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North Star Alaska Housing Corp. v. Fairbanks Board of Equalization (1/15/93), 844 P 2d 1109
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Notice: This is subject to formal correction
before publication in the Pacific Reporter.
Readers are requested to bring typographical
or other formal errors to the attention of
the Clerk of the Appellate Courts, 303 K
Street, Anchorage, Alaska 99501, in order
that corrections may be made prior to
permanent publication.
THE SUPREME COURT OF THE STATE OF ALASKA
NORTH STAR ALASKA HOUSING )
CORPORATION, an Alaska )
corporation, )
) Supreme Court File No. S-4568
Appellant, ) Superior Court File No.
) 4FA-90-0294 Civil
v. )
)
FAIRBANKS NORTH STAR BOROUGH ) O P I N I O N
BOARD OF EQUALIZATION, )
)
Appellee. ) [No. 3915 - January 15, 1993]
)
Appeal from the Superior Court of the
State of Alaska, Fourth Judicial District,
Fairbanks,
James A. Hanson, Judge.
Appearances: John Spencer Stewart and
Erin Marston, Stafford Frey Cooper & Stewart,
Portland, Oregon, for Appellant. Mark
Andrews, Acting Borough Attorney, Fairbanks
North Star Borough, Fairbanks, Alaska, for
Appellee.
Before: Moore, Chief Justice,
Rabinowitz, Burke, Matthews and Compton,
Justices.
COMPTON, Justice.
The conflict between North Star Alaska Housing
Corporation (North Star) and the Fairbanks North Star
Borough (FNSB) regarding the valuation of North Star's
housing project at Fort Wainwright again comes before
this court. This time North Star appeals its 1988 tax
assessment. We affirm.
I. FACTUAL AND PROCEDURAL BACKGROUND
The background facts of this case are noted in North
Star Alaska Housing Corp. v. Fairbanks North Star
Borough Bd. of Equalization, (North Star I), 778 P.2d
1140, 1141-42 (Alaska 1989). In short, North Star
leased land from the federal government at Fort
Wainwright where it constructed housing facilities
which it currently operates. The federal government
rents this housing from North Star. Id. North Star is
taxed on its interest in this property. Id. at 1143.
Previously North Star challenged its property tax
assessments for 1987 and 1989. North Star I, 778 P.2d
1140 (challenging the 1987 assessment); North Star
Alaska Housing Corp. v. Fairbanks North Star Borough
Bd. of Equalization, (North Star II), Mem. Op. & J. No.
573 (Alaska, October 9, 1991) (challenging the 1989
assessment). This case involves North Star's 1988 tax
assessment.
The FNSB assessor used a replacement cost method to
value the property. Applying that method, accumulated
depreciation is subtracted from computer generated
replacement costs. The resulting value may then be
reduced further by an economic obsolescence factor
which reflects the impact of supply and demand
relationships in the relevant market. The economic
obsolescence factor will vary with type of property,
its location and desirability, and the condition of the
market. Because the rents North Star received were
market rents, and because its net operating income
exceeded its adjusted replacement cost, an economic
obsolescence reduction was not applied in determining
the 1988 valuation.
North Star appealed FNSB's tax assessment to the Board
of Equalization (Board), which affirmed the assessment.
Pursuant to AS 22.10.020(d) and Appellate Rule 601(a),
North Star appealed that determination to the superior
court. It ruled that the valuation system used by the
assessor was not fundamentally wrong. However, the
superior court remanded the 1988 assessment on the
grounds that 1) the Board erred by not addressing the
issue of whether the economic obsolescence factor was
applied unequally with respect to other properties, and
2) the Board erred by relying at least in part on an
income approach to valuation even though the assessor
did not use it.
The Board held a special hearing to decide the issues
remanded by the superior court. The Board ruled that
economic obsolescence did not apply to North Star's
property because it was "isolated from the factors
which call for economic obsolescence in the Fairbanks
market, due to the quality of the tenant . . . and the
length of the lease." The Board deleted any reference
to the income approach in its findings.
North Star appealed the Board's new findings to the
superior court, which affirmed the Board's decision.
North Star appeals, claiming that economic obsolescence
reductions were not applied equally to all Fairbanks
property valuations.1
II. DISCUSSION
A. STANDARD OF REVIEW
The question whether North Star was treated equally by
FNSB is ultimately a determination for this court to
make. This is a legal question to which this court
substitutes its judgment for that of the Board. Ben
Lomond, Inc. v. Fairbanks North Star Borough Bd. of
Equalization, 760 P.2d 508, 511 (Alaska 1988).2 The
Board based its affirmance of the assessor's
determination on the factual finding that North Star's
property was isolated from the market forces which are
reflected in an economic obsolescence reduction. This
is a factual determination involving agency expertise.
This court will uphold such findings as long as a
reasonable basis for them exists. North Star I, 778
P.2d at 1144 n.7. In this case, the factual finding of
market isolation is dispositive because, if
sustainable, it provides a basis for the North Star
property to be treated differently.
North Star's appeal focuses on the adequacy of the
evidence upon which the Board's affirmance of the tax
assessment rests. North Star contends that it was not
treated equally with other property owners in FNSB.
FNSB did not apply an economic obsolescence reduction
to North Star's property. However, it did apply the
reduction to other properties which, based on the
criteria enunciated by the FNSB assessor at the
hearing, were similarly situated. North Star's
argument is that a reasonable basis for disallowing an
economic obsolescence reduction does not exist because
1) the evidence does not support the finding that the
North Star property was isolated from the market as
compared to other properties, and 2) necessary
supporting evidence was not before the Board because it
was destroyed by FNSB.
B. ISOLATION FROM ECONOMIC OBSOLESCENCE FACTORS
North Star contends that there was no reasonable basis
for the conclusion that economic obsolescence does not
apply to its property. North Star argues that several
other properties with high quality tenants and long
term leases were allowed an economic obsolescence
reduction. These properties are the Key Bank Center,
the Borough Administration Building, the Tanana Clinic
Building, the Alliance Bank Building and the Denali
State Bank Building.
The Board argues that its determinations are supported
by the record notwithstanding conflicting expert
testimony. It contends that the only comparable
property in FNSB is the Cool Homes military housing
facility on Eielson Air Force Base and the Dura
Corporation military housing facility. The Board
therefore asserts that the properties identified by
North Star as similar to it are all distinguishable.
Although there are similarities between the Fort
Wainwright property and the properties identified by
North Star,3 there are also obvious differences which
support the finding that the Fort Wainwright property
was isolated from the market. According to the terms
of the lease, the Fort Wainwright project enjoys one
hundred percent occupancy from its high quality tenant.4
The Fort Wainwright property is the only property which
was financed and designed specifically for its high
quality tenant. North Star I, 778 P.2d at 1141-42.
Since the Fort Wainwright property is devoted to
military use, it will not be subject to value
fluctuations from market forces such as unemployment
and wage lowering. Further, the Fort Wainwright
property will not have to compete in the civilian
rental market and be subject to the resulting economic
downturns unless the United States Congress fails to
appropriate money for the project. There is a
reasonable basis to support the finding that Fort
Wainwright was isolated from the forces for which the
economic obsolescence reduction account.5 North Star
has failed to show the denial of an obsolescence
reduction was unsupportable. North Star has the burden
to prove by a preponderance of the evidence unequal
valuation based on proven facts.6 Hence North Star
failed to show that it was treated unequally to others
whose property was also not affected by market forces.7
C. UNAVAILABILITY OF EVIDENCE
North Star contends that a reasonable basis can not be
found to exist for the Board's decision because FNSB
destroyed evidence crucial to justifying that decision.
North Star argues that an analysis of economic rents
was necessary for a determination of isolation from the
market, and that the Board needed this information to
check whether FNSB's determination was sound. FNSB
admitted that it only kept current data on market
conditions and the 1988 data on which it based its
determination was not available. North Star's expert
was unable to establish whether FNSB's method of
setting the economic obsolescence reduction was applied
equally or correctly.
North Star contends that it is "entitled to proof of
equal treatment." But the burden of proof in
contesting a tax assessment is on the taxpayer.
AS 29.45.210(b); FNSB Ordinance 3.24.015(D). North
Star mistakenly believes that once it has raised a
contention about the propriety of the assessment, FNSB
must then come forward with evidence to substantiate
the assessment.8
North Star's argument is unpersuasive. FNSB's
assessment is not vulnerable because of the
unavailability of the empirical data. As discussed
above, the evidence adduced by FNSB at the hearing
provides a reasonable basis to support the finding that
the North Star property was isolated from the market.
North Star did not present persuasive evidence that its
Fort Wainwright property was subject to market
adjustments like the properties it identified. Thus,
there is no basis to conclude the Board treated North
Star unequally. The Board's decision may be affirmed,
based on the testimony at the hearing describing the
assessment methods.9
III. CONCLUSION
The Board had a reasonable basis for finding that North
Star's Fort Wainwright property was isolated from the
market. North Star has failed to show the property was
treated unequally when its taxable value was not
reduced for economic obsolescence. AFFIRMED.
_______________________________
1. North Star does not argue that the method is unsound,
only that it did not receive the benefit of the method
its property valuation would have arguably produced.
2. This court will independently review the merits of an
administrative determination. No deference is given to
the superior court's decision when that court acts as
an intermediate court of appeal. Tesoro Alaska
Petroleum Co. v. Kenai Pipe Line Co., 746 P.2d 896, 903
(Alaska 1987).
3. All of the identified properties have long term leases
(in excess of five years) for some portion of the
buildings with major tenants, primarily banks, FNSB and
the State of Alaska.
4. Although the Denali State Bank Building also had a one
hundred percent occupancy rate, the entire building did
not have high quality tenants, and many of the leases
were expiring soon and were not expected to be renewed.
The entire FNSB Administration Building, however, was
leased to FNSB.
5. This is a sound conclusion without considering the
length of the lease. North Star contends that the
length of the lease is not relevant and was improperly
relied upon by the Board because economic obsolescence
is supposed to reflect factors operating "external"to
the lease, not the "internal"terms of the lease.
The length of the lease was determinative in
distinguishing the Fort Wainwright property from the
Borough Administration Building. FNSB admitted that it
also considered the administration building "isolated
from the market." However, the administration building
was considered vulnerable to economic obsolescence
because just four years remained on its lease.
Even if there is some impropriety in considering the
length of the lease in an analysis of economic
obsolescence, it would only demonstrate that the North
Star property might have been treated unequally from
the Borough Administration Building, but not from any
other property. Other properties with single, stable,
nonmilitary tenants and long term leases were also
denied reductions including Fred Meyer, the Federal
Building, and several Mapco stations.
6. FNSB Ordinance 3.24.015(D) provides:
The appellant bears the burden of proof.
The only grounds for adjustment of assessment
are proof by preponderance of the evidence of
unequal, excessive, improper or under
valuation based on facts that are stated in a
valid written appeal or proven at the appeal
hearing.
7. North Star also claims FNSB's procedure of comparing
the income value with the replacement cost value led to
the denial of an obsolescence reduction for Fort
Wainwright. North Star contends other comparable
property also had a higher value from the income
approach and yet still received the obsolescence
reduction.
However, we note that the Board deleted all references
to the income approach in it's findings. Also, the
comparison was made only after the assessor had
determined the property was isolated. The procedure of
comparing replacement cost and income value was only
used as a double check to validate the conclusion that
the property was not affected by market forces.
8. North Star reads AS 29.45.210(b) as imposing the burden
of pleading and persuasion on the taxpayer but as
leaving the burden of production of evidence
substantiating the assessment with the borough. See
Thomas v. Anchorage Telephone Utility, 741 P.2d 618,
622-23 (Alaska 1987) (discussing the shifting burdens
in an employment discrimination case).
North Star argues that FNSB had a duty to produce the
economic obsolescence workups it performed on the
comparable properties because on remand of the original
appeal, Judge Mary E. Greene directed the Board to
enter findings on whether the same procedures were
followed for comparable properties. North Star Alaska
Housing Corp. v. Fairbanks North Star Borough Bd. of
Equalization, Case No. 4FA-88-1031 Ci. (Alaska Super.,
October 31, 1989).
We conclude that the Board's finding that the Fort
Wainwright property was isolated from the market
adequately addresses the issue of relative economic
obsolescence.
9. The Board also contends that North Star was not harmed
by the loss of the data. The Board refers to the
superior court's affirmance, which noted that North
Star did not contend that its expert was obstructed
from or could not otherwise have produced data of
market rents and isolation from the market in 1988.
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