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Developer appealed taxes on city-owned property

  • The Wichita Eagle
  • Published Sunday, Feb. 14, 2010, at 12:06 a.m.
  • Updated Sunday, Feb. 14, 2010, at 7:20 a.m.

Downtown Wichita's leading developer, David Burk, represented himself as an agent of the city — without the city's knowledge or consent — to cut his taxes on publicly owned property he leases in the Old Town Cinema Plaza, according to court records and the city attorney.

The Eagle has obtained a document from the Court of Tax Appeals in which Burk authorized a private tax representative to appeal the property tax appraisal at 301 N. Mead.

The property is owned by the city and contains a parking garage and attached retail space that was built with public money and is leased to Burk.

In the document, called a "declaration of representative," Burk identified the property owner as the city of Wichita, but gave his own office as the mailing address.

He signed his own name to the line calling for the signature of the property owner and wrote his title as "manager of tenant," the document shows. The document was dated July 20, 2007.

City staff officials told the City Council last week that reductions in tax income from appeals on the city-owned building and two others were draining funds needed to pay back debt the city took on to help build the Cinema Plaza.

Burk was out of town last week and did not respond to repeated messages left with his office, cellular and home phone numbers.

Officials in the city legal department said that while Burk was within his rights to appeal taxes on another city-supported building in the Cinema Plaza, he did not have authorization to file an appeal on the city-owned parking/retail space he leases.

"None of those (tax appeal documents) were actually filed by the city," said Assistant City Attorney Brian McLeod, who reviewed the Court of Tax Appeals case records. "The city's name got put on it, but the city itself did not have any participation or notice."

As for Burk signing documents as the city's representative, "I do have a problem with it," said City Attorney Gary Rebenstorf, adding that he intends to investigate further.

Mayor Carl Brewer, a champion of downtown redevelopment, said he has asked city staff to find out whether the city's private-sector partners are forbidden to contest property taxes in the city's name.

"That causes us to go back and say, 'Maybe we need to go back and look back at... our process and see if there's something we need to do differently,'" he said.

However, Brewer also said that businesses shouldn't be "gouged" by sharp increases in property tax. The property taxes went up 34 percent between 2006 and 2007.

Debt fund drained

On Wednesday, The Eagle reported that successful tax appeals had been filed on three major buildings in the Cinema Plaza — the city- owned garage mall, the Warren Theatre Grille at 353 N. Mead and the Southeast Building at 300 N. Mead, which houses an Old Chicago restaurant.

The appeals reduced the tax appraisal values of the three buildings by a combined $2.65 million.

All the buildings were developed with assistance from tax increment financing. The city borrowed money with bonds to buy land for the developers and paid for public improvements to aid their projects.

The plan is to pay off the bonds by using money from increased property tax revenue on the new construction.

The amount of tax revenue the city receives to pay the bond debt is based on the appraised value of the property.

The reduced property values after the appraisal appeals — and refunds for the 2008, 2007 and 2006 tax years — have left the city with a $190,000-and-growing deficit in paying back the bonds.

To meet the bond payments, the city will use money from its citywide tax funds, finance director Kelly Carpenter said.

In the Cinema Plaza, the city is responsible for at least $11.5 million in principal and interest on bonds used to build the parking garage building, a pedestrian plaza and streets.

The goal was to redevelop a dilapidated warehouse district and add a theater to complement the bars, restaurants and retail stores in the original Old Town. That development also was led by Burk.

Developers got refund

On Wednesday, The Eagle reported that Sedgwick County's tax database listed the city as getting the tax refunds on the garage building.

Since then, city officials have determined that the check for $51,374 in refund and interest was made out and sent to Cinema Old Town LLC, a partnership involving Burk, theater owner Bill Warren, real estate agent Steven Barrett, Key Construction and seven other investors.

Warren did not return calls and another partner, Barrett, said he did not know details of the case and referred questions to Burk.

The refund was sent to Burk's company because it had made the original tax payments that were disputed, said Vickey Horton of the county treasurer's office.

A 2003 lease agreement gave Burk use of the retail strip at the front of the parking garage for $1 a year for the first five years. He sublets the space to commercial businesses.

The agreement also provided Burk options to extend his lease at $2.50 per square foot for a second five-year period and $7.50 per square foot for five years after that.

Burk's agreement with the city specifies that he is required to pay the property taxes on the part of the retail stores attached to the parking garage that's under his control.

While the agreement for the Old Chicago building allows Burk to challenge his tax values there — and guarantees the city will support his case — there is no such clause in the agreement for the parking/retail space, McLeod said.

Appeals defended

Brad Renollet, a property tax consultant with Renollet Associates who represented Burk in tax appeals, said Burk told him that Cinema Old Town, which Burk manages, pays the taxes on the city-owned garage property.

"David said he had the authority to appeal or have us appeal these valuations," he said.

Such arrangements — in which the person who pays the taxes isn't the owner but is seeking reductions — are fairly common, Renollet said.

He said the tax value of the building jumped 34 percent from 2006 to 2007, prompting Burk to file an appeal.

The value wasn't fair or justified, Renollet said. "There was just no doubt about it," he said.

Renollet said that Burk, who was out of town last week, would have to respond to questions about the appeals' impact on the tax district. He said the TIF was never mentioned in the appeal case.

But Renollet said everyone should have the right to dispute property values, and that in this case, the property tax payments directly affect the restaurants and shops in the building.

"If the tenant is getting billed for their prorated share of taxes, they'd be at a serious disadvantage and it would be a travesty if that property owner wouldn't have a right to have their property taxes reduced," he said. "He's got to keep his tenants there.

"If anybody wants these tenants to survive and have a strong Old Town, the property taxes have to be at a fair and equitable level," he said.

Who knew what?

Although the city staff says it did not know about the appeal on its property, a lawyer for Sedgwick County says she informed the city of at least one of the tax appeals in the cinema district.

A county legal memo indicates that the lawyer communicated with city legal staff about the appeal to reduce taxes on the Warren Theatre.

The memo was written by Assistant County Counselor Patricia Parker, who defended the County Appraiser's Office in the tax court case. It was distributed to top county officials on Wednesday and provided to The Eagle by County Commissioner Gwen Welshimer.

Parker said she contacted the city's legal department by e-mail and phone to try to obtain information on the theater appeal, but gave up and acquired the information directly from theater management.

"While we are under no legal obligation to notify the city of property tax appeals involving TIF financed properties, the city was certainly aware of this case," Parker wrote in a memo to county commissioners on Wednesday.

Rebenstorf acknowledged that the city had some communication with the county about the appeal but said it was more of an "Oh, by the way" sort of discussion.

"We didn't get anything formal; we didn't get asked to participate in the case," he said. "There wasn't anything where they said you better get involved because Bill Warren is filing an appeal."

All three cases ultimately were settled without a formal hearing, said Amelia Kovar-Donohue, an attorney for the Court of Tax Appeals.

Council has questions

Vice Mayor Jim Skelton said he's frustrated with the apparent communication breakdown between developers and government officials at the city, county and state levels.

"It seems like somebody screwed up here," he said. "Somebody should have told the city what was happening per our agreement."

"I can't say that there's anything good to say about this," he added.

Brewer voiced confidence that the TIF district will pay off city's expenses near the end of the district's 20-year life without additional taxpayer money.

"I know we would love these things to happen overnight, but unfortunately they do not," he said. "It's an investment today for the future."

He plans to meet with City Manager Robert Layton Tuesday to get a detailed report of what happened.

"We all have a lot of questions," he said.

Council member Jeff Longwell said he thinks future development and the expiration of tax breaks for the Courtyard by Marriott Old Town hotel in five years will eventually make up losses on the TIF district.

But he said the city needs to examine how an appeal was filed in the city's name without its knowledge.

"We should take issue with that," he said. "If anyone is going to represent the city they obviously have to have, one, the city's endorsement and ... two, someone at the city should have been more aware of what was going on. And if they were, shame on them for not bringing this to the public's attention."

Council member Lavonta Williams said she was "just as surprised as everyone else" and also wants further investigation.

"Right now, it doesn't look good," she said. "Are we happy about it? Absolutely not."

Reach Dion Lefler at 316-268-6527 or Brent Wistrom at 316-268-6228 or bwistrom@wichitaeagle.com.

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