This article originally appeared in The Bureau of National Affairs, Washington, D.C.  BNA Environmental Due Diligence Guide , Special Report, Volume 9, Number 3, p. 24, March 16, 2000. Contact us for Reprint Permission.

Special Report #2
Negotiated Property Taxes Can Provide An Advantage

How to deal with property taxes is an important question for brownfield owners. 
Property taxes generally are based on fair market value, which in many cases is reduced by environmental problems.  Over-worked assessors do not always take these problems into account, however, when estimating value.  To ensure that taxes are assessed fairly, property owners must establish the existence and economic impact of environmental problems.  Owners who can prove diminution in property value can reduce property taxes substantially.  Furthermore, funds that had been earmarked for taxes can be redirected to revitalization. 

An owner’s property tax strategy cannot be formulated without considering various other legal and economic matters.  Owners must decide what impact a property tax appeal will have on non-tax issues.  Although reasonable, a formal appeal could undermine community support, which may delay a rezoning application or other corporate plans.  Therefore, many corporate owners settle for modest reductions in their property tax assessment. 

Property Value
Within the property tax field, owners must look beyond the current year’s taxes.  Normally, the market value of property increases as environmental problems are resolved.  However, to encourage economic development, many jurisdictions allow property taxes to remain tied to pre-remediation values.  In addition, owners in many jurisdictions have an opportunity to pursue tax incremental financing (TIF).  Pursuant to TIF, funds used for revitalization are repaid from tax increases resulting from revitalization.  The post-remediation tax revenue is subtracted from pre-remediation tax revenue.  The resulting increment goes towards paying off debt incurred during revitalization. 

To help address the property tax issue, we spoke with Roger Fisher, a leading negotiation expert and director of the Harvard Negotiation Project at Harvard Law School.  Fisher consults widely with governments and corporations and co-authored the national best seller, Getting to Yes. 

Negotiation Checklist
According to Fisher, property owners may use his model to help negotiate property tax reductions.  The model’s four elements are:

1.  Before negotiation begins, “know what success looks like.”  Is success a significant reduction in current property taxes?  Or, can success be achieved with a more modest reduction combined with other benefits such as tax incremental financing?

2.  Identify which organizations are on the other side and which person from each organization is the decision maker.  The goal of a negotiation is to obtain a decision from someone authorized to make one. 

3.  Establish easy, informal communication with members of each group and become “joint problem solvers.”  Acknowledge and help the other parties understand that you share a common problem.

4.  Seek to understand the other parties’ concerns.  Before negotiations begin, write down the other sides’ real concerns.  Then, determine whether the concerns you identified are really the ones the other parties care about.  Perhaps the other side wants to avoid setting a bad precedent harmful to the other side.

Informal sessions then must take place to address the other sides’ concerns.  This entails focusing on potential solutions to the other sides’ real interests as well as inventing options that satisfy the interests of all parties. 

Increasing the size of the pie may help all parties come much closer to achieving their objectives.  While an owner might not be able to secure a desired reduction, it might be possible to negotiate a smaller reduction, which will remain in place for an extended period of time.  This might serve the owner’s interests better than going to court for a larger reduction which, even if granted, may not remain in place for more than a year. 

It is also important to use objective criteria to judge the options.  In the case of property taxes, objective criteria that lend credibility to a proposed settlement, may consist of an appraiser’s opinion, which both sides respect, as well as the taxes of a similar property. 

Best Available Alternative
Initiating a formal appeal of current property taxes is another alternative.  Brownfield owners must consider the consequences of such an action.  Sandra Stash, a vice president of ARCO, provided some helpful insight about how large corporations take a holistic approach to property taxes.  Stash was instrumental in transforming a superfund site in Montana into a golf course designed by Jack Nicklaus.  ARCO often seeks to perform cleanup based on risk factors.  Consequently, it may not be in ARCO’s interests to denigrate sites during tax negotiations while concurrently proposing risk-based cleanup where the company’s principal economic interest is keeping cleanup costs as low as possible while still protecting the environment and human health. 

Tax reductions may help brownfield owners finance revitalization and compete with fully taxed greenfields.  They also may pass on economic advantages to users who believe that brownfields can save them greenbacks.

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