Recent property tax appeals in the Old Town Cinema district reveal "a number of procedural errors and policy issues" that the city of Wichita must address as it provides public support to private development, according to a city report released Tuesday.
At issue is the case of David Burk, a prominent downtown developer who received property tax cuts and refunds after filing appeals on publicly-owned property he leases from the city, said a report by City Manager Robert Layton.
Burk — who represented himself as an agent of the city on some of the tax appeals — has agreed to notify officials if he wants to contest future taxes, the report said.
"I should have probably notified them," Burk said in an interview Tuesday.
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But he stood by the appeals and said that he has a right to appeal what he thinks are unfair valuations.
Asked why he represented himself as an agent of the city in appeal documents, Burk said: "I don't believe I did. I believe I was representing myself as a tenant paying the property taxes, appealing for fair market value."
Layton put it like this: "In my mind, it was an honest mistake, but nevertheless a mistake and one that we're discussing."
Layton's recommendations follow reports in The Eagle that showed Burk had appealed taxes on the city-owned building that houses the parking garage and attached retail stores adjacent to the Old Town Warren Theatre.
Refunds to Burk on the city property and to other developers on other private properties in the cinema district are the main reason the city has to cover a $190,000 shortfall in bond payments.
The appeal on the city-owned building at 301 N. Mead led to a refund of $25,806 for the 2008 tax year and $23,781 for 2007.
Even with the refund, that building is generating more tax revenue than the city projected.
But two other buildings — the Warren Old Town Theatre and SE building that houses an Old Chicago restaurant — also had refunds, leading to the shortfall. Burk is a partner in both buildings.
City taxpayers would have to cover any shortfalls leftover in 2021. But city officials think that appreciation and the addition of the Courtyard Wichita at Old Town into the taxing district in about five years will easily cover the payments.
It remains unclear whether the city will try to reverse the appeal Burk initiated on the city property, but the report outlines options.
* Request that the Court of Tax Appeals reopen the Burk tax appeal on the city-owned buildings and either show evidence to reverse the refunds or, as owner, have the city refuse to consent to the appeal.
* File action to recover the refund, though the city says it could be difficult because Burk and his partners paid the taxes.
* Leave the appeal alone and amend the lease and development agreements to clarify the responsibilities for taxes and allow the city to review future appeals.
Burk declined to comment on the options.
"I think there are other possibilities," he said. "I'm not going to talk about those right now."
Layton said the city would probably have trouble re-opening the case or trying to recoup the refund for itself.
"Even though it has hurt the performance of the district overall, the Court of Tax Appeals found merit in the appeals for the three buildings," he said. "Even if we had it opened up, I think what they're saying is these properties were overvalued."
Council member Janet Miller, whose district includes the cinema district, said the city has a long-standing and mutually beneficial relationship with Burk. She said there's no evidence he tried to deceive anyone.
She agreed with Layton's recommendations on tracking appeals and communicating better. But she said that the city shouldn't contest the refund.
"Burk has paid the property tax himself and the check he got back was a refund of money he paid," she said.
Council member Sue Schlapp echoed some of those feelings, but withheld comment on specifics.
"I don't think you can tell a person they can't appeal a value," she said. "I think the big issue for me is that we should have known."
Mayor Carl Brewer, a vocal advocate of using public incentives to spur downtown revitalization, couldn't be reached for comment.
The report noted that taxes have been successfully appealed in several other tax-increment-financing — or TIF — districts where increased property values are supposed to generate new tax income to pay for millions of dollars in improvements paid for with money the city borrowed.
Among them: Old Town, East Bank, 21st and Grove, and Center City South.
Guarantees written into the city's more recent development agreements do not fully protect Wichita taxpayers from having to cover shortfalls in the special districts once the properties reaches a predicted valuation level.
"If the developer cannot raise the funds (to pay back city bond debt), the city still bears the risk," the report said.
Layton said it's unclear how the city might get better guarantees and that it's only an issue when there's a risk of a shortfall.
Layton said the city's primary focus needs to be monitoring tax appeals in TIF districts and accounting for appeals in projections.
For example, officials at the Sedgwick County Counselor's Office contacted the city about appeals on the Old Town Warren Theatre building in 2008.
A lot of the information the city had was proprietary and couldn't be released, the report said. But the city didn't respond with other information that could have helped the county resist the appeal.
"This (Burk) case has highlighted the financial impact of tax appeals on TIF district revenues and the need to be more diligent in the review of these appeals," Layton said in the report.