Hypotheticals are key in State Farm assessment dispute [The Pantagraph, Bloomington, Ill.]

Dec. 17--BLOOMINGTON -- Here's a scary scenario: What would State Farm Insurance Co.'s corporate headquarters be worth if the insurer and its thousands of employees were no longer there?

That unlikely hypothetical and others like it are at the center of an $84 million property value dispute between State Farm, local assessors and the taxing bodies that rely heavily on the insurer's tax dollars to fund education and municipal services.

State Farm says its headquarters and Corporate South properties together have an assessed value of about $48.66 million for 2009; the City of Bloomington Township assessor says it's closer to $133 million. The difference would cost District 87, Unit 5, and other taxing bodies millions in revenue. (Assessed value is supposed to be one-third of market value and is used to calculate the property tax bill.)

This isn't the first time State Farm has filed a complaint with the county's Board of Review, and there's plenty of other local businesses that do the same, over smaller amounts. The average commercial property assessed-value reduction this year, so far, is about $30,000.

A new approach

State Farm's approach changed in 2008, however, when it obtained an independent appraisal on its headquarters property. MaRous & Company, a Chicago-area firm, determined the assessed value of the company's corporate headquarters should be about $15 million, or $26 million less than the township assessor found.

In determining value, MaRous found, in part, that a vacant State Farm headquarters would produce a tremendous oversupply of office space in the Twin Cities, and the potential for multi-tenant use would be difficult due to the property's unique design.

The Board of Review did not agree and only a slight reduction in value was approved. In 2009, however, MaRous produced a new assessment, this time for Corporate South, said City of Bloomington Township Assessor Mike Ireland, whose office handles the insurer's properties.

Together, those independent appraisals were the foundation for State Farm's latest complaints, filed last month. State Farm spokesman Phil Supple said the insurer asked for those independent appraisals because it felt the properties had become consistently overvalued.

A hearing is set for Monday on the complaints, though both sides are optimistic an agreement can be reached before then and taken to the review board for approval.

"It's certainly not been an adversarial relationship," working with State Farm on complaints over the years, said John Pratt, an attorney who represents District 87.

Common appraisal techniques

MaRous used three common approaches found in private appraisals: What would it cost to develop a similar property? What's the property's ability to provide net income? What would a prudent buyer pay?

The $84 million difference is really a difference in appraisal philosophies, according to Pratt and Ireland.

"Their appraisal is for an empty building," said Ireland. "Those aren't the facts as of Jan. 1, 2009. The different premises two appraisers take, they will come to different values."

Meanwhile, the sales-based appraisal commonly used in residential cases -- what are other similar properties selling for? -- is complicated here, because the market for giant office developments is relatively limited, said McLean County Supervisor of Assessments Bob Kahman.

"This is a corporate campus," Kahman said. "It's just a different critter."

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Remember when?

A glance at three key commercial property assessment complaint cases:

Clinton nuclear plant: Exelon argues $200 million in assessed value in 2007 is too high but loses an appeal to DeWitt County's board of review. Exelon and various taxing bodies later reach a deal to raise the value incrementally, to $217 million in 2010.

Diamond-Star Motors Corp.: The Normal automaker that later became Mitsubishi Motors North America won a key state Property Tax Appeal Board ruling in 1992, centered around taxing machinery and equipment. It meant Diamond-Star was owed back nearly half of the $13.5 million it paid to local taxing bodies since 1988.

Sears: The dispute between the Eastland Mall anchor and District 87 went all the way to the state appellate court, which in 2008 ruled in Sears' favor in a case dating back to 2004.

SOURCES: Pantagraph archives.

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