BANGOR, Maine — Hollywood Casino is upping the stakes in its fight against Bangor property taxes.
In an appeal filed this month with the Maine State Board of Property Tax Review, the casino argued the city overvalued its Main Street gaming properties and leases by $61.98 million, more than half the venue’s total assessed value.
If the casino prevails in the dispute, the city could be forced to refund $1.35 million of the $2.14 million in property taxes the casino already paid for the properties for the 2014 tax year.
“It would be a major hole in our budget,” Bangor City Councilor Ben Sprague said Wednesday.
In January, when the casino initially filed its abatement request with the city, it alleged Bangor had overvalued its Main Street properties and leases by a lesser $36.8 million, which would have forced the city to refund more than $800,000 to the casino.
City Assessor Phil Drew and the Bangor Board of Assessment Review have denied that abatement request in separate decisions.
The dispute arose after the city assessed the casino properties at $98.18 million for the 2014 tax year, up 3.6 percent from the year before. Documents filed with the state board by the casino propose that the actual value of its properties and leases in Bangor are only $36.2 million, down 63 percent from the city’s assessed value.
In a statement, Eric Schippers, senior vice president of public affairs for Penn National Gaming, which runs the Bangor casino, said the increased abatement request was based on a recent independent appraisal of the Bangor properties.
He declined to release the appraisal report, saying it contained proprietary financial data.
During an August hearing before the Bangor Board of Assessment Review, Jonathan Block, an attorney for the casino, told board members the casino was working on the appraisal and would present it when it appealed to the state board. The state board has not yet set a hearing date for the tax dispute.
In its filing with the state board, the casino alleged that Drew improperly included the value of the casino’s gaming license when he assessed the property. They also claimed the casino is unfairly paying an unequal portion of the city’s total tax burden.
Block said in August that the gaming license should not be included because it cannot be transferred to another entity if Penn National were to sell the property.
Under state law, only real and personal property can be taxed. Intangible properties, such as intellectual property or licenses should be excluded from taxation unless they are inextricably tied to the property, the law states.
Block also argued before the Bangor review board in August that softness in the economy and increased competition from other gaming venues has made the casino property less valuable than it once was.
In August, William Dale, an attorney for the city, did not deny that the city’s assessment included the value of the gaming license.
Instead, he told the board he only knows of two cases in which the Maine Supreme Judicial Court addressed the issue of intangible property being included in a property tax assessment. In both cases, the court ruled against the taxpayer, he said.
Asked about the latest appeal, Sprague and Councilor David Nealley said they found it hard to believe the casino value has declined since construction was completed in 2009. They noted the city’s significant investments on the Bangor Waterfront, improvements along Main Street and the completion of the Cross Insurance Center.
“If anything, that has greater value than when they built it,” Nealley said of the casino.
“Overall, we’re very happy to have them in Bangor, but we expect them to honor their obligations as well,” he said.
Sprague said the latest request is “straight out of the corporate playbook” and came as no surprise to him.
Notably, the assessed value proposed by the casino in its latest filing is less than what the casino claimed to have paid to build the facility when it filed another abatement request in January 2010.
Records submitted to the city at the time showed construction costs for the main building, parking garage and hotel totaled $55 million.
However, a confidential city memorandum from the same month provided details of a meeting between city and casino officials. After that meeting, former City Assessor Benjamin Birch Jr. wrote that a 25-page application and certification for payment from Cianbro Co., which constructed the casino facilities, showed the actual cost of construction was $78.29 million.
The casino and city officials settled that dispute by reducing the casino’s assessed value from $100.7 million to $84.55 million. No public hearings were held on the matter.
According to city records, the casino is insured for $93.5 million, and a separate assessment commissioned by the casino in 2013 estimated its value at $108.43 million.
Dan Cashman, a spokesman for the casino, said in April that the insured value does not account for depreciation of the facility and equipment or softness in the economy. He said the 2013 assessment included the value of the gaming license and was not meant for tax purposes.
Whatever the state review board decides, the losing party can still appeal the decision to Superior Court. That decision then can be appealed to the Maine Supreme Judicial Court.
Dale told the Bangor review board in August that the dispute seems destined to be decided by the Maine Supreme Judicial Court.
Three prior state supreme court cases may have an impact on the dispute.
Two of them speak to the inclusion of intangible assets in property tax assessments and one to whether weak economic conditions should affect assessed property values.
In 2007, the court ruled against the taxpayer in the case of UAH-Hydro Kennebec L.P. v. Town of Winslow.
In that dispute, UAH argued a contract that enabled it to sell electricity to Central Maine Power at above-market rates should not be included in the assessed value of its hydroelectric dam on the Kennebec River because CMP previously offered to buy out the deal.
The court did not agree and denied UAH’s appeal, ruling that the company’s contract with CMP was inextricably intertwined because UAH did not accept CMP’s offer and because the power-selling agreement was central to the rationale for UAH constructing the power plant to begin with.
In 1995, the court again ruled against the taxpayer in the case of Glenridge Development v. City of Augusta.
In that case, Glenridge Development Co. operated a low-income apartment complex built in 1975 with federal assistance from the U.S. Department of Housing and Urban Development.
In court documents, the development company contended Augusta improperly included an interest subsidy paid by the federal government directly to the development company’s mortgage lender when it assessed the property’s value.
The court did not agree, ruling it was proper for the city to consider the interest subsidy from the federal government when it assessed the property’s value.
Finally, in 1935, the court held that adverse economic conditions were not an adequate reason to grant a tax abatement in the case of Sweet v. City of Auburn.
In that case, Alfred J. Sweet Inc. contended the city overvalued the property, assigning it an assessed value of $191,000 in 1933 when the owner purchased it at auction the year before for only $100,000 during the Depression.
The court disagreed, ruling that assessors are “not obliged to follow the fleeting, speculative fancy of the moment.”
“(T)hey should recognize that the true value of a fixed asset such as real estate is fairly constant and must be gauged by conditions not temporary and extraordinary, but by those which over a period will be regards as measurably stable,” the court ruled.
Records maintained by the Maine Gambling Control Board show the casino’s net revenue peaked in 2012 at $62.68 million for the year. They since have fallen 13 percent to $54.48 million in 2014, according to the control board.
Through September, the casino’s net revenue totaled $40.6 million, nearly 1 percent below its net revenue at the same point in 2014.
The city has until Nov. 11 to file a response to the casino’s filing with the state review board. City Solicitor Norm Heitmann said Tuesday that Dale is still working on that response.
Regardless, the city does not have enough set aside in its budget to cover such a large tax refund. Deputy Treasurer David Little said Tuesday the city has just $285,000 in its overlay account, which is used to cover tax abatements throughout the year.
Follow Evan Belanger on Twitter at @evanbelanger.