At Saturday’s Municipal Officials for Redevelopment Reform, MORR Conference, held at the Long Beach Marriott hotel, we had a broad spectrum of invited guest speakers and attendees including Christina Walsh of the Institute for Justice in the DC area. Our luncheon speaker was Attorney Tim Sandefur of Pacific Legal Foundation. Attorney’s Robert Ferguson and Chris Sutton provided case histories and legal recommendations to the 85 attendees at this all day event. After the luncheon (Irvine) Assemblyman Chuck DeVore provided an update on redevelopment related legislation.
We also listened to health concerns expressed by a representative of a local group, “Carson Citizens for Reform.” I sat with some of these Carson residents at the luncheon where we discussed their concerns. Since the meeting I have been in contact with two of their group getting background data for two stories. A future post will expose a plan by the city of Carson to build homes above a former 168 acre dump site knowing that methane gas is in the dump site located near the intersection of the 405 and 110 freeways.
This post will address a second story relating to an urgent redevelopment agency “bailout” of an auto dealership which follows below.
One of the attendees told me that Cormier Chevrolet’s “primary lender, GMAC Financial Services (GMAC) was calling approximately $2.6 (effectively $2.53 million) million of the Dealership’s line of credit. The last day for payment to GMAC is April 29, 2009.”
Lacking the funds the city approved a DDA by and between the Carson Redevelopment Agency and C-P Land Company regarding the dealership that is located on 10.8 acres at 2201 E. 223rd street. Under this agreement the city worked out a lease agreement “bailout” in which their redevelopment agency is purchasing the dealership land and buildings based on an “appraised value purchase price of $7.8 million dollars” of which $2.7 million is to be credited to the agency to pay off their prior redevelopment Agency obligation. The Agency is to place $5.1 million of the purchase price into escrow with “$2.4 million to be used to pay off an outstanding Developer bank loan and the Developer will receive the remaining approximately $2.7 million to pay GMAC.”
The five year lease terms call for a first year payment by Cormier Chevrolet of one dollar. In year two the agency is to receive .25% of the dealership’s gross sales of new and used vehicles and service revenues. In the third year the lease increases to .50% of dealers gross sales, increasing to .75% in year 4 and capping at 1% in the 5th year.
Is this the local equivalent of an Obama “bailout” plan? Rescue every ailing corporation? What about those smaller local Mom and Pop businesses that are also hurting in this prolonged recession?
The resident informed me that in 2001, 2002 and again in 2003 the redevelopment agency made improvements to the project site which eliminated any blighted conditions yet this deal is with the same agency of the city whenthere is no visible blight to be found.
One obvious negative impact. If the city now takes title to the Cormier property than they have just removed the dealership’s property taxes from the tax roll.
The following coverage, on this same auto dealership story is from the Mercury News. The link can be found at the end of this post.
Carson approves $8M bailout for Cormier Chevrolet
The Associated Press
Posted: 04/23/2009 08:01:14 AM PDT
Updated: 04/23/2009 08:01:14 AM PDT
CARSON, Calif.—The giant Cormier Chevrolet dealership is getting a nearly $8 million bailout from the city of Carson. The City Council approved a plan late Tuesday that calls for the Redevelopment Agency to acquire the dealership’s property and lease it back for five years at a subsidized rate.
It’s designed to keep the 43-year-old dealership in operation.
Slumping auto sales nationwide has GMAC, the financial arm of General Motors, calling in dealer loans. Without the city’s help, the dealership would be unable to pay a $2.6 million debt to GMAC and would close.
Cormier Chevrolet brings some $550,000 in annual sales tax revenues to city coffers. City officials say it is important to protect existing sources of revenue.
http://www.mercurynews.com/news/ci_12208844
Larry Gilbert, Orange County Co-Director, Californians United for Redevelopment Education, CURE, the “grass roots” partner of MORR and; Member Castle Coalition, the “grass roots” affiliate of the IJ.
“One obvious negative impact. If the city now takes title to the Cormier property than they have just removed the dealership’s property taxes from the tax roll.”
In a word, no. Although the government-owned reversion may be tax-exempt, Cormier’s continued use will not. The Cormier property would become a “taxable possessory interest.” Cormier would be assessed on its private use of tax-exempt government-owned property. See, http://www.boe.ca.gov/proptaxes/pdf/ah510.pdf
Ironically, this MAY actually increase Cormier’s property taxes. Having driven past that dealership my entire life, I know that it’s older than Prop 13. If they owned the real property outright since the beginning, they likely had a 1975 tax basis. Unfortunately for them this sale/lease back constitutes a change in ownership resulting in a reassessment under Prop 13. (See, Rev. & Tax. Code Section 61(b) at http://www.leginfo.ca.gov/cgi-bin/displaycode?section=rtc&group=00001-01000&file=60-69.5 )
If they had a 1975 tax basis, the resulting reassessment could increase Cormier’s property taxes by a significant amount.
MN
Meddlesome Nobody and Juice readers
After posting this story I spoke with someone who shared some of the Cormier Chevrolet history.
The dealership was founded in 1952 in Long Beach. They moved to the freeway location opening their doors in March of 1966. There is a tie to Dominguez Land Grant and the Watson Land Co who were the developers. The city of Carson purchased the site from Watson Land Co. and gave it to Cormier in 1995,1996 paying around $38,000 in fees to acquire the property. As such this parcel does not have a 1975 tax basis.
I have yet to check with the BOE to check on any tax obligations of this transaction as questioned above.
C-P may be the initials of (Len) Cormier and Mr. Peterson, Len’s brother-in-law.
There are some skeletons to this story that will remain buried.
Meddlesome Nobody
I have contacted OC Assessor Webster Guillory’s office to get a better understanding on a “Taxable Possessory Interest” as it relates to property taxation and will update this post once I get that data.
As I read Page 16, Chapter 3, Valuation of Taxable Possessory Interests, there is a reference to a ruling by the California Supreme Court in De Luz Homes Inc. v. County of San Diego where it states that “the standard of full cash value applies equally to a leasehold [i.e.., taxable possessory] interest.”