Saskatchewan Municipal Board Assessment Appeals Committee

Saskatchewan Municipal Board Assessment Appeals Committee Appeal: 2009-0035 RESPONDENT: Rural Municipality of Sherwood No. 159 OWNER: Newalta (Sask) Corporation In the matter of an appeal to the Assessment Appeals Committee, Saskatchewan Municipal Board, by: Clint Kimery respecting the assessment of: Parcel Y, Plan 93R63704 (Pt. SW 21-17-20 W2nd) for the year 2009; BEFORE: APPEARED FOR THE APPELLANT: APPEARED FOR THE RESPONDENT: APPEARED FOR THE OWNER: David Wilkin, Chairman Patrick F. Dunne, Member Randy Markewich, Member Cynthia J. Schwindt, Secretary Clint Kimery No one appeared No one appeared APPEARED FOR THE SASKATCHEWAN ASSESSMENT MANAGEMENT AGENCY: Dona-Lynn Morley, Sunil Sood, Murray Merson This appeal was heard in Room 460, 2151 Scarth Street, in Regina Saskatchewan on September 1, 2010.

APPEAL 2009-0035 [Page 2] This appeal is brought pursuant to section 246 of The Municipalities Act, (the Act) and is against the property valuation, property classification and the preparation or content of the assessment roll where the Board of Revision (the Board) for the Rural Municipality of Sherwood No. 159 (the RM) refused to hear the appeal. ISSUES: Did the assessor err in determining the assessed value for the subject property by: (i) (ii) Neglecting to account for the depreciating effect on the value and desirability of the property caused by the costs associated with a Phase II environmental engineering investigation; and, Failing to reduce the assessed value for stigma? FACTS: (1) According to the assessment records of the RM, the subject property (a 2.47 acre parcel located at 2770 Pinkie Road) is owned by Newalta (Sask) Corporation (Newalta), which has a mailing address of 2830 Bremner Avenue, Red Deer, Alberta T4R 1M9. A waste management facility operates from the property. (2) Constructed on the subject site is a one storey steel and wood frame office/workshop building. There is 6,400 square feet of this building that has 20 foot storey height while the remaining 1,174 square feet has a storey height of 10 feet. A 1,056 square foot storage mezzanine is located within this building. Also situated on this site is a 320 square foot light commercial utility building. All of these improvements were constructed in 1995. A 280 square foot storage warehouse was added to the site in 2005. Additional improvements to the site include six 566 barrel refinery storage tanks that were also added to the site in 1995. There are six 5,939 gallon, two 12,000 gallon, a 5,400 gallon, a 10,700 gallon and an 11,000 gallon vertical storage tanks which were added to the site in 1994. (3) The assessed value (assessment) and taxable assessment for the subject property are both $505,200. The retroactive base date of municipal assessments for taxation purposes in the Province of Saskatchewan is June 30, 2006. As a commercial property, the percentage of value equals 100% of the assessed value.

APPEAL 2009-0035 [Page 3] (4) The appellant filed his notice of appeal to the Board under date of May 31, 2009. This appeal was date stamped received by the Board on June 1, 2009. (5) The secretary advised the appellant in her letter dated July 7, 2009, the appellant s appeal would not be placed on the list of appeals to be heard by the Board on the basis that the appellant did not have an interest in the subject property as required by subsection 225(1)(a) of the Act. (6) On July 9, 2009, the appellant submitted an appeal to the Saskatchewan Municipal Board, Assessment Appeals Committee (the Committee) identifying the following grounds of appeal: BOARD OF REVISION refused to hear or decide the appeal, therefore I submit this appeal in accordance to Section 246 of the MUNICIPALITIES ACT. (7) The Committee convened a hearing to determine whether it had jurisdiction to hear the appeal and rendered its written decision on January 14, 2010, finding that it has jurisdiction to hear the merits of the appeal. (8) On February 12, 2010, the Saskatchewan Assessment Management Agency (SAMA) filed a Notice of Motion to Obtain Leave to Appeal to the Saskatchewan Court of Appeal (the Court). (9) On April 16, 2010, SAMA advised the Court of its decision to withdraw its leave to appeal application. (10) The Committee scheduled a hearing to deal with the merits of this appeal for September 1, 2010. (11) The Committee received from the appellant the following submissions: a) One-page letter dated August 25, 2009, marked by the Committee as Exhibit AAC-A1; b) One-page letter dated August 27, 2009, marked by the Committee as Exhibit AAC-A2; c) One-page letter dated October 15, 2009, marked by the Committee as Exhibit AAC-A3; d) A six-page written submission signed by Clint A. Kimery dated August 3, 2010 with nine attachments, marked by the Committee as Exhibit AAC- A4; and, e) An eight-page Professional Development Course document titled Environmental Issues: Site Contamination, marked by the Committee as Exhibit AAC-A5. (12) The Committee received the following submissions from SAMA:

APPEAL 2009-0035 [Page 4] a. A six-page written submission signed by Dona-Lynn Morley dated October 16, 2009, with seven attachments, marked by the Committee as Exhibit AAC-R1; and, b. An 18 page written submission signed by Murray Merson dated July 30, 2010, with three attachments, marked by the Committee as Exhibit AAC- R2. LEGISLATION: The Municipalities Act: 193 In this Part: (d) base date means the date established by the agency for determining the value of land and improvements for the purpose of establishing assessment rolls for the year in which the valuation is to be effective and for each subsequent year preceding the year in which the next revaluation is to be effective; (e.1) market valuation standard means the standard achieved when the assessed value of property: (i) is prepared using mass appraisal; (ii) is an estimate of the market value of the estate in fee simple in the property; (iii) reflects typical market conditions for similar properties; and (iv) meets quality assurance standards established by order of the agency; (e.2) market value means the amount that a property should be expected to realize if the estate in fee simple in the property is sold in a competitive and open market by a willing seller to a willing buyer, each acting prudently and knowledgeably, and assuming that the amount is not affected by undue stimuli; (e.3) mass appraisal means the process of preparing assessments for a group of properties as of the base date using standard appraisal methods, employing common data and allowing for statistical testing; (e.4) non-regulated property assessment means an assessment for property other than a regulated property assessment; 194(1) All property in a municipality is subject to assessment. 195(1) An assessment shall be prepared for each property in the municipality using only mass appraisal.

APPEAL 2009-0035 [Page 5] (2) All property is to be assessed as of the applicable base date. (3) Notwithstanding subsection (2), land and improvements may be assessed separately in circumstances where separate values are required. (4) Each assessment must reflect the facts, conditions and circumstances affecting the property as at January 1 of each year as if those facts, conditions and circumstances existed on the applicable base date. (5) The dominant and controlling factor in the assessment of property is equity. (6) Equity in regulated property assessments is achieved by applying the regulated property assessment valuation standard uniformly and fairly. (7) Equity in non-regulated property assessments is achieved by applying the market valuation standard so that the assessments bear a fair and just proportion to the market value of similar properties as of the applicable base date. 225(1) An appeal of an assessment may only be taken by a person who: (a) has an interest in any property affected by the valuation or classification of any property; and 240(1.1) Notwithstanding subsection (1), a non-regulated property assessment shall not be varied on appeal using single property appraisal techniques. (3) Notwithstanding subsection (1), an assessment shall not be varied on appeal if equity has been achieved with similar properties. 246 Subject to section 224(5), any party to an appeal before a board of revision has a right of appeal to the appeal board: (a) respecting a decision of a board of revision; and (b) against the omission, neglect or refusal of that board to hear or decide an appeal. 256(1) After hearing an appeal, the appeal board may: (a) confirm the decision of the board of revision; or (b) modify the decision of the board of revision in order that: (i) errors in and omissions from the assessment roll may be corrected; and (ii) an accurate, fair and equitable assessment for the property may be placed on the assessment roll. (2) If the appeal board decides to modify the decision of the board of revision pursuant to subsection (1), the appeal board may adjust, either up or down, the assessment or change the classification of the property.

APPEAL 2009-0035 [Page 6] (3) Notwithstanding subsections (1) and (2), a non-regulated property assessment shall not be varied on appeal using single property appraisal techniques. (3.1) Notwithstanding subsections (1) and (2), an assessment shall not be varied on appeal if equity has been achieved with similar properties. (4) After a decision is made pursuant to subsection (1), the secretary of the appeal board shall, by ordinary mail, send a copy of the decision together with written reasons, if any, for the decision to each party in the appeal. SAMA S 2006 COST GUIDE (THE COST GUIDE): Chapter 1: Introduction, Environmental Contamination, Section 1.4, pages 1 and 2 (Date: 12/2007) Chapter 1: Introduction, Environmental Contamination, Section 1.4, page 3 (Date: 03/2007) CASE LAW: Prince Albert (City) v. Twin Oaks Management Inc. (1995), 131 Sask. R. 223, 95 W.A.C. 223 (C.A.). COMMITTEE DECISION: Appeal 2009-0033, 614630 Saskatchewan Ltd. et al v. City of Regina CONCLUSIONS AND REASONS: [1] In this appeal, there is no record of a board of revision hearing to rely on. With the concurrence of the parties at the beginning of the hearing, the Committee will rely on the documents listed under FACTS above in order to consider the issues that have been raised for this appeal. [2] The appellant submitted that the business operation currently used on the subject property is a hazardous waste handling, processing, consolidating and transfer facility. The appellant submitted that the current commercial classification assigned to the subject by SAMA is correct. He noted that SAMA has failed to consider all of the facts, conditions and circumstances impacting the subject s value. The appellant referenced Exhibit AAC-A5 in support of his position that real estate

APPEAL 2009-0035 [Page 7] appraisers must consider environmental site assessments (ESA) in establishing valuation parameters (i.e. should a Phase I, II, or III ESA study be required). [3] The appellant argued that in order to expand, mortgage or sell the subject property, completion of a Phase II ESA would be required to determine whether it is contaminated. He argued that the cost associated with this study, cannot be avoided and would affect the subject s market value. In support of his position on this issue he referenced the July 21, 2009 letter from B. R. Gaffney & Associates Ltd. as found in Exhibit AAC-A4 where it was stated the cost of a Phase II ESA would likely reduce the market value by the cost of the study. Additionally, the appellant submitted that the drilling and sampling activities required in order to complete the Phase II ESA automatically initiates a stigma which would further reduce the market value of the property. [4] The appellant referenced page 2.10 of Exhibit AAC-A5 and advised that stigma is defined as [a] market-imposed penalty. Stigma can exist whether or not the property is itself contaminated. He referenced page 3.6 in support of his position that stigma can negatively affect the market value of a property that is located near a contaminated property. The appellant argued that SAMA has failed to take both of these factors into consideration in completing the assessment for the subject. He submitted that all commercial properties in the RM are not subject to completion of a Phase II ESA and therefore SAMA s failure to consider this cost results in an inequitable assessment that is not fair. [5] The appellant referenced the SAMA Data Element Dictionary included in Exhibit AAC-A4. He noted that the Technical Guide supplements SAMA s assessment manuals with various abbreviations and codes identified for use in the valuation process. He noted that the introduction is clear in confirming that [t]hese codes have been standardized to help SAMA staff provide clear, consistent results in appraising rural, urban (both residential and commercial), and industrial properties. He noted that within the many property use codes identified in this

APPEAL 2009-0035 [Page 8] dictionary, there is no code for those properties that have been and are used to handle hazardous wastes. [6] The appellant advised that he has not been provided an actual estimate or cost associated with a Phase II ESA. He submitted that on a hearsay basis he is aware that these types of reports that have been completed for properties used as gas service stations can be in the range of $50,000 to $100,000. He noted that the environmental contamination adjustment identified in the Cost Guide is not applicable to the issues he is raising. As noted in this material this method relies solely on a Phase III ESA to establish an estimated cost-to-cure the known contamination. He argued that this approach fails to adequately consider both the stigma associated with hazardous waste handling facilities and those costs associated with Phase II ESA studies that are required to establish whether a property is contaminated. [7] In response to a question from the panel, Mr. Kimery noted that a Phase II ESA would not require completion until such a time as the property owner attempted to re-finance or sell the property. He advised that he was not aware of whether the property owner had completed a Phase II ESA on a portion of the subject site that they purchased from Resolve Recycling. The appellant advised that Saskatchewan Environment provides a permit which allows waste handling facilities to operate their business. According to the appellant inspection of these facilities is completed on an annual basis by Saskatchewan Environment. [8] SAMA noted that subsection 194(4) of the Act requires the facts, conditions and circumstances affecting all property as of January 1 of each year be reflected in the property s assessment. SAMA argued that the appellant has not provided any specific evidence that would support a finding that the subject s assessed value has been impacted by environmental contamination. No phase I, II or III ESA has been provided in support of his position. With no evidence provided by the appellant, SAMA questioned how an assessor could calculate an adjustment for this factor?

APPEAL 2009-0035 [Page 9] [9] SAMA advised that as a non-regulated property the subject s assessment was to be determined according to the market valuation standard. Ms. Morley noted that the use of the Cost Guide to determine the subject s assessed value by the cost approach met the four criteria identified in the Act for the market valuation standard. SAMA noted that in instances where the sales analysis supported the application of an obsolescence factor (steeply sloping resort lots) this factor was used to determine assessed land values. SAMA submitted that should the same information exist for properties affected by environmental contamination or stigma an obsolescence factor would be determined and applied. [10] SAMA noted that according to the Cost Guide, if the subject site was contaminated and a cost-to-cure estimate was provided one of the following three scenarios would be available for application. If the property was still used for the use to which it was put before the identification of contamination it would qualify for a maximum reduction of 10%. If the contamination results in the use for which it was initially put no longer being allowed but does not entirely restrict the property from being used it would qualify for application of 50% of the estimated cost to cure to a maximum of 90% of the total assessed value. Lastly, if the property could no longer be used it would qualify for application of 100% of the estimated cost to cure to a maximum of 99% of the total assessed value. [11] In response to a question from the appellant, SAMA advised that it has not applied an adjustment to any property for costs associated with a Phase II ESA. SAMA clarified that should this report be available and provided it would use this information to determine whether an adjustment was warranted, and further if sales were available, this information would likewise be used to determine whether an adjustment was warranted. SAMA noted that a sales vetting process is completed for all property sales, which in its view would lead to an identification of both contaminated properties and properties impacted by proximity to contaminated properties that have sold.

APPEAL 2009-0035 [Page 10] [12] The appellant s submissions were that in order to calculate the subject s market value two further adjustments must be made. In support of this position he provided Exhibit AAC-A4 and two Letters of Opinion from a local real estate appraiser and consultant. In order to address the market value issue and its impact on the assessed value, the Committee considers it appropriate to visit some new definitions and to revisit other definitions that have been part of the assessment appraisal environment for some time. The Committee notes that in its legislated mandate to prepare and establish, by order, any assessment manuals, guidelines, handbooks and other materials required for the valuation of property SAMA has prepared the Guideline referred to above. [13] The International Association of Assessing Officers defines sale price in the text Property Appraisal and Assessment Administration as [t]he price for which a property was sold. [14] While there are definitions given for market value by various professional authorities, it is defined in subsection 193(e.2) of the Act as:... the amount that a property should be expected to realize if the estate in fee simple in the property is sold in a competitive and open market by a willing seller to a willing buyer, each acting prudently and knowledgeably, and assuming that the amount is not affected by undue stimuli; [15] To provide direction to assessment users in Saskatchewan, subsection 193(e.1) of the Act introduces and defines a new term, market valuation standard. This is:... achieved when the assessed value of property: (i) is prepared using mass appraisal; (ii) is an estimate of the market value of the estate in fee simple in the property; (iii) reflects typical market conditions for similar properties; and

APPEAL 2009-0035 [Page 11] (iv) meets quality assurance standards established by order of the agency; Further, subsection 193(e.3) of the Act defines mass appraisal, as: the process of preparing assessments for a group of properties as of the base date using standard appraisal methods, employing common data and allowing for statistical testing; [16] In the Committee s view, the sale price represents the actual and historical amount a single seller and a single buyer concluded is the price for which a specific property was exchanged. This is a reported number and makes no judgment on the knowledge or stimulus of either party and has no limitations placed on the sales environment. [17] In a single property appraisal, the objective is to examine a series of sale prices to estimate what price any buyer and any seller, acting openly, knowledgably and without duress, would pay for a specific property at a given time. This is the market value. [18] In mass appraisal, the objective is to examine a series of sale prices to estimate what price any buyer and any seller, acting openly, knowledgably and without duress, would pay for any similar property in a market study area at a given time. This is the market valuation standard. [19] Therefore, there is a link to the three values being considered, where the market valuation standard is intended to estimate the market value which, in turn, is intended to estimate sale price. In this assessment cycle, it can no longer be said that the value placed on the assessment roll is an artificial value because of these links. However, one must recognize there is a progressive range of variables from the sale price to the market value to the market valuation standard. The values found are tested separately, applied to different purposes and, as a result, may vary in the final dollar amount.

APPEAL 2009-0035 [Page 12] [20] The Committee notes that the assessor has relied on the cost approach to determine the subject s assessed value. The principal concerns of the appellant relate to his belief that the cost associated with the completion of a Phase II ESA and the impact of stigma on the subject property should be considered and if warranted used by the assessor in the calculation of its assessed value. The appellant argues that the assessor s calculations to determine assessed value do not reflect actual market conditions impacting the subject property. The Committee notes the assessor s submissions that the calculations for the subject s cost model were based on an analysis of vacant land and improved property sales (common data) which allowed for statistical testing as required by the Act. In light of the evidence and argument submitted, the Committee concludes that the appellant s suggested approach does not meet the requirements of the market valuation standard as expressed within the legislation. [21] Further, the Committee considers the facts for this appeal to be similar to those considered by the Court in its decision for Twin Oaks, supra. While that case dealt with a property that the owner had granted an easement over, resulting in restrictions for its use and a potential loss in its market value, this case deals with a property that the owner has chosen to use for a business venture that could be potentially harmful to the property. The decision of the Court for Twin Oaks, supra was: Parties may choose for their own private financial reasons to hamper their ability to use their own property because they prefer the advantage given by the contractual agreement, such, for example, as immediate cash. Similarly, someone in the position of the taxpayer in this case who buys land which is, according to the title, limited in use by a caveat can insist that this factor be taken into account when he is negotiating the purchase price he is prepared to pay for the land. Such factors might lead, were they required to be applied as a matter of law, to fluctuations between virtually identical properties, with the person bearing the lesser tax load having already received the advantage of, for example, a capital payment for the grant of the easement. For these reasons we are of

APPEAL 2009-0035 [Page 13] the view that the answer to the narrow question posed to us is no. The Committee is aware that the owner of the subject property has and continues to financially benefit from the use of this property through the operation of his business of handling hazardous waste materials. If this use were to be considered as supporting a reduction in assessed value as requested by the appellant, it could well lead to tax load differences between virtually identical properties with the subject receiving the advantage of paying reduced property taxes. [22] Additionally, the Committee is aware that within the appellant s Exhibit AAC-A5 submission, there is evidence of contradictory studies which at minimum appear to support a finding that more local sales information should properly be considered in order to establish that an adjustment for these factors is warranted. The Committee notes the following as found at page 3.8 of this submission:... Job creation, job quality, and tax-base benefits resulting from proximity to the urban industrial area may actually lead to a boost in property value. Mere existence of a nearby hazardous waste facility, for example, does not necessarily mean that property values will decline. In one study, property values near such a facility were found to have appreciated in relation to comparable properties in the community. [23] The Committee finds that the cost associated with having a Phase II ESA completed, should not be removed from a property s assessed value, nor should the subject s assessed value be adjusted for stigma in order to more closely reflect its market value.

APPEAL 2009-0035 [Page 14] DECISION: This appeal is dismissed. For 2009, the assessed value shall remain unchanged from the value set out in Fact (3) above. The filing fee shall be retained. DATED AT REGINA, Saskatchewan this 16 th day of February, 2011. SASKATCHEWAN MUNICIPAL BOARD Assessment Appeals Committee - original signed by - Per: David Wilkin, Chairman - original signed by - Per: Cynthia J. Schwindt, Secretary I concur: - original signed by - Patrick F. Dunne, Member - original signed by - Randy Markewich, Member