Lawsuit: The end of an era for housing?
Aspen has collected $18 million in real estate transfer taxes in the past three years, but what percentage of those revenues is jeopardized by a lawsuit is yet undetermined.
David Hurd, the city’s acting finance director, is analyzing nearly three years’ worth of real estate sales in Aspen – about 1,200 transactions in all – in the wake of a lawsuit challenging the way the city has computed its RETTs.
“This is a monumental number-crunching project,” Hurd said yesterday.
The lawsuit, filed by the owners of the St. Regis hotel and the hotel’s former owner, Savanah Limited Partnership, claims the city overcharged the parties by nearly $2 million in local taxes when the hotel changed hands.
The suit charges the city with improperly applying its real estate transfer taxes to both the value of the land and improvements on it. The wording of the Aspen
laws instituting the RETTs define “real property” as “all lands or interest in lands within the City of Aspen.” The lawsuit claims the definition covers only the land itself, not buildings or other improvements, like the St. Regis hotel.
According to the suit, the hotel was sold for more than $160 million, but only about $20 million of the price applied to the land itself. The sale was assessed $2.25 million in RETT fees – about $1.9 million too much, the suit claims.
Hurd is now working with the Pitkin County assessor’s office to determine how much tax revenue is generated by land vs. improvements.
Until the litigation is resolved, the city intends to set aside a percentage of its RETT income, though that percentage has not yet been determined.
“To be fiscally prudent, we need to be prepared for an adverse judgment,” Hurd said.
“That is not to say we think that there is merit to the claim,” stressed John Worcester, city attorney.
Hurd is also assigned the task of analyzing how the challenge to the tax revenues will affect city projects. If the city sets aside money to pay out in the event it loses the suit, it will have less cash to put toward a range of affordable housing projects that are in the works.
The city charges a 1 percent RETT dedicated to housing and a 0.5 percent RETT that is dedicated to the Wheeler Opera House.
“I have not even begun to look at the Wheeler side of things,” Hurd said. “Obviously, the housing thing is a lot more pressing because of the dollars involved.”
A loss in RETT revenue has ramifications for various city housing projects, like the Truscott Place expansion, which is slated to begin this spring, he said.
“If this thing [lawsuit] wins, this could be the end of an era for affordable housing,” predicted City Councilman Terry Paulson last week.
In its 2001 budget, the city anticipates collecting $1.8 million from the Wheeler RETT and more than $3 million from the housing RETT.
Fortunately for the city’s coffers, RETT revenues from what could well be the single largest real estate transaction of 2001 will not be too affected by the lawsuit, according to Hurd.
This month, Savanah sold a collection of its real estate holdings, including vacant land at the base of Aspen Mountain, the defunct Grand Aspen Hotel and the Bavarian Inn on Seventh Street, to a group of investors for $30.5 million.
In all, the sales generated $443,250 in RETT revenue, and very little of it is tied to improvements on the land, Hurd said.
The value of the vacant Grand Aspen is essentially the land, as the hotel is slated for demolition this spring.
“The Grand Aspen is almost 100 percent land because it’s a scraper. The land appears to be the lion’s share of the value from the transaction,” he said.
The Top of Mill site at the base of the mountain is vacant land and a portion of the Bavarian Inn, used for employee housing, is to be demolished, as well.
“Fortunately, this is a very positive thing for the RETT, regardless of the outcome of the lawsuit,” Hurd said. “The value is predominantly the land.”
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