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Assessment Appeals Board Ignored Data and Law in 49ers Tax Cut Decision, Alleges County

Santa Clara County Assessor Larry Stone is asking the Superior Court to review the Assessment Appeals Board’s ruling that reduced by half ($6 million) the San Francisco 49ers’ property tax — possessory interest — for its use of Santa Clara’s Levi’s Stadium.

“The board’s decision ignores many of the 49ers’ valuable rights and instead simply splits the value of the stadium exactly in half between the 49ers and the public authority,” Stone said in a press release Monday morning, “a position for which neither side argued, that no data supported, and that no lawful valuation method can justify.”

In a court filing made public Monday, the Assessor asks the court to return the question to the Appeals Board with instructions to recalculate the NFL team’s interest using “a method reasonably calculated to capture the full value.” The Appeals Board based its decision on the stadium contracts, not on any calculation of financial benefits.

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Stone’s petition alleges that, in its review, the Appeals Board used an “unauthorized valuation method” — a provision of the tax rules that applies to time-limited or shared possession — to arrive at its conclusion that the 49ers and the Santa Clara Stadium Authority each held a 50 percent interest in Levi’s Stadium.

This conclusion, wrote Santa Clara County Counsel James Williams, was based on a misunderstanding of the “seasons” specified in the contract.

“The Board mistakenly concluded that each party was given scheduling priority for six months of the year and thus had the right to occupy the Stadium for an equal number of days.” Further, “The Board compounded its error by concluding that any differences in the parties’ respective Stadium uses could be disregarded.”

“A 49ers witness emphasized during the hearing,” Williams noted, “that the parties’ contracts were primarily focused on allocating rights based on types of stadium use, rather than by time.”

The Appeals Board should have determined the team’s possessory interest, the County says, by calculating the value of the Stadium Authority’s interest and subtracting that from the overall value of the stadium.

The County’s position is that the contracts approved by the Santa Clara City Council in 2011, 2012 and 2013 give the 49ers significant more business benefit from Levi’s Stadium than that received by Stadium Authority. This is the proper basis for determining the tax amount, not the assignment of 49ers and Stadium Authority seasons.

The profits generated for the public entities were insignificant compared to those “generated by the 49ers’ very different and far superior uses,” Williams wrote.

The petition points to scheduling priority for NFL football games — for which the 49ers receive all the profit — as well as 49ers’ rights to Stadium sponsorship deals; control over Stadium branding and partnerships; year-round exclusive use of the team store, suites, locker rooms, training spaces and museum; right to lease commercial areas of the stadium year-round; and year-round use of the stadium spaces for marketing, promotional events and tours.

“Laced throughout the parties’ agreements are a variety of provisions rendering the Authority’s rights subordinate to those of the 49ers,” says the petition, including “multiple avenues to veto … events,” a right the Stadium Authority doesn’t have.

The Stadium Authority retained “the far less profitable” non-NFL events “which suffer from largely one-off marketing and set-up costs as well as exorbitant promoter fees …and …are…disproportionately impacted by a City Council imposed curfew.”

The County called the City’s direct revenue from Levi’s Stadium insignificant. This revenue includes ticket fees, ground rent, and 50 percent of the net profit of all non-NFL events — “performance rent,” listed as a Stadium Authority expense.

The Stadium Authority’s revenue streams — stadium naming rights, seat licenses and the 49ers’ roughly $25 million in annual facilities rent— are applied to construction debt, operating expenses and reserves in the “waterfall” financing structure approved by the City Council in 2011.

The County, however, appears confused about the financial structure of the stadium, seeming to infer that City benefit depends on money flowing through the various debt obligations and reserve accounts ultimately into the general fund.

Public discussions of the financing in 2010 and 2011 were focused on making sure that the City had no liability for stadium debt or expenses, and that there was an assured revenue stream for these costs, not direct general fund income.

The benefits argued for an NFL stadium in 2010 were overall economic impact to the City, as well as incremental tax revenue for Santa Clara Unified School District and county agencies that serve the City.

“In 2010,” the City said in a press statement, “the 49ers appeared to fully support and understand the millions of dollars in tax revenue that would go to the community from their stadium interest as demonstrated through campaign materials in support of Measure J that would bring a stadium to Santa Clara.”

Read the County Assessor’s petition here: County assessor Petition 5-20-19

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