open and more transparent we are. Chairman
Christensen stated in various courts, except Supreme Court, can appear or give testimony by phone, and if it is a policy, should review the policy.

Mr. Carsen distributed copies of Mr. Neuschaefer's e-mail that he received this afternoon - that the Settle Inn was built about 30 years ago, but had extensive remodeling 5 years ago (the motel is located behind Perkins), building also had considerable interior work at the same time. He stated income on motels has gone down some in Grand Forks the last year, and has not made adjustment. It was noted that after the appraisal is finished, can take to the County or to the State Boards or for an application for abatement; or even pay taxes under protest in light of appraisal which would generate another appeal - paying taxes under protest gives you 60 days to file an application for abatement with the County and holds tax revenues until that is completed. He stated that last week when he talked to Mr. Neuschaefer, he was acceptable to waiting for the appraisals, so didn't do any further work on it until he talked to him today.

Motion by Glassheim to uphold the assessor's value with understanding that there are other avenues for the appellant. McNamara seconded the motion. Motion carried.

4. Appeal of 2010 value of Guesthouse Motel, 710 1st Ave.N.
Mr. Carsen reported the Guesthouse is the former Town House Motel, same tax rep. working on it, same scenario, and has provided information on the income approach, that there is an appraisal being done for the owner, and should wait for the appraisal.

Motion by McNamara to uphold the city assessor's appraisal; seconded by Glassheim. Motion carried.

5. Appeal of 2010 value of Menard's Store, 3550 32nd Ave.S.
Mr. Carsen stated they have total value of $12,326,400, their rep. with Paradigm Tax Group has talked to him several times on the phone and his appeal is included in the packet, showing comparison of various stores in Grand Forks, Target, Wal-Mart, Lowes and Sears, and that he is saying should take the improvement value, which includes building, yard improvements and divide by sq. ft. of the building showing number, $51.48, Target $49, Wal-Mart is $49, Lowes is $52 and Sears at $17, not sure where he got that number from, and his comparison is shown. He stated that Menard's Store unique to others in that they have outside lumber storage, has garden center which is better than other center, and he has done comparison of the same stores as Mr. Hunter did, but deducted land value, garden center, yard improvements, out buildings to get down to building value - main building value - and on Menard's $6,875,000, divided by sq. ft. and gave value per sq.ft. of $42.35, has done the same for the other buildings and those numbers range - Lowes, $42.91; Wal-Mart at $44.52; Target at $45.23 and Sears at $50.37 - based on this the Menard's Store is the lowest - that he thinks Menard's Store value is proper, should be slightly lower than Wal-Mart, Target or Sears because lesser quality building. Mr. Hunter called him after receiving this today but unable to talk with him, but indicated in voice mail that he did not have a lot of concern with the Menard's Store, more with the next appeal.
Motion by Glassheim and McNamara to accept the assessor's value. Motion carried.
6. Appeal of assessor's 2010 value of Menard's Strip Mall, 3750 32nd Ave.S.
Mr. Carsen reported this was the former Menard's Store itself, which contained 100,000 sq.ft. but they demolished the front part of that store in 2004 and put new front on it and put in 9 spaces for tenants, currently has about 45% vacancy, never filled. Our value on this property is based on cost approach - about 13,592 sq.ft. of tenant space not finished off and has deducted - the owner when he finished off these spaces, no walls, no ceiling, concrete floor and 2 bathrooms in each one of the suites are finished, so 47% unrented and about 45% that's unfinished. - that he has priced the building out as if complete and then taken 13,592 sq.ft. and a negative $30 sq.ft. and deduct of $407,760 off of what it would have been had it been finished. He stated the unfinished building is valued at about $34/sq.ft. and finished building would be about $64/sq.ft.

He reported that Mr. Hunter also presented income approach, took income from last 4 years and averaged them and use that average income for income approach, but problem when building filling up, don't use averages, but look forward not backwards, and doesn't make sense to average 4 years on a building that is more than half vacant. He has valued by his method the finished area only, not put any value on the other 50% of the building or 50% of the land or of the parking lot. That he did an income approach and started out with the rent as it will be when they are done, based on their asking rentals and based on at least 2 leases they have in the building, but tenants have rent that goes to the number he indicated per sq.ft. at the end of the 5 year lease, starts out lower to reinverse the tenant who put in the tenant improvements in that space that is going to be a part of that building, have to value the shell and the interior space and the entire building, so have triple net lease and the tenant pays for the tenant improvements - the owner reinverses the tenant by reducing the rent to some extent for the first four years - has seen two leases - rents starts at $9 or $10 and increase is included in the lease. He stated using his methodology the value is $1,906,000 but that does not value 47% of the building and 47% of the land, and of the parking lot, and that has to have some value. He stated a comparison would be very helpful - Christensen stated you can't appraise a property that is empty, saying what it would be worth if filled.

Mr. Carsen stated that if you have high vacancies that needs to be accounted for in the assessment and makes his job more difficult - income approach anticipates all the income, all expenses and analyze income minus expenses, capitalizing the difference which is called net operating income, capitalize that by some rate to get to a volume - other ways of using the income derived from property other than approved by income approach - don't know their expenses, their income fairly close but not their expenses - and can look at gross fund multiplier is indicating based on the income as he knows it. - but looks at what that building was rented for to another tenant - he stated he was concerned when he saw the vacancy was high - it clearly demonstrates that even if the unfinished base on this mall and the shops at the Aurora mall were finished up are assessing those at $20 to $25 per sq.ft. less than those that are full. - and believes have made the adjustment and numbers indicate that the building value per sq. ft. is complete and is back in the $40 per sq.ft. of unfinished space and on Menard's strip mall is $63, on one in front of Kohl's is $83, and has 23% vacancy yet - 23 compared to 47, and shops at the Aurora would have value of $64 - Terrace Pt. Ctr. in front of Target has value of $79 and South Forks Assoc. in front of Sam's Club is $86 sq.ft. - on Menard's being assessed on the $49.68 and arrive at that by subtracting value of the vacant space. It is clear to him that this one and the shops at the Aurora, both have high vacancies, shops at Aurora are 79% vacant and assessing that at $32 sq.ft. - and thinks they've accounted for the vacancy on record. Christensen stated there is a difference in the quality of construction. Carsen stated the rent of the Menard's strip mall is the highest in town and that is partly why it is vacant in his opinion and have come into time when the economy is softened. He stated his recommendation is to hold the value.

Motion by Glassheim and McNamara to uphold the assessor's value on the property. Motion carried.

7. Appeal of assessor's 2010 value of Slumberland Furniture Store, 1449 32nd Ave.S.
Mr. Carsen reported this is Slumberland's Store and a person from Coldwell Banker in
Minneapolis filed appeal and was planning to send more information but has not. He reported he went through and made a comparison and reviewed comparison of values of other furniture stores, showing sq. ft. value of the building only on those stores. He reported they have 3 buildings that are highly similar to this building that were sold in 2009, 2 sales in the southend of town (guarded sales) and based on these 3 sales his office is in line; that he received an e-mail from Dale Severson that basically said that he wants to live with the value after seeing the report.

Motion by McNamara and Glassheim to uphold assessor's value. Motion carried.

Chairman Christensen stated that if they are going to get materials in the future where have
appraisals and information but its privileged, and before we decide, should go into executive session so have a factual basis for that - how do you make an informed decision and have some degree of objectivity rather than subjectivity and should know the location of the property that is sold.

8. Appeal of denial of property tax exemption on behalf of owners for the following properties: federally subsidized housing projects for low income, elderly or disabled residences; and Terzetto Village properties, single family residential properties with some sold to low to moderate income individuals.
Terry Hanson read prepared remarks to the committee which he wanted entered into the
minutes. (Attachment #1)

Chairman Christensen stated they have the Court's decision, and asked if this is going to be
appealed? Mr. Melland stated he expects this to be appealed but have not filed yet - that wanted
that included in the record, that motion passed by the council was included in transcript of proceedings and the materials that were forwarded, not included. .

McNamara stated that the committee went through this last year in very laborious fashion in
several different meetings, that Mr. Warcup's spread sheet that was given to them for their review, but for the record the only thing that has changed in the meantime is that you went to court and the judge ruled against you and that case is now on appeal. You also went to the Legislature for relief --- Melland stated that they went the State Board of Equalization, not the Legislature, and the State Board declined to act and their argument was that they lacked authority, they failed to have the power or authority to conduct an equalization of the assessment.

One of the problems they have in this case was that Minot and Bismarck both contain properties
that are also of similar character, and would ask Mel whether or not that's the case - whether or not Minot and Bismarck have properties of similar character to those that are in Grand Forks is basically the question that -- Christensen stated there is a definitional problem here and that is you have NDCC 57-02-08 (8) used wholly or in part for public charity - so at some point in time would think that you would want to go to the Legislature to get some definitions as to what is a public charity or what is a charitable purpose, otherwise it is really subjective, and we tried to come up with a matrix in light of the existing case law, ask questions so that we can exercise our discretion, and please give us your arguments and tell us what is different in how you are operating these properties now as opposed to how you were operating these properties last year. - what has changed that didn't exist then. Mr. Melland stated he would try to do that.
Christensen asked if their issue isn't to present it to the Legislature requesting definition in the statute that says that these projects, if they are HUD financed projects that only cater to low or moderate income people and meet the criteria, then they qualify - then its over. Melland stated that should the Legislature act and as the Legislature is not asked for another year but the problem that would have is that there are different interpretations of applications of the same law in different jurisdictions of the state. Christensen stated that different cities, not jurisdictions, and what is relevant is that the State law we are operating under is what is relevant and how the other cities that you say we should follow approaches it, can't do that.

McNamara stated they spent as much time on the Cemetery Assn. and the basis of their discussion was disparity between what they saw in the erroneous way in which cemeteries in some cities were taxed and others were not taxed. We gave them the same advice as we gave you which was either go to the Legislature or take us to court - they went to the Legislature and the Legislature upon examination turned around and made very quick contact with us and said you need to fix this because it was not the intent that they be taxed - your situation is little bit different as judge ruled against you - had a similar situation which got turned around pretty quick and anxious to hear what is different.

Melland stated they were here May 10 at the meeting of the city council and its time for following exemption request for 2010, and the year is different and there is issue - Mandan is different and can add Mandan to the list of cities that have granted exception in cases such as this for properties similarly situated.

Glassheim stated on the definition of charitable, we concluded that you were not a charitable organization - 2 cities have concluded that people similarly situated are charitable organizations but there can be a Legislature fix or Supreme Court fix - definitional question - can say they are or are not charitable and go through the responses - should make a decision and then go to Supreme Court for decision and not our ultimate decision.

Christensen stated we should adjourn on this matter - adjourn on this matter and have a task force or do something - but wanted to make sure that you have every opportunity to present the record, and give us the cities that have done it and would like to have the record that was provided to those 3 cities and what they based their decision on to find that that organization was a charitable organization - wants to see the comparison - not just that someone made a decision but wants to know the basis for that decision and have Mr. Warcup and Mr. Carsen review and get a report - and if want to have a record that you are going to take up because this will be your second appeal unless something changes at the County - and have more of a record. In the meantime you will have gone and have the opportunity to present your facts and your record to the Legislature, meets in January, 2011, and probably won't have this issue if you are successful there in 2012.and if you choose to do what the Cemetery Assn. did, sue us for refund of the tax. - doesn't think should deny this without reviewing everything.

Mr. Melland stated if the committee wants to adjourn and move to a later date, they are fine with that. Christensen asked when they have to have this decided so that they have a good record. Mr. Carsen stated the City Board meets next Monday, County Board meets June 1 - should have done by June 1. Christensen stated if they want to give us that record right now, then can - or can adjourn and reconvene - give committee what they want put into the record, submit it and will accept it. Mr. Melland stated that he would ask that the proceedings of the prior meetings before that the Commission has alluded to and filings that they made in conjunction with those applications be incorporated into this proceeding by reference - would ask that and that his original letter filing notice of appeal that was made last year and supplemented, the copy of a matrix they did relative to some of the properties and would appreciate an opportunity to go over this with the committee.

Mr. Melland reviewed information on attachment #2 - Fact which should be considered to determine whether these properties are tax exempt.

Mr. Melland stated that discussion with Mr. Carsen about whether or not properties in Minot and Bismarck are similar to those in Grand Forks, he did make the reference at the meeting of State Board of Equalization on August 11 and would submit an affidavit by Kathy Freidig who transcribed the records of that proceeding where he acknowledged that the properties in Minot and Bismarck are the same as (inaudible) and also provide a copy to the clerk (Ms. Jerath). Attachment #3.

Chairman Christensen stated what one city does as opposed to what another city does simply isn't relevant because we are being asked to determine what is charitable, what is a public purpose and all we can do right now is review a matrix as we have done, listen to our attorney as we have done and look at the case law of record to give us an idea as to what is a charitable or a public purpose - we have another decision that is moving up because you are going to appeal Judge Kleven's decision and if there is more material that you would like to give us to supplement your submission whatever you gave us last year so we have more current data - what facts today that didn't exist last year when you made the same arguments and what facts exist now that you would like to give us so we have a complete record. Mr. Melland stated he would supplement the record with additional materials for the cities of Minot and Bismarck, current updated materials on the existing properties and why they came up with their decision; and would have that information by next Monday. Christensen also asked if they would give them any other factual information as to what you have done to increase services you are giving to the elderly or to the poor or what you have done to expand your programs, etc. Mr. Melland stated they have that available in written form and did present that last year at meetings that testimony of the service coordinator did not include it in the record and will include that in written form. Christensen stated to Mr. Carsen and to Mr. Melland that whatever you want the committee to consider please do so and if can get that by Monday, will reconvene and get an opinion from our council and city assessor as to the relevance of it and go back and make a decision. Glassheim asked if we will want our attorney to respond to any of these - of Mr. Hanson's remarks or Mr. Melland's chart. McNamara stated that after Mr. Melland gives us what he is going to give us, it should be given to Mr. Warcup and Mr. Carsen for them to give us their recommendation.

Mr. Hanson stated he wanted to respond to a question - at as far as Bismarck is concerned he believes there that their decision that properties is Bismarck are exempt was based on information that they had long time ago, they made that determination or interpretation of the law; believes Minot's interpretation was result of this Attorney General's opinion. There is a definition for charitable in Black's Law and that is listed in this opinion which is, term is used for purposes of tax exemption as its common element, the accomplishment of objectives which are beneficial to community or area and usually recognized charitable purposes not otherwise limited by statute are generally classified as relief of poverty, advancement of education if that's religion, protection of health, governmental or municipal purposes and other varied purposes that accomplishment of which is beneficial to community. Christensen stated that if there is any definition that he just heard, that it is 100% subjective, that is why clarity is required so that it becomes objective when you go to the Legislature and get that done - that his definition of what is beneficial to be using tax dollars is a lot different than Mr. Bjerke's or Mr. Glassheim's so our subjectivity translates into objectivity when we act on something so we would have to make a finding as to one of those things happening that would justify the exemption. Mr. Hanson stated that he knows that the Attorney General's opinion was the basis for a decision of Mandan and will assume that this letter was the basis. Christensen stated then will need another affidavit from someone that voted on it, as to why they did.

Chairman Christensen asked for a 3 minute recess.

9. Application for exemption of remodeling improvements to residential buildings at various locations._______________________________________________________
Mr. Carsen reported this is request by property owners for 3 properties for a 3-year
remodeling exemption on the average value from that remodeling, and his recommendation is to grant them for a 3-year period, council can either grant or not for any specific number of years - 1, 2 or 3 years; the dollar amounts are relatively small from $400 to $565 per property. Motion by McNamara and Glassheim to approve the recommendation. Motion carried.

Christensen asked when they wanted to reconvene on Mr. Melland's and Mr. Hansen's items.
There was some discussion and committee directed setting a special finance/development
meeting on Wednesday, May 19 at 5:30 p.m. (regular finance comm.. meeting on May 24 at
5:30 p.m. prior to budget work session); and a special city council meeting on Wednesday,
May 26 at 5:30 p.m.

ADJOURN

Motion by McNamara and Glassheim to adjourn. Motion carried - meeting adjourned at 8:20 p.m.

Alice Fontaine, City Clerk

To View Attachment Information Provided at the Meeting and Referenced in the Minutes, Please Click here.