Supreme Court of Ohio Clerk of Court - Filed May EXHIBIT 18, 2015 B - Case No. 2015-0791 OHIO BOARD OF TAX APPEALS NOTESTINE MANOR INC., (et. al.), Appellant(s), vs. LOGAN COUNTY BOARD OF REVISION, (et. al.), CASE NO(S). 2014-2543 (REAL PROPERTY TAX) DECISION AND ORDER Appellee(s). APPEARANCES: For the Appellant(s) For the Appellee(s) - NOTESTINE MANOR INC. Represented by: KAREN H. BAUERNSCHMIDT KAREN H. BAUERNSCHMIDT CO., LPA 1370 WEST 6TH STREET, SUITE 200 CLEVELAND, OH 44113 - LOGAN COUNTY BOARD OF REVISION Represented by: KELLEY A. GORRY RICH & GILLIS LAW GROUP, LLC 6400 RIVERSIDE DRIVE, SUITE D DUBLIN, OH 43017 Entered Monday, April 20, 2015 Mr. Williamson, Ms. Clements, and Mr. Harbarger concur. Appellant appeals a decision of the board of revision ( BOR ), which determined the value of the subject real property, parcel number 17-106-00-00-081-003, for tax year 2013. This matter is now considered upon the notice of appeal, the transcript certified by the BOR pursuant to R.C. 5717.01, the record of this board s hearing, and the parties written argument. The subject s total true value was initially assessed at $811,120. A decrease complaint was filed with the BOR seeking a reduction in value to $165,000. The board of education ( BOE ) filed a countercomplaint in support of maintaining the auditor s values. The subject is an 11-unit residential property that houses individuals who are at least 62 years old and earn less than 50% of the area s median income. At the BOR hearing, appellant provided a packet of evidence utilizing the income approach to value to support the requested reduction. Appellant also offered the testimony of Robert Bender regarding the project s funding and related restrictions. Mr. Bender explained that the property was constructed using a capital advance grant from the U.S. Department of Housing and Urban Development ( HUD ) pursuant to section 202 of the Housing Act of 1959 ( 202 ), which provides supportive housing for the elderly. In exchange for the construction grant, appellant entered into a Capital Advance Program Use Agreement and a Capital Advance
Program Regulatory Agreement, which were both recorded with the Logan County Recorder. Pursuant to these agreements, the property is subject to a 40 year restriction on rents, which were set at $407.58 per unit for the 2013 tax year, and cannot be transferred without prior approval of HUD. The rents are restricted based on each tenant s ability to pay, and HUD pays the remaining portion of the contract rents pursuant to a Project Rental Assistance Contract ( PRAC ). Mr. Bender explained that each tenant s rent includes utilities and is based on the tenant s income, and if a tenant s rate increase above $407.58 per month due to an increase in his or her ability to pay, that difference must be repaid to HUD. The property was partially complete as of the tax lien date, and residents first occupied the property in March 2013. Appellant argued that because the federal government mandated these restrictions, they should properly be taken into consideration when determining the value of the subject property. The BOE did not participate at the BOR hearing, as the representative was unable to attend due to a family member s health concerns, but the BOR indicated the appellant s evidence would be forwarded to the BOE. The BOR issued a decision maintaining the initially assessed valuation, which led to the present appeal. On appeal, appellant again offered the testimony of Mr. Bender, and also submitted the testimony and written report of appraiser Cynthia L. Hatton Tepe, who opined that the total true value of the property was $75,000 as of January 1, 2013. Ms. Hatton Tepe relied solely on the income approach to value in her analysis. In calculating the net operating income, Ms. Hatton Tepe considered the subject property s restricted rents, the subject s expenses, expenses of comparable properties, and secondary data sources. Ms. Hatton Tepe also considered a vacancy and credit allowance on a stabilized basis, taking into consideration the subject property s historical performance, the experience of other low income projects in the area, and conversations with market participants. Ms. Hatton Tepe utilized a capitalization rate at the lower end of the determined range because of the age and historical experience of the property. After capitalizing a net operating income of $10,063 at 8.0% plus a 1.92% tax additur, Ms. Hatton Tepe concluded that the indicated value of the subject property was $100,000 as of January 1, 2013. This analysis determined the property s value as if it were stabilized, though the property was not yet complete on the tax lien date and was not occupied until March 2013. After completing the income capitalization analysis, Ms. Hatton Tepe accounted for the rental loss during the stabilization period when the property was undergoing construction and lease up, reducing the estimated total true value to $75,000. As an alternative approach, Ms. Hatton Tepe also calculated a value of $65,000 as of the tax lien date, taking into consideration the estimated 67% completion of the property on that date. The county appellees argue that Ms. Hatton Tepe s appraisal is not a reliable indication of value because she improperly considered the rent restrictions in her analysis, and the auditor s application of the cost approach was reasonable and lawful. The county appellees presented the testimony of Logan County Auditor Michael E. Yoder regarding the initial assessment of the property and the cost of public safety services associated with emergency calls to the property. The county appellees argue that it is against public policy to require the Logan County taxpayers to subsidize the subject property when 202 requires HUD to pay the real property taxes for the subject property in the PRAC. When cases are appealed from a board of revision to the BTA, the burden of proof is on the appellant, whether it be a taxpayer or a board of education, to prove its right to an increase [in] or decrease from the value determined by the board of revision. Columbus City School Dist. Bd. of Edn. v. Franklin Cty. Bd. of Revision (2001), 90 Ohio St.3d 564, 566. See, also, Shinkle v. Ashtabula Cty. Bd. of Revision, 135 Ohio St.3d 227, 2013-Ohio-397. In EOP-BP Tower, L.L.C. v. Cuyahoga Cty. Bd. of Revision, 106 Ohio St.3d 1, 2005-Ohio-3096, 6, the court elaborated: In order to meet that burden, the appellant must come forward and demonstrate that the value it advocates is a correct value. Once competent and probative evidence of value is presented by the appellant, the appellee who opposes that valuation has the opportunity to challenge it through cross-examination or by evidence of another value. Springfield Local Bd. of Edn. v. Summit Cty. Bd. of Revision (1994), 68 Ohio St.3d 493, ***.
The appellee also has a choice to do nothing. However, the appellant is not entitled to the valuation claimed merely because no evidence is adduced opposing that claim. W. Industries, Inc. v. Hamilton Cty. Bd. of Revision (1960), 170 Ohio St. 340, 342, ***. Id. at 5-6. (Parallel citations omitted.) Although the best evidence of a property s value for tax purposes is considered the price at which it transfers between unrelated parties near the tax lien date, the Supreme Court has pointed out that such information is not usually available, and thus an appraisal becomes necessary. State ex rel. Park Invest. Co. v. Bd. of Tax Appeals (1964), 175 Ohio St. 410, 412. Even though only one party may submit a written appraisal, such submission, like all evidence, is subject to this board s independent review under the preceding standards. See, generally, Columbus Bd. of Edn. v. Franklin Cty. Bd. of Revision (1996), 76 Ohio St.3d 13, 15. In Cardinal Fed. S. & L. Assn. v. Cuyahoga Cty. Bd. of Revision (1975), 44 Ohio St.2d 13, paragraphs two and three of the syllabus, the court held that [t]he Board of Tax Appeals is not required to adopt the valuation fixed by any expert or witness and that it is vested with wide discretion in determining the weight to be given to evidence and the credibility of witnesses which come before [it]. Upon review of appellant s appraisal evidence, which provides an opinion of value as of tax lien date, was prepared for tax valuation purposes, and attested to by a qualified expert, we find the appraisal to be competent and probative and the value conclusion reasonable and well supported. The county appellees argued that Ms. Hatton Tepe s appraisal analysis does not accurately reflect the value of the subject property because no use restrictions were in place on the tax lien date because the property was not complete, and, therefore, no rents were being collected. As such, the county appellees argue, the court s holding in Woda Ivy Glen Ltd. Partnership v. Fayette Cty. Bd. of Revision, 121 Ohio St.3d 175, 2009-Ohio-762, does not apply and Ms. Hatton Tepe improperly considered the 202 restrictions in her analysis. Ordinarily, a property should be valued as unencumbered, and the effects of government subsidies should be disregarded. Alliance Towers v. Stark Cty. Bd. of Revision (1988), 37 Ohio St. 3d 16; R.C. 5713.03. However, the Supreme Court, in Woda Ivy Glen, carved out an exception for properties subject to limitations under the government s police power, which includes legislation providing for the general welfare of the nation. See, also, Muirfield Assn., Inc. v. Franklin Cty. Bd. of Revision (1995), 73 Ohio St.3d 710, 711. In Woda Ivy Glen, the court held that restrictions mandated by federal legislation in connection with federal low income housing tax credits qualified as police power restrictions because the legislation was an exercise of Congress s power to tax and spend to provide for the general welfare of the nation. Id. at 24. The court further held that the fact that such restrictions are triggered by the developer s decision to seek the benefit of the tax credits does not reduce them to the status of contract obligations. ***. Id. Therefore, the court held, governmental restrictions for the general welfare *** must be taken into account when determining the value of low income housing tax credit property. Id. at 30 (emphasis added). In Pine Grove Apartments LP v. Athens Cty. Bd. of Revision (Jan. 29, 2013), BTA No. 2009-Y-1584, unreported, this board found that the exception set forth in Woda Ivy Glen applied not only to restrictions in connection with federal low income housing tax credits, but also limitations set forth to receive a rural rental housing loan through the USDA Rural Development Program. We noted that although the restrictions were imposed through a mortgage agreement rather than a deed, the limitations were nonetheless imposed by a governmental agency for the general welfare of the public and should be considered in the value of the subject property. Id. at 9. The county appellees argue that the court s holding in Alliance Towers controls in this case because it was not reversed by the court in Woda Ivy Glen. Indeed, the Woda Ivy Glen court noted that it need not address the general applicability of the Alliance Towers syllabus, because considering the effect of the use restrictions imposed under I.R.C. 42 on the value of the parcels fully comports with the
principle set forth there. Id. at 23. A review of Alliance Towers in light of the Woda Ivy Glen decision highlights the distinction between a restriction due to governmental police power versus the benefit received from a public subsidy with respect to valuation for tax purposes. The Alliance Towers court pointed out that the section 8 subsidy received by most of the properties at issue resulted in contract rent that typically exceeded the rents generally available in the market. Alliance Towers, supra, at 21, fn. 4. In its discussion of Alliance Towers, the court in Woda Ivy Glen noted that the properties in the former case received several benefits from the program at issue, including affirmative assistance in financing the facility, supplemental income from section 8 subsidies, and tax incentives from accelerated depreciation. Woda Ivy Glen, supra, at 26. Low income housing tax credit properties, on the other hand, are subject to restrictions that limit the transferability of the property and the rents that can be charged. Id. In the instant appeal, the subject property admittedly received the affirmative assistance for financing the facility and receives supplemental income from HUD pursuant to the PRAC. Nothing in the record, however, shows that the contract rents exceed those generally available in the market or that the property benefits from additional tax incentives. What is clear is that the property is limited by various restrictions pursuant to the use and regulatory agreements, including an inability to transfer ownership without prior approval or earn profits from its operation. Appellant must provide an annual budget to HUD and request permission for certain additional expenditures not included in the budget. The program is in place to provide affordable housing to elderly low-income individuals. As such, we find that 202 was an exercise of police power, and under the facts of this case, the program meets the exception set forth in Woda Ivy Glen. Thus, the restrictions mandated in order for the property to receive funding through the program are properly considered in the property s true value. The county appellees also argue that subject property was not subject to these restrictions on the tax lien date because it was not yet 100% complete and receiving rents. We disagree. Appellant entered into the regulatory and use agreements on July 26, 2012, prior to the 2013 tax lien date. Although it is undisputed that the property was unoccupied on January 1, 2013, the record shows it was nonetheless subject to the restrictions at that time. The county appellees further argue that even if the exception set forth in Woda Ivy Glen applies to the subject property, Ms. Hatton Tepe s appraisal should be rejected because the valuation methodology runs afoul of Hotel Statler v. Cuyahoga Cty. Bd. of Revision (1997), 79 Ohio St.3d 299. In Hotel Statler, the court affirmed this board s refusal to consider adjustments made to the income approach to value to account for additional rent loss, additional leasing commissions, additional renovations, and asbestos removal after the income had been capitalized and a value determined. The court held that this board is not required to adopt the appraisal methodology espoused by any expert or witness, and it was within this board s discretion to reject such adjustments. Notably, in Hotel Statler, the post-capitalization adjustments were made to a fully-constructed building. In the instant appeal, the record shows the property was still under construction on January 1, 2013. The court has made clear that when a property is under construction on the tax lien date, its valuation shall be based upon its value or percentage of completion as it existed on January first. (Emphasis added.) Ohio Adm. Code 5703-25-06(G). Dublin City Schools Bd. of Edn. v. Franklin Cty. Bd. of Revision, 139 Ohio St.3d 193, 2013-Ohio-4543, 22. Emphasis sic. Thus, in this case, because the partial completion of the property was not been taken into consideration before the net operating income has been calculated and capitalized and no other approach to value was utilized, some adjustment must be made afterward. Ms. Hatton Tepe considered two approaches to reduce the stabilized value, taking into consideration the 67% completion of the building on the tax lien date. In this case, we find that her adjustment based on lost rents better reflects the effect of the partial completion on the value of the subject property on the
tax lien date than merely a percentage reduction of the overall value. As such, we find that the $75,000 value determined by Ms. Hatton Tepe better reflects the subject s true value as of the tax lien date taking into consideration the state of completion. Moreover, we disagree with the county appellees contention that the auditor s cost approach properly took the subject property s partial completion into consideration. The court has noted that [f]or subsidized housing, we generally disfavor appraisals based on the cost approach. Canton Towers, Ltd. v. Stark Cty. Bd. of Revision (1983), 3 Ohio St.3d 4, 7, *** ( Without a federal loan guarantee, favorable mortgage terms, rent subsidy, and income tax advantages, the cost of construction for such housing would be prohibitively expensive ); Alliance Towers, Ltd. v. Stark Cty. Bd. of Revision (1988), 37 Ohio St.3d 16, 22, *** ( The apartment buildings herein were constructed at a cost greater than could be justified by market rents ); Sunset Square, Ltd. v. Miami Cty. Bd. of Revision (1990), 50 Ohio St.3d 42, 44, *** ( Canton Towers cited as rejecting the cost approach as inapplicable when dealing with subsidized housing). A cost approach appraisal analysis is based on the proposition that the informed purchaser would pay no more than the cost of producing a substitute property with the same utility as the subject property. Dinner Bell Meats, Inc. v. Cuyahoga Cty. Bd. of Revision (1984), 12 Ohio St.3d 270, 271, ***, fn. 1, quoting Encyclopedia of Real Estate Appraising (3d Ed.1978) 65, quoting Boyce, Real Estate Appraisal Terminology (1975) 53. Colonial Village Ltd. v. Washington Cty. Bd. of Revision, 114 Ohio St.3d 493, 2007-Ohio-4641, 20 (parallel citations omitted). Indeed, even if we were to find that Ms. Hatton Tepe s final conclusion of value were not fully supported, the record contains sufficient evidence to negate the auditor s initial value. See Dublin City Schools, supra at 17 ( But, when a taxpayer presents evidence contrary to the auditor s valuation and no evidence is offered to support the auditor s valuation, the BTA may not simply reinstate the auditor s determination. Dayton-Montgomery, 113 Ohio St.3d 281, 2007-Ohio-1948, *** at 27; Bedford Bd. of Edn. v. Cuyahoga Cty. Bd. of Revision, 115 Ohio St.3d 449, 2007-Ohio-5237, 11-12. ). The county appellees further espouse a policy argument, asserting that the residents of Logan County should not subsidize the subject property through the payment of real property taxes that HUD is responsible for paying. We decline to address the merits of such an argument, noting that even in situations where this board may be sympathetic to a party s circumstances, we are unable to ignore or disregard our statutory responsibilities and effect adjustments not permitted or supported. See, e.g., Marisay v. Sandusky Cty. Bd. of Revision (Mar. 4, 1994), BTA No. 1992-T-673, unreported. It is therefore the order of this board that the true and taxable values of the subject property, as of January 1, 2013, were as follows: TRUE VALUE $75,000 TAXABLE VALUE $26,250
BOARD OF TAX APPEALS RESULT OF VOTE YES NO Mr. Williamson I hereby certify the foregoing to be a true and complete copy of the action taken by the Board of Tax Appeals of the State of Ohio and entered upon its journal this day, with respect to the captioned matter. Ms. Clements Mr. Harbarger Kathleen M. Crowley, Board Secretary