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City may buy building to avoid taxes

Jenifer Ragland

City leaders are considering buying the City Hall building at 1900 Lake Tahoe Boulevard, freeing themselves of high rent payments and property taxes.

South Lake Tahoe City Council members met Tuesday night in closed session to discuss the issue and their options. In the end, the council directed City Manager Kerry Miller to determine what kind of deal could be worked out with William Floyd, the current owner of the property.

Floyd, a resident of Shell Beach, Calif., said Wednesday that although he doesn’t really want to sell the building, he would consider it if the price was right.

According to the El Dorado County Assessor’s Office, the assessed value of the property in the 1997 tax year is $423,270. Floyd said the market value of the land is probably triple that – about $1.27 million.

The city is trying to determine if buying the building will be cost-effective, said Mayor Tom Davis. Looking at preliminary numbers, he said the answer appears to be yes.

The primary events leading up to the possible purchase were a doubling in the city’s lease payment and a realization that the city must pay property taxes on the building.

In the spring of 1996, the rent jumped from about $50,000 to about $100,000 a year. The city could have extended the 20-year lease for five years at the lower amount, but failed to request the extension 30 days prior to the lease expiration.

In August of this year, the city made a payment of about $18,000 to El Dorado County – representing four years of unpaid property taxes. City officials said they didn’t know they had to pay tax on the building because they are a government organization. But the county found the city was not exempt because, it didn’t own the property. For some undetermined reason, the building was never on the county’s tax roll during the entire 15 years the city leased it.

Davis said because of those unforeseen circumstances, buying the building could be more practical than it was under a more favorable lease agreement and no tax payment.

“Take what we are paying now on the building, which is about $10,000 a month,” Davis said. “If we can purchase the building with a favorable interest rate, deduct the amount we pay in rent and taxes and that number comes out below $10,000 a month, then it’s a good business decision. If it’s going to cost much more than we’re paying now, we probably won’t do it.”

According to a source in the local real estate industry, commercial financing is currently going for an interest rate of about 7.65 percent. A $1.27 million purchase price amortized over 20 years at this rate would produce a monthly payment of about $10,350. Government loans could go for a lower rate, but that information could not be confirmed by press time.

It is not clear what the city will do if a deal cannot be worked out with Floyd. Under eminent domain, the council has the power to condemn the building and pay the owner the appraised value, whatever it is determined to be.

“Our stance right now is to negotiate with (Floyd),” Davis said. “If there isn’t an appetite, Kerry will come back to us and we will look at other options.”


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