Here’s an outcome you don’t hear too often: The city is going to get a chunk of its money back.
Early this year, the group overseeing and renting out the 26 Point Loma buildings considered the city’s next arts, culture and nonprofit district ran into a big tax issue. The city bailed out the group, the nonprofit NTC Foundation, to the tune of more than $1 million of redevelopment money to cover the surprise bills for back taxes and penalties.
This month, the County Assessor’s Office weighed the last of the foundation’s 42 requests for lower property taxes. The assessor did not budge from the position that the foundation should be taxed. But the assessor did agree to lower tax rate, giving the organization a refund this year and for previous years.
When the county issues a property tax refund, the money goes back to whoever paid the bills — in this case, the city’s redevelopment agency, which wrote the checks to cover the foundation’s tax liability. The Assessor’s Office estimated the refund will be about $495,000.
To refresh our memories: Though it’s a nonprofit, the foundation unexpectedly triggered property taxes by creating a for-profit company to help finance the rehabilitation of historic buildings. (I explained this structure in an earlier post.)
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The foundation considered the move a purely technical one, a means to receive millions of dollars through tax credit financing. But the County Assessor’s Office took that technicality seriously and taxed the foundation going all the way back to 2006.
Now, the assessor has agreed that the property had been taxed too highly for two main reasons, said division chief for assessment services, Jeff Olson:
• The buildings are historic and aren’t laid out in the most efficient, usable or modern way.
• The city has stipulated that the foundation should rent the space to nonprofit and arts and culture groups.
In 2010, the seven buildings had been assessed at $22.7 million for tax purposes, Olson said.
Now, that’s been reduced by more than half, to $9.87 million. That means the city should expect nearly $500,000 back for all of the years it covered the tax bills.
In March, Olson had told me that when the assessor is deciding how much a building is worth, and therefore what it should be taxed on, it doesn’t contemplate whether its occupants are for-profit or nonprofit. Instead, the assessment is supposed to be done regardless of who’s using the building, accounting for the building’s “highest and best use.”
But in this case, the city applied restrictions to the buildings in making the space available to arts, culture and nonprofit groups, limiting the foundation’s ability to charge the highest possible rents for the area, Olson said.
Consider a beachfront house. That property’s highest and best use would be to rent out the bedrooms like a hotel. But if a neighborhood’s zoning rules doesn’t allow the property owner to rent out the rooms commercially, the property shouldn’t be taxed as if it was a hotel.
The lowered taxes are the first break in a series of angles the foundation has been trying to work since getting the city to step in to cover the past bills in February. It tried, in vain, to get state Sen. Chris Kehoe to add an exemption to state law to cover the NTC Foundation. And meanwhile, to cover future years’ bills, the foundation began charging some tenant groups — some of them nonprofit arts organizations — a spiked rent rate to cover the tax.
Now, with lower tax bills, it seems that might be an easier sell.
I’m Kelly Bennett, the arts editor for VOSD. You can reach me directly at firstname.lastname@example.org or 619.325.0531.
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