CITY MANAGER'S OFFICE MEMORANDUM

Transcription

1 CITY MANAGER'S OFFICE MEMORANDUM May 8, 2017 TO: FROM: SUBJECT: City Council Michael Smith, Management Intern Consideration and action on a proposed resolution urging the Governor and Legislature to close loopholes that shift a greater property tax burden from commercial to residential properties. (File Resolution No ) Relates to Strategic Plan Strategic Goal Financial Sustainability Executive Summary National big-box retailers and chain stores in Wisconsin and throughout the country are using what is known as the Dark Store strategy to reduce the amount they pay in property taxes. The strategy involves national big-box retailers and chain stores who contend that the assessed value of their new, thriving store should be based on the value of comparable vacant or abandoned buildings, including the property vacated by the retailer prior to moving in to their new property. City Recommendation The City recommends the City Council adopt File Resolution No urging the Governor and Legislature to close loopholes that shift a greater property tax burden from commercial to residential properties. Suggested Motion I move to adopt File Resolution No urging the Governor and Legislature to close loopholes that shift a greater property tax burden from commercial to residential properties. Background The Dark Store strategy first appeared in Michigan and Indiana where many retailers were dealing with depressed property values during the recession. Litigation attempts in both states were favorable for retailers, with many succeeding in reducing their assessments by half. In subsequent years, the strategy has proliferated in multiple states, including Wisconsin. Big-box retailers such as Menards, Lowe s, and Target have employed the Dark Store strategy in numerous municipalities throughout the state. 1

2 National drug store chains such as Walgreens and CVS rely on a 2008 Wisconsin Supreme Court decision, Walgreens v. City of Madison, to convince the courts that their assessed values should be less than half of the actual sale prices of the properties on the open market. This strategy is different from, but akin to, the above-noted Dark Store strategy. Years later, the Walgreens v. City of Madison decision continues to control how assessors must value Walgreens and CVS stores despite changes made to the Wisconsin Property Assessment Manual to counteract the effects of that decision. The City of Janesville has not currently experienced this type of appeal. According to Wisconsin state law, the intent of the assessment process is to maintain uniformity. Employing tax reduction methods such as the Dark Store strategies undermines attempts to maintain assessment uniformity and, subsequently, property tax uniformity. This has remained a key issue in the City s annual legislative agenda for several years. Options Adopt File Resolution No Amend File Resolution No before adoption. Defeat File Resolution No , which would contrast with the City s strategic goals and efforts to engage state legislators on this important issue. Analysis Despite disagreeing with the tax reduction strategies of big-box retailers and national chain stores, municipalities typically have only two options to consider: Costly litigation, or settling with the property owner on a compromised value. As a result, more of the property tax burden is shifted to homeowners and other taxpayers. Since 2011, the City of Janesville has received five assessment appeals using the Dark Store theory. Two appeals have been settled totaling $230,203 and litigation costs for all five cases is at $132,571. This has resulted in a shift of the tax burden as shown below. Property tax loss: Impact on average assessed home: All taxing jurisdictions $230,203 $7.02 City of Janesville (includes litigation cost) $209,308 $6.38 These amounts are likely to increase in the future due to pending settlements. Conclusion File Resolution No is consistent with the City s goals and strategy to engage federal and state legislators regarding issues important to Janesville. If adopted, the resolution would join similar resolutions from 37 Wisconsin communities requesting the Governor and Legislature to address the Dark Store valuation approach. Additionally, the League of Wisconsin Municipalities has two legislative proposals to address these tax reduction strategies and protect the interests of municipalities statewide. Restated City Recommendation The City recommends the City Council adopt File Resolution No urging the Governor and Legislature to close loopholes that shift a greater property tax burden from commercial to residential properties. 2

3 cc: Mark Freitag, City Manager Maxwell Gagin, Assistant to the City Manager Michelle Laube, City Assessor 3

4 FILE RESOLUTION NO A proposed resolution urging the Governor and Legislature to close loopholes that shift a greater property tax burden from commercial to residential properties WHEREAS, homeowners in Wisconsin pay over 70% of the total statewide property tax levy; and WHEREAS, the disproportionate burden of property taxes on home owners will worsen unless legislators take action to close loopholes in property tax law that some national chain stores use to gain substantial reductions in property taxes; and WHEREAS, lawsuits in Wisconsin are forcing assessors to reduce the market value of thriving national chain stores, shifting the tax burden to local businesses and home owners; and WHEREAS, some national chain stores in Wisconsin have argued in communities across the state that the assessed value of their property for property tax purposes should only be half of its actual value on the open market; and WHEREAS, some national chain stores are using what is known as a Dark Store strategy to argue that the assessed value of a new, thriving store should be based on comparing their buildings to nearby vacant or abandoned stores from a different market segment; and WHEREAS, in many cases, courts have sided with national chain stores, requiring communities to refund tax revenue back to the chain stores; and WHEREAS, on two occasions in the last two years, the Indiana Legislature overwhelmingly passed legislation prohibiting assessors from valuing new big box stores the same as nearby abandoned stores from a different market segment; and WHEREAS, the Michigan State house overwhelmingly passed similar legislation in May of NOW, THEREFORE, BE IT RESOLVED, that the Common Council of the City of Janesville does hereby urge the Governor and Legislature to protect local businesses and home owners from having more of the property tax burden shifted to them by passing legislation that allows for leases to be appropriately factored into the valuation of leased properties; and BE IT FURTHER RESOLVED, that the Common Council does hereby urge the Governor and Legislature to enact legislation requiring assessors to consider as comparable only those sales within the same market segment exhibiting a similar highest and best use rather than similarly sized, but vacant, properties in abandoned locations when using the comparable sale method of valuation; and 1

5 BE IT FURTHER RESOLVED, that the Common Council directs the Clerk to send a copy of this resolution to Governor Scott Walker and the City of Janesville s legislative delegation. ADOPTED: APPROVED: Mark A. Freitag, City Manager ATTEST: David T. Godek, City Clerk-Treasurer Motion by: Second by: Councilmember Aye Nay Pass Absent Conley Farrell Gruber Jorgensen Marklein Williams Wolfe APPROVED AS TO FORM: Wald Klimczyk, City Attorney Proposed by: City Assessor s Office Prepared by: City Manager s Office 2