Casino assessment battle begins

By Dave Anderson: 

This is a casino post, while the next post will be a broader political-economy and municipal finance post.  The Post-Gazette reports that Allegheny County will assess the Rivers Casino in the near future instead of putting the problem off by hiring consultants to conduct the assessment.  The P-G has an interesting nugget about the county incentives and the implied assumptions concerning the cash flow of the casino:

The county will ask Chief Assessment Officer Ed Schoenenberger and its own assessors to complete the task and have a permanent value on the books by Jan. 15 for the 2010 tax year, said Kevin Evanto, a spokesman for Executive Dan Onorato....

The eight North Shore parcels that make up the casino complex currently are assessed at $7.7 million, relating almost exclusively to the value of the land. The 12.6-acre site on which the casino sits is valued at $4.1 million, far less than the $320 million to $340 million it cost to construct the building.

By contrast, the neighboring Carnegie Science Center is assessed at $27.7 million.....

Income is one of the methods used to assess property, but Mr. Evanto said the county has since determined that it will go with the cost method, which is related to the value of the construction. He said other casinos in Pennsylvania have been valued that way.

Two valid ways of assessing properties is to look at the projected net present value of all future cash flows, compute the appropriate discount rate on those cash flows and project the long term "fair market value" sales price based on these projections.  The other way is to look at the construction costs as a revealed price that is based on the assumption that the owners would not have paid the construction costs if the building was not worth at least that much to them over the long run.  At least those are the two quasi-economic justifications for those two assessment models.

Working with the assumption that the county is fundamentally broke and Dan Onorato has been on a career enhancing quest to find more politically cheap revenue for the county that does not piss off seniors, the county has a strong incentive to choose the assessment method that will generate the most cash for the county over both the short run and the long run.  The short run discount rate is fairly high as most politicians seldom look more than thirty months out when they are being visionary. 

The county is making a bet that the new construction costs are higher than the long run net present value of the income streams generated by the casino owners.  The county is betting that revenues and income will be provide a significantly lower taxable value than assuming that the revealed preference of construction costs is the closest to fair market value.  The county's actions imply a belief that the casino is a clunker.