USF&G building wins huge refund City agrees to pay $5.5 million, lowers assessment on tower

Owner is a N.Y. syndicate

Baltimore is pressed for millions in refunds on overvalued buildings

April 24, 1996|By Eric Siegel and Kevin L. McQuaid | Eric Siegel and Kevin L. McQuaid,SUN STAFF

Baltimore has agreed to refund $5.5 million in real estate taxes to the owners of the USF&G Tower -- one of what could be a series of hefty paybacks to a score of property owners in the city's once booming downtown.

Moreover, the owner of the tower's taxes will be slashed by more than 60 percent over the next three years.

The agreement comes as Baltimore officials are cutting municipal spending and suggesting a controversial increase in the city's income tax -- all to steady its already shaky financial condition.

The $5.5 million refund represents the latest sign of the city's deteriorating commercial tax base brought on by a sluggish real estate market.

Ultimately, the city could be forced to repay millions more in taxes and interest to about 20 landlords currently appealing their real estate assessments.

The proposed settlement is to be brought for approval today to the Board of Estimates, the five-member panel of top elected and appointed officials, which must approve all city contracts and expenditures.

The deal settles the owner's lawsuit over the 35-story headquarters building that was scheduled for trial in Maryland Tax Court next week.

The agreement, covering the last four tax years and based on state assessors' reductions of more than $40 million, calls for the $5.5 million payment to be made "on or about July 1" -- a date that coincides with the start of the new fiscal year.

Baltimore's 1997 budget already reflects a 1 percent decline in ,, locally generated revenue -- the bulk of which is from property taxes. Downtown

commercial buildings account for 10 percent of all city property tax revenue.

In an effort to offset the decline in tax revenue, Mayor Kurt L. Schmoke proposed a 10 percent increase in the city's income tax, beginning Jan. 1. The proposal, which would raise an estimated $4.9 million, is proving to be a tough sell to some members of the City Council, which must approve the increase.

Yesterday, budget director Edward J. Gallagher said the city has set aside $1.8 million so far in anticipation of the refund in the USF&G case. But he said the city has "not identified yet" where the additional $3.7 million will come from.

Under the agreement, the city will receive only $702,000 in annual property taxes from the building's owner between now and 1998 -- a decline of $1.3 million, or 65 percent, a year. But Mr. Gallagher said the budget has taken that loss of tax revenue into account.

The 20 owners of downtown properties now appealing their taxes are fighting over a total assessed value of $384 million in 1995, said Owen J. Charles, Baltimore supervisor for the State Department of Assessments and Taxation.

Since 1992, when the spate of appeals began, the city's downtown tax base has declined by 13 percent to $1.58 billion.

While few assessment appeals make it to the state's tax court -- the last level of a three-tiered state appeals process -- many building owners are continuing to pursue appeals because of the sluggish downtown office market.

At the end of March, more than a fifth of all downtown office space was vacant.

Among those now in tax court is the Baltimore Sun Co., which is appealing its assessment of $51 million on its offices and adjacent parking garage on North Calvert Street.

Jean Carol Halle, vice president and chief financial officer of the Baltimore Sun, said its case has been rescheduled for June. Initially, the tax court was to hear the matter earlier this month. Under the agreement with Marbax Associates Ltd. Partnership, a New York-based syndicate that purchased the USF&G tower from the insurer for $100 million in 1984, the city will refund municipal taxes and interest covering the fiscal years from 1993-96 of $5.1 million.

The city also will refund $203,000 collected as part of surcharges levied on properties in the downtown business district and $183,152 in state taxes. The city will be able to recoup the state taxes it refunds.

The state assessor's office had placed the value of the office tower at 100 Light Street at $86.8 million in both 1992 and 1995. Property assessments are conducted by the state agency every three years. But Marbax had the property appraised at $37 million in 1992 and $27 million in 1995, officials said.

A key difference in the valuation of the property concerned a long-term lease USF&G had signed with Marbax when it sold the building.

Marbax argued that the value of the lease should not be used in determining the building's value, while the state said that it was the type of market transaction typically used to estimate a property's worth.

When the two sides could not reach an agreement, Marbax took the unusual step of taking its 1992 assessment to state Tax Court, while continuing to appeal its 1995 assessment administratively.

Because of the amount of money involved, the city joined the lawsuit last year. Last week, the sides reached a compromise.

For the years 1993-95, the building would be valued at $46 million. For the years 1996-98, the value would be set at $30 million.

"What the department concluded was that that property would be valued without regard to the current lease," said Robert W. Wineholt, director of the state assessor's office.

Mark J. Friedman, a Piper & Marbury attorney who represents Marbax, said the settlement acknowledged that "the value should be determined by actual market value, rather than the sale-leaseback transaction that was concluded in 1984."

Pub Date: 4/24/96

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