The unprecedented number of lawsuits against owners contesting their property values filed by Pima County Assessor Bill Staples in 2017 was enabled by a change in policy at the County Attorney’s Office, one that has since been reversed.
That’s according to a March 16 memo from Staples to County Administrator Chuck Huckelberry and Supervisor Ramón Valadez, who submitted several questions to the assessor regarding the more than 40 appeals of State Board of Equalization valuation decisions Staples filed in 2017.
That roughly equals the number of cases the assessor had previously filed since his election in 2004. It is also approximately one-third of such appeals filed by all Pima County assessors since the early 1990s, according to previous Star analysis of court records. That flood of cases spurred state legislators to recently pass a bill that sets a cap on how high tax court judges can set property values in assessor-initiated appeals.
If property owners disagree with their valuations, they first appeal it to the assessor directly. The state board is the second layer in the property value appeals process in Pima County, and in the past Staples has typically appealed only a handful of that board’s decisions to state tax court in Maricopa County, sometimes paying private attorneys out of his own pocket at first to do so. Those being sued by Staples can face steep legal costs to defend themselves.
In November 2016, the county attorney’s chief civil deputy Tom Weaver at the time sent a memo to Staples explaining that when the assessor appeals valuation decisions by the state board, “you, in your capacity as the Pima County Assessor, are PCAO’s client,” not the county as a whole. That means that Staples controlled the course of the cases, and often left the rest of the county “in the dark” about them, Huckelberry said. It also meant Staples felt he could pursue far more cases than he had previously.
Staples told Valadez that prior to Weaver’s memo he used his own money to pay for outside attorneys when appealing the valuations. “Therefore, only a limited number of appeals from State Board of Equalization rulings were possible due to financial restraints. The increase in tax court filings followed the county attorney policy change,” Staples said.
In late 2016, Staples told the Star he had personally paid around $10,000 for outside legal representation during appeals, and subsequently filed notices of claim with the county to recoup those out-of-pocket costs. He described the tactic as “unprecedented,” and two other Arizona assessors said they had never heard of such a practice.
After the flurry of lawsuits against property owners by Staples in 2017, the county attorney’s chief civil deputy Andrew Flagg sent Staples a new memo in February that laid out changes in how the county attorney would handle cases in which the assessor was the plaintiff.
“Experience has shown us that treating you as a client separate from the county in a manner contrary to our general position is problematic,” reads the memo, which the Star obtained through a public records request. Moving forward, Flagg wrote, the county attorney would instead treat Staples as a representative of the county — not as a “separate client.”
That means Staples would no longer have the attorney-client privilege he argued was necessary for him to be able to pursue the suits using county representation.
“Mr. Flagg’s (memo) reverses the county attorney’s policy once again. I will no longer use personal funds to contract outside counsel,” Staples wrote of Flagg’s letter in his response to Valadez, seeming to suggest there could be far fewer appeals this year.
However, the dozens of cases filed by Staples between the two memos would be handled by the county attorney under the terms laid out in Weaver’s letter to Staples, according to Flagg.
Staples did not respond to a request to discuss the policy change.
“I think if you kind of read between the lines, it sounds like he won’t be filing that many appeals,” Huckelberry said.
Cost of legal cases not known
Given potentially steep attorney’s fees, appraisal costs and other expenses that come with the appeals, Valadez also asked the assessor what the overall financial impact of all the cases has been for county taxpayers.
“I have not performed a cost-benefit analysis,” Staples replied. Valadez did not respond to a request for comment.
Nevertheless, data provided by the assessor shows that 26 of the 45 decisions made by the state board — and then appealed by Staples — dropped full cash values below their previous limited cash values, which are used to calculate primary and secondary property taxes. That means the taxable value of those properties would drop, along with owners’ property taxes, leaving other county taxpayers with a marginally larger portion of the annual levy to cover.
“In those cases, the assessor may have a point,” Huckelberry told the board of supervisors at its March 20 meeting about Staples’ decision to pursue the suits. The remainder of cases, however, appear “to be not warranted without further explanation from the assessor,” he said.
In an earlier memo, Huckelberry said the tactics Staples has used in the cases — even those he finds defensible — have “caused considerable concern by the private taxpayers.”
He later told the Star that even though Staples’ status as the county attorney’s client has changed, the assessor could have the support of administration and the board of supervisors in pursuing cases when the state board’s decision does lower limited cash values. That being said, the way cases are handled would likely be less confrontational and avoid potentially steep legal costs for defendants.
Even with the policy change, Huckelberry said Staples could try to pursue cases the board of supervisors and administration disagree with by claiming a conflict that requires the hiring of outside counsel. The county attorney would have to sign off on such a move.
Though Staples has not done a comprehensive cost-benefit analysis of the suits, he did point to two recent cases in which independent appraisals concluded the properties were worth significantly more than both his office and the state board determined.
In 2016, the assessor determined the Hacienda del Sol resort’s full cash value was $6.2 million, which the state board later lowered to $3.8 million. As a part of the lawsuit against the resort’s owner, Guest Ranch Resort II LLC, Staples hired a third-party appraiser, which determined the property was worth $12.8 million, according to a copy of the report obtained by the Star. The contract for the appraisal, which was conducted by San Francisco-based HVS Consulting & Valuation, is worth up to $30,000.
Similarly, the state board dropped Staples’ $56.4 million valuation of the Oro Valley Marketplace to $40 million. A local appraisal firm determined it was worth $65 million late last year, according to another report. On average, the state board, which hears secondary appeals of property values, dropped Staples’ full cash values by a median value of roughly $500,000, according to the assessor’s data.
In late February, Staples told the board of supervisors that the lawsuits can allow for additional information “not available to us” to come out through discovery, which can then be used for appraisals.
In response to the resort’s appraisal, partner Mike McGrath told Huckelberry in February the firm’s approach to property valuation was a “break with past practice,” according to a letter obtained by the Star. Additionally, the substantially higher property tax bill that would result from the $12.8 million figure would likely derail expansion plans by the resort.
“The Hacienda will not go forward with contemplated additional expansion because of the lack of predictability as to how this will impact taxation,” McGrath wrote, something Huckelberry described as an “unfortunate result.”
“What’s really the most pernicious part of this policy that the current assessor has is it’s discouraging people from coming into our community to finance or build new enterprises on commercial real estate,” McGrath told the Star in February. “They don’t know what the real property expense is going to be.”
Domingos Santos, the resort’s attorney for the suit, said he could not comment on the ongoing litigation. On Thursday, McGrath told the Star the county attorney’s revised policy, as well as a new state law, could “ameliorate” the resort’s situation.
New law caps full cash value
There’s also a new state law in the mix, one which was in part a reaction to Staples’ 2017 lawsuits. HB 2385, which was signed by Gov. Doug Ducey on March 23, would use the assessor’s initial determination of full cash value as a cap on any ultimate decision by the tax court in appeals initiated by the assessor. As in the Hacienda del Sol case and others, Staples could previously seek a valuation substantially higher than even the one his office first determined.
“By capping the balance that the tax court can enter, both parties will be better able to judge the cost-benefit,” said Santos, who drafted the legislation and brought the issue in Pima County to the attention of state lawmakers. “Hopefully that would lead to quicker resolution of those cases and minimization of risk on both sides.”
“The legislation restores some equity and hopefully makes the process less expensive for all parties, both for the county and for taxpayer,” McGrath said.
