The Orange County Board of Supervisors set the stage Tuesday for a $32-million property tax battle with the Irvine Co., the county's largest private landowner, impounding $15.9 million in taxes the company has already paid and considering hiring private attorneys to help the county with its case.
The dispute--which promises to be one of the largest and most complex assessment cases the county has undertaken--was triggered in 1983 when stockholder Donald Bren acquired controlling interest in the Irvine Co. The firm's massive landholdings were reassessed, raising their total valuation by more than $2.1 billion and nearly tripling the company's total property tax bill, to about $51 million.
2,000 Parcels of Land
The company has filed a series of appeals against the new assessments, which cover about 2,000 parcels of land. A total of $32 million in property taxes on those parcels is now in dispute, and an assessment appeals board will rule on the issue later this year.
Because of the appeal, county officials decided to put the $15.9-million first installment of the disputed tax bill in an impound account, which means that the county, school districts, cities and water and sewer districts that are each supposed to receive a share will have to wait until the appeal is resolved. The second installment is due in May.
At stake in the battle are numerous legal issues that could affect the county's ability to set property tax assessments in future years, county Assessor Bradley Jacobs said Tuesday.
Legal Help Requested
"Some of the legal questions impact how all transferred property has been valued under the laws and how transfers will be handled in the future," Jacobs said in a letter to the supervisors, in which he asked them to authorize up to $250,000 for outside legal help.
The board delayed a decision on the outside counsel until next week. However, it did vote to set aside the $15.9 million which the Irvine Co. has paid under protest. Pending the appeals board decision, the money will be remain in the impound account along with about $300,000 in disputed property taxes involving other landowners.
Jacobs estimated the appeals hearing process will take 12 to 17 weeks. If the company is not happy with the appeals board's decision, it has no recourse but to go to court.
Supervisor Bruce Nestande said he asked for a one-week delay in hiring outside counsel to make sure the county's own attorneys feel such help is needed. "It's a complex issue, and it obviously has far-reaching implications throughout California," Nestande said.
One of the issues to be determined is whether assessments should be based on the assessor's determination of fair market value which is what occurred in the present case--or the actual purchase price of a piece of property.
The Irvine Co., for example, has argued that the assessed value should be based on the $1.1-billion purchase value of the company established when Bren bought control of it, a much lower figure than the value set by the county. Home buyers, for example, should feel confident that the price they pay for a home will be the price upon which their property tax is based, company officials have said.
'Compelled to Protest'
Moreover, they argue that the stock sale did not constitute a change in the ownership of the land. Under Proposition 13, the 1978 property tax-cutting initiative, property assessments increase only 2% a year unless ownership changes, in which case the property is reassessed.
Overall, the company is protesting about $3.1 billion in assessments, said company spokesman Jerry Collins.
"We're compelled to protest all . . . parcels because that's how they were assessed," he said. "We feel that the entire property should have been looked at as a single unit because it was acquired that way by Mr. Bren. The assessed total value, we believe, should be based on the $1.1-billion purchase value. We don't think the sum of the parcels should equal more than the sum of the whole."
Jacobs has been reluctant to discuss the case publicly in advance of the appeals board hearings. He said, however, that there are three primary issues to be addressed: Whether the property should be reassessed; if so, how it should be reassessed; and the appropriate individual market values for each parcel.
"There was nothing unusual done in this situation. These properties were handled in the same manner as other properties of the same type, characteristics and so forth," Jacobs said. "The fact that they all happened to be owned by a particular entity is really not important."
The outcome of the case is important to the county, however, because "nothing occurs in a vacuum," Jacobs added. "There is a basic principle in economic life that almost everything is connected to almost everything else."
The Irvine Co.'s property tax bill for 1983-84 was $17.8 million. This year's total bill is still only an estimate but should total about $51 million, according to Neal Gruber of the auditor-controller's office.
Jacobs, in his letter to the board, said he is proposing to hire the firm of Pillsbury, Madison and Sutro to represent the assessor in the appeals board hearings.
"We expect that the defense of the valuations could be costly, since competent and experienced legal help is expensive," he said. But pointing to the $32 million at stake, he added, "Commensurate and effective defense is appropriate since these valuations have current and future impact on a large number of taxing jurisdictions."
No date has been set for the hearings.