Judge: KY Education Department HQ should be taxed because developer owns it
AI-generated summary reviewed by our newsroom.
- Judge rules Frankfort DOE building taxable; private developer owns it under P3 lease.
- Court ordered placement on local tax rolls and allowed back taxes from 2015.
- Lease runs to 2051; building is currently assessed at $25M.
The Kentucky Department of Education headquarters in Frankfort is taxable, unlike most government offices, because it was built through a “public-private partnership” and is leased to the state by a private developer, a judge has ruled.
The decision by Franklin Circuit Judge Thomas Wingate is the latest word in a long debate over whether the private landlords behind so-called “P3” projects owe property taxes or whether they are exempt because their properties are rented by governments for public purposes.
For example, privately built dorms on state university campuses have been challenged by local tax collectors, resulting in individually negotiated deals at the University of Kentucky and Eastern Kentucky University.
But there are several other privately developed “build-to-suit” state office projects scattered around the capital city of Frankfort alone.
“I think this is going to be an extraordinarily significant decision,” Tom Miller, attorney for the Franklin County Board of Education, told the Herald-Leader on Friday.
The Franklin County public schools last year sued Lexington-based developer CRM/D.W. Wilburn LLC to get property taxes from the five-story, 371,160-square-foot structure it built nearly a decade ago just off the East-West Connector in Frankfort.
The developers responded by saying the building is public property and therefore exempt from property taxes, a claim that was supported by state officials.
The judge disagreed, saying in a decision on Thursday that it was “impossible to find within the scope of the word ‘public,’ the definition of which has certainly not changed, that property owned by a private corporation but leased to the commonwealth for its use with the option to buy, fits the definition of ‘public property.’”
Wingate ordered the building placed on the local tax rolls for tax collection by the Franklin County sheriff within 20 days.
Taxes should have been paid on the property all along, Miller said.
“It’s egregious,” Miller said. “It’s a conspiracy between a rich developer who gets to save the tax burden and the state who gets to create this artificial claim that the property is exempt from taxation because of some wording in a lease agreement. And the judge was smart enough to see through it.”
The local school district intends to collect back taxes starting in 2015, plus 6% interest, Miller said. The current property assessment for the Education Department building is $25 million, but the construction cost was about $80 million, and realistically, it should be assessed for far more than it is, Miller said.
“I think we’re talking about a substantial number,” Miller said.
G. Edward Henry, an attorney for CRM/D.W. Wilburn, said Friday that he could not speculate on what impact, if any, Wingate’s decision could have on other public-private partnership projects.
As for the Education Department building, Henry said, the state Finance and Administration Cabinet “has the ultimate responsibility if any taxes are due here.” The Finance Cabinet is the state agency that manages the state government’s leases, purchases and other business deals.
The Finance Cabinet did not immediately respond to a request for comment on Friday.
The Frankfort building houses the Department of Education and other state agencies. It was constructed under a lease-purchase agreement: The state gave the 34-acre property to the developer, who built the building and agreed to lease it to the state until the rent paid has been sufficient for the state to purchase the building.
The current lease agreement is scheduled to end in 2051, Wingate wrote in his decision.
