Irvine Co., County Reach Property Tax Settlement

After a two-year battle that has cost Orange County nearly $2 million in legal fees, the Irvine Co. has agreed to an out-of-court settlement that establishes the value of its landholdings and sets its fiscal 1985 property-tax bill at about $32 million.

The terms of the agreement, approved Thursday by the county’s assessment appeals board, will be used as a basis for computing subsequent tax bills for the Irvine Co., the county’s largest private landowner.

Although the $32-million bill is more than the Irvine Co. wanted to pay, it is far less than the county had wanted to charge. In 1984, the company paid $51 million in property taxes. It paid $47.4 million the next year. Both bills were paid under protest.

Thursday’s agreement means the company will receive a refund of about $35 million--plus 9% interest--for the two years.

Under the settlement, the development company agreed that its extensive landholdings were worth $2.95 billion for tax purposes when Donald L. Bren bought a controlling interest in the Irvine Co. in April, 1983.

The company’s 68,000 acres--which include developed properties such as Newport Center--were appraised for tax purposes at $1.1 billion the year Bren took control. Tax Assessor Bradley L. Jacobs later ruled that Bren’s purchase of Irvine Co. stock was the same as purchasing the real estate and triggered a mandatory reassessment under provisions of Proposition 13, the property tax-limiting initiative approved by California voters in 1978.

Using that ruling, he established an assessed value of $3.6 billion.

The agreement approved Thursday by the appeals board established the $2.95-billion property value only for the company’s fiscal 1985 tax bill. That figure becomes the base from which taxes for subsequent years will be computed.

Lawyers for both sides said they expect the Irvine Co.’s fiscal 1986 property-tax bill to be established by the end of this year, when the first installment on fiscal 1987 taxes also are due.

Irvine Co. officials, who still believe the company’s property is being overvalued by the assessor, wanted to settle the dispute because millions of dollars in disputed taxes would be tied up in county coffers during the five to eight years a legal battle could last, said Gary Hunt, senior vice president of the company.

‘A Lot of Money’

“Paying $48 million or more in taxes every year under protest is a lot of money,” Hunt said. “There was never any question we’d be getting a good share of it back. And that’s money that could be used for roadway improvements, parks and other projects.”

The assessment appeals board was readying itself for a six-month hearing on the company’s protest of the reassessment when the settlement was reached.

The Irvine Co. now estimates its 1984-85 taxes at about $32 million, up from $19 million the previous year, but a county official said the county auditor-controller’s office may need up to two months to figure out the exact amount.

In its fight with the county, the Irvine Co. had argued that the value of its property should be based on what Bren paid, not--as the assessor had done--on a new appraisal of each of the 2,100 parcels of land.

The battle has been expensive for the county, which brought in lawyers from the San Francisco law firm of Pillsbury, Madison & Sutro to represent it. By August, county supervisors had approved payment of more than $1.9 million in legal fees.

May Affect Lawsuit

The new valuation also could figure into the lawsuit that Joan Irvine Smith has filed in Michigan, where the company is incorporated, to set a price for her 11% share in the company. She objected to Bren’s November, 1983, merger of the Irvine Co. and a firm he had set up to effect his purchase. The purpose of the merger was to enable Bren to transfer to the Irvine Co. liability for the debt incurred when he bought the company.

According to the Irvine Co., Bren offered $114 million for her stock, but Smith--the granddaughter of Irvine Ranch founder James Irvine--claimed the amount was too low. The company, she contended, was worth far more than Bren paid for it.

“He should be required to pay her full value for her shares,” her attorney said Thursday. He said he plans to use the settlement figure as evidence in the trial--scheduled to begin in May--to determine the true value of Smith’s shares. Based on Thursday’s settlement, Smith could claim more than twice what Bren has offered.