By Erin Sherbert
By Rachel Swan
By Erin Sherbert
By Erin Sherbert
By Howard Cole
By Erin Sherbert
By Erin Sherbert
By Leif Haven
By most accounts, San Francisco's tax assessor, Doris M. Ward, is a nice person. When asked about Ward's good qualities, people who work with her talk about the regular birthday parties she throws for her staff. Or they say she is "charming." Or they describe her as "nice." And the good feelings extend beyond the Assessor's Office.
Millionaire hotel owner and author (Christ Was an Ad-Man) Robert Pritikin likes Ward, too. Early last month, he threw a campaign kickoff party for her at his San Francisco mansion, which sports plush conversation pits -- and a marble swimming pool -- in the living room. Amid tables spread with white linen and salmon canapes, Ward held court, pressing the flesh of the politically connected and seeking re-election as assessor.
"Welcome to Doris' party," said Pritikin, white-haired and dandy, again and again as he shook the hands of his guests. And the guest list was impressive: Mayor Willie Brown and his bodyguard showed up. District Attorney Terence Hallinan, Assemblyman Kevin Shelley, and assorted supervisors and city department heads paid their respects. In fact, Pritikin, Brown, U.S. Sen. Dianne Feinstein, and real-estate tycoon Walter Shorenstein -- the leading sponsors of Ward's re-election campaign -- have helped create what appears to be one of the more outlandishly one-sided political contests in recent San Francisco memory.
Ward's opponent, a virtual unknown named Fred Perez, has worked as a personal property auditor at the Office of the Assessor for two decades. He has been able to raise little money for or interest in his campaign. And even he admits to liking Ward as a person.
"She is nice," Perez says, "but incompetent. Everybody knows it."
Actually, Perez's assessment is incorrect.
Doris Ward may be a pleasant person, but to call her incompetent is to understate magnificently. By numerous official estimations, in many measurable ways, under the most charitable and evenhanded of judgments, Doris Ward qualifies as a top contender for the title of most inept and costly official in San Francisco government.
A county assessor's job is to appraise -- that is, to declare the taxable value of -- every parcel of land, piece of business equipment, and type of building in the county. That taxable value determines, to a large degree, how much money city government has to spend each year. If you take the taxable value of all the property in the City and County of San Francisco -- $53.5 billion -- and multiply it by the city's tax rate, you calculate the amount of property taxes that will be collected annually from home and business owners.
This year, that figure was about $671 million, or 20 percent of the city's operating budget. To say that the tax assessor's job is important to the financing of city government is, then, to state the obvious. Increases or decreases in assessed value directly affect what programs the government can fund, and at what levels.
And, indeed, Doris Ward has been important to San Francisco's finances -- negatively important.
Calculations based on public records show that the city lost more than $100 million in tax revenue this year -- and roughly half a billion tax dollars since 1992 -- because Ward's office failed to accurately value commercial real estate, including numerous downtown skyscrapers owned by politically influential people and businesses.
Also, public records show, the assessor is notoriously lax in visiting businesses to identify the large amounts of taxable office equipment and furnishings located there. And government auditors have regularly criticized the assessor for failing to log newly constructed buildings and additions to existing structures. This new property is added to the assessment roll years late, if at all, the auditors say.
Due in large part to the policies of Ward, the total assessed value of San Francisco's commercial property has shrunk since she was appointed to office in 1992 after then-Assessor Richard Hongisto left the post to become chief of police.
To put it another way: If you believe that Doris Ward's office is producing accurate property assessments, you also must believe that San Francisco -- now in an almost unprecedented economic boom -- is actually suffering a cataclysmic recession, an economic downturn so drastic that the price of real estate is falling.
Records provided by Ward's office show that her policies kept at least $100 million out of city coffers this year, and consequently left that money in private hands. And the list of those who reaped significant benefits from undervaluation of commercial property includes some interesting names:
* Walter Shorenstein, who is estimated to own roughly one-quarter of downtown San Francisco and is a national-level player in Democratic Party fund-raising.
* The Bank of America, which owns sites of branch banks and holds mortgages on billions in S.F. real estate. Its corporate headquarters at 555 California St. has a market value estimated at more than $1 billion.
Then there are the people Doris Ward's policies have helped on a smaller scale. People like Robert Pritikin and Willie Brown.
Generally in line with -- but a bit behind -- the fortunes of the national economy, the San Francisco real estate market sank and bottomed out in the early 1990s. Although it seems hard to imagine now, then there was an oversupply of downtown office space; even the residential market went soft. When the real estate market goes down, a state law adopted in 1978 allows tax assessors to temporarily reduce the values on residential and commercial properties, which ordinarily are revalued only when they are remodeled or ownership is transferred or sold.
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.
Assistant Assessor Verne Walton did, however, produce a list of the 30 largest downtown office buildings ranked according to value. The list shows that the combined assessed value of these properties is $2 billion less than it was in 1990, due to Prop. 8 reductions. Clearly, that $2 billion reduction should have been restored at some time during the current San Francisco real estate boom. Instead, Walton acknowledges that the assessor has increased the values of a few of the 30 buildings by just $190 million. Because of the assessor's failure to reverse the Prop. 8 reductions on these 30 skyscrapers, the city treasury missed out on $24 million in tax revenue this year.
Dozens of other commercial buildings have benefited from managerial meltdown at the Assessor's Office.
San Francisco's chief of protocol, Charlotte Mailliard Swig Shultz, is part of a partnership that owns an office building at 633 Folsom that is leased to the city. Prop. 8 reductions have saved her -- and cost the city government -- $170,000 in property taxes on that building over four years.
The Fairmont Hotel, in which Swig Shultz has an interest, had a 50 percent ownership change in 1994, when Prince Alwaleed Al Saud bought into it. Yet, the Fairmont was not brought up to market value by the assessor. Instead, Prop. 8 was used to reduced it in value -- to $78 million. San Francisco has been losing a cool quarter-million a year in property taxes from the devalued Fairmont, which was just sold for a reported price of $200 million.
A handful of tax attorneys and appraisal firms do a large percentage of the Prop. 8 work for the owners of the office monoliths. The story of the courtyard for the Citicorp Building at 1 Sansome St. is an example of the magic they can work.
The granite-pillared courtyard at 1 Sansome opens onto Market Street, providing a luxurious open space in congested downtown. In 1994, the courtyard carried an official assessed value of $27 million. In 1995, the courtyard's value was reduced to $7 million, thanks to the efforts of politically savvy Bill Bennett of the law firm Bennett & Yee and appraiser Charles Brinkerhoff of the Arthur Consulting Group.
The office tower attached to the courtyard was reduced by $23 million from its 1994 value, and it has remained at that low assessment.
Citicorp saved $731,000 in real estate taxes last year on the courtyard and tower at 1 Sansome St. through these reductions.
The list of Prop. 8 properties that escape the merciless attentions of the tax collector -- due to the merciful inattention of the assessor -- is long.
Over a five-year period, San Francisco lost $1.4 million because of value reductions at 3 Embarcadero Center, owned by Prudential Insurance and the Rockefeller family. Kentucky Central Life Insurance is getting a $220,000 Prop. 8 tax break every year on its 135 Main St. building.
Walter and Doug Shorenstein are the winners of the overall Prop. 8 sweepstakes, though. Among many other examples of tax breaks, the Shorensteins get a $62,000-a-year tax subsidy on their retail (The Sharper Image) and residential (Golden Gateway North) complex at 75 Broadway; a $255,000 annual tax reduction on Harrison Plaza, a commercial complex on the Embarcadero, near the Bay Bridge; and of course the $4.3 million yearly tax savings that the Shorensteins and BankAmerica get on the Bank of America building.
But the Prop. 8 gravy train is not limited to corporate behemoths or monster office buildings.
In 1994, Mayor Willie L. Brown's condominium at 1200 Gough St. received a Prop. 8 reduction from a $336,000 assessed value to $280,000. Rather than revert to market value after one year, the value of Brown's condo has remained frozen. This continuing reduction is saving the mayor $666 in taxes this year.
And Robert Pritikin's Chenery Street mansion -- which hosted Doris Ward's campaign kickoff party -- benefited from $284,000 in Prop. 8 value reductions over the last year.
In 1995, the San Francisco Chronicle published an investigative series about Ward's stewardship as assessor. Reporters David Deitz and John King secretly shadowed Doris Ward for several days. They reported that she seldom visited her office: She used her city car to shop at Saks, instead of going to work. Three years later, Ward's working habits appear to have changed little. According to a half-dozen of her co-workers, all of whom requested anonymity, she is absent from the office for significant amounts of time.
Prompted by public response to the Chronicle series, the State of California conducted a special audit of Ward's department. That 1995 audit is absolutely damning. It contends Ward's office could not even maintain a basic filing system. The auditors, sent by the State Board of Equalization, came up with a laundry list of dozens of essential operational improvements needed at the Assessor's Office.
The auditors turned pale at the discovery that the assessor's 1960s-vintage mainframe computer could be accessed at will. They called it "ridiculously simple" for nearly anyone in the office to raise or lower property values in the computer without authorization. The auditors urged the assessor to bring her database into the modern age, warning that the "potential for wrongdoing" in Ward's department was omnipresent.
In the 1995 report, the Board of Equalization found that record-keeping in Ward's office was a near-total disaster, resulting in "inaccurate and improper assessments." Ward's method of collecting and storing vital and irreplaceable data left the auditors aghast.
"A lost or misplaced file, which would be treated with alarm at most assessor's offices, is not unusual in San Francisco," the board wrote.
The board observed that huge value reductions on downtown office buildings were not supported by paper trails. The board said that the reasons for changes in assessed values were not being appropriately documented and filed. The report worried that personnel in the Assessor's Office may, therefore, be able to reduce property values "in situations where this is not permitted by law."
The state board went on to complain that the assessor was not reassessing the value of some multimillion-dollar commercial properties when they changed hands, as is required by law. And among other things, the board reported, the assessor did not even look at 500 construction permits issued by the Port of San Francisco since 1990 -- permits that authorized the building of tens of millions of dollars in improvements that should have been placed on the city's tax rolls.
Three years later, few of the auditors' recommendations for improvements in the Assessor's Office appear to have been followed. Undervalued commercial property has not been increased in value. The basic filing system remains a disaster. The state auditors' urgent recommendation that Ward buy a new computer system has been hopelessly bungled (see related story, Page 15).
A 1997 audit of the assessor by KPMG Peat Marwick supports the notion that Doris Ward has made no real headway in fixing her problems. Of particular concern to all the accountants has been the absence of records showing how property values are assessed. Without such a paper trail, decisions made by Ward to lower property values cannot be monitored.
Who gains from the state-certified incompetence, the convenient confusion, the utter bumbling that has been shown, again and again, to permeate Doris Ward's shop?
Grant Flint, the recently retired chief appraiser of Alameda County, put it this way, in a letter he sent to the Assessment Appeals Board last fall: "Tax agents and attorneys mock the San Francisco assessor's office. Entire careers have been built off the assessor's office's weaknesses. Appraisal agents and attorneys feed off of it."
Influential commercial property owners don't seem to do so badly, either.
Last year alone, Doris Ward's policies cost San Francisco city government a sum of money that could have renovated City Hall, or launched a satellite into outer space. The $100 million lost to apparently improper Prop. 8 tax breaks could pay a year's rent in a nice condo for every homeless person in San Francisco; end child hunger in California; fund the government's portion of a football stadium in Bayview-Hunters Point; build a hospital wing; or take every single person in San Francisco out to a $133 dinner.
Of course, for any of those things to happen, it seems fairly certain that a person named Doris Ward would have to be turned out of the Assessor's Office. And who would want to do that? She's so darn nice.