[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as
Columbus City Schools Bd. of Edn. v. Franklin Cty. Bd. of Revision, Slip Opinion No. 2017-
Ohio-2734.]




                                        NOTICE
     This slip opinion is subject to formal revision before it is published in
     an advance sheet of the Ohio Official Reports. Readers are requested
     to promptly notify the Reporter of Decisions, Supreme Court of Ohio,
     65 South Front Street, Columbus, Ohio 43215, of any typographical or
     other formal errors in the opinion, in order that corrections may be
     made before the opinion is published.



                         SLIP OPINION NO. 2017-OHIO-2734
  COLUMBUS CITY SCHOOLS BOARD OF EDUCATION, APPELLEE, v. FRANKLIN
 COUNTY BOARD OF REVISION ET AL., APPELLEES; NETWORK RESTORATIONS
                               III, L.L.C., APPELLANT.
  [Until this opinion appears in the Ohio Official Reports advance sheets, it
  may be cited as Columbus City Schools Bd. of Edn. v. Franklin Cty. Bd. of
                   Revision, Slip Opinion No. 2017-Ohio-2734.]
Taxation—Real-property         valuation—Valuation         of    government-subsidized
        residential properties—Board of Tax Appeals’ decision reversed.
    (No. 2014-0807—Submitted February 28, 2017—Decided May 11, 2017.)
              APPEAL from the Board of Tax Appeals, No. 2011-714.
                               ____________________
        Per Curiam.
        {¶ 1} This real-property-valuation case concerns several residential
parcels, all part of a government-subsidized low-income-housing project in
Franklin County, and their value for 2008, 2009, and 2010. The property owner,
Network Restorations III, L.L.C., presented an appraisal that was adopted by the
                                SUPREME COURT OF OHIO




Franklin County Board of Revision (“BOR”), but the Columbus City Schools
Board of Education (“BOE”) appealed to the Board of Tax Appeals (“BTA”),
which reversed and reinstated the county auditor’s higher valuations.
        {¶ 2} On appeal, the property owner asserts that its appraiser followed the
proper principles applicable when valuing government-subsidized housing and
that the BTA misinterpreted the applicable case law. The proper legal analysis for
the type of property at issue in this case is set forth in Woda Ivy Glen Ltd.
Partnership v. Fayette Cty. Bd. of Revision, 121 Ohio St.3d 175, 2009-Ohio-762,
902 N.E.2d 984.        Because we find that the BTA’s rejection of the owner’s
appraisal rests upon an erroneous interpretation of Woda, we reverse the decision
of the BTA.
                                     BACKGROUND
        {¶ 3} At issue are 42 parcels scattered throughout Franklin County, some
of which have been improved with renovated low-income housing. There are 35
buildings with 150 rental units—a mix of one-bedroom, two-bedroom, and three-
bedroom units. For tax year 2008, which was a triennial update year in Franklin
County, the county auditor valued the properties individually, combining a cost
approach and a “gross rent multiplier” approach to arrive at a value for each
parcel, which when combined amounted to $4,456,910.1 For tax year 2009, the
auditor increased the values because some of the properties had been renovated;
the aggregate valuation for 2009 was $5,490,700, which was carried over to tax
year 2010.



1
    Although the BTA stated that it was reinstating the auditor’s values, there is a discrepancy
between the aggregate value determined by the auditor for 2008—$4,456,910 per the BTA
decision—and the sum of the values assigned to the properties by the BTA itself, which was
$4,431,500. The BTA decision does not explain the discrepancy. Additionally, the parties that
filed briefs in this case assert that the aggregate value under the auditor’s assessment was
$4,456,500 (Columbus City Schools Board of Education) or $4,456,514 (Network Restorations).
In this opinion, we rely on the BTA’s finding of $4,456,910.




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       {¶ 4} After filing a complaint that sought a reduced aggregate value of
$3,600,000, the owner presented lay testimony and an expert opinion of value at
the BOR hearing. The testimony established that to participate in the “low-
income-housing tax credit” program, the owner was required to and did execute
and record a restrictive covenant. The covenant bound the current owner and its
successors to continue to use the property to provide low-income housing on very
specific terms over a 30-year period.
       {¶ 5} The owner’s expert witness was Donald E. Miller II, a member of
the Appraisal Institute, who testified in support of his appraisal report before the
BOR. Placing primary reliance on an income approach, which he checked using a
sales-comparison approach, Miller opined that the aggregate property value was
$2,830,000 for 2008. Miller specifically discussed the low-income-housing tax
credit and the rent subsidies enjoyed by the properties at issue, which made it
possible to renovate the units and to rent the units to low-income persons who
could not afford market rents.          He then premised his report on those
circumstances.
       {¶ 6} Miller identified two types of subsidy. The first was acquisition and
renovation assistance through the federal low-income-housing tax credit
(“LIHTC”), which was enacted in 1986 and codified at 26 U.S.C. 42. The LIHTC
is a device for raising capital for low-income-housing projects that by themselves
generate little (if any) profits—investors are attracted by federal income tax
credits that are tied to the amount of capital invested in the housing projects.
Woda, 121 Ohio St.3d 175, 2009-Ohio-762, 902 N.E.2d 984, at ¶ 16-17.
       {¶ 7} The second form of subsidy was housing-assistance payments
(“HAP”), which were available to tenants through Section 8 of the Housing Act of
1937, as amended. 42 U.S.C. 1437f. We have addressed this subsidy before in
the context of real-property-valuation cases. See Alliance Towers, Ltd. v. Stark
Cty. Bd. of Revision, 37 Ohio St.3d 16, 20, 523 N.E.2d 826 (1988), fn. 4 (lead




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opinion); Colonial Village Ltd. v. Washington Cty. Bd. of Revision, 114 Ohio
St.3d 493, 2007-Ohio-4641, 873 N.E.2d 298, ¶ 20.
       {¶ 8} Miller’s opinion of value rested on his finding of highest and best
use. Noting the blight in the neighborhoods in which the parcels at issue are
located, Miller found that the highest and best use would be “intensive residential
if special funding is made available.” Under the income approach, Miller noted
that the properties at issue operate as LIHTC properties and that the owner
receives HAP-subsidized rents, as the residents are unable to afford the LIHTC
rents. Miller stated that “[g]iven the subsidized rents and the reality that this
appraisal may be used in a real estate assessment (tax) appeal, the subject is being
appraised under the hypothetical assumption that it receives market rents.”
       {¶ 9} For 2008, the BOR adopted the $2,830,000 value in accordance with
the appraiser’s opinion, but in light of the renovations completed during 2008, it
raised the aggregate value for 2009 and 2010 to $3,867,300.           The increase
reflected the “contributing value” of the renovations and was based on the
auditor’s determination of increase in value from 2008 to 2009.
       {¶ 10} On appeal to the BTA, the BOE presented evidence showing that
the owner had spent $13.7 million renovating the properties.
       {¶ 11} The BTA reversed the BOR, restoring the auditor’s higher
aggregate value. With respect to tax year 2008, the BTA looked to Woda’s twin
principles that LIHTC use restrictions “ ‘must be taken into account when
determining the value of LIHTC property’ ” and that government-subsidized low-
income housing should be valued “ ‘in accordance with methods that disregarded
the affirmative value of the subsidies conferred by the federal government.’ ”
BTA No. 2011-714, 2014 Ohio Tax LEXIS 2505, at *4 (Apr. 21, 2014), quoting
Woda, 121 Ohio St.3d 175, 2009-Ohio-762, 902 N.E.2d 984, at ¶ 30, 28. The
BTA found that those principles were “directly contrary to the approach taken by
Mr. Miller,” based on its theory that using market rents involves ignoring the




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restrictive covenants. Id. The BTA also restored the auditor’s increased valuation
for 2009 and 2010.
                                   ANALYSIS
                              Standard of Review
       {¶ 12} Ordinarily, the determination of value is “a question of fact, the
determination of which is primarily within the province of the taxing authorities.”
Cuyahoga Cty. Bd. of Revision v. Fodor, 15 Ohio St.2d 52, 239 N.E.2d 25 (1968),
syllabus. Therefore, “this court will not disturb a decision of the Board of Tax
Appeals with respect to such valuation unless it affirmatively appears from the
record that such decision is unreasonable or unlawful.” Id.
       {¶ 13} In this appeal, however, we review the BTA’s determination that
Miller did not appraise the property in compliance with the legal standards set
forth in earlier cases. This is a legal issue, and thus, our de novo review is
invoked. See Lunn v. Lorain Cty. Bd. of Review, __ Ohio St.3d __, 2016-Ohio-
8075, __ N.E.3d __, ¶ 13.
                     Tax Valuation of Low-Income Housing
       {¶ 14} R.C. 5713.01 requires county auditors to appraise real property “at
its true value in money,” which we have construed to equate in most situations
with the amount for which the property would sell on the open market. State ex
rel. Park Invest. Co. v. Bd. of Tax Appeals, 175 Ohio St. 410, 412, 195 N.E.2d
908 (1964). We have further explained that “market value” means the price
arrived at when the buyer and the seller act as “typically motivated market
participants” who are acting “in their own self-interest.” Hilliard City Schools
Bd. of Edn. v. Franklin Cty. Bd. of Revision, 139 Ohio St.3d 1, 2014-Ohio-853, 9
N.E.3d 920, ¶ 31, citing International Association of Assessing Officers, Property
Assessment Valuation 17-19 (2d Ed.1996).         Accordingly, when considering
whether a sale price paid for the subject property constitutes its true value, we
have acknowledged that “the typical motivation of the seller and the buyer




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constitutes an element in determining whether a transaction constitutes an arm’s-
length sale.”    FirstCal Indus. 2 Acquisitions, L.L.C. v. Franklin Cty. Bd. of
Revision, 125 Ohio St.3d 485, 2010-Ohio-1921, 929 N.E.2d 426, ¶ 9, fn. 4.
         {¶ 15} Determining the value of government-subsidized low-income
housing presents the tax assessor with a problem in the application of the
typically-motived-party principle. For one thing, when government subsidies
(including income tax credits, which help finance construction and renovation,
and rent subsidies, which help tenants pay the restricted rent) are involved, the
circumstances attending the use of the property are not typical of the real-estate
market generally. Additionally, a question arises as to which benefits associated
with owning the real estate and running the housing complex count as real-estate
value.
         {¶ 16} Broadly speaking, the case law resolves this problem by
establishing three rules for valuing low-income housing. The first rule is that in
applying the income approach, market rents and expenses, as opposed to the
actual rents of the properties at issue, are used. Delhi Estates, Ltd. v. Hamilton
Cty. Bd. of Revision, 68 Ohio St.3d 192, 194, 625 N.E.2d 594 (1994). The main
reasons for this rule are that the rents actually generated by the property reflect
government subsidies that are atypical of the rental market generally and, because
of government mortgage guarantees, the expenses incurred are atypical of what
the unsubsidized market would bear. Quite simply, the rule of Delhi Estates calls
for removing those aspects of property value that are atypical of the market due to
government subsidies; the method for doing so is to derive rents and expenses
from the market.
         {¶ 17} The second rule is a corollary to the first. The case law establishes
that in valuing low-income housing using an income approach, government
subsidies should not be taken into account in a way that would increase the value
of the property. We have referred to the value of government subsidies as “the




                                          6
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affirmative value” and have stated that the affirmative value should be adjusted
out of the property valuation. Woda, 121 Ohio St.3d 175, 2009-Ohio-762, 902
N.E.2d 984, ¶ 28-29, fn. 3 and 4, and cases cited therein.
       {¶ 18} Finally, the case law disfavors a cost approach for valuing
government-subsidized low-income housing, even for a newly constructed
property.    The reason is that “[w]ithout a federal loan guarantee, favorable
mortgage terms, rent subsidy, and income tax advantages, the cost of construction
for such housing would be prohibitively expensive.” Canton Towers, Ltd. v. Stark
Cty. Bd. of Revision, 3 Ohio St.3d 4, 7, 444 N.E.2d 1027 (1983); see also
Colonial Village, 114 Ohio St.3d 493, 2007-Ohio-4641, 873 N.E.2d 298, ¶ 20,
and cases cited therein. In other words, without the subsidies, ordinary market
participants would not have incurred the construction costs in the first place, so
using the cost approach overvalues the property.
            Woda Does Not Require an Actual-Rent Income Approach
       {¶ 19} The BTA’s decision in this case appears to regard our decision in
Woda as a departure from earlier case law, and in its brief, the BOE points out
that the BTA has consistently interpreted Woda as requiring an actual-rent income
approach rather than a market-rent income approach in appraising LIHTC
property. To the extent that the BTA has interpreted Woda in that manner and
applied that interpretation here, the BTA is mistaken.
       {¶ 20} One crucial element in determining the value of real estate is
finding its “highest and best use,” which is defined as “ ‘that use which will
generate the highest net return to the property owner over a reasonable period of
time.’ ” Rite Aid of Ohio, Inc. v. Washington Cty. Bd. of Revision, 146 Ohio St.3d
173, 2016-Ohio-371, 54 N.E.3d 1177, ¶ 34, quoting Property Assessment
Valuation at 31. Like the present case, Woda involved several homes under
common ownership as a low-income-housing development. The appraiser valued
the properties using an income approach that looked to the overall market for rent




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and expenses. Woda Ivy Glen Ltd. Partnership v. Fayette Cty. Bd. of Revision,
BTA No. 2005-A-749, 2008 WL 205097 at *3 (Jan. 11, 2008), vacated and
remanded, 121 Ohio St.3d 175, 2009-Ohio-762, 902 N.E.2d 984. When it came
to determining the highest and best use of the properties, the owner’s appraiser in
Woda determined that the highest and best use of the property, as improved, was
as the current “ ‘affordable rental housing development, laid out like a detached
single-family subdivision.’ ”      Id. at *2.   The BTA found error in that
determination, stating that “the subject property was constructed as individual,
single-family units.” Id. at *4. The BTA then questioned why the highest and
best use should be as a single economic unit for rentals “rather than for sale as
individual units” and asked whether “it would not be more profitable to consider
the subject units individually, for fee simple ownership, rather than maintaining
the units in a rental mode.” Id. at *4.
       {¶ 21} On appeal, we reversed that linchpin of the BTA’s decision,
holding that the restriction to low-income-housing use had to be taken into
account. Woda, 121 Ohio St.3d 175, 2009-Ohio-762, 902 N.E.2d 984, ¶ 23-25,
31. But contrary to the BTA’s interpretation, our holding in Woda involved no
departure from earlier case law.
       {¶ 22} To be sure, in Woda, we did not order that the market-rent
appraisal presented in that case be adopted; we even suggested that the owner’s
appraisal in that case might not have been adequate. Woda at ¶ 31. But the BOE
is drawing an unwarranted inference; in Woda we confronted an appraisal that had
not been adopted by either the BOR or the BTA in determining the property
value. Our order did not require the adoption of an appraisal that had not been
vetted by the taxing authorities. See EOP-BP Tower, L.L.C. v. Cuyahoga Cty. Bd.
of Revision, 106 Ohio St.3d 1, 2005-Ohio-3096, 829 N.E.2d 686, ¶ 9 (“When it
reviews appraisals, the BTA is vested with wide discretion in determining the
weight to be given to the evidence and the credibility of the witnesses that come




                                          8
                                January Term, 2017




before it”). Instead, we remanded the cause to the BTA for it to consider the
appraisal evidence and to reach the proper conclusion as to value as the finder of
fact. To the extent that our decision in Woda has proved confusing in this regard,
today we clarify that Woda adheres to the rule for using a market-rent income
approach when valuing government-subsidized residential properties.
       {¶ 23} Unlike the situation in Woda, in this case, the BOR adopted the
owner’s appraisal, which the BTA rejected on erroneous legal grounds. Because
the appraisal formed the basis for the BOR’s reduced valuation, we have no
compunction in restoring that decision as a proper finding of fact.
       {¶ 24} This approach is also dictated by the Bedford rule. See Bedford Bd.
of Edn. v. Cuyahoga Cty. Bd. of Revision, 115 Ohio St.3d 449, 2007-Ohio-5237,
875 N.E.2d 913. Under that rule, “ ‘when the board of revision has reduced the
value of the property based on the owner’s evidence, that value has been held to
eclipse the auditor’s original valuation,’ and the board of education as the
appellant before the BTA may not rely on the latter as a default valuation.”
Dublin City Schools Bd. of Edn. v. Franklin Cty. Bd. of Revision, 147 Ohio St.3d
38, 2016-Ohio-3025, 59 N.E.3d 1270, ¶ 6, quoting Worthington City Schools Bd.
of Edn. v. Franklin Cty. Bd. of Revision, 140 Ohio St.3d 248, 2014-Ohio-3620, 17
N.E.3d 537, ¶ 35. Quite simply, the Bedford rule establishes that the BOR’s
reduced valuation was the default valuation before the BTA, and we are therefore
justified in reinstating it after correcting the BTA’s erroneous legal conclusions.
      The Increase Ordered by the BOR for 2009 and 2010 Was Proper
       {¶ 25} The BOE also argues that the BTA properly set aside the BOR’s
increased valuation for 2009 and 2010 and restored the auditor’s valuation. We
reject that contention. Although the auditor and the BOR increased the aggregate
value by a similar amount for 2009 and 2010 based on the completed renovation
of the units, the auditor added the increase to the higher aggregate value he had
determined for 2008. Thus, according to the BTA, the auditor set the 2008 value




                                          9
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at $4,456,910; thereafter, the auditor added $1,033,790, to arrive at a value for
2009 and 2010 of $5,490,700, while the BOR set the 2008 value at $2,830,000
and added $1,037,300 to arrive at a value for 2009 and 2010 of $3,867,300.
       {¶ 26} Contrary to the BOE’s argument, we find that Sapina v. Cuyahoga
Cty. Bd. of Revision, 136 Ohio St.3d 188, 2013-Ohio-3028, 992 N.E.2d 1117,
¶ 35, is inapposite here. In Sapina, the BTA properly rejected a BOR finding that
it could not replicate. Unlike the record in Sapina, the record here does permit the
BTA to replicate the BOR’s value for 2009 and 2010: the BOR arrived at those
values by adding to its 2008 valuation substantially the same amount that the
auditor had added to his 2008 valuation to account for the value increase
attributable to the renovations; the BOR added $1,037,300, as opposed to the
$1,033,790 increase ordered by the auditor. We find that this difference is de
minimis.
       {¶ 27} Additional support for restoring the BOR’s increase for 2009 and
2010 lies in the Bedford rule. As previously discussed, the BOR’s 2009 and 2010
valuation was the default valuation at the BTA. We therefore reverse the BTA
decision as to its 2009 and 2010 valuations, and we reinstate the BOR’s valuation
for those years.
                                 CONCLUSION
       {¶ 28} For the foregoing reasons, we reverse the decision of the BTA and
reinstate the BOR’s values.
                                                                 Decision reversed.
       O’CONNOR, C.J., and O’DONNELL, KENNEDY, FRENCH, O’NEILL, FISCHER,
and DEWINE, JJ., concur.
                               _________________
       Rich & Gillis Law Group, L.L.C., Mark H. Gillis, and Kimberly G.
Allison, for appellee Columbus City Schools Board of Education.
       Timothy A. Pirtle, for appellant.




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January Term, 2017




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