Swinging For the Fences.

Posted By Cliff Tuttle | January 14, 2010

Posted by Cliff Tuttle (c) 2010

Were you surprised when Allegheny County assessed the Rivers Casino at a whopping $199 Million? According to the Pittsburgh Post Gazette, it is the highest assessment of any casino in the state.

Actually, one wonders what the calculation that brought about the $199 Million assessment figure looks like.  Remember, Allegheny County is supposedly assessing on a 2002 base year.  The situation is further complicated by the fact that there are three accepted approaches to assessing commercial properties which may, in the hands of different experts, generate widely diverse values.

For income-generating facilities like shopping centers, office buildings and the like, the income approach is generally preferred.  Since casinos generate revenue, this would seem to be a good approach. But a casino is so unique that valuing it under any of the three valuation methods presents a lot of puzzles. Rivers Casino is not performing too well and cannot meet its existing burden of taxes and pledged contributions to various community  projects. Like a sports franchise, it could well be losing money but command a hefty sales price if sold to another sucker investor. Comparison to assessments of other casinos seems to suggest that the Rivers assessment is too high. For example, the Meadows Racetrack and Casino is assessed at about 10% of Rivers but  earns more.

The other two methods of appraisal are the  “comparable sales method” using sales prices of comparable properties and “construction cost” method. Since there are probably no buildings in Allegheny County remotely comparable to a casino, and since the casino is newly-built, the best approach is probably the “construction cost” method.  The County assessor would have to take the reported construction costs and reduced them to 2002 prices.  However, the fact that the original owner went broke trying to build the facility, causing long periods of inactivity, to be eventually finished by a new owner, the final cost was substantially increased without an increase in value.  Without getting too deeply into the details, there is plenty of room for disagreement concerning construction costs at administrative hearings and in court — and there will be.

Since table games won’t be started until at least late in 2010, it is not beyond imagining that the County Assessors will raise the assessment for that in 2011. Of course, this and subsequent increased assessments will be appealed and are likely to be reduced, either by decision or settlement agreement.  Perhaps the County Assessors anticipated an appeal in all cases and started too high in the hope that the final figure would end up where they thought it belongs.

All this occurs after the County Executive has done everything possible to keep from raising assessments on homeowners — widely viewed as political suicide for an incumbent. Casinos don’t vote and no one protests if their taxes are too high. After all, we authorized them to generate tax revenues, didn’t we?

Such cynicism is not new to tax assessment.  At one time (and it may still be so) a certain southern state substantially overassessed the real estate owned by railroads every year.  Every year the railroads, with the aid of a statistics professor on permanent retainer, easily knocked the assessments down in court.

Meanwhile, the County and City can collect (or try to collect) the full amount of the taxes that this assessment generates.

CLT

Welcome

CLIFF TUTTLE has been a Pennsylvania lawyer for over 45 years and (inter alia) is a real estate litigator and legal writer. The posts in this blog are intended to provide general information about legal topics of interest to lawyers and consumers with a Pittsburgh and Western Pennsylvania focus. However, this information does not constitute legal advice and there is no lawyer-client relationship created when you read this blog. You are encouraged to leave comments but be aware that posted comments can be read by others. If you wish to contact me in privacy, please use the Contact Form located immediately below this message. I will reply promptly and in strict confidence.

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