Downtown's Fairy Godmother

Doris Ward, San Francisco's assessor, is tossing around commercial tax breaks as if they were fairy dust. It's costing the city at least $100 million a year.

For instance, if the market falls generally by 5 percent, a tax assessor is allowed to reduce the value placed on a $100 million building by 5 percent, or $5 million. In San Francisco, such a reduction in value would have saved the property owner $59,500 in property taxes this year.

Under that law, known as Proposition 8 because it was No. 8 on the election ballot in 1978, reductions in taxable value are to last for one year only.

Nonresidential taxpayers who want a Prop. 8 reduction file papers with a quasi-judicial body called the Assessment Appeals Board, which makes the reduction based on the assessor's recommendations.

Canny tax lawyers, however, have learned to take advantage of a loophole in the tax code that allows them to negotiate the amount of reduced values directly with the assessor, rather than the Appeals Board (which, in San Francisco, has a reputation of being sterner about reductions than the assessor herself).

There is nothing that says several one-year reductions cannot be granted in succession, if the real estate market remains depressed. But as a cyclical downturn in the real estate market transforms into an upswing, the law says that all values should be restored to their original "base year" assessments.

Attorneys for large properties, then, automatically file for reductions every year. This stalls the automatic return to the older, higher values. In the meantime, Ward's office often fails to review the continued validity of the reductions -- even though such a review is required by law. The owners are allowed to roll over the reduced values from one year to the next.

In San Francisco, owners of downtown skyscrapers have learned that a temporary Prop. 8 reduction can last an awfully long time.

Members of the Assessment Appeals Board have been highly critical of Ward ever since then-Mayor Frank Jordan appointed her to office in 1992. Board members Peter Fatooh, a realtor with business ties to real estate magnates Walter and Doug Shorenstein, and Alec Lambie, a professional appraiser, in published interviews and in recent interviews, accuse Ward of doing her job badly.

Excessive Prop. 8 reductions have been handed out to powerful interests by "incompetent appraisers and an uncaring assessor," they complain. Furthermore, board members contend, Ward has not been raising reduced values back to base year values to keep in step with the vastly improved economy.

These accusations are largely supported by a 1995 audit by the State Board of Equalization, which is the administrative overseer of all local assessors. That audit harshly criticizes Ward's practice of allowing downtown office buildings to escape their fair share of taxes.

Neither the assessor nor the Assessment Appeals Board has been able to provide a comprehensive list showing all Prop. 8 reductions, and how much money San Francisco has lost because of Prop. 8 reductions that have been frozen in time without the annual reviews required by law. However, an examination of San Francisco's Consolidated Annual Financial Report for 1997 shows that the nonresidential assessment roll has lost $8 billion in value to Prop. 8 reductions since 1990.

Applying the current tax rate to that loss brings this result: In this tax year alone, the city lost nearly $100 million in real estate taxes that could have been collected from nonresidential properties, if the assessor had restored the reduced properties to values assigned to them in 1990.

And is there any downtown property worth less today than it was worth eight years ago?

After retiring from the Alameda County Assessor's Office in 1993, Grant Flint took a temporary job assessing downtown real estate for Doris Ward. He was excited about the prospect of practicing his art on the giant landmarks silhouetting the San Francisco skyline. Flint, 64, was particularly excited about assessing 555 California St., BankAmerica's world headquarters.

The angular 555 California St. office behemoth is owned by a partnership that includes the building's manager, Walter Shorenstein, and BankAmerica Corp. In 1994, assessor's records show, the taxable value of 555 California was $773 million. Because San Francisco's real estate market was just emerging from a recession in 1995, Shorenstein asked for a Prop. 8 reduction of the assessments on which he had paid taxes the two previous years. He asked that the building's assessed value be reduced to $600 million.

The Assessment Appeals Board, with the blessing of Ward's office, awarded Shorenstein a value $105 million lower than what he had initially requested, reducing the building's assessment to $495 million. Then, the tax collector sent Shorenstein a check for $5 million -- a refund of "overpayments."

Flint was outraged. His own careful appraisal of 555 California -- based on its sale price in 1993, when the building's ownership structure changed -- came in at $838 million. In consideration of the previously weak real estate market, Flint says, he was willing to temporarily reduce the value to $758 million. But, he says, Doris Ward quickly reassigned him, and another appraiser gave the building a value $343 million less than Flint's, resulting in a $4 million annual tax saving for Shorenstein and BankAmerica.

Flint says he resigned in disgust.
(Today, 555 California is assessed at what seems to be a bargain-basement level -- $546 million, or $227 million lower than the building's tax value four years earlier.)

Repeated requests to interview Ward about the performance of her office were denied.

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