It is human nature for us to make comparisons.  Remember when you were dating (or maybe you still are) and how you compared one date to another to find out which was more “your type”.  The fact is that we do this in many areas of our lives…. Chevy or Ford, Miller or Bud, Batman or Spiderman, PC or Mac, satellite or cable….  Comparisons of similar items help us evaluate them better.  In property taxes, comparisons are extremely important (so important that one of the three approaches to value is the “Sales Comparison Approach”).

Who has heard of the Los Angeles Dodgers?  How about the Reno Aces?  The Reno Aces is a Triple-A baseball team based out of Reno, Nevada.  They recently completed construction on a new ballpark (officially opened in April, 2009) and are disputing the value with the Washoe County Assessor.  According to the Reno Gazette Journal, the Assessor has compared the new Reno Aces stadium to the Los Angeles Dodger’s stadium, saying that the quality of the ballpark is similar to Dodger Stadium.  The attorney for Nevada Lands (owner of the stadium) argues the stadium is a minor league stadium and should be valued accordingly.

I’m just wondering if the Washoe County Assessor has ever been to Dodger Stadium to analyze its comparability to the Aces Stadium.  Let’s see where they compare and where they don’t.  Starting with where they compare… they both play the Cubs.  The Aces play the Iowa Cubs and the Dodgers play the Chicago Cubs.

Okay, let’s see where they don’t compare so much.  Aces Stadium has a capacity of 9100; Dodgers Stadium has a capacity of 56,000 (it now holds the record for being the largest major league ballpark).  The average ticket price for the Aces is $7 (very affordable for families).  The average price of a beer at Dodgers Stadium is probably at least that.  Dodgers Stadium is in Los Angeles with a population of nearly 10 million to draw from.  Aces Stadium is in Reno with about 200,000 to draw from.

Now I’m not a baseball stadium value expert and really am not sure what the going rate for baseball stadiums is, but I do know that an argument for valuing a minor-league baseball stadium against Dodger Stadium is not a fair comparison. This whole comparison thing works best when we compare things that are actually comparable.

I love a cold beer on a hot day…… a hot beer on a cold day, not so much.  According to Larimer County Colorado, Anheuser-Busch is handing them a hot beer on a cold day….a slap in the face.  AB is challenging the property tax assessment on its Ft. Collins plant, claiming the $90 million value is too high and a $50 million value is more appropriate.  The county is questioning why AB never appealed In the past and why the new owner of AB, InBev, is appealing.  Articles on the appeal credit the county with such statements as “We have a new company that is coming in and gaming the system” and “This company would be paying less than its fair share, and everyone else will be paying more than their fair share” and “I think that’s a crappy thing for an employer in Larimer County to do” -  Such harsh accusations, not to mention the language.

Now, I’m not privy to all of the facts and assumptions each side is making in their case, or the merits of each case.  However, isn’t the discussion and debating of values the reason we have the appeals process…. so that each taxpayer pays only their fair share of the property tax burden?  Since when did appealing your property taxes become “gaming” the system?  Just because a value hasn’t been appealed in the past doesn’t mean the value is correct – it may just mean that nobody cared or got around to appealing it in the past.  If the taxpayer was overpaying in the past, does that mean they should continue to overpay going forward?  I’ve seen lots of “crappy” things in my life…. And appealing property taxes is not one of them.

The plant says  “we review assessments on our property nationwide on an annual basis and in the current economic climate realize that market values have declined” and “we seek to work with the county to pay our share” – so let them appeal….. it is their right to have their case heard.  AB has chosen to skip the local Board of Equalization and go directly to the Colorado Board of Assessment Appeals.  According to the articles, Larimer County doesn’t like this.  One article describes the Colorado Board of Assessment as “a group often known to reduce assessed values”.  Excuse me but isn’t that part of their job?  As an objective third party, they listen to both sides of the story and rule to sustain or lower the value based on the merits of the case.

According to the articles the buildings are 1.811 million square feet on 125 acres of land.  At $91,798,000 (the county’s value) this equates to about $51 per square foot.  At $50,000,000 (the taxpayers estimate of value) this equates to about $28 per square foot.  There’s your range of value… now debate it at the Colorado Board of Assessment….. Not in the press!  And when all is settled, enjoy a cold, refreshing beer together.

Here’s the scenario….  Your company has a great idea for a new product and the decision is made to construct a new facility.  In fact, there is so much excitement around the facility that they decide to put it on the “fast track” and build it in six months instead of the originally planned twelve months.  Of course this will add significant cost but the new product produced at the new facility is going to be so big that “fast track” is the only option for the facility.  Will this additional cost increase the taxable value of the facility?  Depending on who you ask, you might get different answers.  An aggressive tax assessor might say yes….  I’m going with no.

Thankfully, property taxes are based on value, not on how much money you might want to throw at a facility.  Value requires that we look at the facility through the eyes of a potential investor.  Would an investor pay more for a facility that cost more to build because it “had to be completed” in six months rather than for a similar property that incurred more “normal” costs and timeframe to build?  I think not.

Generally, excess costs in “fast track” construction will fall into two categories: additional equipment and additional labor.  Let’s start with the additional equipment…..  A “normal” construction project might require the rental of two large cranes for 12 months.  That same project completed on the fast track might require four cranes for 6 months.  The short-term rental of four cranes will likely be on a higher “per month basis” due to the shortened timeframe, which will add more cost to the project.

Now, quantifying excess labor costs can be more challenging…  People are generally less predictable than machines.  Where a “normal” project might utilize one shift of workers per week at standard rates, a fast track project might utilize two or three shifts paid at a premium rate.  And then, there is the whole issue of productivity…..  A study conducted by Columbia University concluded that as hours increase, absenteeism and injuries also increase.  For hours above 48 per week, it takes three hours of work to produce two hours of output…..  Go figure.  Some of you may be thinking “hey I know people who take three hours of work to produce two hours of output at far less than 48 hours per week”.

Excess costs for “fast track” do not have to add to your taxable value.  Do your homework, quantify the costs.  If you’re going to take the fast track - don’t get burned.

Unless you happen to moonlight as a nuclear physicist, you probably were not aware that Cobalt can be a form of nuclear waste.  Make that taxable nuclear waste.  We had the opportunity to work with a company who use radioactive Cobalt to sterilize their products. Because they pay millions of dollars to purchase this Cobalt, the assessor assumed it had a large value and thus was taxing them significantly. Our first task was to determine if this in-house stockpile of “nuclear waste” had any real value, and then consider if the assessor’s methodology and ensuing $22 million valuation were appropriate.

Unswerving in our commitment to grasp the underlying process, we boldly entered the company’s Cobalt Chamber, a virtual crypt with 6-feet concrete walls surrounding a deep pool housing the mysterious, glowing Cobalt.  We discovered that Cobalt, being radioactive, is handled only by licensed suppliers and distributed under the strictest of standards. To our relief, none of us came out of the chamber glowing.  To better understand the characteristics of Cobalt, we went to a reliable source: A friendly, neighborhood Ph.D. in nuclear physics. (Who says those science classes wouldn’t be useful in a property tax career?)

To find the market value of used Cobalt, we first had to consider whether a market existed at all. Surprisingly (or not), we discovered there was no viable market for used Cobalt.  Cobalt can only be sold to licensed suppliers. Even if the company could find a licensed supplier willing to purchase the Cobalt (which is highly unlikely), the Cobalt would then have to be removed by the company’s supplier and transported to the supplier’s facilities (which in this case is in Canada) for testing, before being transferred to the purchaser.  There is no way to know how the Cobalt was previously handled, which increases the potential for leaks or other problems.  And problem resolution is expensive.

It was clear that no company in its right mind would purchase used Cobalt.  Therefore, no active market existed.  The assessor’s office, while willing to concede that cost doesn’t equal value, was not keen on the concept that the millions of dollars spent on Cobalt equaled a zero value.  The value of the Cobalt was, in effect, being considered on an “in-use” basis.  After several rounds of negotiations on the appropriate factors, the assessor’s value was reduced from $22 million to $12 million (a 40% reduction). The company gladly accepted the significant value reduction and subsequent tax savings of over $200,000.

There is really no market value for Cobalt.  It is, in fact, nuclear waste.  If the company were to shut down its plant today, it would incur significant costs just to have the Cobalt removed. Still, the company continues to buy this non-value nuclear waste for millions of dollars each year, which begs the question… How much would you pay for nuclear waste?