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A $3.017 billion value set for trans-Alaska pipeline system State Assessment Review Board says state’s adjusted $2.75 billion valuation was based on subjective factors and discards it in favor of unadjusted figure produced by state’s settlement agreement methodology model Kristen Nelson PNA Editor-in-Chief
The State Assessment Review Board has set the 2001 assessment of the trans-Alaska pipeline system at $3.017 billion, higher than the Department of Revenue’s assessment of $2.75 billion, the owners valuation of $2.1 billion and the valuation of $2.9 billion proposed by the municipalities (the City of Valdez, the Fairbanks North Star Borough and the North Slope Borough).
The $3.017 billion is the number Revenue’s Tax Division obtained from its own trans-Alaska pipeline system settlement agreement methodology, TSM, model. Appraisals from all three groups involved reconciliation of numbers from TSM model evaluations with other factors.
In the state’s case, it reconciled the $3.017 billion from its TSM model with appraisals done by Tegarden & Associates Inc. for the municipalities and by Shank & Kinnard for the owners to reach the assessment value of $2.75 billion.
The review board said the state’s reconciliation was not justified, and set the assessment at the state’s original number of $3.017 billion.
Board agrees with state’s unadjusted number
The board’s decision, issued May 24, said state statute allows the board to adjust the division’s assessed valuation only if evidence in the record shows the valuation is unequal, excessive, improper or otherwise contrary to standards set out in statute. The board said that after reviewing the record, it concluded that “the evidence clearly shows that reducing the Division’s original valuation of $3.017 billion to $2.75 billion resulted in an assessed value that is improper.”
The board said most of the differences in the parties’ valuations were attributable to capitalization rate, post-TSM tariff rates (the settlement runs only through 2011), future production throughput projections and dismantlement, removal and restoration costs, DR&R. The board said it concluded that the approach to these issues used by the Tax Division was the correct one.
The board said that while the parties attempted to apply other appraisal methods, the income approach, which “projects the future income of the TAPS and then discounts that income stream to its present worth, is the most reliable methodology for calculating the TAPS value.
“Despite the issues raised by the Owners and the Municipalities, the Board concluded that the Division’s TSM model income approach clearly produced the most reliable valuation of the TAPS.” Board said decreasing valuation doesn’t justify state assessment In explaining its disagreement with the Tax Division’s reconciliation of its $3.017 billion number to a $2.75 billion assessment, the board said it was concerned that the division “may have unconsciously given too much weight to an expectation that its ‘reconciled’ valuation should follow the graphed line of historically decreasing assessments arrived at through negotiated settlements in recent years.”
The board said the graph line of decreasing assessments “is not an indicator of value that would justify a reduction in the valuation of the TAPS arrived at through the TSM model.”
And, the board said, the division had failed “to clearly articulate what specific indicia of value” within the appraisals by the owners and municipalities had led the division to conclude a lower valuation was appropriate. State’s production estimates accepted Future production throughput was an issue and the board said it accepted production projections prepared for the state as “conservative and clearly the most reliable estimates available.” The board said it “gave weight to the consideration that these estimates were prepared by the state for purposes other than property tax assessments, including revenue forecasts and statewide budgeting. It was apparent that the Division made every effort to ensure that these projections were as accurate as possible.”
The board rejected the owners’ arguments that only “proven reserves” should be considered, and said that to so limit future throughput reserves in the property tax assessment would “exclude a large portion of the oil that any reliable projection would include” in future throughput for the trans-Alaska pipeline.
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