04-0779R


RESOLUTION AUTHORIZING AN AGREEMENT FOR APPRAISAL SERVICES WITH THE VALUATION GROUP, INC., RELATED TO THE MILLER HILL K-MART TAX COURT PROCEEDING IN THE AMOUNT OF $5,000.

BY COUNCILOR NESS:

     RESOLVED, that the proper city officials are authorized to enter into an agreement substantially in the form of that on file in the office of the city clerk as Public Document No. __________ with The Valuation Group, Inc., for appraisal services related to the tax court proceeding involving the Miller Hill K-Mart store property in the amount of not to exceed $5,000, payable from Fund 0100-700-1428-5441.


STATEMENT OF PURPOSE:  The purpose of this resolution is to authorize an agreement with The Valuation Group, Inc., to provide appraisal services necessitated by the tax court proceeding instituted by K-Mart seeking reduction of its real estate taxes on its store on Miller Hill.


As councilors are aware, the K-Mart Corporation has been experiencing substantial financial difficulties recently and, as a result, has reorganized under Chapter 11 of the Bankruptcy Code. In conjunction with this, they have closed or sold many stores and have attempted to reduce their expenses related to others by protesting the real estate taxes being levied against them. The Miller Hill store is in the latter category. Their tax court proceeding is pending and has received a “date certain” for trial on December 6, 2004. Pursuant to the court’s discovery requirements, the parties must exchange appraisals by November 22, 2004.


The issue is the validity of the city assessor’s determination of taxable estimated market value for taxes pay 2001 through 2004. The assessor has established that value as $3,766,800 for Pay 2001, $3,872,100 for pay 2002, $3,988,000 for pay 2003, and $4,785,600 for pay 2004. K-Mart contends that the property is overvalued and is not taxed fairly and equitably. If K-Mart is successful in reducing the value to the amount they claim is appropriate, it would cause the city to refund a portion of the $104,090 in real estate taxes already received by the city, either as a pay-back or as a set-off to future receipts, and an undetermined tax dollar loss per year thereafter, based on current tax rates and the resulting valuation set by Minnesota tax court. At this time, there have been no representations made by either K-Mart or their attorney as to the amount of reduction they are seeking in tax court.


Because of the amounts at risk, the assessor has recommended bringing a nationally-recognized expert in valuing retail establishments of the K-Mart type, The Valuation Group, Inc. and its principal, Paul G. Bakken, to support the assessor’s determination of value with his independent, expert valuation.


The cost of the appraisal and related, pre-trial work will be $5,000. If the matter goes to trial, it will be necessary to amend the agreement to cover the costs of trial testimony.