Regency West Apartments LLC v. City of Racine

2016 WI 99

SUPREME COURT OF WISCONSIN
CASE NO.: 2014AP2947
COMPLETE TITLE: Regency West Apartments LLC,
Plaintiff-Appellant-Petitioner,
v.
City of Racine,
Defendant-Respondent.

REVIEW OF A DECISION OF THE COURT APPEALS

OPINION FILED: December 22, 2016
SUBMITTED ON BRIEFS:
ORAL ARGUMENT: September 9, 2016

SOURCE OF APPEAL:
COURT: Circuit
COUNTY: Racine
JUDGE: Gerald P. Ptacek

JUSTICES:
CONCURRED:
DISSENTED: ABRAHAMSON, J., joined by BRADLEY, A. W., J.
dissent
NOT PARTICIPATING:

ATTORNEYS:

For the plaintiff-appellant-petitioner, there was a brief
by Maureen A. McGinnity and Foley and Lardner LLP, Milwaukee,
and oral argument by Maureen A. McGinnity

For the defendant-respondent, there was a brief by Robert
E. Hankel, and Robert E. Hankel, S.C., Mount Pleasant., John M.
Bjelajac, and Bjelajac and Kallenbach, LLC, Racine and oral
argument by Robert E. Hankel.
 2016 WI 99
NOTICE
This opinion is subject to further
editing and modification. The final
version will appear in the bound
volume of the official reports.
No. 2014AP2947
(L.C. No. 2013CV1546 & 13CV1848)

STATE OF WISCONSIN : IN SUPREME COURT

Regency West Apartments LLC,

Plaintiff-Appellant-Petitioner,
FILED
v. DEC 22, 2016

City of Racine, Diane M. Fremgen
Clerk of Supreme Court

Defendant-Respondent.

REVIEW of a decision of the Court of Appeals. Reversed and

remanded.

¶1 PATIENCE DRAKE ROGGENSACK, C.J. Regency West

Apartments, LLC brought actions against the City of Racine in
circuit court pursuant to Wis. Stat. § 74.37(3)(d) (2011-12)1 to

recover refunds from claimed excessive taxation for 2012 and

2013. We review a per curiam, unpublished decision of the court

of appeals,2 affirming an order of the Racine County Circuit

1
All subsequent references to the Wisconsin Statutes are to
the 2011-12 version unless otherwise indicated.
2
Regency West Apts. LLC v. City of Racine, No. 2014AP2947,
unpublished slip op. (Wis. Ct. App. Sept. 16, 2015).
 No. 2014AP2947

Court3 that dismissed Regency West's claims of excessive

taxation.4

¶2 The City of Racine's appraisers valued Regency West's

property at $4,425,000 as of January 1, 2012 and at $4,169,000

as of January 1, 2013 for purposes of tax assessment. Regency

West claims both appraisals fail to comply with appraisal

principles required by Wisconsin law, and that those appraisals

resulted in excessive taxation.

¶3 Our discussion centers on whether Racine's appraisals

of Regency West's property comply with Wisconsin law.

Specifically, we review whether Racine employed the methodology

required by Wis. Stat. § 70.32(1) for valuing federally

subsidized property that is subject to I.R.C. § 42 restrictions;5

whether Regency West has overcome the presumption of correctness

set out in Wis. Stat. § 70.49; and whether Regency West proved

the tax assessments for 2012 and 2013 were excessive.

¶4 We conclude that the valuation methodologies Racine

used for the 2012 and 2013 assessments did not comply with
Wisconsin law. Accordingly, we also conclude that Regency West

has overcome the presumption of correctness for the 2012 and

3
The Honorable Gerald P. Ptacek of Racine County presided.
4
Regency West commenced separate refund actions for 2012
and 2013, which were consolidated for trial.
5
I.R.C. § 42 provides "a dollar-for-dollar reduction in
federal tax liability for investors in exchange for equity
participation in low-income rental housing." 1 Wisconsin
Property Assessment Manual at 9-40; see 26 U.S.C. § 42.

2
 No. 2014AP2947

2013 tax assessments, and that the circuit court and the court

of appeals erred in concluding otherwise. And, finally, we

conclude that Regency West has proved that Racine's tax

assessments for 2012 and 2013 were excessive. Accordingly, we

reverse and remand to the circuit court to calculate the amount

of Regency West's refund.

I. BACKGROUND

¶5 Regency West is the owner and developer of a property

located in Racine, Wisconsin. Regency West constructed the

property in 2010-11, with the first units placed in service

September of 2011, and the project being fully leased in

February of 2012.

¶6 The property has 9 two-story buildings consisting of

72 residential units, all of which are family units. All units

are federally regulated housing pursuant to I.R.C. § 42. These

federal regulations include income and rent restrictions. As

part of the restrictions, the property is subject to a Land Use

Restriction Agreement (LURA) that provides that for 30 years, 51
of the 72 units are restricted to tenants earning up to 50

percent of the median income in Racine County and 21 are

restricted to tenants earning up to 60 percent of the median

income in Racine County. The maximum rents that Regency West

may charge are set by Wisconsin Housing and Economic Development

Authority (WHEDA).

¶7 For purposes of assessing real estate taxes, Racine's

appraisers valued Regency West's property at $4,425,000 as of
January 1, 2012 and at $4,169,000 as of January 1, 2013.
3
 No. 2014AP2947

Regency West contested both tax assessments, claiming that the

appraisals that underlie the tax assessments did not comply with

Wisconsin law. Regency West did not challenge the 2012

assessment before the board of review because Racine did not

timely deliver the assessment to Regency West. However, Regency

West did challenge the 2013 assessment before the board of

review. The board upheld that tax assessment.

¶8 The matter now before us is Regency West's refund

action brought in circuit court pursuant to Wis. Stat.

§ 74.37(3)(d). Therefore, we review the record made in the

circuit court and the circuit court's determination, not the

determination of the assessor or the board of review. See

Nankin v. Vill. of Shorewood, 2001 WI 92, ¶¶24-25, 245 Wis. 2d

86, 630 N.W.2d 141.

¶9 Trial testimony turned on various methods of real

estate appraisal by which the value of Regency West could be

determined. The City presented testimony from its assessor,

Janet Scites, as well as the Chief Assessor for the City of
Racine, Ray Anderson. Scites testified that for 2012 she

applied a direct capitalization of income approach, using "mass

appraisal techniques."6 With a direct capitalization of income

approach to valuation, an appraiser computes the property's net

operating income (income less expenses or NOI) and divides it by

6
Mass appraisal techniques have been used to value all
properties in a taxing district using uniform benchmarks.
Standard on Mass Appraisal of Real Property, 2013, International
Ass'n of Assessing Officers.

4
 No. 2014AP2947

the applicable capitalization rate (ratio between NOI of

comparable properties and their sale prices).7

¶10 One of Regency West's construction lenders provided

estimates of potential gross income and expenses to Racine for

use in the 2012 valuation. However, Racine's assessor said that

the expense projections in that report were too high.

Accordingly, Scites applied a 40 percent estimated expense ratio

that she believed was reflective of other Section 42 properties.

She testified that she did so "to stabilize expenses."

¶11 Racine's assessor used a 6 percent capitalization rate

derived from market-rate properties, not from the market for

Section 42 properties.8 To this, Scites added the 2.5 percent

property tax rate, for a loaded capitalization rate of 8.5

percent.9 Racine's appraisers divided the NOI they calculated

based on "stabilized expenses" by an 8.5 percent capitalization

rate thereby yielding a value of $4,425,000 for 2012.

¶12 With respect to the 2013 assessment, Racine valued

Regency West's property at $4,169,000 as of January 1, 2013.

7
The capitalization rate is an estimate of the rate of
return an investor would expect in order to invest in the
subject property.
8
Ray Anderson testified that the capitalization rate was
given to them by a brokerage firm in Southeastern Wisconsin.
9
The Wisconsin Property Assessment Manual (WPAM) requires
that an appraiser add the effective tax rate to create the
loaded capitalization rate for the subject property when doing
an income-based valuation. 1 Wisconsin Property Assessment
Manual at 9-23.

5
 No. 2014AP2947

The City's assessors used the comparable sales approach, rather

than the income approach, to appraise the property. They relied

on the sales of three properties, which they claimed were

reasonably comparable properties.

¶13 One of the properties, Lake Oakes, had few Section 42

housing units; most were market-rate units. The other two

properties the City's assessors relied on, Woodside

Village/Albert House and McMynn Tower, had no Section 42 units.

Each of those developments was either entirely HUD § 8 housing

or HUD § 8 housing with a small number of commercial units.10

The assessor did not adjust for differences in government

restrictions on the different types of federally regulated

housing when appraising Regency West's property. Instead,

Scites testified that she considered the restrictions for

Section 8 and Section 42 properties to be sufficiently similar.

¶14 Racine also presented the testimony of two outside

appraisers, Peter Weissenfluh and Dan Furdek. The outside

appraisers used four appraisal methods for both their 2012 and
2013 assessments. First, Weissenfluh and Furdek used the

comparable sales approach. The appraisers relied on a

combination of Section 42 and Section 8 properties, and Furdek

10
HUD § 8 housing has entirely different restrictions than
does Section 42 housing. For example, Section 8 properties do
not have tenant income or rent restrictions, and the government
provides rent subsidies when tenant income is insufficient to
pay the rent charged. Compare 42 U.S.C. § 1437f (HUD § 8) with
26 U.S.C. § 42 (I.R.C. § 42).

6
 No. 2014AP2947

testified that he believed the restrictions on the properties

were irrelevant as long as the rental income from the properties

was the same. Next, they used two variations of the income

approach: the direct capitalization method and the discounted

cash flow method. Finally, they used the cost approach. Each

of Furdek and Weissenfluh's valuations resulted in higher

valuations than Racine's.

¶15 In contrast, Regency West argued that it had overcome

the presumption of correctness afforded the City's tax

assessment for two reasons. First, the City had failed to

comply with the Wisconsin Property Assessment Manual (WPAM)11 in

its appraisals of Regency West's property as Wis. Stat.

§ 70.32(1) requires. Second, Regency West presented sufficient

contrary evidence that Racine's appraisals were excessive. In

that regard, Regency West presented testimony from Michael

Lerner and, its appraiser, Scott McLaughlin. Michael Lerner has

vast experience working with Section 42 housing whereas Scott

McLaughlin specializes in appraising subsidized housing.
Relying solely on the income approach, which he explained was

consistent with WPAM, McLaughlin appraised the property at

$2,700,000 for 2012 and $2,730,000 for 2013.

¶16 At the conclusion of the trial, the circuit court

dismissed Regency West's excessive tax claims for both years.

The circuit court concluded that Regency West had failed to

11
All references to the Wisconsin Property Assessment
Manual are to the 2011 version unless otherwise indicated.

7
 No. 2014AP2947

overcome Wis. Stat. § 70.49's presumption of correctness given

to the 2012 and 2013 tax assessments.

¶17 The circuit court found that Racine did not do an

individual valuation of Regency West's property for 2012, but

instead, it "applied mass appraisal techniques." The court

found that Scites "estimated expenses based upon her experience

and used a capitalization rate of 8.5%." The court then

concluded that "[d]ue to the number of assessments needed to be

done (7,500), the City used mass appraisal techniques, [which

was] an appraisal method approved by the Property Assessment

Manual for commercial property" in arriving at $4,425,000 as the

property's value in 2012.

¶18 The court of appeals affirmed the circuit court's

dismissal of Regency West's complaint. With respect to the 2013

assessment, the court rejected Regency West's argument that

Section 42 and Section 8 properties are not reasonably

comparable for purposes of the comparative sales approach. The

court reasoned that both types of subsidized housing are found
within the same section of the WPAM, and Racine's assessors had

opined that the rents from all the properties were essentially

the same. With respect to the 2013 assessment, the court

concluded that reliance on market-rate properties for the NOI

was immaterial because Racine used the comparative sales

approach for that valuation; and for 2012, reliance on a market-

rate NOI was reasonable because Regency West was newly

constructed and did not have actual expenses to consider.

8
 No. 2014AP2947

¶19 Consequently, the court of appeals concluded that

Regency West had not overcome the presumption of correctness

accorded to tax assessments by Wis. Stat. § 70.49 and,

therefore, Regency West was unable to show that its 2012 and

2013 tax assessments were excessive.

¶20 We granted Regency West's petition for review and now

reverse.

II. DISCUSSION

A. Standard of Review

¶21 This is a refund action commenced under Wis. Stat.

§ 74.37(3)(d). It permits "an aggrieved person to recover that

amount of general property tax imposed because the assessment of

property was excessive." Wis. Stat. § 74.37(1). A claim for

excessive assessment is a "new trial, not a certiorari action."

Trailwood Ventures, LLC v. Vill. of Kronenwetter, 2009 WI App

18, ¶6, 315 Wis. 2d 791, 762 N.W.2d 841. Therefore, "we review

the record made before the circuit court, not the board of

review." Adams Outdoor Advert., Ltd. v. City of Madison, 2006
WI 104, ¶24, 294 Wis. 2d 441, 717 N.W.2d 803 (citing Nankin, 245

Wis. 2d 86, ¶25).

¶22 As we review the record made in the circuit court, we

interpret and apply Wis. Stat. § 70.32 to determine whether

Racine's appraisals for 2012 and 2013 followed the statute's

directives. We also interpret Wis. Stat. § 70.49(2) to

determine whether Regency West has overcome the presumption of

correctness that attached to Racine's tax assessments.
Statutory interpretation and application present questions of
9
 No. 2014AP2947

law that we independently review, while benefitting from the

analyses of the court of appeals and the circuit court. Oneida

Cty. Dep't of Soc. Servs. v. Nicole W., 2007 WI 30, ¶9, 299

Wis. 2d 637, 728 N.W.2d 652; see also Soo Line R.R. Co. v. DOR,

97 Wis. 2d 56, 59-60, 292 N.W.2d 869 (1980).

B. General Appraisal Principles

¶23 "The power to determine the appropriate methodology

for valuing property for taxation purposes lies with the

legislature." Walgreen Co. v. City of Madison, 2008 WI 80, ¶19,

311 Wis. 2d 158, 752 N.W.2d 687. Wisconsin Stat. § 70.32(1)

provides that "property shall be valued by the assessor in the

manner specified in the Wisconsin property assessment manual."

"The Manual, in turn, provides that '[t]he goal of the assessor

is to estimate the market value of a full interest in the

property, subject only to governmental restrictions. All the

rights, privileges, and benefits of the real estate are included

in this value. This is also called the market value of a fee

simple interest in the property.'" Walgreen, 311 Wis. 2d 158,
¶20 (quoting 1 Wisconsin Property Assessment Manual (2007) at 7—

4).

¶24 The objective of an appraisal is to determine "the

full value" that an owner would receive at a "private sale."

Wis. Stat. § 70.32(1). For purposes of determining full value,

property is separated into seven classifications based on use.

Wis. Stat. § 70.32(2). Regency West is residential property.

§ 70.32(2)(a)1.

10
 No. 2014AP2947

¶25 Wisconsin Stat. § 70.32(1) provides the methodological

framework that appraisers must follow when appraising property.

It delineates a three-tier approach:

In determining the value, the assessor shall consider
recent arm's-length sales of the property to be
assessed if according to professionally acceptable
appraisal practices those sales conform to recent
arm's-length sales of reasonably comparable property;
recent arm's-length sales of reasonably comparable
property; and all factors that, according to
professionally acceptable appraisal practices, affect
the value of the property to be assessed.
Wis. Stat. § 70.32(1); see also State ex rel. Markarian v. City

of Cudahy, 45 Wis. 2d 683, 686, 173 N.W.2d 627 (1970).

¶26 "An assessor has an obligation to follow the three

tier assessment analysis." Adams, 294 Wis. 2d 441, ¶47.

Nevertheless, this hierarchy of appraisal methods does not

permit an assessor to use an appraisal method when insufficient

data exist to perform an accurate valuation under that method.

To the contrary, an assessor must not appraise a property using

unreliable data. Metro. Holding Co. v. Bd. of Review of City of

Milwaukee, 173 Wis. 2d 626, 631-32, 495 N.W.2d 314 (1993).
¶27 Under the first tier of appraisal methods set out in

Wis. Stat. § 70.32(1), an appraiser should rely on recent arm's-

length sales of the subject property to determine the property's

value. This approach is universally considered the most

reliable method of appraising property. Markarian, 45 Wis. 2d

at 686. However, both parties agree that this method is not at

issue in the present case because there were no sales of the
subject property to consider.

11
 No. 2014AP2947

¶28 Under the second tier of appraisal methods, an

appraiser values a property by considering recent, arm's-length

sales of "reasonably comparable" properties. Id.; 1 Wisconsin

Property Assessment Manual at 9-45. The WPAM defines

"reasonably comparable" properties as those properties that

represent the "subject property in age, condition, use, type of

construction, location, design, physical features and economic

characteristics." 1 Wisconsin Property Assessment Manual at 7-

22.

¶29 Moreover, "if there has been no arms-length sale and

there are no reasonably comparable sales [] an assessor [may]

use any of the third-tier assessment methodologies." Adams, 294

Wis. 2d 441, ¶34. "The income approach, which seeks to capture

the amount of income the property will generate over its useful

life, and the cost approach, which seeks to measure the cost to

replace the property, both fit into this analytic framework."

Id., ¶35.

¶30 However, when valuing subsidized housing, the WPAM
suggests that the "Cost Approach is the least reliable valuation

method" because of "the difficulty in estimating external

obsolescence." 1 Wisconsin Property Assessment Manual at 9-45.

Accordingly, an assessor should apply the cost approach when

12
 No. 2014AP2947

evaluating subsidized housing only when other approaches are not

available.12

¶31 Because an appraiser must consider all aspects of the

subject property that may affect its value, appraisers must

consider whether a property's value is affected by its

classification as residential property subject to Section 42

subsidized housing restrictions. See Metro. Holding, 173

Wis. 2d at 631-32.

¶32 The income approach is often the most reliable method

for assessing subsidized housing. 1 Wisconsin Property

Assessment Manual at 9-45 ("The income approach may be the most

useful method for valuing subsidized housing . . . ."). The

income approach is superior when applied to subsidized housing

"due to the conditions of the agreement and the limited

availability of data." Id.

¶33 The WPAM recognizes dissimilarities between subsidized

properties and market-rate properties. It instructs that

federally regulated properties are to be treated "as a separate
market and distinct from conventional (market level) projects."

1 Wisconsin Property Assessment Manual at 9-42. Specifically,

federally regulated properties have "operational constraints

12
Wisconsin Stat. § 70.32(1g) prohibits assessors from
considering the effect of Section 42 tax credits when valuing
property. It is nearly impossible to apply the "cost approach"
to subsidized housing because the "cost approach" requires an
appraiser to examine the cost of replacing the property, which
will necessarily be impacted by the tax credits an owner
receives in return for constructing the property.

13
 No. 2014AP2947

(regulations) and risk factors that are different from a market

rate property." Id. As such, appraisals that fail to account

for differences between those properties and market-rate

properties contravene the WPAM and Wis. Stat. § 70.32. Metro.

Holding, 173 Wis. 2d at 630-32.

¶34 The WPAM provides that to be "reasonably comparable,"

other properties must have "similar restrictions" to the subject

property. 1 Wisconsin Property Assessment Manual at 9-45 ("To

be considered [reasonably] comparable, the recent arm's-length

sales should have restrictions similar to the subject

property."). With these foundational principles in mind, we

turn to the 2012 and 2013 appraisals that underlie the tax

assessments for Regency West's property.

C. Regency West's Property

1. 2012 tax assessment

¶35 Regency West placed its first units in service

September of 2011, and the project was fully leased in February

of 2012. Both Racine and Regency West valued the subject
property as of January 1, 2012, using the income approach.

However, they did not apply it in the same way. First, Racine

did not do an individualized appraisal of Regency West's

property, but instead, employed "mass appraisal techniques"

because its appraisers had 7,500 properties to value in 2012.

Regency West's appraisal was based on the subject property.

Second, Racine did not consider the projected expenses and

income for the subject property when calculating its NOI.
Regency West used projected expenses and income for the subject
14
 No. 2014AP2947

property. Third, Racine employed a capitalization rate based on

market-rate properties; Regency West applied a capitalization

rate derived from a Section 42 housing market.

¶36 In calculating Regency West's NOI for 2012 under its

mass appraisal technique, the City's appraiser used market-rate

vacancy and market-rate expenses instead of the vacancy and

expense projections that were specific to the subject property.

This approach fails to account for the vast differences in

federally regulated housing discussed above and distorts the

actual value of Regency West's property.

¶37 An appraiser must not value federally regulated

housing as if it were market-rate property. Doing so causes the

assessor to "pretend" that the subject property is not hindered

by federal restrictions. Metro. Holding, 173 Wis. 2d at 631;

see also 1 Wisconsin Property Assessment Manual at 9-45 ("Any

income approach used must consider all the impacts of the

subsidy program."). The restrictions and underlying agreements

implicit in federally regulated housing will affect the
property's value. See Bloomer Hous. Ltd. P'ship v. City of

Bloomer, 2002 WI App 252, ¶31, 257 Wis. 2d 883, 653 N.W.2d 309

("An assessor must consider the effects of the restrictions on

subsidized housing."); Walworth Affordable Hous., LLC v. Vill.

of Walworth, 229 Wis. 2d 797, 802–03, 601 N.W.2d 325 (Ct. App.

1999) (reasoning that because the subject "property is

encumbered with income and rental restrictions resulting from

the [Federal Housing Tax Credits], these restrictions must be
considered in the property's valuation."). As discussed above,
15
 No. 2014AP2947

the WPAM recognizes these differences and directs that assessors

are not to treat federally regulated housing as if it were

market-rate housing for purposes of determining property values.

1 Wisconsin Property Assessment Manual at 9-42 ("Subsidized

housing properties operate differently than conventional

(market-rate) properties.").

¶38 Our decision in Metropolitan Holding unambiguously

requires assessors to use income and expenses for the subject

property when valuing subsidized housing under the income

approach. Metro. Holding, 173 Wis. 2d at 634 (remanding the

"case with instructions that [t]he Board order the city assessor

to assess Layton Garden using the capitalization of income

approach based on actual income and expenses").

¶39 In Metropolitan Holding, the plaintiff, Layton Garden,

argued that its property was valued artificially high because

the City of Milwaukee had relied on market-rate expenses when

determining the property's NOI. Id. at 630. We agreed with

Layton Garden and overturned the City of Milwaukee's tax
assessment based on that valuation. Id. We reasoned that by

employing market-rate rents and market-rate expenses, the city

assessor "pretended that Layton Garden was not hindered by the

HUD restrictions and valued the property at the amount the

property would bring in an arm's-length transaction if

Metropolitan were able to charge market rents." Id. at 631; see

also Mineral Point Valley Ltd. P'ship v. City of Mineral Point

Bd. of Review, 2004 WI App 158, ¶11, 275 Wis. 2d 784, 686 N.W.2d
697 (concluding that the assessor must value properties
16
 No. 2014AP2947

individually, not based on hypothetical income and expenses

(citing Metro. Holding, 173 Wis. 2d at 629)).

¶40 Wisconsin Stat. § 70.32(1) requires assessors to value

property based on "the best information that the assessor can

practicably obtain." Here, there was available to Racine's

assessor projected expenses and income for this newly opened

property. However, Racine chose not employ that information and

chose instead to calculate the NOI for its income-based

valuation through mass appraisal techniques that were not

particularized to Regency West's property. We conclude that in

that regard, Racine did not comply with the directive of

§ 70.32(1) because it did not use the "best information" that

was available to its assessor.

¶41 In contrast to the City's approach, Regency West used

income and expenses specifically projected for the subject

property when it calculated the NOI for its income-based

valuation. These projected expenses are the best information

that could practicably be obtained. We conclude that for this
newly opened property, the use of projected expenses complies

with the mandate of Wis. Stat. § 70.32(1).

¶42 In addition to calculating a NOI for the subject

property, an income-based valuation requires determining the

applicable capitalization rate. Therefore, we consider whether

appraisers, when valuing federally regulated properties, may

derive the capitalization rate from market-rate properties. We

conclude that they may not.

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 No. 2014AP2947

¶43 The capitalization rate expresses the rate of return

an investor would expect to receive from an investment in the

subject property. 1 Wisconsin Property Assessment Manual at 9-

21. The determination of the applicable capitalization rate is

a critical element in determining the value of a property

because a small change in capitalization rate will create a

significant change in a property's value. This is so because

the value of a subject property is determined by dividing its

NOI by the applicable capitalization rate, which rate is

expressed as a percentage. Id. Therefore, a larger percentage

will yield a smaller total value for the property.

¶44 When determining the applicable capitalization rate,

assessors must consider factors that appreciably alter the value

of the property. Otherwise, the capitalization rate will not

truly represent the risk an investor is undertaking when

investing in the property.

¶45 "Capitalization rates from the marketplace are usually

derived from the sale of market-rate projects." Id. at 9-45.
Such capitalization rates "do not reflect the unique

characteristics of subsidized housing. In some cases there can

be more risk in subsidized housing, in other cases there is

less." Id. The WPAM further explains, "Rent levels are often

regulated and annual increases may be difficult to obtain. In

many cases the proportion of debt to equity is different in

subsidized projects than in market rate projects. With some

types of projects the amount of annual equity return is limited
(called a limited dividend)." Id. Additionally, for some types
18
 No. 2014AP2947

of federally regulated housing, "equity investors primarily look

to other sources beyond the cash flow of the property for their

required return on investment." Id.

¶46 Appraisers who fail to consider property classified as

federally regulated housing and the restrictions attendant

thereto when deriving capitalization rates are overlooking major

characteristics of such property. After all, a property's

classification as federally regulated housing may substantially

impact the risks associated with the property, thereby altering

the market for the property.

¶47 Moreover, as discussed above, the WPAM prohibits

appraisers from using market-rate properties when valuing

federally regulated housing. As a corollary, appraisers may not

derive a capitalization rate from market-rate properties.

Rather, appraisers should use "recent market value sales of

similar properties" to determine the capitalization rate. Id.

at 9-24. Therefore, when valuing a property using the income

approach, appraisers must use capitalization rates derived from
13
a market consistent with the market for the subject property.

13
The market of properties an appraiser may consider when
determining the capitalization rate will often be broader than
the market of properties that are reasonably comparable to the
subject property. The WPAM does not require an appraiser to
consider the specific restrictions attendant to each property an
appraiser relies on to determine the capitalization rate; the
property manual requires that the properties the appraiser
relies on be "similar." See 1 Wisconsin Property Manual at 9-24
(stating that an appraiser must use "similar properties" when
determining the capitalization rate). Therefore, the
capitalization rate may be derived from properties classified as
the same type of federal housing as the subject property without
(continued)
19
 No. 2014AP2947

¶48 The City assessor used 6 percent as a base

capitalization rate, which she derived through mass appraisal

techniques of market-rate properties. The assessor then added

2.5 percent, which is the tax rate for Regency West, yielding a

loaded capitalization rate of 8.5 percent.14

¶49 Both the circuit court and the court of appeals

approved the 6 percent base rate. They relied on Mineral Point

Valley from which they concluded that the applicable

capitalization rate must be derived from market-rate

properties.15 The court of appeals also relied on Bischoff v.

City of Appleton, 81 Wis. 2d 612, 260 N.W.2d 773 (1978). Their

reliance on either Mineral Point Valley or Bischoff is

misplaced, and it also fails to comply with our decision in

Metropolitan Holdings discussed in some detail above.

considering the property's individualized restrictions. In
contrast, whether properties are reasonably comparable for
purposes of the comparative sales approach to valuation requires
a more exacting analysis. Properties used for valuation under
the comparable sales approach must have "restrictions similar to
the subject property." Id. at 9-45 (emphasis added).
14
Both parties added the City of Racine's tax rate to the
base capitalization rate they calculated, as the addition is
required by WPAM. 1 Wisconsin Property Assessment Manual at 9-
22.
15
The circuit court also approved Racine's appraisal for
the 2012 income valuation, saying it was ok for "commercial
Property." However, under Wis. Stat. § 70.32(2)(a)1., Regency
West is classified as residential property, not commercial
property, which is set out under Wis. Stat. § 70.32(2)(a)2.

20
 No. 2014AP2947

¶50 Mineral Point Valley considered competing arguments

about which interest rate should be used when establishing a

capitalization rate based on the underlying mortgage for a HUD

§ 515 property.16 Mineral Point Valley, 275 Wis. 2d 784, ¶8.

The partnership had obtained a 50-year mortgage at 8.75 percent.

Id. at ¶3. As part of the HUD program, the federal government

subsidized the partnership for 7.75 percent of that interest.

Id. Because of the subsidy, the city assessor used 1 percent as

the capitalization rate and the partnership used 8.75 percent.

The court of appeals precluded the use of 1 percent as the

capitalization rate. Id., ¶13.

¶51 Mineral Point Valley did not involve a direct

capitalization of income approach, which is the type of

capitalization approach all parties have used in the case before

us for 2012. Mineral Point Valley had nothing to do with

whether market-rate properties or Section 42 properties should

establish the market from which sales and NOIs were obtained

when determining the applicable capitalization rate for
federally regulated housing.17 Therefore, Mineral Point Valley

should not be read to have concluded that an appraiser may

calculate a capitalization rate from market-rate properties when

valuing federally regulated property.

16
See 42 U.S.C. § 1485.
17
Recall that a market-driven capitalization rate is
determined by taking NOIs of comparable properties and dividing
those numbers by the sale prices for those properties.

21
 No. 2014AP2947

¶52 In the case at hand, the City's assessors used a

capitalization rate derived from market-rate properties when

appraising Regency West's federally regulated property for 2012.

The City's assessors should have used a market for Section 42

properties to determine the capitalization rate. See Metro.

Holding, 173 Wis. 2d at 634. Instead, the assessors used a

capitalization rate provided by a brokerage firm, which did not

account for the property's classification as subsidized housing.

As a result, the City's assessors' use of a 6 percent base

capitalization rate was not in compliance with Wis. Stat.

§ 70.32(1) or with the WPAM. Taxing authorities are required to

comply with the law when valuing properties, and failing to do

so negates the presumption of correctness that Wis. Stat.

§ 70.49 otherwise accords. Allright Props., Inc. v. City of

Milwaukee, 2009 WI App 46, ¶12, 317 Wis. 2d 228, 767 N.W.2d 567

(citing Walgreen, 311 Wis. 2d 158, ¶17).

¶53 The court of appeals, relying on our decision in

Bischoff concluded that an appraiser's sole reliance on an
income approach to valuation was improper. The court of

appeals' reliance on Bischoff is understandable, but misplaced.18

18
The court of appeals' rationale that Section 42 and
Section 8 programs are similar because they are found within the
same section of the WPAM is unconvincing. Both are subsidized
housing; however, the similarities between the two programs
largely end there. The two programs have vastly different
restrictions.

22
 No. 2014AP2947

¶54 Bischoff arose in the context of demurrer where we

held that a complaint that alleged error in the use of the

income approach for valuation when there had been an arm's-

length sale was timely filed. Bischoff, 81 Wis. 2d at 619-20.

We never concluded that an income approach could not be used as

the sole method of valuation in all cases. See also Northland

Whitehall Apts. Ltd. P'ship v. City of Whitehall Bd. of Review,

2006 WI App 60, ¶25, 290 Wis. 2d 488, 713 N.W.2d 646 ("the

'income approach' as utilized by its appraiser has also been

recognized by the courts . . . as a valid method of determining

the value of subsidized housing projects").

¶55 Furthermore, Bischoff did not address subsidized

housing. As we have explained, because of the difficulty in

appraising subsidized properties under other appraisal methods,

the income approach may be the best determiner of value. And,

the WPAM does not preclude appraisers from relying solely on the

income approach when valuing subsidized properties. We have

recognized that a single valuation approach under the third tier
may be appropriate. Adams, 294 Wis. 2d 441, ¶53 ("There may be

situations in which the only information available compels an

assessor to use a single methodology to [value] property.").

¶56 By contrast, Regency West's expert utilized a market

for Section 42 properties when constructing the applicable

capitalization rate. In that market, Section 42 property base

capitalization rates averaged 7.4 percent for senior properties

(with a high of 8.4 percent and a low of 5.9 percent) and
averaged 7.57 percent for family property (with a high of 8.83
23
 No. 2014AP2947

percent and a low of 6.59 percent). Regency West's expert used

a base capitalization of 8 percent for 2012. He then added the

same tax rate of 2.54 percent, and employed a loaded rate of

10.54 percent in his income-based 2012 valuation. Determining

the capitalization rate in this manner complied with the WPAM as

Wis. Stat. § 70.32(1) requires.

¶57 Based on its expert's calculations described above,

Regency West valued its property at $2,700,000 as of January 1,

2012. Racine's valuation of $4,425,000 was derived from a

procedure that did not comply with Wis. Stat. § 70.32(1) and the

WPAM; Regency West's valuation followed the requirements of

§ 70.32(1) and WPAM in its valuation. Regency West's appraisal

is the best evidence of the property's value.19 Accordingly, we

conclude that Regency West has shouldered its burden to show

that Racine's taxation for 2012 was excessive and a refund is

due.

2. 2013 tax assessment

¶58 Although both parties employed the income approach to
valuation for 2012, only Regency West did so for 2013. Racine

applied a comparative sales approach for its 2013 assessment.

19
We do not consider the appraisals of Peter Weissenfluh
and Dan Furdek because their appraisals exceeded the valuations
of Racine for both 2012 and 2013. See Trailwood Ventures, LLC
v. Vill. of Kronenwetter, 2009 WI App 18, ¶¶12-13, 315 Wis. 2d
791, 762 N.W.2d 841 (concluding that a taxation district that
has accepted the payment it requested has agreed that its
taxation value is the maximum value that it may seek; Wis. Stat.
§ 74.37 permits a refund to the taxpayer or may uphold the
status quo, but there is no authority for deficiency judgments).

24
 No. 2014AP2947

Regency West argues that the properties the City's appraiser

relied on, primarily Section 8 properties, were not reasonably

comparable to the subject property, which is Section 42 housing.

For the reasons discussed below, we conclude that Section 8 and

Section 42 properties are not "reasonably comparable," and

therefore the City incorrectly applied the comparative sales

approach when valuing Regency West's property for 2013.

¶59 It is the legislature that required the use of "recent

arm's-length sales of reasonably comparable property" when an

appraiser is valuing a property under the second tier method.

Wis. Stat. § 70.32(1). And in addition, § 70.32(1) also

requires consideration of "all factors that, according to

professionally acceptable appraisal practices, affect the value

of the property."

¶60 If there are no "reasonably comparable" properties,

the comparable sales approach cannot be used. Allright Props.,

317 Wis. 2d 228, ¶29. That is, an appraiser cannot accurately

value a property using data from the sales of properties that
are not "reasonably comparable" to the subject property. Absent

comparable sales, an appraiser must apply the third tier for

valuing property. Id.

¶61 The WPAM does not leave the determination of whether

properties are reasonably comparable wholly to the discretion of

an appraiser. It provides appraisers with instructions for

assessing subsidized properties under the comparable sales

approach. To obtain the necessary information, an appraiser
"may have to perform a statewide search to find comparable
25
 No. 2014AP2947

sales." 1 Wisconsin Property Assessment Manual at 9–45. An

appraiser can obtain this information "by viewing website data

and by calling other assessors who have similar subsidized

housing in their jurisdictions." Id.

¶62 The WPAM explicitly states when subsidized properties

are reasonably comparable: properties being compared must have

"restrictions similar to the subject property." Id. To

determine if properties have similar restrictions, an appraiser

must examine the specific restrictions that apply to each

property, as well as the differences between these restrictions.

And, an appraiser must consider the nature of these restrictions

and the ways in which these restrictions affect the value of

each property. This also suggests that an appraiser should not

compare subsidized property to non-subsidized property as non-

subsidized property lacks the restrictions subsidized property

carries. We have explained the necessity of understanding the

specific restrictions appurtenant to federally regulated

property when appraising such property. Metro. Holding, 173
Wis. 2d at 631-32. The failure of an appraiser to consider the

restrictions specific to the subject property is a failure to

follow Wisconsin law. We now examine whether two specific

classifications of subsidized housing, Section 8 and Section 42,

are "reasonably comparable."20
20
The WPAM has a section dedicated to the various
subsidized housing credits. 1 Wisconsin Property Assessment
Manual at 9-40. This section includes descriptions of the two
types of federally regulated properties at issue in this case,
Section 42 and Section 8.

26
 No. 2014AP2947

¶63 Section 42 is a United States Treasury program that

promotes the development of affordable housing by allowing an

owner to receive federal tax credits for developing a parcel of

land into Section 42 housing.21 The credits can be exchanged for

equity in the property, which allows the owner to reduce

construction debt with equity financing. Under the Section 42

program, investors receive "a dollar-for-dollar reduction in

federal tax liability . . . in exchange for equity participation

in low-income rental housing." 1 Wisconsin Property Assessment

Manual at 9-40.

¶64 Section 42 "credits come with many restrictions." Id.

For example, in Wisconsin the owner is required to enter into a

LURA that obligates the owner to maintain the project for 30

years with rent-restricted units for income-qualified tenants.

Id.

¶65 In contrast, Section 8 is a rent subsidy program.

"Project owners receive a rental subsidy payment under Housing

Assistance Payment Contract (HAP Contract) that range from 15 to
40 years." Id. at 9-42. The property owner is required to rent

Section 8 units to tenants from low or very low-income families.

"Families whose incomes do not exceed 80% of the median income

in the area are defined as low-income; very low-income families

do not exceed 50% of the median income." Id.

21
In Wisconsin, Section 42 housing is administered by
WHEDA.

27
 No. 2014AP2947

¶66 Section 8 properties are generally a low risk

investment. The risk is low, in part, because the federal

government insures the owners of Section 8 housing against the

possibility that their tenants will fail to pay rent.

¶67 In sum, Section 42 and Section 8 are vastly different

subsidized housing programs, with different risks for the

owners. Section 42 is a tax credit program; Section 8 is a

subsidy program. Section 42 is a riskier investment because the

government does not insure against non-payment of rents. In

contrast, the government guarantees much of the rents of Section

8 properties. Unlike owners of Section 8 properties, Section 42

owners are required to enter into a 30-year LURA. Regency

West's expert testified that these differences lead to vastly

different markets for the two types of properties.

¶68 In the case before us, the City's assessors relied on

the sales of three properties: Lake Oakes, Woodside

Village/Albert House and McMynn Tower. Lake Oakes possesses few

Section 42 housing units; most units are market-rate rentals.
Woodside Village/Albert House and McMynn Tower have no Section

42 units. One property was entirely Section 8 housing and the

other was Section 8 housing with a few commercial units.

Therefore, their sales were not representative of "reasonably

comparable" arm's-length sales as the second tier of Wis. Stat.

§ 70.32(1) and the WPAM require.

¶69 Moreover, the City's assessors did not consider the

varying restrictions federal regulations require when valuing
Regency West's property. Rather, Scites testified that Section
28
 No. 2014AP2947

42 and Section 8 properties have similar restrictions. Scites

relied almost entirely on the properties' similar rates of rent,

without recognizing that Section 8 rents are subsidized by the

government and Section 42 rents are not. Furthermore, nothing

in the WPAM or Wisconsin law equates "reasonably comparable"

with "similar rents." The failure of Racine to consider the

properties' restrictions caused the three sales Scites relied on

to fall outside the parameters of reasonably comparable sales.

¶70 The City was required to consider the various

restrictions on subsidized properties. And, as a matter of law,

Section 8 and Section 42 do not possess the same restrictions.

The City's 2013 assessment of the subject property relied

totally on its assertion that the sales of Lake Oakes, Woodside

Village/Albert House and McMynn Tower were sales of reasonably

comparable properties. As we have explained above, WPAM

explains the differences those properties have from Regency

West's property such that they are not reasonably comparable.

Accordingly, Scites' 2013 appraisal was completed in violation
of Wisconsin law and the WPAM. The circuit court erroneously

concluded that the City's assessors complied with Wisconsin

law.22

¶71 We conclude that Scites' 2013 appraisal failed to

follow Wisconsin law and the WPAM, negating the presumption of

22
We emphasize that whether an assessor complied with
Wisconsin law and the WPAM are questions of law for our
independent review. Adams Outdoor Advert., Ltd. v. City of
Madison, 2006 WI 104, ¶26, 294 Wis. 2d 441, 717 N.W.2d 803.

29
 No. 2014AP2947

correctness otherwise available in Wis. Stat. § 70.49. Allright

Props., 317 Wis. 2d 228, ¶12.

¶72 Regency West argues that it has presented the only

evidence of its property's value as of January 1, 2013 that

complies with Wisconsin law and the WPAM. We agree. It did so

in its third tier direct capitalization of income appraisal.

That appraisal employed actual expenses and income for the

property upon which the NOI was calculated, and it derived its

capitalization rate from a market for Section 42 properties.

Regency West's appraisal determined that the property's value

was $2,730,000 as of January 1, 2013. This is sufficient

evidence to meet Regency West's burden to show that the City's

tax assessment was excessive and accordingly a refund is due.23

III. CONCLUSION

¶73 We conclude that the valuation methodologies Racine

used for the 2012 and 2013 assessments did not comply with

Wisconsin law. Accordingly, we also conclude that Regency West

has overcome the presumption of correctness for the 2012 and
2013 tax assessments, and that the circuit court and the court

of appeals erred in concluding otherwise. And, finally, we

conclude that Regency West has proved that Racine's tax

assessments for 2012 and 2013 were excessive. Accordingly, we

23
Regency West had the burden to show that that assessment
was excessive. See Sausen v. Town of Black Creek Bd. of Review,
2014 WI 9, ¶20, 352 Wis. 2d 576, 843 N.W.2d 39.

30
 No. 2014AP2947

reverse and remand to the circuit court to determine the amount

of the refund due Regency West.

By the Court.—The decision of the court of appeals is

reversed and remanded.

31
 No. 2014AP2947.ssa

¶74 SHIRLEY S. ABRAHAMSON, J. (dissenting). Fortunately

for Regency West (and unfortunately for Racine's coffers and the

other Racine taxpayers), the majority opinion declares that the

lower assessment of the property at issue is correct. The

majority opinion flouts the longstanding principle that property

tax assessors should use the best information possible in order

to determine real property's full value, upends the proper scope

of appellate review, and inserts itself as a fact-finder.

Because of the majority opinion's unwarranted departures from

precedent and usurpation of the role of the circuit court, I

dissent.

¶75 The essential question posed in this court is whether

Racine's original assessments are excessive. The circuit court,

the court of appeals, and I answer the question in the negative.

Applying a correct legal analysis, giving deference to the

circuit court, the fact-finder, and reviewing the record compel

answering the question with a firm, clear "No."

¶76 The majority opinion reaches the opposite answer,
resting its conclusion on errors of law and on its refusal to

consider the evidence Racine presented. Now, assessors of

federally subsidized housing (at least Section 42 housing)

apparently can go straight to an income approach, a third-tier

method of assessment, bypassing the best information and other

proper assessment methodologies along the way.

I

¶77 Regency West, the property at issue, comprises 72
apartment units and is owned by a limited liability corporation.

1
 No. 2014AP2947.ssa

The property is treated as commercial property for assessment

purposes. Wisconsin Property Assessment Manual 9-1 (2011)

[hereinafter Manual] ("For assessment purposes commercial

property consists of . . . [a]partment houses of four or more

units . . . ."). Although the majority opinion describes

Regency West as residential property, the majority opinion

applies the commercial valuation principles set forth in the

Manual.1

¶78 I agree with the majority opinion that general

appraisal principles apply to federally subsidized housing. I

agree with the majority opinion that the three valuation

approaches are an arm's-length sale of the subject property

(tier one), the sales comparison approach (tier two), and

income, cost, and other valuation methods (tier three).2

¶79 I agree with the majority opinion that the statutory

interpretation and application of Wis. Stat. § 70.32 presents a

question of law that this court determines independently. The

court determines, as a matter of law, whether the assessor's
valuation methodology complies with statutory requirements.

Here our agreement ends.

¶80 I disagree with the majority opinion that, as a matter

of law, the only valuation approach applicable in the instant

1
See majority op., ¶¶24, 31, 50 n.15.
2
All parties agree that there are no recent arm's-length
sales of Regency West, so a tier one analysis was not possible.
The instant case is about which other tier analyses should be
used.

2
 No. 2014AP2947.ssa

case is the income approach. The majority opinion errs as a

matter of law.

¶81 The majority opinion errs as a matter of law when it

totally discards and disregards in its analysis the evidence

presented by Dan Furdek and Peter Weissenfluh, Racine's expert

witnesses. The majority opinion describes Furdek and

Weissenfluh's evidence, but does not consider the evidence in

its analysis and conclusion.

¶82 Why ignore these experts? One reason is "because,"

according to the majority opinion, "their appraisals exceeded

the valuations of Racine for both 2012 and 2013." Majority op.,

¶57 n.20.3 A second reason for ignoring Racine's two experts,

according to the majority opinion, is that they err as a matter

of law in using a sale comparison approach to valuation in the

instant case.

¶83 The majority opinion supports its legal conclusion

that Racine's two experts should be ignored in their entirety in

footnote 19, citing Trailwood Ventures, LLC v. Village of
Kronenwetter, 2009 WI App 18, ¶¶12-13, 315 Wis. 2d 791, 762

N.W.2d 841. The footnote in the majority opinion states:

We do not consider the appraisals of Peter Weissenfluh
and Dan Furdek because their appraisals exceeded the
valuations of Racine for both 2012 and 2013. See
Trailwood Ventures, LLC v. Vill. of Kronenwetter, 2009
3
The majority misstates Furdek and Weissenfluh's report
because the experts' pre-reconciliation value derived from the
income approach was actually lower than the original
assessments. After reconciling their various approaches,
however, their appraisal was slightly higher than the original
assessments.

3
 No. 2014AP2947.ssa

WI App 18, ¶¶12-13, 315 Wis. 2d 791, 762 N.W.2d 841
(concluding that a taxation district that has accepted
the payment it requested has agreed that its taxation
value is the maximum value that it may seek; Wis.
Stat. § 74.37 permits a refund to the taxpayer or may
uphold the status quo, but there is no authority for
deficiency judgments).
¶84 The Trailwood Ventures case does not support the

conclusion of law (reached by the majority opinion) that a court

cannot or should not consider evidence presented that the value

of the subject property was greater than the assessment from

which review was sought. The Trailwood Ventures decision says

nothing about admissible evidence or disregarding evidence that

the value of the subject property was greater than the original

assessment. The briefs filed in Trailwood Ventures, as well as

the opinion, make clear that admissibility of evidence was not

an issue in Trailwood Ventures.

¶85 Trailwood Ventures holds only that the statutes do not

permit a trial court to set a higher assessment under Wis. Stat.

§ 74.37 than that from which the taxpayer appealed or impose a

greater tax burden on the taxpayer than the one the taxpayer

challenges. Trailwood Ventures, 315 Wis. 2d 791, ¶¶10, 12-14.
¶86 Trailwood Ventures offers no guidance in the instant

case. Racine's purpose of introducing its experts' evidence was

not to increase Regency West's assessments for 2012 and 2013 or

to levy a larger tax on Regency West for those years. Furdek

and Weissenfluh's evidence was to serve the singular purpose of

showing that Racine's initial assessments were not excessive.

In misapplying Trailwood Ventures, the majority opinion commits

4
 No. 2014AP2947.ssa

a fatal error of law by utterly ignoring the evidence presented

by Racine's two expert witnesses.

¶87 The majority opinion is off on its own solo venture in

discussing Trailwood Ventures. Regency West has made no

objection to the admission of Furdek and Weissenfluh's testimony

on the ground that their valuation was higher than Racine's

initial estimate. Neither party's briefs in the instant case

cite or discuss Trailwood Ventures. The majority opinion

misinterprets and misapplies Trailwood Ventures to make new law

in the instant case.

¶88 A second reason the majority opinion errs as a matter

of law in deciding that only the income method of valuation

applies and in discarding the evidence of Weissenfluh and Furdek

is that the majority opinion concludes that the sales comparison

approach was not a valid appraisal method in the instant case.

The majority opinion takes a cribbed, too narrow view of the

sales comparison approach. (Weissenfluh and Furdek also used an

income approach.)
¶89 The majority opinion misreads the directive in the

Manual that "the recent arm's-length sales [of federally

subsidized housing] should have restrictions similar to the

subject property." Manual at 9-52 (emphasis added). The

majority opinion reads "similar" to mean "identical" and

concludes that Racine's two experts' comparable sales approach

was erroneous.

¶90 The second tier method of valuation, the sales
comparison approach, requires an assessor to use the value of

5
 No. 2014AP2947.ssa

"reasonably comparable" properties. "'[R]easonable

comparability' depends upon the degree of similarity between the

properties in question." Rosen v. City of Milwaukee, 72

Wis. 2d 653, 686, 242 N.W.2d 681 (1976). The court has

suggested some factors to consider in determining the similarity

of properties:

Important considerations in determining whether
particular property is sufficiently similar to the
property being assessed to warrant reliance on its
sale price as evidence of market value include its
location, including the distance from the assessed
property, its business or residential advantages or
disadvantages, its improvements, size and use. It is
also important to consider the conditions of sale,
including its time in relation to the date of
valuation, and its general mode and character insofar
as they tend to indicate an arm's-length transaction.
Rosen, 72 Wis. 2d at 665.

¶91 The Manual at 9-12 provides that the "sales comparison

approach should be used" if there are comparable properties, and

that "[t]o be comparable, properties should be similar in both

physical and economic characteristics including . . . the

ability to generate income . . . ."

¶92 The Manual contains a section devoted to subsidized

housing, including Section 42 housing.4 The Manual describes 10

different types of federally subsidized housing. Regarding

Section 42 housing, the Manual notes that these projects'

operating income is often lower than market rate properties and

that these projects can be risky because of tenant income

4
Manual at 9-44 to 9-54.

6
 No. 2014AP2947.ssa

restrictions.5 The Manual addresses generally how to assess the

10 different federally subsidized projects. Case law and the

Manual make clear that assessors must consider the impact that

the subsidized housing's restrictions have on value.

¶93 Nothing in the Manual's subsection addressing

federally subsidized Section 42 housing discusses any

limitations on the type of assessment methodology that should be

used in assessing these properties. The Manual does not

foreclose using sales comparison to value subsidized housing,

although the majority opinion reads the Manual as if it does.

Indeed, the Manual refers to using the sales comparison approach

in determining the proper method of valuation for federally

subsidized housing. See Manual at 9-52. The Manual does state

that "the income approach may be the most useful method for

valuing subsidized housing . . . ." See Manual at 9-53. The

operative word is "may."

¶94 As to using the sales comparison approach, the Manual

explains that a comparable property should have restrictions
similar to the subject property and information should be sought

from several sources. The Manual states:

To be considered comparable, the recent arm's-length
sales should have restrictions similar to the subject
property. The assessor may have to perform a
statewide search to find comparable sales. Sales data
should always be confirmed by reliable sources.
Information may be obtained by viewing website data

5
Manual at 9-47. In both Racine and Milwaukee (the
location of the comparables used by Racine's experts), Section
42 properties usually have a waiting list.

7
 No. 2014AP2947.ssa

and by calling other assessors who have similar
subsidized housing in their jurisdictions.
Manual at 9-52.

¶95 The evidence presented by Furdek and Weissenfluh

adheres to the Manual. They considered the impact of the

Section 42 restrictions in their sales comparison valuation. I

will comment further on their evidence later on. For now, I

just point out that the majority opinion errs in disregarding

out of hand the sales comparison approach in the instant case.

¶96 In sum, the majority opinion is based on errors of law

regarding the interpretation and application of the three tiers

of valuation and in entirely disregarding Furdek and

Weissenfluh's evidence. The majority opinion relies only on

Racine's assessor, Janet Scites, and Racine's Chief Assessor,

Ray Anderson.

¶97 I turn to the standard of review of the evidence in

the record. I then analyze the testimony of the competing

experts and review the circuit court's findings of fact and

determination under the proper standard of review.

II

¶98 Having determined that Racine's experts complied with

the statute and the Manual in using several methods of

valuation, I now determine whether Racine's original assessments

were excessive. A challenger, here Regency West, has the burden

at trial to "produce evidence that it is more probable than not

that the assessed value is not correct." Bonstores Realty One,

LLC v. City of Wauwatosa, 2013 WI App 131, ¶9, 351 Wis. 2d 439,

8
 No. 2014AP2947.ssa

839 N.W.2d 893. Racine may rebut with its own evidence Regency

West's production of evidence.

¶99 The circuit court's findings of fact will not be

overturned by an appellate court unless they are clearly

erroneous, that is, unless they are against the great weight of

the evidence. Findings of fact are not against the great weight

of the evidence "merely because a different fact-finder could

draw different inferences from the record." State v. Wenk, 2001

WI App 268, ¶8, 248 Wis. 2d 714, 637 N.W.2d 417.

¶100 Further, the weight and credibility that an appellate

court gives to the evidence of an expert witness is also

"uniquely within the province of the fact finder." Bloomer

Housing Ltd. P'ship v. City of Bloomer, 2002 WI App 252, ¶12,

257 Wis. 2d 883, 653 N.W.2d 309 (quoted source omitted).

"Where, as here, there is conflicting testimony, the fact finder

is the ultimate arbiter of credibility and when more than one

reasonable inference can be drawn, the reviewing court must

accept the inference drawn by the trier of fact." Bloomer, 257
Wis. 2d 883, ¶12 (internal quotation marks omitted); see also

Mineral Point Valley Ltd. P'ship v. City of Mineral Point Bd. of

Review, 2004 WI App 158, ¶16, 275 Wis. 2d 784, 686 N.W.2d 697

(Deininger, P.J., concurring) ("I recognize that, in the absence

of a recent arms-length sale, property valuation depends largely

on matters of judgment and expertise. . . . [A]ppraised values

of a particular property can differ sharply, and [ ] it is most

often the fact finder's proper role to assess the weight and
credibility of competing opinions of fair market value.").

9
 No. 2014AP2947.ssa

III

¶101 Following a four-day bench trial filled with extensive

expert evidence from both sides, the Circuit Court for Racine

County concluded that the original assessments were not

excessive.

¶102 The crux of the circuit court's decision involved

determining the weight and credibility of conflicting expert

evidence. Each side presented experts and, as the circuit court

explained, "[t]he opinions provided by all experts in this case

[were] highly subjective. All experts stabilized values, loaded

cap rates, or made adjustments to factors used in calculating

their valuations based on their experience and for reasons

stated in their testimony."

¶103 Ultimately, the circuit court concluded (and the court

of appeals agreed) that Racine's experts were more credible and

more persuasive. Based on this determination, the circuit court

concluded that Racine's original assessments were not excessive.

The court of appeals affirmed.
¶104 Deferring to the circuit court's findings of fact

about the credibility of the expert witnesses and the weight to

be given to each of them, I agree with the circuit court's

conclusion that Regency West failed to carry its burden. The

circuit court was not persuaded that Regency West established

that it was more probable than not that the assessed values were

excessive. The evidence supports the circuit court's

conclusion.

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¶105 Racine's experts, Furdek and Weissenfluh, are well-

versed in Wisconsin appraisal techniques as well as appraisal

techniques for subsidized housing. Each has spent the majority

of his career in the Milwaukee Assessor's Office; they have

recently gone into private practice together. Contrary to the

majority opinion's assertion, both Furdek and Weissenfluh have

experience with Section 42 subsidized housing. In their

respective tenures at the Milwaukee Assessor's office, they were

directly involved with assessing Milwaukee's numerous Section 42

properties or reviewing and signing off on the assessments of

Section 42 properties. Each has given presentations on valuing

subsidized housing.

¶106 These experts submitted a thorough, nearly 70-page

assessment report using several different valuation

methodologies. They testified at length, concluding that

Racine's initial assessments of Regency West were not excessive.

¶107 Furdek and Weissenfluh considered three traditional

valuation approaches: sales comparison (tier two), income (tier
three), and cost (tier three). The Manual at 9-52 states,

referring to Wis. Stat. § 70.32, that "[t]he assessor should

consider all three approaches to value when assessing federally

subsidized properties." Indeed, all three approaches are set

forth in the Manual at 9-52 to 9-54, discussing federally

subsidized housing.

¶108 Before applying these assessment methodologies, Furdek

and Weissenfluh explained Wisconsin assessment standards
applying to subsidized housing, thoroughly examined Racine's

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real estate climate, and stated the assumptions upon which they

based their analyses. This extensive pre-assessment analysis

complies with the Manual, which provides:

Each type of property presents unique valuation
problems. This requires the assessor to possess a
great deal of knowledge about the current economic
conditions of the area and any trends and factors that
may influence the value of commercial property.

. . . .

Given the data used and the type of property
appraised, the appraiser must consider how well each
method employed estimates the value of the
property. . . .

How does the appraiser determine which approach or
approaches are most reliable? The best guidance that
can be offered is to review the market activity for
the subject and determine the attributes by which the
market uses to evaluate alternative real estate
decisions.
Manual at 9-1, 9-39.

¶109 Furdek and Weissenfluh also met with the Wisconsin

Housing and Economic Development Authority (WHEDA) to discuss

Section 42 and Section 8 federally subsidized housing. In

Wisconsin, WHEDA administers Section 42 tax credits and
publishes the maximum rents that may be charged to Section 42

tenants. Manual at 9-46. The WHEDA representative stated that

Section 8 and Section 42 properties were economically

comparable.

¶110 Based upon their conversation with WHEDA, Furdek and

Weissenfluh concluded that most Land Use Restriction Agreements

(LURAs) for Section 42 properties impose similar restrictions.

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They therefore used a sales comparison approach using other

Section 42 properties.

¶111 Furdek and Weissenfluh primarily relied on a sales

comparison approach that consisted of three properties. Their

Report explains that the "sales [were] researched through

numerous sources, inspected and verified by a party to the

transaction." Two of the properties comprised a mix of Section

42 units and market units. The other comparable property

consisted of a building that was being converted into Section 42

housing.

¶112 Because the comparables Furdek and Weissenfluh found

were not identical to Regency West, these experts complied with

the Manual——they made adjustments in their comparisons. They

explained that they took into account specific differences

between the comparables and Regency West, including the

location, age, and non-section 42 portions, to arrive at a value

for Regency West. Only after making these adjustments did

Furdek and Weissenfluh use the sales comparison approach to
arrive at the value of the Regency West property. This

valuation corroborated the original assessments.

¶113 Furdek and Weissenfluh also used two income

approaches, a capitalization of income approach and a discounted

cash flow analysis, and a cost approach. For each of these

approaches, these experts used a combination of Regency West's

actual expenses as well as projected expenses. The experts

reconciled the values derived from each approach to reach a
valuation.

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¶114 Each of these valuation methodologies, independently

and when reconciled with the others, confirmed that Janet

Scites——Racine's assessor whose initial assessments Regency West

challenged——got it right.

¶115 In stark contrast to the extensive, multi-faceted

evidence presented by Racine's experts, Regency West presented

one expert, Scott McLaughlin. Although McLaughlin claimed that

he specialized in assessing federally subsidized housing, the

record does not reflect the extent of his Wisconsin-specific

assessment experience. That said, the majority opinion relies

extensively (indeed exclusively) on McLaughlin's testimony and

report.

¶116 In the instant case, McLaughlin prepared a four-page

report consisting only of a capitalization of income approach to

valuation. This report was based on Regency West's projected

expenses for 2012 and actual expenses for 2013. McLaughlin's

report did not state his assumptions, nor did it consider market

conditions affecting the value of property in Racine.
Furthermore, McLaughlin's report does not explain the basis for

his opinions or the figures that he uses. His testimony filled

in some of this information.

¶117 McLaughlin's report concluded, based on his "extensive

experience appraising IRC § 42 properties," that "[t]he

inability to obtain reliable data regarding the rent and income

restrictions for IRC § 42 properties prevents a valid comparable

sales valuation in this case."

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¶118 Nevertheless, McLaughlin derived a capitalization rate

based on sales of fifteen Section 42 properties. Although

McLaughlin claimed he could not perform a comparable sales

analysis of Regency West because he did not have the Land Use

Restriction Agreements (LURAs) for his list of fifteen Section

42 sales, McLaughlin relied on data from Section 42 sales to

derive a capitalization rate for his income approach.6 The

majority opinion unsuccessfully attempts to explain away this

inconsistency in McLaughlin's evidence regarding the

availability of comparables.

¶119 Based upon an income valuation approach alone,

McLaughlin concluded that Regency West's value was nearly two

million dollars less than the valuations that Racine or Furdek

and Weissenfluh reached.

¶120 McLaughlin and the majority opinion rely solely on the

income approach to conclude that Racine's original assessment

was excessive. The majority opinion is unsuccessful in

explaining away precedent. The cases have stated time and time
again that the income approach "may never be the sole basis for

an assessment of property." Waste Mgmt. of Wis. v. Kenosha Cty.

Bd. of Review, 184 Wis. 2d 541, 558, 516 N.W.2d 695 (1994); see

6
There is no evidence that McLaughlin attempted to obtain
the LURAs for any of these fifteen properties or communicated
with WHEDA, buyers, sellers, or brokers to obtain information.

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also Bischoff v. City of Appleton, 81 Wis. 2d 612, 260

N.W.2d 773 (1978).7

¶121 After comparing evidence presented by the experts, the

circuit court unsurprisingly ruled in favor of Racine. The

circuit court was persuaded by Racine's appraisers and experts,

but was not impressed by McLaughlin. The circuit court stated

its finding that Racine's assessors were more credible as

follows:

Credibility of the assessors and experts is critical
to this analysis. Based upon the years of experience,
knowledge, and demeanor, this Court finds the
testimony of the City's assessors and experts more
credible than that of the plaintiff's expert, Scott
McLaughlin. The City's assessors and experts are very
familiar and experienced in valuing property in the
Racine and Southeastern Wisconsin area and McLaughlin
is not.
Based on my review of the record, without even giving deference

to the circuit court, I agree with the circuit court.

¶122 I conclude that Regency West has failed to present

sufficient evidence showing that the initial assessments were

excessive. Racine's assessors and experts presented the more

persuasive evidence that Racine's initial assessments were not

excessive.

IV

7
See State ex rel. I.B.M. Corp. v. Bd. of Review, 231
Wis. 303, 312, 260 N.W. 784 (1939) ("Though net income from the
rental of either real or personal property is always a proper
element to consider, it cannot be considered as the sole
controlling factor in determining value of either real or
personal property. Such a rule, if given approval, would
require a holding that non-income producing property is
practically valueless for taxation purposes.").

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¶123 Before I end my analysis, I discuss court procedure.

I dissented in an unpublished order granting review in the

instant case. I repeat my objection in this published dissent

to inform litigants and lawyers about court procedure.

¶124 On November 16, 2015, the court adopted a procedure

governing when a justice may hold for further discussion a

petition for review in which a Supreme Court Commissioner

recommended granting review.

¶125 The procedure applies when the justices vote on the

Wisconsin Supreme Court Commissioners' recommendations on

petitions for review by e-mail. Most months the court votes on

the recommendations in person, in closed conference. The new e-

mail procedure states:

Regarding petitions for review, certifications,
petitions to bypass, original actions, petitions for
supervisory writ, and petitions for writ of mandamus,
prohibition, quo warranto, and habeas corpus, some
months are scheduled as mail-in conferences, whereby
each justice votes, by e-mail, on the recommendations
of each Commissioner. A justice, who wishes to hold a
matter for which a Commissioner has recommended
granting review, must submit in writing, with his or
her e-mail votes, the specific reason(s) why he or she
would not approve the grant as recommended by the
Commissioner. Within 5 calendar days of that writing,
all justices shall vote, by e-mail, to grant the
matter, deny the matter, or otherwise approve the
suggestions in the written proposal. If sufficient
votes to grant the matter remain, the grant order
shall issue within two business days. If the matter
no longer has the requisite votes to grant, it shall
be discussed in a court conference, but in any event,
no later than at the next in-person petition for
review conference.

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¶126 The new procedure was adopted without any notice to

the Supreme Court Commissioners and Clerk of the Supreme Court,

let alone the litigants, lawyers, and the public.8

¶127 Although I did not vote in favor of adopting this

procedure, I have followed it. At the very least, the court

should follow its adopted procedures. As I have written before,

a scent of lawlessness pervades the court.

¶128 The effect of several newly adopted procedures

(whether the effect is intended or not) is to silence an

individual justice's voice——whether that justice wants to hold a

petition for review for further discussion, write separately on

a matter, or dissent.

¶129 I have pledged to continue to discharge my duties on

this court as the people of the state have four times elected me

to do. The commitment I made to myself nearly 40 years ago and

in four successive elections since then remains: Be

independent, impartial, and non-partisan, and help the court

system improve. I will continue to implement that commitment
whether in the majority or in dissent.

¶130 We are a court of seven. Each justice is only one

voice of seven. I will continue to be one justice with one

8
The procedure was adopted pursuant to the Introduction to
the Supreme Court's Internal Operating Procedures, which states
that the Internal Operating Procedures "may be changed without
notice as circumstances require." The Supreme Court Internal
Operating Procedures are available in Volume VI of the Wisconsin
Statutes (2013-14).

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voice, but mine will not be a timid voice as I continue to serve

the people of the state of Wisconsin.

¶131 For the reasons set forth, I write on the merits of

the case and court procedure.

¶132 I am authorized to state that Justice ANN WALSH

BRADLEY joins this dissent.

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