Split Supreme Court finds in favor of assessor in contamination valuation

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A split Wisconsin Supreme Court has decided an assessor properly valued a contaminated piece of property in downtown Milwaukee when he based his valuation on the potential rental income from its parking lot.

The 4-3 majority ruled on Wednesday that the assessor considered the impact of the contamination in his valuation, despite the owner’s argument that the contaminated property is worth zero dollars because he can’t sell it.

Contaminated Milwaukee property valued at $31,800

Ronald Collison owns the piece of property in downtown Milwaukee two blocks from Fiserv Forum. It includes a two-story commercial building and an asphalt parking lot with space for about 15 vehicles. The building previously house a dry-cleaning business that closed in 2005 and is currently vacant.

In 2012, the city of Milwaukee issued a permit for removal of four underground storage tanks on the property. A subsequent soil analysis found contamination. The city assessed the property and determined a fair-market value of $31,800.

The city assessor, Jim Wiegand, used the income approach to value the property, which bases the assessment on rental income from the parking lot. He determined the building had no value.

Collison appealed the assessment to the board, arguing that the property had no value because no one wanted to buy a contaminated lot. He said remediation could cost “millions of dollars.”

Wiegand testified that the extent of the cleanup and the associated costs were unknown. He said the city was valuing the property based on its income potential. The board upheld the assessment, and Collison sought certiorari review in the circuit court. Milwaukee County Judge Glenn H. Yamahiro affirmed the board, and upon appeal, the appellate court did, too.

Majority: Assessor properly considered contamination

The state Supreme Court then considered whether the city’s policy in reviewing contaminated property conforms to Wis. Stat. § 70.32 and whether the assessor properly considered the contamination’s impact on the property value.

Wis. Stat. § 70.32 governs valuation of real estate for tax-assessment purposes. Subsection (1m) provides that the assessor shall consider the impairment of value of the property because of contamination or pollution.

The majority concluded that by utilizing the income approach to value the property according to its highest and best use as a parking lot, the assessor properly considered the impairment of the value of the property due to contamination.

“Contrary to Collison’s contention, the fact that the property is contaminated drove the entire assessment in this case,” Justice Ann Walsh Bradley wrote.

Justices Rebecca Dallet, Brian Hagedorn and Jill Karofsky agreed with Bradley’s opinion. They said the record reflects a recognition that the property could have been valued higher if it wasn’t contaminated due to its prime location.

While the Wisconsin Property Assessment Manual, the state rulebook specifying how to value property, didn’t provide a specific procedure for dealing with the exact situation, the majority said the use of the income approach is consistent with International Association of Assessing Officers standards, which are also used by the WPAM.

“The assessment here is consistent with this principle,” the opinion said. “It recognizes that the highest and best use of the property as a parking lot has value to the owner even if the cost to cure environmental problems exceeds the value of the property.”

Dissent: Assessor never mentioned impairment

Chief Justice Annette Ziegler, Justice Pat Roggensack and Justice Rebecca Bradley disagreed with the majority’s conclusion. Roggensack said it didn’t appear that Wiegand considered the contamination’s impact on the property, which would be a violation of state law.

“Wiegand’s appraisal never mentions ‘impairment’ or any other synonym to show that he considered the effect of contamination on the value of the property,” Roggensack wrote. “By ignoring impairment, he failed to provide an appraisal in compliance with the legislature’s directive in Wis. Stat. § 70.32(1m).” Follow @“WLJreporter”