 Next we'll move on to item 1.6 a presentation on dark store loophole property tax shift by Kurt Watensky The deputy executive director of the League of Municipalities Kurt please come forward Thank you, mayor. Good evening. Good evening everyone. My name is Kurt Watensky. I'm deputy director of the League of Wisconsin municipalities. I understand the city of Sheboygan has Plans to have a referendum on the ballot in April asking voters whether they approve Asking the legislature to close the dark store and Walgreens loopholes. I'm here to give a little explanation A little background about dark store and Walgreens property tax loopholes and answer any questions the council may have or the mayor may have and So to start out with though what I'd like to do is we have an our association and just by the way So I I'm here from the League of Wisconsin municipalities We're an association of all the cities in the state including the city of Sheboygan and all the villages also so they're 190 cities and about 413 villages and Also by way of background last fall last November 17 counties and about six municipalities Conducted referendum on the same issue and they all passed overwhelmingly most Most close to 90 percent some between 70 and 90 percent Asking the legislature to close the dark store and the Walgreens loopholes now Let's talk a little bit about what those loopholes are and I'd like to start out with this a video that our association has prepared Basically to educate the public about this tax issue If there are big box or other chain retailers in your community your property taxes may be going up That's because certain commercial properties have been able to obtain special tax reductions Perhaps you've heard of these tax breaks. They're known as the dark store and Walgreens loopholes Unless the state legislature closes these loopholes other property owners including homeowners will pay an average of 8% more in property taxes Even more in some communities Communities like the town of Grand Chute, Ashwabanan, Sheboygan, West Bend, Franklin, Pleasant Prairie, Sun Prairie, La Crosse, and Rice Lake You see the total amount of property taxes a local government may collect is strictly limited by state law The size of the property tax pie stays pretty much the same from one year to the next What can and does change is how the pie gets divided When one kind of property like big box stores pays less Other kinds like residential and mom-and-pop businesses pay more Let's take a closer look at the dark store loophole Attorneys for big box chains claim that a brand new store in a busy area Has the same value for tax purposes as a vacant boarded-up dark property located in an unpopular location Here's an actual example A low store in Wauwatosa is assessed for taxes at 13.6 million Lowes claims it's only worth 7.1 million Yet lowes spent in excess of 16 million to acquire the land and build the structure Lowes argues that even the land was devalued from 9 million to 3 million dollars once the big box store was constructed And lowes insists its store can only be compared to vacant dark stores for property tax purposes Ironically, as big box stores fight for a smaller share of property taxes, they use more municipal services Big box stores demand more police, fire and ambulance service than other commercial properties and way more than residential properties Every day municipal police, fire and ambulance respond to calls from big box stores Meanwhile, the cost of paying for these services gets shifted to homeowners, the class of property using these services the least The other loophole is called Walgreens after a 2008 Wisconsin Supreme Court decision That ruling allows national pharmacies and other businesses who lease their store to claim the value of their properties for tax purposes is less than half of the actual sale price Here's another real example Walgreens challenged the city of Oshkosh's assessment of its store The court of appeals, relying on the 2008 decision, decided that the value of the Walgreens property was 2.2 million Much less than the 4.3 million actual 2009 sale price of the property Other taxpayers, mainly homeowners, now have to cover Walgreens former share of the taxes Plus, Oshkosh taxpayers had to pay the corporation a tax refund of $69,500 Nearly 300 pharmacies in Wisconsin can take advantage of this loophole, including stores in Ashland, on Alaska, Dodgeville, Beaver Dam, Weston, Appleton, and Sturgeon Bay, and in your neighborhood Other commercial and manufacturing businesses that lease their space are also beginning to use this same loophole Only the Wisconsin State Legislature can stop this unfair tax shift Tell your state legislators to restore fairness and common sense to the property tax system by closing the dark store and Walgreens loopholes Call your state legislator through the legislative hotline at 1-800-362-9472 or visit darkstoreloopholes.org All right, that's a fairly good 30,000-foot explanation of a fairly complex topic What we're talking about is how do assessors for cities, villages, and towns, because they're the ones who are responsible, determine the fair market value of certain commercial properties And we have some fundamental differences of opinion between property owners like big box stores and their tax attorneys and municipal assessors around the state and municipalities And that fundamental difference of opinion is over the tax strategy that are being employed by these property owners, commercial property owners for the most part Is resulting in tax shift over to other property tax payers So just let me give you a perfect example everyone can understand If you and your neighbor are sharing the cost, I'm going to bring this down really fundamental level We're not even going to talk about property taxes, we're going to talk about other things If you and your neighbor are sharing the cost of a pizza, and you say I will pick up two-thirds of that cost I'll pay for this tonight, say it's a $20 pizza, I'll pay $15 And your neighbor says, initially says okay, but then looks at his wallet and says you know what, I only have $3 So I can't contribute the full of $5 So what happens, it's still $20 pizza and it still has to be paid for so you have to pick up it So the cost, more the cost shifts over to you That's what's happening with some, as a result of these tax strategies that big box stores and stores, and medium box stores Like Walgreens and CVS that use two different tax strategies that I'll explain in a little more detail The person who's picking up more of the cost of the pizza in Wisconsin for property tax purposes are homeowners Because already homeowners in Wisconsin pay 68 to 70% of the total property tax levy So the rest of the property taxes, 30% are paid by agriculture, manufacturing, and commercial So whenever anyone on the agriculture, commercial, and manufacturing side of property tax payers figures out a way to pay less Than other tax payers have to pick it up And really the only group that's left for the most part are the 70% of homeowners who are paying property taxes So that's what we're talking about here is trying to avoid more of the property tax burden from shifting from one class of property Commercial over to another class of property homeowners The other thing we're talking about here, especially on the Walgreens side And I just want to kind of give a 30,000 foot level look at this tax evasion effort Is right now as a result of this 2008 Wisconsin Supreme Court decision that Walgreens won against the city of Madison in 2008 It was referenced in that video We have a situation where property like CVS stores and Walgreens are selling So the real estate is selling for between $4 million and $8 million in Wisconsin That's the going fair market value right now Mainly investors are buying those properties Pools of investors will buy them But they have to be assessed as a result of that Wisconsin Supreme Court decision in 2008 At roughly half of that amount So they're assessed at between $2.1 and $3 million And they're selling on the market for between $4 million and $8 million So if you're home, maybe your home is assessed at $250 to $300 million And you think you could sell it I'm sorry, I'm used to Madison prices, sorry Your home, not million, $250 to $300,000 And your neighbor sells for $300,000 And you just bought your home for $305,000 But you argue to your assessor, well it really should be half of that My assessed value for property tax purposes should be more like $150,000 You'd be left out the door But that's exactly what's happened as a result of that 2008 decision for commercial leased properties That's how Walgreens and CVS own 80% of those properties are leased, they're not owned And they're relying on an argument that they're leased The amount that they actually pay to the owner is above market And shouldn't be calculated or considered as part of the determination that an assessor takes in The information an assessor takes in to determine the value of the property So would you mind showing that? So here's some examples from around the state Walgreens and CVS assessed versus sale values And you can see the sale values range from 4.2 million to 8.7 million But the assessed values are 2.4, well really just hover around 2.4 to 3.4 million So we have two pieces of legislation Our association worked with legislators last session to introduce in the legislature And the first piece of legislation would close the dark store loophole Which is a loophole that mainly big box stores are using And their tax attorneys argue before the assessor that their assessed values are too high Because you shouldn't look at us as an open thriving store in a good location You should value us as if we were a closed vacant store that's no longer in a popular location And that argument is winning in other states around the country It is not the Court of Appeals and the Supreme Court have not totally bought in Wisconsin We want to make sure that that doesn't happen So we've introduced legislation to just make it crystal clear to courts And to the assessor and to property owners that it's not appropriate to use dark or vacant stores And the sale prices of those stores to determine the fair market value of a thriving open store And so our bill basically just says exactly that It says that the appropriate comparable for a store or any property Has to be of similar age, similar size, maybe a similar retail But also if it's dark and vacant that's not an appropriate comparable for something that's open Okay so that's one piece of legislation, got introduced last session Our other piece of legislation would reverse this 2008 Walgreens decision By basically telling assessors that it's appropriate, it's okay to look at the actual rent That a commercial lease property is paying And also it's okay to use recent sale prices of that property When trying to determine the value of that property for property tax purposes We don't throw out that information and pretend it doesn't exist So those are our two bills, last session they were introduced as I said We had overwhelming support among legislators including legislators from the Sheboygan area Like Senator Lemehue and Representative Kotsma So we had 84 co-sponsors on our dark store bill And there's only 132 legislators in the state legislature in both houses And then we had 62 legislators sign on to our Walgreens reversal bill So you're probably wondering well why didn't those bills pass if they had overwhelming support That's a good question because they also had very strong opposition And the opposition as you might imagine are businesses who are currently taking advantage of these The kind of current state of the law and naturally do not want to see those loopholes or those tax strategies closed So we were not able to get over that opposition And leadership in both houses were not convinced that it was necessary to schedule these bills for a vote So we did not get a vote in either the senate or the assembly It came out of a senate committee unanimously and I also want to emphasize that these were bills that were supported We had huge bipartisan support so we had strong Republican authors and Republican supporters as well as many Democrats on the bill It's probably one of the only policy issues in the state capitol in the last year and probably this year That cross over partisan lines and we have support from both Republican and Democrats on a significant substantive policy issue So this session flash forward to this session What's the status? So the same authors that we had last session are with us and are introducing a bill And they're actually going to circulate their bill for co-sponsors Asking other legislators to sign on to that bill in the next week or so And instead of two bills this session we decided to go with one bill and address both issues in one bill It's less confusing and we just think it makes more sense And so we anticipate we'll have similar strong bipartisan support But you never know and so referendum questions on the ballot where citizens can communicate to their legislators By voting yes on whether they want the legislature to address these issues by passing legislation Are critical and lend support and political pressure on addressing this issue Also another thing that's changed from last session is that Governor Evers, new governor Has publicly told us and also said it in a number of other forums That he will include in his budget both these bills, the language out of both of these bills In his budget which he's going to introduce next week on February 28 So we anticipate we'll have two ways for the legislature to pass Darkstore and Walgreens legislation Either by separate piece of legislation that will be introduced probably the next three weeks Or a budget bill that will be, language will be in the budget that will be introduced in a week and a half So we're very hopeful that this session will be able to pass legislation that creates a fair tax system And addresses kind of the inequities between which classes of property are paying property taxes Which are avoiding paying some and shifting some of their bills on to other taxpayers