Sep 22 2013

The swap(s)

Published by at 10:21 am under Idaho,Idaho column

idaho RANDY
STAPILUS
 
Idaho

Last year the Idaho Department of Lands swapped out the University of Idaho Science Campus at McCall, which it managed as part of the state endowment lands used to generate money for public schools. It obtained in exchange an office building and about three associated acres in Idaho Falls, owned by the private firm IW4 LLC; the Idaho National Laboratory lead contractor leases space there.

Were this being done exclusively by private businesses, no one outside the parties involved would know or care; and probably not much either if only government entities were involved. The business deal gets more complicated when public and private entities both are involved, and this one shows why someone outside the process ought to oversee such exchanges.

The McCall property was estimated to be worth $6.1 million, and maybe it was since, after the Idaho Falls firm IW4 LLC obtained it, it flipped the property to another buyer for $6.1 million. However: The buyer was the University of Idaho, a state agency. So you could say the state sold the property to a private buyer for $6.1 million, which paid in the form of another piece of property, and then bought it back for $6.1 million. Or: IW4 LLC used the state to convert its Idaho Falls property into $6.1 million, rather than just sell it to a cash buyer themselves.

Huh? This still might make some sense if the Idaho Falls building and land was in fact worth, and salable for, $6.1 million. But here’s the catch.

Last week a group called the Tax Accountability Committee, whose spokesman is Boise attorney John Runft, together with state representatives Grant Burgoyne, D-Boise, and John Vander Woude, R-Nampa, threw some additional light on the situation. They had developed their own appraisal and concluded the Idaho Falls property was worth $4.5 million, which would mean IW4 LLC effectively cleared an easy $1.6 million on the overall deal. (Boise blogger David Frazier, who has been tracking state property purchases closely, said that Bonneville County has assessed the property for as little as $2.2 million.) Vander Woude and Burgoyne said they plan to introduce legislation in the next session to require review appraisals.

The question of what the Idaho Falls property actually was worth has led to a round robin of squabbling. The Idaho Department of Lands has replied that is did a proper review, and pointed out that while both properties generate rental income, McCall’s amounts to about $250,000 annually while Idaho Falls’ comes to $538,000 (although, since these are income properties, such rentals should have been factored into the appraisal valuations). Governor C.L. “Butch” Otter, who chairs the land board which approves such transactions, said that full appraisals could be expensive.

Burgoyne countered that, “When doing a $6.1 million transaction or any other transaction involving endowment land, the cost of a review appraisal is not, as IDL contends, excessive; it is simply prudent, will save money by avoiding over and under valuations, and bring IDL into conformity with business standards of care.”

Determining exactly how much a piece of property is worth can be a matter of pinning mercury, as anyone who has bought or sold a house can testify. When it comes to exchanging – or in effect, selling – its endowment lands, that slipperiness becomes a difficult issue for the state. (That’s in addition to the issue, also relevant, of the state becoming an active player and competitor in the private real estate industry.)

To be clear: No one is suggesting illegality here. But absent broader oversight, you can see how few steps it would take to get from here to there.

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