Counties resist pressure to reduce valuations

San Francisco Chronicle

Companies that bought up power plants under the state’s deregulation program are now filing challenges to county tax assessments, arguing in some cases that the plants are worth only a fraction of their sale prices.

The steep property tax breaks requested by the power plant owners, whose rates have been driving up electricity bills, would come on top of millions of dollars in tax reductions granted to utilities this year by the state Board of Equalization.

Counties say the tax appeals, if successful, would deepen the revenue losses already faced by schools, clinics and fire departments resulting from the cuts approved by the state board.

In Contra Costa County, the appeals would lop $309 million off the taxable value of two power plants bought by Southern Energy of Atlanta during Pacific Gas and Electric Co.’s sell-off of generators. That reduction would save Southern Energy more than $3 million a year in property taxes.

Company spokesman James Peters said he could not comment in detail on the requested tax reductions because the appeal is still pending.

“We’re seeking fair and equitable tax treatment,” Peters said.

COUNTIES HAVE DIFFERENT VIEW

Contra Costa County Assessor Gus Kramer has his own explanation for the company’s grounds for appeal.

“It’s called the `corporate greed’ ground,” Kramer said.

Doug Heller, a spokesman for the Foundation for Taxpayer and Consumer Rights in Santa Monica, said he was outraged to learn that out-of-state global energy firms are trying to minimize their tax obligations.

“If this is accepted, then (state) taxpayers are bailing out companies that are already soaking us with high energy rates.”

Duke Energy Corp. of Charlotte, N.C., is saying its Moss Landing plant, acquired in 1998 for $380 million, should be taxed on a value of only $123 million.

In Los Angeles County, two power companies are arguing that their plants are worth $410 million less than their assessed value.

AES Corp. of Arlington, Va., declined to give a detailed justification for its assertion that the Alamitos plant it bought from Southern California Edison for $436 million in 1998 is worth only $190 million for property tax purposes.

Company spokeswoman Anja Irwin said the purchase price includes the value of many “intangible” factors that should not be subject to property tax.

Tax challenges based on “intangibles” are at the heart of a fierce conflict raging between county assessors and the Board of Equalization, which sets property taxes for regulated utilities and oversees the work of county assessors.

LOOPHOLE FOR `INTANGIBLES’

Two years ago, the state board expanded the definition of tax breaks for “intangibles,” such as water rights or favorable contracts that add value to a business but are not directly tied to physical assets.

County assessors have refused to follow the rules, contending that they allow companies to whittle away the value of real property by claiming a host of deductions for permits, customer lists and other factors.

The tax appeals now pending by power companies and utilities are shaping up as the battleground where the counties will fight out their differences with the state board. The conflict may have to be resolved in court.

After a Chronicle report describing breaks the tax board has granted utilities, the Marin County Board of Supervisors ordered county attorneys last week to determine whether the county should sue the board.

Power plants that used to be assessed by the state board when they were part of statewide utilities such as PG&E are now appraised by county assessors because they have been sold to individual power companies.

Most of the county assessors have taken the sale price as the best indicator of the “fair market value” of the plant, which sets its taxable worth. Appeals of those values go first before a county assessment appeals board, whose decisions can be challenged in state court.

PROPOSITION 13

The power companies have a strong incentive to reduce their first assessments as new owners, because they acquire Proposition 13 protection when they are assessed by county assessors instead of the state board. The first valuation of real estate after its sale to a new owner sets a strict cap for future property tax increases under Proposition 13, which restricts increases to no more than 2 percent a year.

Consumer advocate Doug Heller said huge power companies making huge profits because of a tight energy market should not get bigger tax breaks than the new homeowners whose base property values are sky- high as a result of California’s booming economy and housing shortage.

“Would anybody believe me if I said, `Well, my house is only worth half of what I spent last month?” Heller said.