When Santa Clara teamed up with the San Francisco 49ers to build Levi’s Stadium, it inked a deal ostensibly designed to avoid the costly pitfalls experienced by so many other municipalities with taxpayer-financed NFL venues.
Yet in the five years since celebrating the opening of the $1.3 billion coliseum, a bitter feud with the Niners over revenue-sharing and management has made the city another cautionary tale about the risks of overhyping pro sports stadiums as public assets.
Now, Santa Clara County Assessor Larry Stone—a decades-long 49ers season ticket-holder and long one of the biggest cheerleaders of the team’s move from Candlestick Park to Levi’s Stadium—has joined the fray.
On Monday, the county’s veteran taxman sued to revoke a ruling that halved property taxes on Levi’s Stadium and forced several public localities to refund $36 million to the billionaire-backed team immediately and lose out on another $6 million a year going forward. That’s a $240 million loss over the four-decade life of the lease.
The writ marks the first time in Stone’s 24 years as assessor that he asked a judge to overturn a settlement by one of the county’s three tax appeals boards.
“This decision must not be allowed to stand,” Stone declared, calling the determination handed down last fall rife with violations of the state constitution. “As assessor I have always been committed to ensuring the property tax roll accurately reflects the value of the property being assessed. Here, the board failed to perform its core responsibility to carefully calculate the full value of the 49ers’ rights in the stadium.”
The team would have paid taxes on the full value of the stadium but challenged the county’s assessment over an arcane legal provision called “possessory interest.” That is, the degree to which a private entity benefits from using a tax-free public property.
Technically speaking, the city and team each “possess” the stadium for half the year, with the Niners, naturally, in charge during football season. Stone argued that the team should pay 100 percent on the possessory interest because “the lion’s share of the stadium’s value lies in professional football uses for which it was custom-designed.”
Though Santa Clara maintains ownership of the venue and leases it to the team, county officials contend that the NFL franchise calls the shots on year-round event bookings and luxury suite rentals, a celebrity-chef restaurant, a store, museum and private clubs. The city, by comparison, “retains no comparable rights or control over the events hosted at the stadium.” Stone likened the uneven distribution of economic benefit to that of a ski resort, where the property is far more valuable during snowfall than in the summer.
A three-member appeals board—comprising renowned property appraisers Richard LaBagh, Wayne Prescott and William Anderson—apparently thought otherwise. In November, it split tax liability 50-50 between the 49ers and the city. The decision essentially deemed the value between football and off-season events as exactly equal.
Stone called the conclusion completely nonsensical.
“Usually, when the assessment board disagrees with us, it’s close,” he said. “We’re arguing around the edges of value. But I’ve never seen anything like this. It’s really bizarre how they could arrive at a value that’s precisely at 50-50. It doesn’t make sense.”
The refund resulting from last year’s ruling siphoned $13 million from the coffers of Santa Clara Unified School District, $3 million from West Valley Community College, $3 million from the city of Santa Clara and upward of $5 million from the county’s general fund. NFL officials have said they accepted the outcome; a spokesman for the team didn’t respond to a request for comment by press time. Stone, on the other hand, hammered home his point about the result being shocking and “totally arbitrary.”
“The board’s decision ignores many of the 49ers’ valuable rights and instead simply splits the value of the stadium exactly in half between the 49ers and the public authority—a position for which neither side argued, that no data supported and that no lawful valuation method can justify,” he explained.
County Counsel James Williams echoed Stone’s condemnation. “This decision sets a troubling precedent that is legally incorrect and must be reversed,” he said in a statement earlier this week. “But when the owners of these teams fail to pay their fair share of property taxes, they are taking away money from local schools, police and firefighters, and other valuable services that our communities need.”
In a phone call earlier this week, Stone went on to say that the appeals board—though appointed with members widely considered among the top experts in their field—seemed to be in over their heads. “I think one of the problems that the appeals board had is they couldn’t figure it out,” he told San Jose Inside. “This was so complex, and so convoluted that I think they threw up their hands and said, ‘Fine, make it 50-50.’
“They split the baby in half.”
Members of the appeals board reached for comment declined to weigh in.
Stone’s top staffer, David Ginsborg, said the county had to sue lest other companies feel emboldened to strategically overwhelm the appeals boards.
“Whether it was by design, I don’t know,” Stone said. “But it would have helped if the agreements [between the city and team] were simpler and more direct.”
There’s little doubt that in a region like Silicon Valley, which some of the biggest companies in the world call home, it’s increasingly likely for the county’s volunteer boards to get outgunned by ever more sophisticated corporate giants.
Though the 49ers’ petition was by no means the largest to take the county to task—Apple is contesting a $10 billion appraisal—it was hands-down the most demanding. Ginsborg said it dragged on for 21 full days, summoned 10 witnesses and generated 8,000 pages of records. The second-longest such hearing in county history lasted for just six days.
Santa Clara leaders applauded the decision to sue.
“While city officials were prepared to take similar legal actions, we are satisfied that Assessor Stone’s actions demonstrate his understanding of the seriousness of the situation as well as his commitment to objective assessments based on facts and data,” Santa Clara spokeswoman Lenka Wright wrote on behalf of the city.
Stone said he hoped to review the board’s findings of fact before turning to the courts for help, but he never received any such justification. That’s highly unusual, he said: Normally, the boards promptly explain their rationale in a detailed summary. In this case, the board offered to hand it over by July—well past the six-month statute of limitations for the county to file a lawsuit.
“I was uncomfortable filing this appeal without the findings of fact, but the deadline is next week,” Stone said. “So we’re in the unusual situation of having to appeal a decision without seeing the factual reasoning behind it. This is just really stunning.”