Assessment Challenges in a Repressed Real Estate Market

Municipal Law Alert, July 2009

Board of Review season has once again arrived. During times of significant change in the real estate market, the number of citizen challenges to the assessed values of properties increase. Regardless of how one describes the current real estate market – “declining” “depressed” or “recessed” – what citizens understand is that real estate is not selling as quickly and that real estate is selling for lower prices than a few years ago. For many, this understanding equates to an expectation that both the assessed value of their property and their tax bill should decrease. For municipal officials, the challenge is to educate citizens that decreasing real estate values alone do not equal lower taxes.

A municipality’s total tax bill is determined by its budget – the cost to run the municipality. The assessment process determines the proportion of the total tax bill attributed to each individual property. If the cost to run a municipality stays the same, but the value of all real estate declines, each individual property owner’s tax bill will remain the same. This concept is most easily explained by an illustration:

In 2008, the Village of Badger Land’s levy was $10,000. Badger Land’s total assessed property values were $1,000,000 (consisting of 10 identical properties). The mill rate was $10.00 per thousand.

In 2008, Mr. Smith’s house and property was assessed at $100,000. Applying the mill rate of $10.00 per thousand to Mr. Smith’s $100,000 property resulted in a tax bill to Mr. Smith of $1,000.

In 2009, Mr. Smith realizes that his property is now only worth $50,000, a 50% decrease from the previous year. He concludes that his tax bill should also decrease by 50% and only be $500.

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Prevailing Wage Update

Municipal Law Alert, July 2009

Wisconsin’s prevailing wage law has existed in one fashion or another since 1933. Recently, there have been two important changes to the prevailing wage law, which are likely to increase the number of projects that are covered by the law. This article gives a summary of those changes.

Essentially, the prevailing wage law (Wis. Stat. § 66.0903) requires municipalities that enter “public works” contracts that exceed a certain dollar amount to require that the contractors and subcontractors who work on the project pay the “prevailing wage” to their employees. The “prevailing wage” is determined by the state Department of Workforce Development (DWD). The law applies to contracts “for the erection, construction, remodeling, repairing or demolition of any project of public works, including a highway, street or bridge construction project.” Previously, the law applied to projects that exceeded $234,000 for multi-trade projects and $48,000 for single-trade projects. These thresholds had been adjusted upward over the years.

The Governor’s budget had proposed several important changes to the law. The first is a new threshold of $2,000 – prevailing wage laws would apply to every public works project over $2,000. However, the Joint Finance Committee recommended a threshold of $25,000, and that $25,000 threshold was approved when the governor signed the budget bill.

A second development over the past year has concerned private developers who build infrastructure, such as streets or sewers, that eventually are turned over to a municipality. In August of 2008, the DWD issued several determinations about how the prevailing wage law applied under those facts: if the public work would have been subject to prevailing wages had the municipality contracted for it directly and if the public work will be turned over to the municipality, then the public work within a private development project is subject to the prevailing wage law.

The City of Chippewa Falls and several other municipalities appealed the DWD determination. In June, the DWD upheld its decision against Chippewa Falls.

Further, in the Governor’s budget bill, the Department’s position was codified. The Joint Finance Committee recommended that the prevailing wage law apply to any streets, bridges, sanitary sewers, and water mains constructed by private developers and turned over to a municipality for public ownership. These changes become effective on January 1, 2010.

The bottom line is that municipalities can expect the prevailing wage law to apply to many more public works contracts and private developments than in the past.

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Emails and the Open Records Law

Municipal Law Alert, July 2009

Question: Is an email a “record” subject to the open records law?
Answer: Yes, an email sent to or from a municipality concerning any municipal business is subject to the open records law.

As a general rule, a citizen may request emails under the open records law, and the municipality must provide the email unless it falls under one of the law’s specific exceptions. At its simplest, an email is no different from a letter or other type of public record. However, due to their electronic nature, emails do present some unique issues.

Responding to an open records request for emails: To begin with, if a citizen requests an electronic version of the email, an electronic version must be supplied. If a citizen requests an electronic version of the email in its “native” format, then that email must be supplied as an email (not a PDF). This electronic production requirement applies equally to emails sent to the municipality by citizens as it does to email sent from the municipality. Thus, a citizen who sends an email to a municipality risks release of that email, including that citizen’s email address and any other data that email may contain. Of course, the exceptions to the open records law apply to those emails as well.

Retention of emails: One of the unique aspects (and open records challenges) of email records is where emails are stored. Traditionally, emails are stored on local PCs, and multiple copies of those emails may be scattered across multiple PCs. Another issue is that each individual who sends and receives emails is making decisions about saving or deleting emails. As with any other government record, emails must be retained. Most municipalities have a record retention policy in place for traditional paper records, but this policy should be updated to address the unique concerns presented by electronic records, including email. It is not sufficient under the open records law to print emails and put the paper copy in a file. Emails should be retained in their original electronic format.

The need to retain emails electronically requires some sort of electronic storage system. That system may be as simple as more hard drive space, but may be something more complex. A good storage solution for emails stores email in one central location, which is easily backed up, easily searched, and maintains the native file format of the emails. Further, a retention policy that errs on the side of saving emails, rather than deleting emails, is probably wise. In addition to a retention policy, a municipality should have a backup policy in place.

Although there are exceptions, as a general rule, records need to be retained for seven years. This applies just as well to emails as any other kind of record.

Emailing from home: Do you ever send emails regarding municipal business from your personal email account? That email is a record subject to the open records law. A risk to keep in mind when using your home computer and your personal email account to do government business, though the risk may seem remote: it is possible that your home computer could be seized as part of a lawsuit involving the municipality, even though you have no personal role in the litigation.

Governor Vetoes Walgreens Fix

Municipal Law Alert, July 2009

On Monday, June 29, 2009, Governor Doyle vetoed the so-called “Walgreens fix” from the state budget. The Governor’s veto is another step in the ongoing saga that began with a challenge by Walgreens to the method of assessment of its stores in the City of Madison. Typically, Walgreens does not own its stores. Instead, the stores are built to its specifications and it leases the stores from the owner of the property. The owners’ costs for constructing the stores are built into the lease, resulting in higher than market rate rent amounts. In addition, Walgreens pays the property taxes as part of the lease. Some Wisconsin municipalities, including Madison, based their assessed values on the high rental rate rather than on the value of comparable properties.

Walgreens disputed this assessment method, arguing that it resulted in Walgreens paying higher property taxes than other comparable commercial properties. In a unanimous opinion, the Wisconsin Supreme Court sided with Walgreens, noting that “[i]f we were to expand the law in the direction the city requests, property assessments would in essence become business value assessments, with assessors improperly equating financial arrangements with property value.” Walgreen Co. v. City of Madison, 2008 WI 80, ¶65, 311 Wis. 2d 158, 752 N.W.2d 687.

The Court held that the correct assessment depends on the “correct methodology for assessing leased retail property.” In doing so, the Court relied on Wis. Stat. § 70.32(1), which requires that valuation of a real property assessment be accomplished through procedures contained in the Wisconsin Property Assessment Manual, including estimation of the market value of a fee simple interest. The Court analyzed the sales comparison approach, the cost approach and the income approach to values contained in the Manual. The Court concluded that the income approach, according to the Manual, was the best fit for leased properties. The Court emphasized that in order to arrive at a reliable indication of value when applying the income approach, the assessor was required to use the market rent, not the contract rent.

In the recently passed budget bill, the legislature adopted language that had the effect of reversing the Walgreens decision and allowing municipalities to assess based on the actual lease amount contracted between the landlord and tenant. However, on June 29, 2009, Governor Doyle vetoed this provision. The Governor said he objected to changing valuation methodology through the legislative process. He said that such a change should be pursued as an update to the Wisconsin Property Assessment Manual.
Thus, for now, the Walgreens decision stands and the relevant data is market rent, not contract rent. However, Department of Revenue staff said that they plan to make adjustments in the Wisconsin Property Assessment Manual that will accomplish the same goal as the language vetoed by the Governor.

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