Horan v. Kenai Peninsula Borough Board of Equalization
247 P.3d 990
| Alaska | 2011

Background

  • Pacific Park owns a 30-unit LIHTC apartment complex in Seward, Alaska, with a 30-year rental-restriction covenant and federal LIHTC credits; the project was financed with LIHTC allocations and restricted rents.
  • The Kenai Peninsula Borough Assessor valued the property in 2005–2007 using the cost approach without considering rental restrictions or tax credits, and refused to apply the income approach mandated by statute for pre-2001 LIHTC projects.
  • The Borough Board of Equalization adjusted the assessment downward, citing that the cost-approach valuation without taking rental restrictions or obsolescence was grossly disproportionate to similar properties and applied a 40% economic obsolescence factor.
  • Pacific Park challenged the Board’s decision; the superior court upheld the Board’s interpretation and the 40% obsolescence, but the court remanded for clarity on how tax credits were treated and which comparables were used.
  • On appeal, the Alaska Supreme Court affirmed the cost-approach framework and consideration of LIHTC rental restrictions but vacated the superior court’s broader valuation rulings, remanding for explicit Board findings on tax credits treatment, comparables, and the obsolescence basis.

Issues

Issue Plaintiff's Argument Defendant's Argument Held
Whether the Board properly used the cost approach with rental restrictions considered Horan asserts the cost approach was improper or failed to account for restrictions. Board may use a reasonable method (cost approach) if not fraudulent or fundamentally wrong and may include restrictions. Affirmed Board's use of cost approach with consideration of rental restrictions.
Whether federal LIHTC tax credits must be considered in assessing full and true value when rental restrictions are considered Tax credits should be considered or at least not ignored in valuation when restrictions are in play. Tax credits are largely intangible and should not dictate property value in this context; treatment is unclear. Remanded for Board clarification on tax credits' treatment alongside rent restrictions.
Whether the Board’s finding that the Assessor's valuation was grossly disproportionate as compared to similar properties was properly supported Valuation should be compared to similar LIHTC and non-LIHTC properties; Board erred in its comparison. Board is entitled to determine disproportionality using appropriate comparisons under the cost-approach framework. Remanded for clarification on the basis and comparables underlying the grossly disproportionate finding.
Whether the Board properly applied a 40% economic obsolescence factor Obsolescence should reflect the rental restrictions and market conditions, possibly a complete obsolescence. Board may apply an obsolescence factor based on evidence; 40% was within its discretion but lacked explicit basis. Remanded for further factual findings and explanation of the 40% obsolescence basis.

Key Cases Cited

  • Dash v. State, 491 P.2d 1069 (Alaska 1971) (recognizes three usual valuation approaches in Alaska)
  • Cottonwood Affordable Hous. v. Yavapai Cnty., 72 P.3d 357 (Ariz. 2003) (rental restrictions must be considered in value)
  • Cascade Court Ltd. P'ship v. Noble, 20 P.3d 999 (Wash. 2000) (rental restrictions affect value and obsolescence)
  • Bayridge Assocs. Ltd. P'ship v. Dep't of Revenue, 892 P.2d 1005 (Wash. 1995) (consideration of restrictions in true value)
  • Woda Ivy Glen Ltd. P'ship v. Fayette Cnty. Bd. of Revision, 902 N.E.2d 991 (Ohio 2009) (tax credits and obsolescence considerations in valuation)
  • Pine Pointe Hous., L.P. v. Lowndes Cnty. Bd. of Tax Assessors, 254 Ga.App. 197 (Ga. App. 2002) (appellate treatment of rental restrictions in value)
  • Brandon Bay, Ltd. P'ship v. Payette Cnty. Bd. of Equalization, 132 P.3d 441 (Idaho 2006) (tax credits and restrictions considered in value)
  • Greens of Pine Glen Ltd. v. Buncombe Cnty. Bd. of Rev., 356 N.C. 642, 576 S.E.2d 316 (N.C. 2003) (rental restrictions and LIHTC considerations in value)
  • Huron Ridge LP v. Ypsilanti Twp., 737 N.W.2d 187 (Mich. Ct. App. 2007) (external obsolescence considerations in valuation)
  • Rainbow Apartments v. Ill. Prop. Tax Appeal Bd., 260 Ill. Dec. 875, 762 N.E.2d 534 (Ill. App. 2001) (tax credits and restrictions influence value)
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