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HomeMy WebLinkAboutM082288S U : Jb>s.ex"s.. <>1<$. ""-. /lIP"'l!iS /';r,ff)S '/iil<"""€fj ...J JEFFERSON COUNTY BOARD OF EQUALIZATION A. C. DALGLEISH DAVID G. DOUGLAS ARCHIE BARBER, JR. CHAIRMAN VICE-CHAIRMAN MEMBER ALTERNATE OUINAULT I N D I A N N A T ION MINUTES AUGUST 2 2, 1 9 B 8 THE BOARD OF EQUALIZATION CONVENED FOR THIS HEARING AT 1:00 p.m. Those present were as f0110ws: PRESENT AS THE BOARD OF EQUALIZATION: CHAIRMAN: A. C. DALGLEISH VICE-CHAIRMAN: DAVID G. DOUGLAS MEMBER: ARCHIE BARBER, JR. CLERK OF THE BOARD: DIERDREI L. WHITEFORD PRESENT AS AN OBSERVER: COUNTY COMMISSIONER: GEORGE BROWN PRESENT ON BEHALF OF THE ASSESSOR'S OFFICE: DEPUTY ASSESSOR: ROBERT SHOLD REAL PROPERTY TECHNICIAN: SHERRIE ROSBACH PRESENT ON BEHALF OF THE OUINAULT INDIAN NATION: ALAN STEEGE-PRESENTING TESTIMONY TOM SHIRILLA-FOREST MANAGEMENT AND PLANNER FOR Q.I.N.-NO TESTIMONY RICHARD REICH-RESERVATION ATTORNEY FOR Q.I.N.-PRESENTING CASE, NO TESTIMONY CONSULTATION AFTER ADJOURNMENT OF HEARING: STEVE OLSEN-CRIMINAL PROSECUTOR OF JEFFERSON COUNTY BOE-88-075-TIMBER LAND ONLY BOE-88-076-TIMBER LAND ONLY BOE-BB-077-TIMBER LAND ONLY BOE-B8-078-TIMBER LAND ONLY BOE-BB-079-TIMBER LAND ONLY BOE-88-0BO-TIMBER LAND ONLY BOE-B8-081-TIMBER LAND ONLY Parce1 Number: 412-313-001 Parce1 Number: 412-321-001 Parce1 Number: 412-332-001 Parce1 Number: 412-342-003 Parce1 Number: 412-353-002 Parcel Number: 413-274-001 THIS BOE NUMBER NOT USED** The assessed va1uation on these parce1s follows: BOE-88-075-TLO Total Assessed Va1uation: $ 40,120.00 BOE-88-076-TLO Total Assessed Valuation: $ 88,800.00 BOE-88-077-TLO Total Assessed Valuation: $ 65,490.00 BOE-88-07B-TLO Total Assessed Valuation: $ 47,330.00 BOE-BB-079-TLO Total Assessed Valuation: $ 44.400.00 BOE-BB-080-TLO Total Assessed Valuation: $ 46.260.00 Chairman Da1Q1eish introduced the Board of Equalization members, the Assessor's Office representatives and Commissioner George Brown (who represents portions of the West End). He informed the Quinau1t Indian 1 QUINAULT INDIAN NATION MINUTES AU GUS T 2 2. 1 9 8 8 Nation representatives of the procedures of the Board of Equalization and supplied them with information on appealing to the Board of Tax Appeals, if they desired to contest the Order of the Board determination made as a result of the hearing. Chairman Dalgleish informed the Quinault Indian Nation representatives that a determination regarding the valuations in question would be supplied in writing but that it could not be made for several weeks due to the schedule of the Board. Richard Reich. the Reservation Attorney, stated that the delay in the determination would not be a problem. Chairman Dalqleish reauested that all those who would be testifvinq raise their riqht hands to be sworn in. ALAN STEEGE WAS SWORN IN TO TESTIFY THE WHOLE TRUTH AND NOTHING BUT THE TRUTH. RICHARD REICH was NOT sworn in to testifv as he stated that he would describe the backqround for the Ouinault Indian Nation. but Mr. Steeqe would testifv as to the actual value of the subiect properties. The BOARD accepted this and the hearinq beqan. CHAIRMAN DALGLEISH: Mr. ReiCh, you may have the floor. MR. REICH: Thank you very much. Ohm, as the Board may recognize from the material that we've already filed this is not your ordinary valuation appeal. The appeal here stems from the position of what's called the Compensating Tax. I'd like to give you a little background on the transaction that gave rise to the claim with the County for compensating tax. Ohm, several years ago the Mayr Brothers Company went into a Chapter 11 Re-organization. The Mayr Brothers owned, ah, substantial parcels of, substantial number of parcels of land on the Quinault Indian Reservation. And it gave back, it released its interest in those parcels to one of its creditors, the Federal Land Bank of Spokane. Ah, the Federal Land Bank of Spokane then, ah, attempted over a period of several years to market the property on the Reservation. Ah, the property was on the market for at least two and a half years. After some time on the market, ah, ah, the Federal Land Bank and the Quinault Indian Nation began discussing a purchase and eventually that purchase was consummated in the spring of this year for a total price of four and a half million dollars for approximately 10 thousand acres, just a few acres shy of that. Now the, under state law, forest land may be either classified or designated for tax purposes. And, as such, once the land is classified or designated for tax purposes, forest land is entitled to a favorable tax treatment under RCW 84.33. Each year the Department of Revenue under the Statutory Systems sets a schedule of tax rates for different classes of forest land. From the Class One through, I believe Class Eight forest land and then different operability classes within those site classes. And, for each of those classes the Department of Revenue annually certifies to the Assess, ah, County Assessors a valuation per acre based upon the site class; and the Assessor takes that valuation, takes the site class for the various parcels multiplies them out, comes out to the valuation. Now under the state tax scheme, when the property goes out of that preferential tax treatment, goes out of that classified status, there is a system for attempting to recapture tax benefits that have accrued over the years. And that brings into play what's called Compensating Tax. Now, the Compensating Tax is the difference between the valua, valuation, uhm, that was in effect under the Department of Revenue Rate System and a valuation of the true vair, and fair value of the land independently determined by the Assessor at the time the property loses its tax classification. Timed levy writ. And it's the difference betwe, between the tax that was paid over a period of years, up to ten years, and this calculation of the difference, excuse me, it's the difference between the ah, the leh, the ah, the levy rate times the difference in value between the ah, Asses, the ah, Revenue Department valuation, base valuation and the new valuation determined by the Assessor. The Quinault Indian Nation purchased 10,000 acres, as I indicated, on the Reservation. 2 OUINAULT INDIAN NATION MINUTES A U GUS T 2 2. 1 9 8 8 The Grays Harbor County Assessor and the Jefferson County Assessor determined that a Compensating Tax was due because the sale to a tax exempt entity triggers this tax under state law. And both Assessors conceived that the Quinault Indian Nation is an entity whose ownership in land makes it tax exempt. The tax is assessed against the seller. I point this out in case you take, taken a look at the statute. The state statutes provide that the buyer however, may bring the Appeal from the Compensating Tax, and in this case the Quinault Indian Nation has chosen to bring that Appeal rather than the Federal Land Bank of Spokane. The reason for that is that the Federal Land Bank of Spokane indicated during the sales negotiations, that it was not, it would not sell the property to the Quinault Nation if the Quinault Nation did not agree to hold them harmless for the tax. The reason for that being that on a sale to an ordinary timber purchaser they would have filed a continuation Statement, which an ordinary purchaser is eligible to do to continue the classification, and there would have been no Compensating Tax and this question would not have arisen. Because the Quinault Nation is a tax exempt entity, the State imposes the Compensating Tax on this particular transaction which would not have been imposed on the transaction had it been to a normal forest land purchaser. The Quinault Indian Nation is...ultimately will bear the economic burden for this tax if it has to be paid. As we indicated in the papers we filed, the Quinault Nation's filed a Federal Lawsuit, separate from this proceeding, in which it challenges that ability to Compensating Tax to this particular transaction. It's our position that the State cannot tax this type of purchase by an Indian Tribe of its own land on its own reservation; but that's not the purpose of this appeal. We're here today because we challenge the valuation that the Assessor has placed on that land for the purpose of determining Compensating Tax. It's the Quinault Nation's position that the valuation of that property is no greater than the valuation that was placed on it by the application of the Revenue Department Table Rates. Um, Mr. Steege will testify today with respect to the valuation. We have presented some material and he'll go over it. There are three things that I, three or four things that I, points that I'd like Mr. Steege to make to the Board today. First, his own independent valuation based on his own professional opinion. Secondly, eh, valuation described to the Board, the valuation placed on the property independently by Jackson and Prochnau consulting Forestry Engineers, evaluation, an appraisal that was done for the Federal Land Bank without the Quinault Nation's knowledge, before the sale. In order to determine the seller's basis for selling the property. Thirdly, one sale that appears to be roughly comparable which we presented information to the Board on. And fourthly, Mr. Steege will discuss generally why bare forest land is less valuable than other types of land that you'll find in the County. CHAIRMAN DALGLEISH: Mr. Steege? VICE-CHAIRMAN DOUGLAS: Can I ask some questions about... MR. REICH: Yes. VICE-CHAIRMAN DOUGLAS: ...the ramifications here for clarification before beginning the actual valuations? CHAIRMAN DALGLEISH: Mr. Douglas, speak. VICE-CHAIRMAN DOUGLAS: My first question is, the Federal Land Bank of Spokane a Federal Agency or is it merely the name of a Corporation? MR. REICH: It's a Federal Advocates, a Federally chartered bank. VICE-CHAIRMAN DOUGLAS: It's a Federally chartered bank. 3 QUINAULT INDIAN NATION MINUTES A U GUS T 2 2. 1 9 8 8 MR. REICH: And there's a specific Federal Statute that provides that it is exempt from all State Taxes other than ad valorem property taxes. And they're generally applicable, that's one of the claims that we've raised in the Federal Lawsuit. VICE-CHAIRMAN DOUGLAS: Now, are they classed as the Seller in this case? MR. REICH: They are the Seller. VICE CHAIRMAN DOUGLAS: And, if I understand you, you say they are exempt by Statute? MR. REICH: They're exempt from taxes other than ad valorem property taxes. One of our claims is this Compensating Tax is an excise tax and that therefore they're exempt under Federal Statute, but that's a claim that's to be decided by the Federal Court, ultimately. VICE-CHAIRMAN DOUGLAS: This is part of it... MR. REICH: This is part of the Federal Lawsuit. Well, it's before Judge "Azilia" in Seattle. VICE-CHAIRMAN DOUGLAS: Ah, is there a specific R.C.W. that we should be referring to, to really define the difference between Classified and Designated? MR. REICH: R.C.W. 84.33.120 discusses the application of Compensating Tax of Classified Forest Land. R.C.W. 84.33.140, I believe, ah, discusses the application of Compensating Tax to Designated Forest Land. The diff, there's a difference between Classified/Designated Forest Land if YOU'd like me to go into it pretty quick. Explain. VICE-CHAIRMAN DOUGLAS: No, I don't think... ????BOTH TALKING: Just absolutely sure...we'd... MR. REICH: It's those, those two Statutes impose the tax that has caused this Appeal. VICE-CHAIRMAN DOUGLAS: Okay. The Compensating Tax is against the seller which is Federal... MR. REICH: That's correct. VICE-CHAIRMAN DOUGLAS: ...Land Bank but in litigation as to the legality. MR. REICH: That's correct. That's correct. But we have only until July 15th to file this Appeal um...the Federal, the Federal Court Lawsuit hasn't been decided yet so we had to go ahead and, and proceed on the basis that we might not prevail on that lawsuit and bring this challenge to evaluation. VICE-CHAIRMAN DOUGLAS: Okay. CHAIRMAN DALGLEISH: Mr. Steege. MR. STEEGE: As Richard pointed out, I'll give you a little more background on, on the purchase of this property...Federal Land Bank, I want to re-emphasize, it had this on the market for over two and a half years. There were many buyers that came forth that looked at the property, ah, among them was General Secord and Albert Achim...Golden 4 QUINAULT INDIAN NATION MINUTES AU GUS T 2 2, 1 9 8 8 Springs was another potential buyer that came forth. A number of people came, came looking at the property, decided that the price the Federal Land Bank was asking for it was too high, was not worth their investment or the risk: and so finally after two years the Federal Land Bank...the Tribe was one of these people that looked at it, we too considered it to be too high, and after two and a half years, the Federal Land Bank finally decided to negotiate. My background on the situation is, is for the past ten years I've worked for the Tribe I've been in charge basically of evaluating forest property on the Reservation and ah, giving the recommendation to the Tribe as to what value they should pay for, for these properties. This one is no exception. Ah, this 10,000 acres is the largest transaction the Quinault Tribe has made. We did do an extensive evalue, extensive evaluation of it, ah, in house, and came up with our own independent estimate as, as far as its value. Value on forest land, or any forest land, and most professional Appraisers are Cruisers or forest inventory people...look at it...consists of three basic components. The Timber Value which is on that forest land, the Regeneration Value which is growing on that forest land, and then the BARE LAND itself. What we are trying to look at here is what that bare forest land is worth and that's where the dispute lies. The package itself was, was four and a half million acres...four and a half million dollars, ah for the 10,000 acres. During the negotiations we pre-sold the timber on that particular properties, to, to Quinault Logging Corporation, which is not affiliated with the Quinault Tribe, it just has the name Quinault on it. The Quinault Logging Company bought the, the timber on the existing property for 3.3 million dollars. Okay this negotiation, this transaction took place ah, concurrent with our evaluation and our purchase of the Federal Land Bank property. Three point three million, we felt, was very reasonable at the time, and we were willing to sell it for that. Ah, this left the residual value of 1.2 million dollars to be assessed to, to a components which I just discussed, one of them being regeneration the other being the bare land. And I, by looking at the, the um, within my declaration, I think it'll, it indicates how this is evaluated. Turn to a page that looks.. . THE BOARD WAS DIRECTED TO THE APPROPRIATE PAGE WITHIN THE PACKET SUBMITTED BY THE QUINAULT INDIAN NATION AS PART OF THEIR APPEAL. MR. STEEGE'S DECLARATION HAS AN ATTACHMENT NUMBER FOUR, THIS BEING THE SECTION SOUGHT TO CLARIFY THE QUINAULT POSITION. MR. STEEGE: ...Okay, I'll just briefly go through my rationale for determining the purchase price and how the components of this were broken up by us when we purchased this property. Okay, if YOU'll view the one, two and three at this top, the existing standing timber volume and cedar salvage was on 3216 acres more or less. The existing regeneration was on 6069 acres more or less. And, and then, then there is 9985 acres of bare land. As I indicated the 3216 acres of timber was sold to Quinault Logging Company for 3.3 million dollars plus an interest charged based on the interest that we were going to be paying when we purchased the property from the Federal Land Bank. So, the component of the timber was established by that 3.3 million. That was the purchase price, it was purchased by a knowledgeable logger, marketer of timber. He has worked on and around the Reservation for about ten...twelve years. He was... CHAIRMAN DALGLEISH: He was named, did you say... MR. STEEGE: Larry Black. CHAIRMAN DALGLEISH: Larry Black. MR. STEEGE: Right. He is President of the Quinault Logging 5 QUINAULT INDIAN NATION MINUTES A U GUS T 2 2. 1 9 8 8 Corporation. He is formally a Forester and a, a Timber Sales Administrator for "Plum Crick Timber" which is a subsidiary of "Burlington Northern". So he is a knowledgeable purchaser of timber. The second component is probably the, the trickiest of the bunch, and that's the existing regeneration. As indicated, there was regeneration of various stocking levels on 6,069 acres. I did an analysis of that regeneration based on the cruise information that we had obtained, plus the cruise information that came from the Jackson & Prochnau cruise, which was owned by the Federal Land Bank, which I'll go into in a little while. From that information we indicated a future value of when that existing regeneration grew to mature timber and was harvestable, of over 16 million dollars. However, when doing an analysis of this we need to consider what the present value is instead of what the future value is, and so we discount that future value by a given discount rate depending upon what your criteria for investment is, what your required rate of return needs to be, or what your borrowing rate of return needs to be. It indicates there I use three potential.. . three discount rates which are four percent, which is one that is normally used by the Forest Service, the Bureau of Indian Affairs, a lot of Federal Agencies use that. Ah, six percent is one that is commonly used by the State. six or seven percent, I've heard more recently that they, they use a, six percent for purposes of regeneration and valuation. And then nine percent, which was at that time based on what we felt our borrowing rate of interest was going to be. CHAIRMAN DALGLEISH: Bank interest. MR. STEEGE: Bank interest. As it turns out our nine percent was very close to what our bank interest is. We did achieve a loan for eight- three-eighths, but the nine percent is, indicates a present value of, of about 1.1 million dollars. To use it... VICE-CHAIRMAN DOUGLAS: ...Excuse me a minute, the four percent, did you say was a Federal... MR. STEEGE: ...is normally what a Federal Forest Service uses, that the what the Bureau of Indian Affairs uses I think. Taking these two components, the existing timber plus the existing regeneration and if we subtract that from the four and a half million dollars you only come up with a little over $100,000.00 for the bare land component. This is the way we chose to evaluate it, because the bare land itself is not an income producing asset. The timber on it is the income producing asset. Especially the Forest Land. If it's classified as Forest Land that classification does have change, then in theory infinitum the value is going to be from the trees that grow on that property, from the timber that is harvested, and not from any other uses. And I think everyone was agreed that this was still Forest Land, it was not gonna change uses, it wasn't going to become land that's going to be designated for anything else but for growing trees. And that's what the assumption that we made throughout this, um...when we talked to Gray's Harbor County they agreed with that and I...and in reading the Jefferson County Affidavits I think they also agree with that particular contention that the, was Forest Land and it's not gonna change. Using our purchase price, that only leaves us with a little over a million dollars, now one could contend that we made an extremely excellent deal if the fair land component is, is in essence $250.00 per acre, which would average throughout the Quinault Reservation holdings; I guess Gray's Harbor, not just Jefferson, but Gray's Harbor also, then that would indicate a 2.5 million dollar bare land value for the entire package which looks a little unrealistic given the fact of, we, we pre-sold the timber for 3.3 plus we had a regeneration component that has to be attributed some value. Now maybe you could place a lower value on that but that, that wouldn't 6 QUI NAULT INDIAN NATION MINUTES A U GUS T 2 2. 1 9 8 8 rea11y be fair. At any rate, this was basica11y how we did it within the Tribe for eva1uation of this particular package. In concurrence with this I wi11 now have you, I guess it's Attachment Three, go forward to Jackson & prochnau cruise. THE BOARD WAS DIRECTED TO THE APPROPRIATE PAGE BEFORE THE HEARING CONTINUED. MR. STEEGE: Okay, this was done by, for the Federa1 Land Bank by Jackson & Prochnau, Consu1ting Forest Engineers out of A1bany, Oregon. They eva1uate a 10t of the Federa1 Land Bank properties for them, off the Reservation as well as on. Federal Land Bank used this evaluation as their se11ing price and what they indicated is the value of this property, and what they had on their books as far as the va1ue of the components of this property. As you can see, they...did basica11y the same type of component breakdown. The Merchantab1e Timber they had va1ued initia11y at 4.3 mi11ion d011ars. They also had an immature timber category of 633 thousand d011ars. And then they had a regeneration of a, 1.104 which is a 1itt1e bit more than I had come up with for the regeneration. Their bare 1and component came out to be 468 thousand for the entire package or averaged at $45.00 per acre. For a Tota1 Va1ue, Appraised Va1ue of 6.5 mil1ion. Another paragraph down be10w indicates that they reduced it by 20 percent due to scattered ownership and a number of individual tracts, ah, down to 5.2 mi11ion d011ars. We bought it for four and a ha1f after it had been on the market at over the 6.5 mi11ion dollars for a period of time and then Federa1 Land Bank reduced their eva1uation down to 5.2, it sti11 did not se11 and final1y they negotiated with us for 4.5 mi11ion. As you can see Jackson & Prochnau a1so came up with a bare 1and va1ue substantia11y 10wer than what the State appraises it at, which I be1ieve is somewhere in the neighborhood of a 1itt1e over $70.00 per acre, for the entire package. Compare this va1ue with off Reservation sa1es, which is one of the methods to determine fair market va1ue. One of the sa1es...is very difficu1t because bare 1and itse1f very rare1y is for sa1e. Bare 1and being no timber, no regeneration. So there are very few if any sales that, that do not have, just, just bare 1and component they do, do not have some sort of timber or regeneration attached to that. One of the sa1es that we did have that the, that was used was again done by Jackson & Prochnau, the G01den Springs Corporation, I'm sure, wou1d have this attached..... THE BOARD TOOK A MOMENT TO LOCATE THIS DOCUMENT. MR. STEEGE: Okay, this was a rather large transaction which was just south of the Quinau1t Reservation in Gray's Harbor County, towards Aberdeen c10ser and then a1so south of Aberdeen and down towards Raymond, ah, it's ca11ed Northwest Gray's Harbor Block. Jackson & Prochnau again did this cruise, ah, they came up with the evaluation figure of 8.4 million, immature timber of 131 thousand, regeneration of 260 thousand and again their bare land eva1uation was 356 thousand or an average per acre of sixty-seven thirty. So a tota1 gross va1ue of 9.1 mi11ion d011ars. Again, they reduced this, basica11y because Federa1 Land Bank was unab1e to se11 this for 9.1 mi11ion. They reduced it by 50 percent down to 7.8 mi11ion and then they actua11y did se11 it, when the market started to rise again, for 8.85 mi11ion. But the basic pattern is sti11 there as you, the way Federa1 Land Bank considered costs to be broken down as per Jackson & prochnau cruise. The way we considered the va1ue to be broken down by our own evaluation, whereas the va1ue is placed on the timber is not p1aced on bare 1and. As I indicated ear1ier, the reason for doing this is because bare land itse1f is a, not really an earning asset. It's the timber or the regeneration on that's going to be there, it "ain't" asset. And so from an investment standpoint, investment in the bare 1and proper is not that good of an investment. It has to have trees 7 QUI NAULT INDIAN NATION MINUTES AU GUS T 2 2. 1 9 8 8 on it for it to be a good investment and it has to be ab1e to grow those trees to maturity to be able to get any type of return from it at a11. Because of this a...and as 10ng as this doesn't change classifications, it stays a Forest Land property, we contend that the, the value for the bare land which is what they're trying to estab1ish, shou1d be...maybe maintained at what the State had appraised it at. At $70.00 or $72.00 per acre and if that is the case then the Compensating Tax would be nul1 and void because the difference between that and the Fair Market Va1ue wou1d be zero. CHAIRMAN DALGLEISH: If I read you correct1y, you are requesting the figure of, how much per acre? MR. STEEGE: I'm not sure what it averages out as...because...ah...I think it indicates... MR. REICH: We're requesting a figure that wou1d be equa1 too...um...100k at the County submission. We're requesting a figure that's equa1 to the average acreage on the...the average va1ue per acre on each parcel that existed under the Department of Revenue Forest Land c1assification and that is shown on this, this attachment. CHAIRMAN-DALGLEISH: Did you come up with a figure? MR. REICH: Yes, the fig, the figures for each of them are...are current. . . VICE-CHAIRMAN DOUGLAS: ...It appears to average about sixty-six d011ars per acre... CHAIRMAN DALGLEISH: That's what it was. MR. REICH: The average is sixty-six d011ars per acre. CHAIRMAN DALGLEISH: So it's about sixty-six. THE BOARD AND THE REPRESENTATIVES FOR THE OUINAULT INDIAN NATION MADE SOME VERBAL CALCULATIONS BEFORE CONTINUING. CHAIRMAN DALGLEISH: Varies from what? MR. REICH: Forty-two to seventy-eight per acre on each of the parce1s, and that variance is based on different site c1asses for the parce1s. CHAIRMAN DALGLEISH: Mr. Sh01d? wi11 you ah... MR. STEEGE: .. .ah, yeah, Richard just reminded me just to maybe ta1k a 1itt1e bit about the investments that wou1d be needed if indeed, um, some one, entity, whoever it happens to be goes in to purchase bare land, if it is strict1y bare land and there is no regeneration timber, then there would have to be a regeneration cost which is an up front cost added to the cost of that bare land which would need to be recovered over time, say 50 to 60 years when that crop of trees is harvested. That particular number, plus the addition of paying taxes over the years which would a1so have to be figured into that, that se11ing price, that rotation, when that forest becomes mature. That particu1ar investment, if, if an interna1 rate of return were p1aced on that, ah it wou1d be very, very low, that wou1d be down in the, in the four percent or 10wer range of a rate of return. Especia11y if there's a 1arge bare land price put on that particu1ar acre, that had to be paid initially a1so. You know I don't have any figures right off hand, but we have done some analysis on it that would, with planting, regeneration costs on the Reservation to bring that 1and 8 QUI NAULT INDIAN AUGUST NATION 22,1988 MINUTES back into production costs close to $300.00 per acre because the land has to be burned, then planted, some sort of site preparation. And that $300.00 investment plus the, the 250 as indicated by the County as applied to bare land would be a current total of 550 initial investment which after amortized over time, and, you know, the rotation was grown ahead and, and discounted back, that liquid discount rate would be quite low. And because of that, would not show a very good investment. Therefore, it's normally, the timber companies, Warehouser, anybody else, when they look at a particular property go through that particular analysis to see what kind of a rate of return that is going to get returned to them and for that reason most long term investors, such as that, are unwilling to pay a very large price for bare land, especially if it has no regeneration on it. CHAIRMAN DALGLEISH: Did I read you correctly, hear correctly...you said, you estimated a cost of $330.00 per acre to re-seed? MR. STEEGE: Three hundred dollars per acre if we need to burn it also. That's the experienced costs on the Reservation. So the burning costs, plus the regeneration and planting costs normally come to about $300.00 per acre. And that's a, basically $100.00 for the burning and $200.00 for the regeneration. MEMBER ARCHIE BARBER, JR.: You stated a short while back that the value is determined more by the timber, or the maturity of the timber, almost exclusively rather than bare land value. MR. STEEGE: Yes. And in view of that, that's what we are considering as, as how much...the Tribe, first of all, is in a, in a situation I...we're trying to consolidate the land base on the Reservation, so we have a vested interest in trying to purchase the land back. But we are not going to purchase it if we do not feel that it's going to pay for itself. So, in determining what value we are, are willing to pay for it we first take into account what it has growing on it, "Le." the existing timber or the existing regeneration. That, what kind of interest rate we have to, to go out and pay to be able to, to obtain that land, to purchase it, and using that particular interest rate also it lends to, you know, how bat...how, what's the cash flows on it when is it gonna get paid back? And we try to pay that back through the existing asset of the timber and the regeneration from those properties. And, especially in this case, the 3.3 million was the value of the existing timber and that's what we're going to receive back from our contract with Quinault Logging and, and a period that's first five years. And so those particular cash flows that we paid back and paid against the 4.5 million dollars. The regeneration is going to take a bit longer, but our loan is for 15 years with the Bank of Gray's Harbor, ah, but we are probably going to try to retire the debt sooner than that also, by cutting some other timber from other properties and using those proceeds to retire the 1.2 million dollar debt that remains from the 4.5 after the 3.3 is cut. The land itself is at...the only purpose it's there is for growing up its trees, as far as we're concerned. Ah, we grow, you know, the asset used, the cash asset is the growing of the trees because there is no real market for pure bare land. It's what that land can produce for you in...in the form of trees and the trees are what can be liquidated for, ah, to get some cash. MEMBER ARCHIE BARBER JR: Not to sound argumentative, but you don't have the trees, nor do you have the regeneration without the presence of bare land. MR. STEEGE: That's correct. 9 ~ QUINAULT INDIAN NATION MINUTES A U GUS T 2 2. 1 9 8 8 VICE-CHAIRMAN DOUGLAS: If I... I may be incorrect in this but if I understand it, if I judge this properly, your tax position or assessed valuation position is predicated on here regenerating land within a certain period of time or it loses its classification. Is that not correct? MR. STEEGE: I don't know about that, whether it loses classification or not. But as forest practices both from Tribal standpoint and of State it would apply; it doesn't apply on raw Reservation. But from a forest practice standpoint from a Tribal perspectives, yes that property has to be regenerated in "X" period of time. VICE-CHAIRMAN DOUGLAS: In order to a, a, retain the, the potential... MR. STEEGE: Well, it has a...well in order to...it's just the a forest practice. Ah, whether or not it's for tax purposes, which it is not on a small reservation, but ah, just to keep the land in production for the growing of trees, yes it's a requirement for both the Tribe as well as for the State on off reservation properties. MR. REICH: If, if I can add, I believe you are correct that in order to maintain the classification you, one does have to keep the land in forest reproduction, but the State Tax Law does provide that the timber itself and regeneration is exempt from ad valorem taxation. So what we are talking about here is what is a market or true value of the bare land, and as Mr. Steege pointed out, you're talking about an asset where you have to make a substantial investment and you wait 50 or 60 years before you see a return. The final point I think we'd like to make before we rest is.. .ah, to just bring the Boards' attention to the decision by the County Board of Equalization of Gray's Harbor County, which is attached as Exhibit Number One to the Hearing Memorandum, which on August Second they decided that the appropriate valuation for the Gray's Harbor County bare land is 150 dollars an acre. We don't necessarily agree with that but we are bringing it to the Boards' attention. VICE-CHAIRMAN DOUGLAS: You still have the right, according to this document, to appeal that decision...as you would any.... MR. REICH: ...To appeal...that's correct, that's correct. But it is a piece of evidence that, that we'd like the Board to consider, and it is substantially lower than the County Assessor's position. CHAIRMAN DALGLEISH: Mr. Shold. MR. SHOLD: Okay, we'll quickly...I'll be referring...anything... CHAIRMAN DALGLEISH: Do we have a copy? MR. SHOLD: Ah, yes, you do. I'll be referring anything that comes in here...this, this basically is, is just the information that, we sent to them with sales that we had come up with. The difficulty that, that we had was in finding sales of Forest Land that are remaining in Forest Land. As they've indicated, generally when the timber companies sell from one to another the land itself stays in the classification; and there's never been, from our office, a determination made as to the value of that Forest Land. Initially, when we set the Compensating Tax on this we use the $555.00 which we came...came from strictly from taking the listed sales price on the Real Estate Affidavit. When there was no indication that there was timber involved in the sale, um, there's a place on the Affidavit to mark whether it includes a crop of timber, which in this instance was not marked, and so on that basis is what we used to initially determine the Compensating Tax. Subsequent to that, obviously we've 10 OUINAULT INDIAN NATION MINUTES A U GUS T 2 2. 1 9 8 8 gone through looking for some sales to come up with what we felt was a bare land value. I have them listed back here, it would be about the last page (NOTE: THE DOCUMENT REFERRED TO WAS THE MEMORANDUM DATED AUGUST 4, 1988 FROM THE JEFFERSON COUNTY ASSESSOR'S OFFICE, JEFF CHAPMAN, ASSESSMENT OPERATIONS MANAGER. THIS MEMORANDUM STATES THAT IT IS REGARDING: APPEAL OF ASSESSOR'S DETERMINATION OF VALUE TO THE B.O.E. REGARDING COMPUTATION OF COMPENSATING TAX ASSESSED TO THE FEDERAL LAND BANK.)...go to COMPARABLE SALES INFORMATION. Based on that we came up with some values ranging from the 249 up to 365. The one sale noted, the Turlis Incorporated sale, in talking to the seller, there was no timber. VICE-CHAIRMAN DOUGLAS: Which one? MR. SHOLD: The Turlis Incorporated to Cedar Creek Joint Venture. The second sale. VICE-CHAIRMAN DOUGLAS: Right. MR. SHOLD: The seller indicated that there was no timber or regeneration on that land at the time of sale. That one's located just North of the Reservation. Base, based on after we started looking at this, we realized, of course, that the 550 was, was not a value that was applicable. And, we are, now recommending we um, the new value as indicated on the other page of...$250.00 an acre. CHAIRMAN DALGLEISH: Two hundred and.. . two hundred and fifty? CLERK: Yes. MR. SHOLD: One thing that, just a, real quick here, to show the Board where these parcels are in relation to other things. This of course would be 101. And, as YOU'll notice, most of the ones located in Jefferson County have, are very close to access. VICE-CHAIRMAN DOUGLAS: What runs through it? MR. SHOLD: Ah, 101 runs through a number of parcels.... VICE-CHAIRMAN DOUGLAS: Is this 101? MR. SHOLD: Yes. And then it drops, of course it drops down into Gray's Harbor. MR. SHOLD. THE BOARD AND THE REPRESENTATIVES OF THE QUINAULT INDIAN NATION EXAMINED THE PRESENTED MAP OF GRAY'S HARBOR COUNTY AND JEFFERSON COUNTY SUBJECT PROPERTIES. THE BOARD ASCERTAINED THE PLACEMENT OF THE SUBJECT PARCELS OF THE JEFFERSON COUNTY OUINAULT PETITIONS, ESPECIALLY IN REGARD TO ACCESSIBILITY TO HIGHWAY 101. CHAIRMAN DALGLEISH: Is there anything? MR. SHOLD: No, basically everything, you know...you may want to refer to in your deliberations would be indicated in here. That's, that's our basic position. We're not trying to defend that 550. The 250 that, that we're now recommending would be what we, a...claiming as to the market value. CHAIRMAN DALGLEISH: Mr. Steege or Mr. Reich, do you have anything further to add or questions to ask? MR. REICH: I think we have a few questions that we'd like to ask the Assessor's Office if that's...now's the appropriate time? CHAIRMAN DALGLEISH: Now's the appropriate time. 11 QUI NAULT INDIAN AUGUST NATION 22.1988 MINUTES MR. REICH: Ah, we noted in the POSITION, and please correct me if I'm wrong, statement on page two...it appeared that the valuation that the Assessor's Office is placing on this land is essentially a general utility class, or a bare land, is that correct? Or is, is this a valuation that applies to forest land? MR. SHOLD: What we...what we did, um, of course, West End was revalued this year in our revaluation cycle, we went through and a....we place a, a fair market value on all the properties whether their in the classifications of timber or open space "ag" or whatever. We come up with the fair market value. We used $300.00 an acre on all the timber lands in our determination out in that area. And, it's like, I guess, as I indicated to you, the fair market value of the timber land...we've just never seen those kinds of transactions where it's been pulled out and it was still the...in the timber. MR. REICH: Would you describe how you came to the $300.00 an acre that you applied to bare land on the West... MR. SHOLD: Sure. What we, what we did was ah.. .we drew up an overall map using a number of sales that we had for all sizes of parcels. And again, they're not all that many. Some include timber and a...a number of them are the ones that...after harvest. The ones in here are the best indication that we came up with. They are included in the ones that we did come up with here. VICE-CHAIRMAN DOUGLAS: Were you able to identify the difference between the timber value and the bare land value in all of those transactions? MR. SHOLD: Ah, no. We.. .most, most of them do not indicate the amount of timber on the parcel at the time of sale. I think that's, you know, the...the ones that are listed on them are...our Memorandum here, they are included in this of course, and ah, we feel like they would support the 300. It won't take into account with the others... MR. STEEGE: ...Now these you, you say were...the timber was taken off of these or not? MR. SHOLD: Well these are, these, to the best of my knowledge don't include any timber, these are... MR. STEEGE: Okay, but you didn't adjust for any regeneration? MR. SHOLD: No. Correct. That's... MR. STEEGE: So this price per acre that you're coming up, does include regeneration? MR. SHOLD: No, and as I indicated the only one that we were able to determine was the Turlis and Cedar Creek Joint Venture, which the seller indicated to us...yeah...there was nothing left. MR. STEEGE: ...but the others, you don't know about any regeneration. MR. SHOLD: Correct. MR. STEEGE: So there may be some that you...? MR. SHOLD: That's possible. MR. REICH: I don't think we have any other questions. Just including what our position is and, and valuing this property so it has to make 12 OUINAULT INDIAN NATION MINUTES A U GUS T 2 2. I 9 8 8 an appropriate adjustment for a regeneration that is on the land: so if you have a comparable and you don't adjust it for the regeneration which has, as we've shown in our case and Golden Springs case, substantial value, if you don't make that adjustment, I don't think it is appropriate to use that comparable if you don't know whether or not there is regeneration or not on the land. CHAIRMAN DALGLEISH: Mr. Douglas, do you have any questions? VICE-CHAIRMAN DOUGLAS: Yeah, I'm just trying to think... as I understand the Hearing Memorandum as submitted, one of the contentions of this document is that the Jefferson County Assessor has to be able to assure that the land valuation as set on Forest Land is uniform throughout the County. MR. REICH: That's correct. VICE-CHAIRMAN DOUGLAS: And if I interpret your petition, you're saying that there's evidence that there's inconsistency between other properties, values of other properties, with what is in the petition. MR. REICH: Our position is that, is that essentially all of the forest land that is outside public ownership of the County is assessed according to the Department of Revenue valuation system. That the use of the Assessor's Independent Valuation is unconstitutional under the stat...as a sa...as a different method of valuation applying to this land for the purposes of determining Compensating Tax...is unconstitutional under the State Constitution because you handle system uniform throughout the County to assess bare forest land based on Department of Revenue Table Rates and you take land which, you know was conceded, highest and best use of is still forest land, you're using a different basis for assessing it. It comes up with a substantially higher valuation, that that's not a uniform system of evaluation and runs afoul of the State Constitution. Now, I suspect that argument is not within the Boards' jurisdiction to decide, but we make it to preserve... VICE-CHAIRMAN DOUGLAS: But, isn't it true that our assessed valuation process in Jefferson County has to be based on sales information? MR. SHOLD: Correct. The best available sales. VICE-CHAIRMAN DOUGLAS: We don't pay any attention to what the, the...as a County, throughout the County, we pay no attention to what the Department of Revenue uses. MR. SHOLD: Well, there, the table values are taken up with are when these properties are in the Timber Program. Once they come out then we determine a different value. That's correct. VICE-CHAIRMAN DOUGLAS: And so your contention is that these had been brought out of the timber value by the classification process? MR. SHOLD: Well, cer...under ordinary circumstances that they've indicated it wouldn't have because it is going to a, a non-taxable entity...by provisions of the State Law it had to be removed, correct. VICE-CHAIRMAN DOUGLAS: And the issue at hand there is of course, one is subject to a Court Case which you do not weigh. MR. SHOLD: That's correct. VICE-CHAIRMAN DOUGLAS: You'll wait a long time for that decision. I've been working for six years on this other one! 13 QUI NAULT INDIAN NATION MINUTES A U GUS T 2 2. I 9 8 8 CHAIRMAN DALGLEISH: Mr. Barber, do you have any questions? MEMBER ARCHIE BARBER. JR.: No. CHAIRMAN DALGLEISH: No further questions, the Board will take it under advisement. and we will notify yOU in writinq. THE BOARD. THE REPRESENTATIVES OF THE OUINAULT INDIAN NATION AND THE REPRESENTATIVES OF THE ASSESSOR'S OFFICE DISCUSSED THE POSSIBILITY OF INSPECTING THE PROPERTY AND WHAT VALUE THERE WOULD BE IN THE BOARD'S LOOKING AT PARCELS OF BARE LAND. SOME OF WHICH HAS REGENERATION AND SOME WHICH HAS NONE. THE BOARD STATED THAT THEY WOULD NOTIFY THE QUINAULT INDIAN NATION OF THEIR DECISION AS TO WHETHER OR NOT THEY WILL GO ON-SITE. OTHER BUSINESS OF THE BOARD THERE BEING NO FURTHER QUINAULT INDIAN NATION BUSINESS BEFORE THE BOARD IN REGARD TO THE STATED PETITIONS, THE HEARING ADJOURNED. APPROVED BY: DATE APPROVED:.&h'~ /4tJ./fI,/ q7f~ A. C. DALG , CHAIRMAN ATTESTED B~ DIERD I WHI ORD ~i! i9.~CHArRMAB (M... '3 &--t.- ~ . ARCHIE L. BARBER, JR., MEMBER 14