Idaho's state Department of Lands is defending a 2012 land exchange in which it traded the University of Idaho's McCall Science Campus property for office property in Idaho Falls that houses the lead contractor for the Idaho National Laboratory; the deal came under fire this week from two state lawmakers who've joined with a group called Tax Accountability Committee, or TAC, to criticize it. The lawmakers, Reps. John Vander Woude, R-Nampa, and Grant Burgoyne, D-Boise, and TAC commissioned their own review appraisal on the Idaho Falls property that found it was worth just $4.5 million, not the $6.1 million the state's appraiser settled on; they contended that means the private owner involved in the exchange, who then sold the McCall property to the University of Idaho for $6.1 million, profited in the amount of the difference. The Lands Department is standing by its appraisal and says the review appraisal that TAC commissioned overlooked various significant factors; the state endowment's annual rental revenue from the property more than doubled as a result of the exchange.
Meanwhile, Gov. Butch Otter was asked yesterday, at the close of the state Land Board meeting, about the TAC allegations and Vander Woude and Burgoyne's announced intention to introduce legislation requiring review appraisals in all such land exchanges in the future. "They are expensive," the governor said, noting that it's not clear yet "whether or not I would accept it, whether or not they could override a veto." Said Otter, "Is the Legislature prepared to spend the money? If they want to insist on it," they'd need to fund it, he said. "I think all these things need to be weighed." That said, he noted that he'd not yet had a chance to review the TAC letter to the Land Board, which was sent Monday; Otter spent that day with First Lady Lori Otter, who underwent successful but unexpectedly extensive shoulder surgery. Otter said she's recovering.
Click below for the three documents related to this: The full AP article by John Miller on the dispute; a TAC statement in response to a Lands official's comment in the AP article; and a statement on the appraisal issues from the Department of Lands.
Idaho lands agency defends 2012 land swap
By JOHN MILLER, Associated Press
BOISE, Idaho (AP) — The Department of Lands on Tuesday defended a 2012 land swap being criticized by two state lawmakers who contend that the agency shortchanged Idaho's endowment fund by relying on an inflated appraisal.
Last November, the agency exchanged 14 acres of state endowment land on Payette Lake in McCall for a privately-owned Idaho Falls office building. The deal allowed the University of Idaho to buy the Payette Lake land where it's run its outdoor science school for 65 years. At the time, state officials said both properties were worth $6.1 million.
This week, however, a group including Reps. Grant Burgoyne of Boise and John VanderWoude of Nampa publicized a second appraisal that said the Idaho Falls property was worth just $4.5 million.
Deputy Director Kathy Opp told The Associated Press that her agency stands by its original valuation. Among other things, she said, the Idaho Falls building is outfitted so its tenant, Idaho National Laboratory contractor Battelle, can work in a secure environment. This feature demanded special skills and access to arrive at an accurate valuation, based on comparisons with similar facilities across the nation, she said.
"We feel very comfortable with the appraisal we received," Opp said, adding the transaction has more than doubled investment returns.
The McCall property would have generated nearly $250,000 annually in rental income for endowment beneficiaries. The Idaho Falls building produces $538,000, according to figures provided by the agency.
Proceeds from Idaho's 2.5 million acre endowment land portfolio, originally granted at statehood in 1890 by the U.S. government, benefit important state institutions including public schools.
Burgoyne, a Democrat, and VanderWoude, a Republican, have sought for years to limit the Department of Lands' aggressive expansion into commercial real estate. Their fear: The agency is leveraging endowment lands increasingly to compete with the private sector, in particular with its 2010 acquisition of a Boise self-storage business.
Last November's swap for the Idaho Falls building — and what Burgoyne and VanderWoude now believe was an inflated appraisal — only intensifies their concerns.
"An error of this magnitude is indicative of major problems with the... plan to sell and exchange Idaho trust lands to invest in commercial real estate and compete with private businesses," according to their letter to the Idaho Land Board, the panel that includes Gov. C.L. "Butch" Otter and approved the 2012 exchange.
In the letter, they demand a state investigation.
Though a measure in the 2012 Legislature seeking to trim the agency's commercial investments failed, VanderWoude vowed to pursue new legislation in 2014, this time to require a second appraisal before any land exchanges take place.
"I haven't been against the exchanges," VanderWoude said. "I just want to make sure we come out at least even on it."
Opp countered that requiring multiple appraisals for every exchange like VanderWoude proposes would add an unnecessary, potentially expensive layer to managing endowment timber, grazing and commercial properties for the highest long-term returns.
"We already have professionals in the agency who review appraisals," she said, adding her agency would provide VanderWoude and others in his group with a response, once it's reviewed their complaint.
A call to the Idaho Falls property's former owner, developer Gary Voigt, wasn't immediately returned.
Copyright 2013 The Associated Press
TAC statement in response to AP article:
In the attached article, IDL Deputy Director Kathy Opp attempts to side step criticism of the IDL appraisal by defending it on the basis of the high rental income ($538,000 p/a) that the specially equipped Idaho Falls building currently brings. She ignores the precise point made in the review appraisal that special use of a building by a unique renter is not a sound basis for an appraisal. The above market rental rates for the Idaho Falls building are contingent both on the terms of the lease and on continued U.S. Department of Energy appropriations. This was pointed out in the 09-17-13 TAC letter to the Idaho Land Board and the IDL Director, as follows:
This income approach poses a real problem because there is no assurance that the present income will continue, especially when there are only seven (7) years remaining on the present lease. This is not “long term.” Moreover, the Lease cancelation clause states that, “This Lease is contingent upon the availability of appropriated funds from the Dept. of Energy.” The lease also provides that “The Lessee may cancel this Lease at any time if D.O.E. ceases to appropriate funds for the payments due under this Lease.” In this case, both the Lessor (Idaho Land Board) and the Lessee (Battelle Energy Alliance, LLC) are dependent on a third party (D.O.E) to make the lease payments. The extraordinary and hypothetical condition here is that the Dept. of Energy is not a signatory of this agreement and has no obligation to pay anything to anybody. In fact, even the third party (DOE) is dependent on a fourth party (Congress) to appropriate money for their operation.
Blowing off a valid criticism by ignoring the relevant facts only exacerbates the IDL’s problems, as it plunges wildly ahead into the world of commercial property investment.
John L. Runft
Runft & Steele Law Offices, PLLC
Idaho Department of Lands statement:
The Idaho Department of Lands (IDL) is in receipt of the letter and other materials provided to the agency regarding the appraisal conducted on the Idaho Falls property that was exchanged in 2012 for the State endowment land on which the McCall Outdoor Science School is located. We will be providing representatives of the TAC a written response after further review of the letter has taken place.
In the meantime, IDL has contacted the appraiser that conducted the IDL commissioned appraisal on the Idaho Falls property and asked him to review the TAC appraisal and provide any feedback.
After an initial glance at the TAC commissioned Review Appraisal Report, our confidence right now remains in our original appraisal. The contracted individual that created the report for TAC was a residential evaluation specialist. By comparison, the professional designations held by the appraiser IDL hired include MAI (Member of the Appraisal Institute), FRICS (Fellowship of the Royal Institution of Chartered Surveyors, and CCIM (Certified Commercial Investment Manager). Additionally, the report accepted the same capitalization rate but ignored the remaining years under the current lease at the contract rate and calculatednet operating income using a market rate he determined using a different set of comparables.