O.C. Assessor Dealt Setback in Plan to Value Cable Firms

In a setback for Orange County’s tax assessor, a three-person appeals panel Thursday largely rejected a new method for establishing the value of cable television systems for property tax purposes.

The decision by the Orange County Assessment Appeals Board came in a case involving Cablevision of Orange and is considered a strong indicator of how similar appeals by nine other Orange County cable companies will be decided.

Tax Assessor Bradley L. Jacobs’ office is likely to appeal the ruling in state court, but Jacobs’ deputies declined comment Thursday, saying they needed time to study the ruling. Cable industry representatives also declined to comment.

The Assessment Appeals Board, a quasi-judicial body appointed by the County Board of Supervisors, ruled that cable companies’ properties should be valued by calculating the cost of all the hardware components of the cable systems, then adding value for the firms’ “possessory interest,” or right to use public streets and other rights of way.

That method, known as the cost approach, is used in many jurisdictions and is strongly endorsed by the cable firms.

But Jacobs, following the lead of assessors in several other California counties, has adopted an approach known as the “unitary” method, and calculated the value of the property unit based on the income it produces and the value of comparable property on the open market.

The unitary method considers all hardware, real estate and possessory interest as a single unit for assessment purposes. The assessor contends that nearly all the value of a cable company is represented by these components.

The cable companies claim, on the other hand, that much of the income generated by a cable firm--and the high prices they attract on the open market--derive largely from tax-exempt “intangibles” such as good will.

Income and comparable sales data, they argue, while appropriate for some types of property, cannot properly be used in assessing cable firms.

In the Cablevision case, the assessor had pegged the market value of the property at $38 million for 1989, although the Proposition 13 ceiling on property tax increases limited the actual assessment to $19 million. Cablevision contended its property was worth just under $11 million and should be assessed at about $8 million.

Although it will be difficult to determine the exact figure until the Assessment Appeals Board issues a written ruling, the decision appears to peg the value of the Cablevision system at about $12.5 million. The board rejected the unitary method of valuation, saying the components of the property to be assessed are in separate categories.

The stakes are even higher for some of the other cable companies. Because they have been sold in recent years, they are not protected by Proposition 13. Paragon Cable, for example, saw its property tax bill rise more than 400%.

Cablevision of Orange and nine other Orange County cable firms, in addition to appealing the assessments, have launched a public relations assault on Jacobs, charging in a series of newspaper advertisements that his new assessment method amounts to a “second income tax” that eventually will be applied to all Orange County businesses.

In addition, they have sued Jacobs and the county, charging discrimination and violation of due-process rights. The first hearing in that lawsuit is scheduled for today in Superior Court in Santa Ana.

Though Jacobs will not comment on the situation, his deputies maintain that they are simply complying with their constitutional obligation to assess all property at fair market value.

Similar disputes are under way in a number of other counties in the state, including San Diego, Sutter, Yuba and Stanislaus.

The staff at the State Board of Equalization, which establishes guidelines for county tax assessors, has drawn up a handbook for cable television assessment which supports the new methodology, but the handbook has not been approved by the full Board of Equalization.