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By VICKI URBANIK Bethlehem Steel Corp. presented its long-awaited case Wednesday before a county tax board seeking a dramatic cut in the taxable value of the equipment and machinery at its Burns Harbor plant. Bethlehem officials said the Burns Harbor plant’s personal property has suffered an 89 percent “abnormal obsolescence” due to the combined effects of worldwide overcapacity in steel production, the Asian economic crisis, below-cost steel imports, and competition from domestic mini-mills. Abnormal obsolescence refers to a lowering of taxable value due to factors beyond the taxpayer’s control. In an amended tax return filed in November, Bethlehem is seeking to set its personal property assessed value at $167 million -- a far cry from the $761 million that Westchester Township Assessor Candace Crone says it should be and about half of the $351 million AV that Bethlehem sought when it first filed its tax return in May of last year. The tax appeal, if granted by the Porter County Property Tax Assessment Board of Appeals, would almost certainly affect every taxpayer in the county since tax rates would rise with such a steep drop in the AV of the county’s largest taxpayer. It could not be determined how much less in taxes Bethlehem would pay if the appeal is granted. Though the tax savings may not be as great as earlier estimated, Bethlehem Director of Taxes Frank Craven said it would still be “significant.” Due to its bankruptcy, Bethlehem isn’t paying its $19.6 million tax bill this year, but is expected to resume paying taxes next year, assuming that it’s not bought up by another company and survives its Chapter 11 bankruptcy. During Wednesday’s hearing before the PTABOA, Bethlehem attorney Tim Hernley of Barnes & Thornberg of Indianapolis argued that the PTABOA has no choice but to grant the appeal. He cited a state law that he said requires the PTABOA to accept the amended tax return since the township did not call a conference with Bethlehem to resolve the dispute within 30 days after the return was filed. Crone later disputed Hernley’s interpretation of the statute, saying that she and other tax officials at the county and state levels agree that the law only requires the PTABOA to “accept” the petition and hear the appeal but not necessarily to grant it. The case was continued to an undetermined future date, and Crone, who attended the hearing but didn’t testify, will present her side then. She will possibly be assisted by another Indianapolis legal giant, Ice Miller, which local taxing units have retained to assist them in Bethlehem’s bankuptcy and tax appeals. Crone said she cannot respond to Bethlehem’s arguments until the next hearing. But she did say that while the township lacks the resources to conduct the detailed analysis that Bethlehem’s consultants prepared, the state was in the process of conducting its own comprehensive audit of Bethlehem before the steelmaker declared bankruptcy. Much of Wednesday’s testimony focused on complex calculations that Bethlehem’s expert consultants used in projecting future cash flow, revenues, expenses, and steel prices, and determining how those figures affect the taxable worth of the personal property at the Burns Harbor plant. Much of the data presented is deemed confidential. When it was pointed out that a Chesterton Tribune reporter was in the audience, Hernley said Bethlehem has the right to have a closed-door hearing but that it has always strived to be a good corporate citizen and doesn’t want “to kick anyone out of the room.” It was agreed that the reporter would not have access to the confidential data. One of Bethlehem’s witnesses was Alexander Hazen, president of International Appraisal Company of New Jersey who was hired by Bethlehem to do a report on abnormal obsolescence. He determined that the plant’s personal property overall, as of the 2001 assessment date, has suffered an 89 percent drop. While obsolescence is already part of the regular assessment process due to factors such as equipment depreciation, Hazen said “abnormal” obsolescence refers to factors beyond the taxpayer’s control, such as unforeseen changes in the market, that reduces the taxable value. As Hazen and other Bethlehem witness, Joseph Kettel, a business valuation appraiser with Appraisal Economics, made clear, the changes in the steel industry have been profoundly devastating. “We are in a crisis mode in this industry,” Kettel said. The main factor now hurting domestic steel, Kettel said, is a worldwide excess capacity of 25 percent. He said the Asian economic crisis has had a domino effect on the rest of the world, saying that Argentina’s financial collapse is the direct result of the deep recession in Japan and other Asian countries. Below-cost steel imports are now 20 to 25 percent greater than the 1995 levels, he said, and would be even greater if domestic producers did not respond by lowering their prices to an historic all-time low. But, citing the growing number of steel bankruptcies, Kettel added: “You can’t lose money forever.” Another factor Kettel cited was competition from mini mills, which have increasingly taken over more of the market share previously held only by the big integrated plants like Bethlehem. Mini mills have far lower production costs. “We could be just be a nation of mini mills,” he said, and integrated mills like Bethlehem “could go the way of the Edsel.” The abnormal obsolescence was analyzed in two ways. One is “economic obsolescence” that refers to exterior factors in the marketplace. In addition to foreign steel, Kettel cited factors such as the replacement of tin with aluminum in soda cans, increasing use of plastics for many products previously made with steel and increasing environmental regulations. The other way obsolescence was measured was in terms of “functional” or technical obsolescence. Hazen went over calculations in labor costs, yields and energy use if the Burns Harbor mill were more modern. One week after Hazen completed his report, Bethlehem filed an amended tax return in November, claiming an even greater cut in the taxable value from the $351 million AV figure it sought in May. It was previously estimated that Bethlehem’s tax bill would drop by more than 50 percent if the appeal was granted in full. However, the savings to Bethlehem may not be as great, since the tax rates for everyone, including Bethlehem, would increase unless there is massive increase in the AV elsewhere. Last year’s Bethlehem Steel tax bill, which was based on a personal property AV of around $728 million, totaled $20.5 million. This year, Bethelehm’s tax bill, which it isn’t paying due to its bankruptcy, totals $19.6 million. The drop occurred because part of Bethlehem’s appeal was factored into the AV, but the savings to Bethlehem wasn’t greater since the tax rates for everyone, including Bethlehem, went up. (For example, the tax rates in Burns Harbor went up 466 percent due to the lowered AV). On Friday of last week, Bethlehem appeared before the PTABOA in its ongoing real estate appeal. Unlike real estate, in which township assessors measure the buildings themselves to determine the values, personal property is self-reported. Also on Wednesday, the PTABOA held a hearing on a similar appeal from National Steel to cut its assessed value at the Midwest Division in Portage. Like Bethlehem, National Steel has also filed for bankruptcy.
Posted 5/23/2002
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