Vermont Electric Power Co., Inc. v. Town of Vernon
Annotate this Case
Vermont Electric Power Co., Inc. v. Town of Vernon (2001-034); 174 Vt. 471;
807 A.2d 430
[Filed 08-Jul-2002]
ENTRY ORDER
SUPREME COURT DOCKET NO. 2001-034
MARCH TERM, 2002
Vermont Electric Power Co., Inc. } APPEALED FROM:
}
}
v. } Property Valuation and Review
} Division
}
Town of Vernon }
} DOCKET NO. Windham 1999
In the above-entitled cause, the Clerk will enter:
The Town of Vernon appeals the decision of the state appraiser
reducing the listed value of five properties owned by Vermont Electric
Power Company, Inc. (VELCO) within the Town. On appeal, the Town argues
that the state appraiser erred by: (1) finding that VELCO had not met its
burden of persuasion; (2) relying on non-credible testimony; (3) failing to
use an appropriate method for determining depreciation; and (4) failing to
make adequate findings of fact. We affirm.
In 1999, the Town of Vernon revalued all property within the town for
the grand list. The town lister revalued five properties owned by VELCO
for the grand list including one substation, partially owned by VELCO, and
four parcels of properties containing transmission lines, at $7,377,100.
VELCO appealed the valuation to the Town of Vernon Board of Civil Authority
(BCA). After a hearing, the BCA affirmed the town lister's valuation.
VELCO appealed the BCA's decision to the state appraiser. (FN1)
The state appraiser held a hearing in October 2000, at which both the
Town and VELCO presented testimony on the useful life of the properties and
the method of depreciation that should be used in determining their
fair-market value. The Town and VELCO's witnesses agreed on the original
cost of the property and trended those costs to current value using the
"Handy-Whitman" indices, but applied these indices differently to arrive at
different figures for the replacement cost new (RCN) of the properties.
The main disagreement arose with regard to which method of depreciation,
and what useful life should be applied to the RCN to arrive at the
fair-market value of
the properties. VELCO's witness testified that the transmission lines had
a forty-year useful life and the substation had a thirty-year useful life,
and applied the Iowa Curve method of depreciation to arrive at a
fair-market value of $4,127,939. In contrast, the Town's witness set the
"actual, physical and functional" life of the properties at 90 years and
applied a straight-line method of depreciation to arrive at a fair-market
value consistent with the town listing.
The state appraiser issued a decision in December 2000. He found that
the Handy-Whitman indices along with the Iowa Curve method of depreciation
were used in other towns, and were recommended by the State of Vermont as
the appropriate set of methods for determining depreciation of transmission
lines. Furthermore, the state appraiser found that the Iowa Curve method
took into account the long term economic viability of the property, making
it more appropriate for valuation of transmission lines. Moreover, he
found that the straight-line method used by the Town's appraiser, which
focused on physical deterioration of the property, failed to consider
"deficiencies inherent in improvements [and physical] external factors that
may offset the desirability of the property in the market place." Adopting
VELCO's recommendation for a thirty-to-forty-year useful life, and applying
the Iowa Curve to that useful life, the state appraiser set the fair market
value of the properties at $4,130,530 and the listed value at $4,125,987.
The Town appeals.
An appeal before the state appraiser is considered de novo. 32 V.S.A.
§ 4467. The state appraiser must make findings of fact "supporting its
ultimate determination." Beach Props., Inc. v. Town of Ferrisburg, 161 Vt.
368, 371, 640 A.2d 50, 51 (1994). "Where conflicting evidence has been
presented, the [state appraiser] must state clearly what evidence [he]
credits and why, so that the parties and this Court will know how the
decision was reached." Id. On review, this Court's function is to
scrutinize the state appraiser's de novo review of the property appraisal,
and we will uphold this determination if it is supported by the findings.
Kachadorian v. Town of Woodstock, 149 Vt. 446, 448, 545 A.2d 509, 510
(1988). We will defer to the state appraiser when the determination is
rationally derived from his findings, even where contradictory evidence
exists. Lake Morey Inn Golf Resort, Ltd. P'ship v. Town of Fairlee, 167
Vt. 245, 248, 704 A.2d 785, 747 (1997).
The Town first argues that the state appraiser abused his discretion
in finding for VELCO when VELCO had not met its burden of persuasion. We
recognize a presumption of validity in the town lister's valuation, New
England Power Co. v. Town of Barnet, 134 Vt. 498, 507, 367 A.2d 1363, 1369
(1976), however, "any admissible evidence can rebut the presumption,
whatever we may ultimately think of the evidence's weight," Woolen Mill
Assocs. v. City of Winooski, 162 Vt. 461, 463, 648 A.2d 860, 862 (1994).
Ultimately, the Court must determine whether the testimony offered by the
taxpayer challenging the listing can afford a rational basis for that which
the taxpayer seeks to prove. Id.
VELCO presented the testimony of a former employee of the company who
worked on VELCO's property taxes since at least 1971, indicating what the
standard practice has been between
several towns in Vermont and the company, specifically that the state and
towns have accepted use of the Handy-Whitman indices and the Iowa Curve
method as well as a thirty-to-forty-year useful life for substations and
transmission lines respectively. VELCO produced a 1991 letter to VELCO's
then president from the Director of the Division of Property Valuation and
Review in the State Department of Taxes that indicated the State's
preference and recommended use of Handy-Whitman indices and the Iowa Curve
method for use in the appraisal of transmission lines. VELCO submitted the
indicies and tables used to calculate its suggested method of reaching
fair-market value. This evidence is sufficient to rebut the presumption of
validity to the town lister's appraisal with respect to the method of
depreciation applied to reach fair market value, particularly as we have
previously characterized the presumption of validity in favor of the town
listers as a "bursting bubble." Id. The state appraiser did not abuse his
discretion by finding that VELCO overcame the town lister's presumption of
validity with respect to either the useful life of the properties or the
method of depreciation that should be applied to determine the fair market
value of the properties.
Next, the Town argues that the state appraiser abused his discretion
by relying on VELCO's witness's testimony. The Town contends that neither
the record nor the findings reflect any evidence that VELCO's witness had a
thorough knowledge of the subject properties and it was therefore error for
the appraiser to base his fair market value determination on VELCO's
evidence. The VELCO witness in question had twenty years of experience as
a VELCO employee calculating state and local taxes for utility properties.
The witness was familiar with the Handy-Whitman/Iowa Curve method and
explained how fair market value of the subject properties was calculated
using the method. As VELCO points out, the Town's complaint goes not to
the admissibility of the testimony but to the weight it is to be accorded.
"Opinions of well informed persons based upon the purposes for which the
property is suited are to be considered in arriving at fair market value."
Kachadorian, 149 Vt. at 450, 545 A.2d at 512 (internal quotations omitted).
The testimony was well within the province of the state appraiser to accept
or reject. (FN2)
The Town next asserts that the state appraiser committed reversible
error by failing to use the appropriate method of depreciation. It is
within the discretion of the state appraiser to determine the most
appropriate method for arriving at fair market value. Lake Morey Inn Golf
Resort, Ltd. P'ship, 167 Vt at 248-49, 704 A.2d at 787. We have previously
stated that the Iowa Curve method of depreciation, when used in conjunction
with the Handy-Whitman indices, applies "an adjusted index sensitive to
current replacement costs and regional factors, as well as a depreciation
factor
based on the remaining useful life of utility property." Vermont Elec.
Power Co. v. Town of Cavendish, 158 Vt. 369, 377, 611 A.2d 389, 393 (1992).
The state appraiser's decision to use these methods is supported by
testimony indicating that they were standard practice in Vermont, endorsed
by the State Department of Taxes, and most appropriate for use with
transmission lines. The state appraiser considered in his determination
the letter from the State recommending the use of the Handy-Whitman indices
and the Iowa Curve method for calculating depreciation on transmission
lines, as well as our decision in Vermont Electric Power Co. v. Town of
Cavendish. "The unswerving goal of the statute is fair market valuation,
but there is no single pathway to that goal." Gionet v. Town of Goshen, 152
Vt. 451, 453, 566 A.2d 1349, 1350 (1989). Accordingly, we find no error.
Lastly, the Town claims that the state appraiser committed reversible
error by failing to make specific and clear findings as to how the fair
market value of the property was reached. The state appraiser has a duty
to make clear findings and state how its decision was reached. Saufroy v.
Town of Danville, 148 Vt. 624, 625, 538 A.2d 168, 168-69 (1987). A mere
recitation of the contentions of the parties is not sufficient to support
the judgment. Id. In essence, the issue raised by the Town here is - as
it was in Saufroy - "whether the [state appraiser] supported [his] decision
so we can determine how that decision was reached." Id. (internal
citations omitted). The Town contends that the state appraiser's findings
are so deficient as a matter of law that it cannot be determined (a) how
the state appraiser reached his decision of RCN; and (b) how the state
appraiser determined the interest rate that should be applied with the Iowa
Curve calculations.
In closing remarks, the Town's witness summarized the Town's position
as "a depreciation disagreement [which] all boils down to use of the [Iowa]
curve , as opposed to use of the straight line of comparable observed
depreciation." We first note that although the Town requested and was
granted leave to submit proposed findings of fact and conclusions of law,
the record does not indicate that it did so. Moreover, as a review of the
record makes clear, the Town's alternative to the Iowa Curve evidence
introduced by VELCO was entirely dependent upon the acceptance of the
Town's assertion that a ninety-year life should serve as the basis for a
depreciation calculation. (FN3)
While it is true that the state appraiser did not specifically address
the RCN or interest components to the extent now sought by the Town on
appeal, we are not confronted with findings so deficient that we have to
speculate on how the conclusion was reached. As to the RCN the state
appraiser found, "[b]oth the [a]ppellant and the Town utilized a cost
approach methodology drawing on the Handy-Whitman indexes . . . to
determine . . . (RCN). The two parties applied the published indices in a
slightly different way resulting in VELCO estimating RCN $487,690.95 higher
than the town." Moreover, even assuming this explanation is insufficient,
it is difficult to see how the Town
was prejudiced by the RCN proposed by VELCO since a higher RCN increases
VELCO's tax burden.
Nor are we persuaded that the state appraiser was without sufficient
basis as a matter of law to adopt the Iowa Curve method including its
reference to 0% interest rate. The state appraiser found:
The [a]ppellant utilized the Iowa Curve method consistent with
their method in many other cities and towns in Vermont. The
Vermont Department of Taxes - Property Valuation and Review in
fact recommended this method.
The Iowa Curve is based upon retirement patterns of hundreds
of industrial assets. Essentially this statistical study asserts
that depreciation is NOT straight lined, but curvilinear. This
method acknowledges a schedule of 30 to 40 year economic life
estimates but compensates for remaining functional utility (a
factor other than age) by leveling off after accelerated
depreciation thereby avoiding excessive depreciation by keeping
the depreciation from going to zero . . . .
The use of the Iowa Curve on the other hand is an "economic
life" algorithm because it reflects all the components of
depreciation based upon experience surveys for specific types of
properties. The evidence indicates that the Iowa Curve Tables
[are] based upon economic service mortality curves, which go
beyond consideration of just physical deterioration. As such,
they take into consideration economic and functional obsolescence
as well. The mortality curves can reflect most, if not all,
causes of depreciation, both physical and economical.
(footnotes and internal quotations omitted).
The Town asserts that the state appraiser lacked a credible basis to
chose a 0% interest rate column from the five percentages reflected within
the Iowa curve tables (0%, 2%, 4%, 6%, 8%) because VELCO's own witness
"testified that he did not know why the company used the zero percent
interest rate." (FN4) Where the record contains "some basis in evidence for
[the state appraiser's]
valuation, the appellant bears the burden of demonstrating that the
exercise of discretion was clearly erroneous." Lake Morey Inn Golf Resort
Ltd. P'ship, 167 Vt. at 248, 704 A.2d at 787. The Town has not met that
burden here.
Affirmed.
BY THE COURT:
_______________________________________
Jeffrey L. Amestoy, Chief Justice
_______________________________________
John A. Dooley, Associate Justice
_______________________________________
James L. Morse, Associate Justice
_______________________________________
Marilyn S. Skoglund, Associate Justice
_______________________________________
Mark J. Keller, District Judge
Specially Assigned
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Footnotes
FN1. The state appraiser is appointed by the Director of the Division of
Property Valuation and Review to hear appeals from the Board of Civil
Authority, and takes the place of the panel formerly called "The State
Board of Appraisers." 32 V.S.A. § 4465.
FN2. The Town also asserts that the state appraiser's erroneous finding
that the Town's witness was not a licensed appraiser when, in fact, he is
licensed in New Hampshire should compel reversal. We disagree. The state
appraiser accurately noted that the Town's witness is not a licensed
appraiser in Vermont. Moreover, the state appraiser's rejection of the
recommendation of the Town's witness that the useful life of the properties
be set at ninety years was unrelated to licensure. The state appraiser
found that the Town's witness offered no details in support of the
ninety-year useful life beyond ". . . an unsubstantial observance that he
had witnessed steel pole structures standing in continued use for a long
time - up to ninety years."
FN3. State appraiser: "[F]or purposes of evaluation, you are going to
propose to us an observed depreciation pattern, and I need to have you go
ahead and tell us how that was determined, and the actual mathematics of
it? A: The mathematics of the pattern are straight line 90 years."
FN4. The statement of VELCO's witness that he "did not know" the basis for
selecting the 0 % interest rate column arose in the broader context of his
testimony in support of the applicability of the Iowa Curve table. He
testified:
Again we use the column for the zero interest rate. I've been
asked why we chose that, and I really don't know, other than
that's the one the state brought to us, and that's why [we] have
continued to use it . . . . we feel [it makes] an equitable table,
because it recognizes that some of these 40-[year] assets have a
life that exceeds 40 years, although on average, the assumption is
that a significant portion of them will have a physical life of 40
years or less, or an average of forty years.
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