Millions at stake in Majestic Star tax appeal
By Michael Gonzalez Post-Tribune correspondent August 18, 2012 11:40PM
Majestic Star II. | File Photo~Sun-Times Media
Updated: September 20, 2012 10:21AM
GARY — Are the Majestic Star Casino and Hotel properties worth $6 million or $50 million?
The final answer to that question could save — or cost — millions of dollars for Gary, Lake County and a group of taxing units.
The decision will rest on technical legal arguments, but Gary officials need to be involved in the case, said Lake County Board of Commissioners attorney John Dull and Gary Mayor Karen Freeman-Wilson.
Dull confirmed Friday the county has filed an appeal in a federal Delaware district court on behalf of the Lake County Assessor’s office following last year’s ruling by a federal bankruptcy court judge ruling reassessing the Majestic Star’s properties at $7.4 million.
The ruling was a judgment with an 8 percent interest rate, Dull explained, which has pushed the amount owed to about $8 million.
Dull contended the properties on Gary’s north side — still employing Gary residents and contributing to local charities — are worth closer to $55 million.
If the bankruptcy judge was right, Gary’s Redevelopment Department, through a tax increment financing area wrapping around the lakeshore, would owe the casinos a property tax refund of about $4 million.
The county, the rest of the city and other taxing units, grouped into Tax District Four, would owe another nearly $4 million.
If Gary and Lake County officials are right, there would be no refund.
A Majestic Star official declined to comment for this story, citing a company policy prohibiting comments on “pending litigation,” but the casinos are no longer in bankruptcy, he said.
Following the bankruptcy court’s ruling last fall, county officials began negotiations with Majestic Star to reach a settlement, Dull said, but talks failed, and the county went forward with an appeal.
The appeal is based on the bankruptcy court’s faulty way of valuing the Majestic Star’s properties, Dull said. According to Indiana legal standards, the bankruptcy court should have gone with a market value on the properties, or what the boats and hotel can bring on land in Northwest Indiana.
Also, the boats and hotel were created as “special purpose” real estate, which also would have maintained a higher value, Dull said.
“It’s clear the boats, if they would build them and depreciate them here, would bring in more than the bankruptcy court valued them at,” he added.
Instead, the bankruptcy judge valued the properties at “salvage value,” Dull said.
Even the judgment’s interest rate is in question, with Dull saying the rate should be closer to 4 percent.
That higher value would mean higher assessed valuation, which would mean higher property taxes due from Majestic Star. But, the much lower valuation means a lower tax bill than what the company paid.
The case is no small issue for the county and Gary. County officials recently learned their coffers could be slammed by a shortfall as high as $15 million, while Gary officials for several years have battled through plummeting property tax revenue, driven by tax caps in the state constitution and a meager 72 percent collection rate, at best.
Prior to the most recent appellate brief, Freeman-Wilson spoke of trying to get the Lake County Auditor’s office to front the nearly $4 million owed by the redevelopment department and paying that county office back with future property tax proceeds.
A more likely option, similar to a deal Gary struck up with U.S. Steel several years ago, was a payment plan with the boats, Freeman-Wilson said.
There is about $6.4 million in the lakefront TIF now, Freeman-Wilson said, but $5 million of that is earmarked for a road the city is required to build from Cline Avenue through the Buffington Harbor properties.
Communication among the local parties will be key to resolving the dispute, Dull said.
“Prior to this point in time, there wasn’t much communication between (the county) and Gary,” he said. “Those avenues of communication are now open and established.”
Freeman-Wilson also insisted Gary sit at the negotiation table, no matter the outcome of the appeal.
“We need to have an active role, because we have the most skin in the game,” Freeman-Wilson said, adding she hoped the parties could still work out some kind of a payment plan if a refund is due and owing.
“There are still avenues that have not yet been explored,” she said. “Our attorneys are negotiating.”