| Matter of Niagara Mohawk Power Corp. v Town of MoreauAssessor |
| 2007 NY Slip Op 09993 [46 AD3d 1147] |
| December 20, 2007 |
| Appellate Division, Third Department |
| In the Matter of Niagara Mohawk Power Corporation, Appellant, vTown of Moreau Assessor et al., Respondents. (Proceeding No. 1.) (And Three Other RelatedProceedings.) In the Matter of Erie Boulevard Hydropower, L.P., Appellant, v Town of Moreau Assessor et al., Respondents.(Proceeding No. 2.) (And Another Related Proceeding.) |
—[*1] Lewis & Greer, P.C., Poughkeepsie (Veronica A. McMillan of counsel), for Town of MoreauAssessor and others, respondents.
Cardona, P.J. Appeal from a judgment of the Supreme Court (Williams, J.), entered October31, 2006 in Saratoga County, which partially dismissed petitioners' applications, in sixproceedings pursuant to RPTL article 7, to reduce the 1998, 1999, 2000 and 2001 taxassessments on certain parcels of real property owned by petitioners.
Petitioners commenced these proceedings pursuant to RPTL article 7, seeking toreview and reduce assessments to their real property in the Town of Moreau, Saratoga County,for tax years 1998, 1999, 2000 and 2001. Petitioner Niagara Mohawk Power Corporation filedpetitions in 1998 and 1999 contesting the assessment of structures and equipment constituting theSpier Falls hydroelectric facility and various transmission and distribution properties. After thesale in 1999 of certain hydroelectric facilities from Niagara Mohawk to petitioner Erie BoulevardHydropower, L.P., Niagara Mohawk filed petitions again in 2000 and 2001 contesting theassessments on its transmission and distribution properties. Erie also filed petitions, in thosesame years, to contest the assessments on properties comprising the Spier Falls, Sherman Islandand Feeder Dam hydroelectric facilities. In August 2001, the parties stipulated to a joint trial and,in October 2002, stipulated to the tax years at issue, the land acreage of the real property for allthe parcels and their assessed values and the equalization rates.The matters were tried before a Referee, who issued a report in May 2006 finding thatpetitioners had submitted substantial evidence to overcome the presumption of the validity of thetax assessments. However, as relevant herein, the Referee determined that petitioners failed todemonstrate by a preponderance of the evidence that their properties had been overvalued. TheReferee rejected petitioners' appraisals finding their use of straight-line depreciation unreliablebecause petitioners' experts (1) erred in calculating average service lives (hereinafter ASLs) forthe properties, (2) used an "arbitrary" 5% residual value for assets still in use beyond their ASLs,and (3) employed a negative 5% salvage value predicated on an unexplained formulation. Saidreport was confirmed by Supreme Court in November 2006 and petitioners' petitions were [*2]dismissed.[FN1] This appeal ensued.[FN2]
Having rebutted the presumption that the property tax assessments by the town respondentswere valid, petitioners then had the burden of demonstrating overvaluation by a preponderance ofthe evidence (see Matter of NYCOMins., Inc. v Town of Lewis, 42 AD3d 841, 843 [2007]; Matter of United Parcel Serv. v Assessor ofTown of Colonie, 42 AD3d 835, 837 [2007]). Petitioners first contend that they mettheir burden because the Referee, who wholly disregarded the town respondents' appraisal asunreliable, was required to find in petitioners' favor. Notably, in reaching a decision, a referee hasthe discretion to reject an appraisal even when uncontroverted (see Matter of Erie Blvd. Hydropower, L.P.v Town of Ephratah Bd. of Assessors, 9 AD3d 540, 542 [2004]; Matter of SaratogaHarness Racing v Williams, 256 AD2d 663, 665 [1998], lv denied 93 NY2d 803[1999]; Matter of Blue Circle v Schermerhorn, 235 AD2d 771, 773 [1997]) and suchdetermination "is entitled to great weight" (Loughran v Cruickshank, 8 AD3d 799, 800 [2004]). The fact thatthe town respondents' appraisal had been struck by the Referee did not prevent the Referee, orSupreme Court, from also disregarding petitioners' appraisal.
Petitioners contend, alternatively, that Supreme Court erred in rejecting their methodology.At trial, petitioners elicited testimony from several experts, including Paul Williams, a seniorproject manager for Kleinschmidt Energy & Water Resources Consultants, and Mark Rodriguez,a managing partner at MV Valuation Consulting, and introduced their reports. In assessing thevarious properties, as relevant here, petitioners' experts employed the[*3]"reproduction cost new less depreciation" method. After computingthe "reproduction cost new," the results of which are not in dispute, said cost was thendepreciated, using the straight-line method, by dividing the actual life of each asset by the ASL toarrive at a percentage "good" for the asset, which was then multiplied by the reproduction costnew to arrive at an assessed value.
While petitioners correctly assert that straight-line depreciation has been consideredappropriate when well-founded and supported by the evidence, such method must be appliedafter a review of pertinent information such as regional and national statistics, analysis byengineers based upon personal observation and, particularly, service lives reported by utilities(see Matter of Niagara Mohawk Power Corp. v City of Cohoes Bd. of Assessors, 280AD2d 724, 727-728 [2001], lv denied 96 NY2d 719 [2001]; Matter of Tenneco,Inc.-Tennessee Gas Pipeline Div. v Town of Cazenovia, 104 AD2d 511, 513 [1984]).However, such method is deficient when the ASLs used in the calculations do not take intoaccount the "remaining lives" of assets, particularly when the result is that the estimated servicelives are shorter than the actual age of functioning assets, resulting in the assignment of no valueto property that remains operable after its projected retirement date (see Matter of City ofTroy v Kusala, 227 AD2d 736, 740-741 [1996], lv denied 89 NY2d 801 [1996];see also Matter of Niagara Mohawk Power Corp. v Town of Marcy, 256 AD2d 1155,1156 [1998], lv denied 688 NYS2d 372 [1999]; Niagara Mohawk Power Corp. vTown of Moreau, Sup Ct, Saratoga County, June 18, 1999, Williams, J., slip op at 14). Assuch, a utility's own assessment of its particular assets is an indispensable source of data forcomputing ASLs for the purpose of calculating depreciation (see Matter of Niagara MohawkPower Corp. v Town of Bethlehem Assessor, 225 AD2d 841, 844 [1996]; NiagaraMohawk Power Corp. v Town of Moreau, slip op at 14).
In calculating service lives for the hydroelectric facilities, Williams testified thatKleinschmidt used research based on various industry publications, experience in the consultingindustry, personal observations, review of construction drawings and records and discussionswith operations personnel, but did not consider or rely on calculations by Niagara Mohawk itselfand was unaware of its estimates regarding the mortality of its equipment. Moreover,Kleinschmidt did not take into consideration major rehabilitation work on the Sherman Island orSpier Falls facilities. Despite these shortcomings, Rodriguez testified repeatedly, and MVValuation's report shows, that it relied exclusively on Kleinschmidt's opinion on service lives asthe basis for the determination of ASLs. This misplaced reliance is underscored by the fact thatWilliams, on numerous occasions, stated that it was his understanding that ASL was a calculationthat was going to be addressed by the appraisers, and not Kleinschmidt, for the purposes ofquantifying physical depreciation. Petitioners' methodology therefore resulted in ASLs thatvaried drastically from those reported by Niagara Mohawk, which were 30% to 48% higheracross the board than those used by MV Valuations. For these reasons, we find that the ASLsused by MV Valuations were not supported by the evidence and, as such, rendered itsstraight-line depreciation calculations flawed (see Matter of Niagara Mohawk Power Corp. vCity of Cohoes Bd. of Assessors, 280 AD2d at 727-728; Matter of City of Troy vKusala, 227 AD2d at 740-741).[*4]
We also find problematic petitioners' calculations withregard to both residual value and negative net salvage value. Petitioners' experts used adepreciation floor of 5% good, but demonstrated no basis for arriving at the use of thatpercentage. MV Valuation's report stated that the 5% residual value was "[b]ased on ourappraisal judgment and experience" and "conversations with Kleinschmidt," but provided noempirical basis for selecting that figure. The town respondents' expert, in contrast, opined at trialthat the proper depreciation floor of these particular assets was 20%. Likewise, petitionersassigned a negative 5% net salvage value across the board to all assets, providing no empiricalbasis for doing so. In stark contrast, Niagara Mohawk's own reported salvage factors ranged fromnegative 25% to positive 10%, and the town respondents' expert opined that, based in part uponNiagara Mohawk's projections, he estimated varying net salvage values from negative 25% tozero.
While residual value and negative net salvage value are appropriate tools to employ whencalculating depreciation, such values must not be arbitrary and should be calculated byindependently determining factors for each asset being valued (see Matter of NiagaraMohawk Power Corp. v City of Cohoes Bd. of Assessors, 280 AD2d at 728; Matter ofNiagara Mohawk Power Corp. v Town of Bethlehem Assessor, 225 AD2d at 844; seealso Matter of Niagara Mohawk Power Corp. v Town of Marcy, 256 AD2d at 1156;Matter of Niagara Mohawk Power Corp. v Assessor of Town of Geddes, 254 AD2d 681,682-683 [1998]; Niagara Mohawk Power Corp. v Town of Moreau, slip op 16-18). Forthe foregoing reasons, we agree with Supreme Court's finding that petitioners failed todemonstrate overvaluation by a preponderance of the evidence (see Matter of Erie Blvd.Hydropower, L.P. v Town of Ephratah Bd. of Assessors, 9 AD3d at 542; Matter ofNiagara Mohawk Power Corp. v City of Cohoes Bd. of Assessors, 280 AD2d at 726).
As for petitioners' contention that the Referee, and thus Supreme Court, improperly relied onfacts not in the record, we find that, while the Referee's report referenced certain facts concerningprior litigation between two of the parties involved here, the Referee's purpose was to show thatthe prior litigation was factually similar to the current proceedings and, thus, the same rule of lawshould apply. The Referee cited ample facts from the current dispute to support his conclusions.
We have considered the parties' remaining contentions and find them to be without merit.
Mercure, Crew III, Carpinello and Lahtinen, JJ., concur. Ordered that the judgment isaffirmed, without costs.
Footnote 1: Although dismissing themajority of petitioners' claims, Supreme Court confirmed that part of the Referee's order thatfound that petitioners had demonstrated that certain of their properties had ceased to exist, werenonoperational or had been abandoned and, accordingly, lowered the assessments on saidproperties. Those determinations are not at issue here.
Footnote 2: To the extent that respondentscontend that the notice of appeal with respect to Niagara Mohawk is defective, we find that anyerror was an inadvertent omission and, in the absence of any prejudice to respondents, the noticeof appeal is deemed an appeal taken by both petitioners (see CPLR 2001; Matter ofTagliaferri v Weiler, 1 NY3d 605, 606 [2004]; Broughton v Dona, 63 AD2d 1101,1101 [1978], appeals dismissed 46 NY2d 1013, 1074 [1979], 47 NY2d 709 [1979]).