MINERAL POINT VALLEY LIMITED PARTNERSHIP, Plaintiff-Appellant, v. CITY OF MINERAL POINT BOARD OF REVIEW, Defendant-Respondent.†
No. 03-1857
Court of Appeals of Wisconsin
July 15, 2004
Oral argument March 25, 2004. † Petition to review denied 10-19-04.
2004 WI App 158 | 686 N.W.2d 697
Before Deininger, P.J., Dykman and Lundsten, JJ.
¶ 1. DYKMAN, J. Mineral Point Valley Limited Partnership appeals from a judgment upholding a property tax assessment. The partnership contests the method the city assessor used to calculate the 2001 prоperty tax on Fairview Heights Apartments, a subsidized housing project in the City of Mineral Point. Both the City of Mineral Point Board of Review and the trial court affirmed the assessment. On appeal, the partnership asserts that the assessor should have included an interest rate closer to the market interest rate of 8.75% when valuing the property, rather than its subsidized 1% rate. We conclude that a capitalization rate based on the subsidized interest rate is impermissible and reverse.
¶ 2. The partnership‘s real estate is a Rural Rental Housing Program project under
¶ 3. Here, the partnership‘s initial investment in the property was 3% of the development cost. It obtained a fifty-year mortgage in 1990 at a commercial rate of 8.75%. In accordance with the housing program, the partnership pays a 1% interest rate and the federal government subsidizes the difference between the 8.75% and 1% rates.
¶ 4. For 2001, the city assessor used the 1% interest rate in his capitalization rate for the property, yielding a property value of $491,200. The partnership objected to the assessment. The board of review held a hearing and affirmed the assessment. The partnership appealed to the trial court, which remanded to allow the partnership to complete its cross-examination. After further hearing, the board reaffirmed the assessment, and the partnership appealed. The trial court affirmed the board. The partnership appeals.
STANDARD OF REVIEW
¶ 5. Because this is a certiorari review under
(1) Whether the board acted within its jurisdiction; (2) whether the board acted according to law; (3) whether the board‘s action was arbitrary, oppressive or unreasonable, representing its will rather than its judgment; and (4) whether the evidence was such that the board might reasonably make the order or determination in question.
Nankin, 245 Wis. 2d 86, ¶ 20. More specifically, an assessment “made in accordance with the statutory mandate must be upheld if it can be supported by any reasonable view of the evidence.” Id., ¶ 21. We will not make an independent assessment of the property; instead we remand to the board for further proceedings if any errors render the assessment void. Id.
DISCUSSION
¶ 6. The parties dispute a narrow issue: When an assessor uses the income approach to assess federally subsidized housing, should he or she use a caрitalization rate which includes the subsidized or actual rate of mortgage interest? We recently addressed the valuation of federally subsidized property for tax purposes in Bloomer Housing Limited Partnership v. City of Bloomer, 2002 WI App 252, 257 Wis. 2d 883, 653 N.W.2d 309. In that case, we explained the law governing property valuation generally, and subsidized housing specifically:
The law governing property valuation for tax purposes is found in
WIS. STAT. ch. 70 .WISCONSIN STAT. § 70.32(1) provides that real property be valued at the “full value” which could ordinаrily be obtained at a private sale. “Full value” means the fair market value, that is, the amount the property would sell for in an arms-length transaction between a willing buyer not obligated to buy and a willing seller not obligated to sell. The statute also provides that property be valued
according to the Wisconsin Property Assessment Manual, although use of the manual is improper when its provisions would not arrive at the “full value” of the assessеd property.
In terms of subsidized housing, the assessment manual suggests three approaches to valuation: (1) the sales comparison approach, reflected in
WIS. STAT. § 70.32(1) , based on a recent arms-length sale of the property or a reasonably comparable one; (2) the cost approach, based on the expenses involved with creating the housing; and (3) the income approach, which values the property based on the income it generates.
Id., ¶¶ 14–15 (citations omitted).
¶ 7. The parties here, like those in City of Bloomer, agree that the income approach is the most appropriate method to value the property. “The income approach converts the future benefits likely to be derived from the property into an estimate of present value.” Id., ¶ 16. The Wisconsin Property Assessment Manual instructs on how to use the income approach. 1 WISCONSIN PROPERTY ASSESSMENT MANUAL 9–28 (rev. Dec. 2000) (hereinafter “manual“). One of the steps in applying the income approach is to derive a capitalization rate, which has included in it a mortgage rate. Generally, the manual directs assessors to “be aware of what is happening in the market. All of the information needed for the income approach is either obtained or verified by what the assessor finds in the marketplace.” MANUAL at 9–8. With regard to federally subsidized housing specifically, the mаnual directs the assessor to consider mortgage terms and conditions in the income approach. MANUAL at 9–30.
¶ 8. Here, the parties dispute which mortgage rate must be included in the capitalization rate. The
¶ 9. Both parties assert that the manual permits the use of their respective rate, which might suggest that an аssessor has discretion in how to account for the mortgage rate. But which mortgage rate the assessor uses significantly impacts the value of the property. Specifically, the 1% rate yields a property value of $491,200; whereas a rate of 9.5%3 yields a value of $178,100. The ratio between these values is more than two to one.
¶ 10. We conclude that an assessor cannot be free to choose between the mortgage subsidy rаte and the mortgage market rate when using the income approach to valuing federally subsidized housing. Nor can a board of review choose to use the subsidized rate when
¶ 11. We must be particularly concеrned with ensuring uniformity in the valuation method for federally subsidized housing because it may be more subject to diverse assessments than other properties. Because
¶ 12. We therefore turn to City of Bloomer for guidance on which mortgage rate fairly reflects the unique nature of federally subsidized housing. There, we upheld a trial court finding that the city‘s assessment based on the subsidized interest rate was excessive because it “failed to accurately account for” restrictions affecting the value of property. City of Bloomer, 257 Wis. 2d 883, ¶ 20. We reasoned that:
The beneficiaries of thе subsidy, according to the manual, are the tenants. Nonetheless, the subsidy affects the property‘s value. Any potential buyer would reasonably consider the subsidy‘s value when determining the appropriate price. The subsidy, however, is not determinative. It must be weighed with all the other factors influencing value.
Id., ¶ 23. We also rejected the city‘s suggestion that the restrictions and conditions do not hinder the property value. Id., ¶ 23. We recognize that in Bloomer our review was of a trial court‘s determination of a claim for excessive assessment under
¶ 14. Judgment reversed with directions to remand to the board of review for proceedings consistent with this opinion.
By the Court.—Judgment reversed and cause remanded with directions.
¶ 15. DEININGER, P.J. (concurring). I agree with the result reached in the majority opinion and with much of its reasoning. I write separately to amplify why the dispute in this case is not simply over the fair market value of a particular piece of property on a given day. If it were, I wоuld be hard pressed not to agree with the City‘s assertion that the choice between the two valuations is simply a question of fact, to be determined by the fact finder (here, the board of review), whose determination we should accept because it found the City‘s assessor more credible than the partnership‘s appraiser.
¶ 17. Mineral Point Valley‘s property is far from unique, in that it is by no means the only federally subsidized housing development in Wisconsin. This means that the choice between the two mortgage rates at issue here must be made by assessors throughout the state whenever the income approach is employed to determine the value of properties that are subject to the same types of benefits and restrictions as the one before us. Like my colleagues on this panel, I therefore conclude that the choice of which interest rate to plug into the valuation calculation is not the type of “fact” that can or should change from case to case, based solely on which party in an assessment dispute produces the more credible expert on a given day.
¶ 18. The supreme court addressed a similar technical valuation issue in Soo Line R.R. Co. v. DOR, 97 Wis. 2d 56, 59–60, 292 N.W.2d 869 (1980). The court there discussed what standard should be applied when an appellate court reviews a trial court‘s decision regarding a valuation derived from the application of an
¶ 19. The court concluded that the determination at issue required “an examination of the formula that was used to arrive at the challenged valuation“, which distinguished it from more typical trial court fact and credibility determinations, to which reviewing courts, for good reasons, defer. See id. at 60. The court explained:
If the question here at issue were more in the nature of the typical factual determination that trial courts are required to make, we would find this argument quite persuasive. Generally, factual determinations are made on the bаsis of the factfinder‘s observations of the witnesses as they relate their version of the events in question. Particularly where different witnesses give conflicting testimony, the factfinder‘s opportunity to observe the witnesses as they testify under oath and subject to cross-examination places him in a much better position to evaluate the truthfulness of their respective testimony. A witness’ demeanor on the stand and the manner in which he answers questions аre indications of truthfulness which cannot be conveyed in a written record. It is primarily for this reason that appellate courts have traditionally accorded substantial weight to factual findings made at the trial level.
However, the question to be determined here has little to do with the credibility of witnesses, at least in the sense that phrase is generally used. The DOR‘s
assessment of the Soo Line‘s operating property is the product of аn abstract formula devised by DOR and applied to the facts or data which are themselves undisputed. In determining whether the DOR‘s assessment was substantially more or less than the actual fair market value of the Soo Line‘s property, the trial court was required to decide whether the application of that formula in this case produced a result which substantially reflected the full value of the railroad. This determination requires not so much an evaluation of the truthfulness of the witnesses, but rather an examination of the formula that was used to arrive at the challenged valuation. It requires an understanding and rational assessment of the mathematic and economic principles underlying the basic formula and the specific adjustments made by the DOR.
¶ 20. I am aware that this court previously rejected an attempt by an appellant, based on the analysis in Soo Line, to have this court apply a de novo standard in reviewing a trial court‘s choice between competing expert valuations of a business for purposes of a divorce. See Siker v. Siker, 225 Wis. 2d 522, 530–32, 593 N.W.2d 830 (Ct. App. 1999). We acknowledged in Siker that the competing evaluations in the divorce were arguably based on “abstract formulas“, id. at 530, but we nonetheless distinguished Soo Line because, among other things, Soo Line involved a “statutorily prescribed judicial review of a taxing authority‘s property value assessment,” id. at 531. We noted that the question before the courts in Soo Line involved whether the DOR‘s assessment method conformed “to state and federal laws and constitutions.” Id. (citation omitted). We concluded that a de novo appellate determinаtion of the proper valuation method might be appropriate where a court‘s role is “to ensure that a taxing authority had discharged its respon-
¶ 21. I believe that the very rationale that served to distinguish Soo Line from Siker, supports our applying the Soo Line standard of review in this case. This, like Soo Line, is a statutorily prescribed judicial review of a taxing authority‘s property value assessment. Our function is not simply to ensure that the board of review made a reasonable call based on the testimony of competing experts, but also to ensure that it “discharged its responsibilities to the public at large, as well as to an individual taxpayer, in accordance with applicable law.” Id. As in Soo Line, I conclude that, with respect to the present dispute over which mortgage interest rate to employ in valuing federally subsidized housing for tax assessment purposes, “an appellate court need not accord special deference to [a fact finder]‘s ultimate factual determination” that “rests upon an abstract formula.” Soo Line, 97 Wis. 2d. at 60.
¶ 22. The more difficult question, however, is, having concluded that we should decide de novo which interest rate is the correct one to use in the valuation formula for this property, how are we to choose between them? I readily acknowledge my lack of expertise on the question and confess that I have no informed opinion on which interest rate will produce the “correct” valuation of federally subsidized housing projects. This panel has chosen to adopt the mortgage interest rаte that was affirmed as having been properly applied in Bloomer Housing Ltd. Partnership v. City of Bloomer, 2002 WI App 252, 257 Wis. 2d 883, 653 N.W.2d 309. I agree with
¶ 23. I recognize that some persons may be firmly convinced, with ample justifiсation, that the subsidized mortgage interest rate is indeed the correct rate to employ in order to arrive at the market value of subsidized housing. In at least one unpublished decision of this court (Rhinelander Family Housing v. City of Rhinelander, No. 96-2216, unpublished slip. op. (Wis. Ct. App. Jan. 14, 1997)), we upheld a board of review‘s assessment employing the subsidized rate. Our conclusion today, however, is that consistency on the point at issue is required, and that the rate to be employed in this “abstract formula” is nоt a fact that should be allowed to vary from Mineral Point to Bloomer to Rhinelander, based on the credibility of the witnesses who may appear before a board of review. If a different rule is to apply, it must come from the supreme court or the legislature, or perhaps from the DOR by way of clearer direction in the assessment manual.
¶ 24. LUNDSTEN, J. (concurring). I join the lead opinion, but write separately for two reasons.
¶ 25. First, based on the briefs, oral argument, and my own research, it appears to me that a fiction is at work. Assessors are supposed to value subsidized housing at its fair market value yet, in common situa-
¶ 26. Second, while I join the lead opinion and not the concurring opinion, I commend Judge Deininger on his intelligent and candid approach to the matter. Sometimes we need to admit that the pieces of the puzzle do not fit.