               NOT FOR PUBLICATION WITHOUT THE
              APPROVAL OF THE APPELLATE DIVISION

                                  SUPERIOR COURT OF NEW JERSEY
                                  APPELLATE DIVISION
                                  DOCKET NOS. A-1498-16T3
                                              A-1500-16T3
                                              A-1509-16T3

MERRILL CREEK RESERVOIR
c/o PROJECT DIRECT,
                                      APPROVED FOR PUBLICATION
     Plaintiff-Appellant/
     Cross-Respondent,                       August 22, 2019

                                          APPELLATE DIVISION
v.

HARMONY TOWNSHIP,

     Defendant-Respondent/
     Cross-Appellant.
___________________________

           Argued January 16, 2019 - Decided August 22, 2019

           Before Judges Fuentes, Accurso and Vernoia.

           On appeal from the Tax Court of New Jersey, Docket
           Nos. 010290-2011, 004562-2012 and 004474-2013,
           whose opinion is reported at 29 N.J. Tax 487 (Tax
           2016).

           Frank E. Ferruggia argued the cause for
           appellant/cross-respondent (Mc Carter & English LLP,
           attorneys; Frank E. Ferruggia, of counsel and on the
           briefs; Farhan Ali, on the briefs).

           Lawrence P. Cohen argued the cause for
           respondent/cross-appellant (Lavery Selvaggi Abromitis
           & Cohen, attorneys; Lawrence P. Cohen, of counsel
            and on the briefs; William Henry Pandos, on the
            briefs).

            Thomas J. Denitzio, Jr., argued the cause for amicus
            curiae Royal Institute of Chartered Surveyors
            (Greenbaum Rowe Smith & Davis, LLP, attorneys;
            Thomas J. Denitzio, Jr., of counsel and on the brief;
            Emily A. Kaller, on the brief).

      The opinion of the court was delivered by

ACCURSO, J.A.D.

      In these consolidated appeals, plaintiff Merrill Creek Reservoir c/o

Project Direct, a consortium of electric utility companies and owner of the

Merrill Creek Reservoir in Harmony Township, challenges three 2016 Tax

Court judgments affirming the 2011-2013 tax assessments on its property.

Harmony cross-appeals alleging error in adjustments the Tax Court made to

value. Merrill Creek, although conceding the improvements should be valued

using the cost approach the Tax Court employed, argues the court erred in

accepting the Township's trend analysis, which it characterizes as "a rarely

used valuation methodology, discredited by New Jersey Tax Court precedent,"

instead of its own quantity survey method. Because we find no error in the

court's acceptance of a trend analysis in this case or its adjustments to value

based on the evidence adduced at trial, we affirm.

      The case was tried over the course of seven days. Certain facts are

undisputed. The reservoir property consists of ten parcels totaling 840 acres in

                                                                       A-1498-16T3
                                       2
Harmony. The reservoir, which has a capacity of over sixteen billion gallons

of fresh water, spans 650 acres. The remainder of the property not vacant land

contains major improvements including a main dam, several smaller saddle

dikes, a spillway, a conservation outlet, pipes and tunnels to transfer the water,

a pumping station, an electric substation, an inlet/outlet tower containing

equipment to regulate water flow, a maintenance building and a visitor center.

      The reservoir was constructed between 1985 and 1988 following a

directive from the Delaware River Basin Commission. It was designed to

provide fresh water to offset consumptive use by electric power plants located

along the Delaware River during droughts. The reservoir is part of a larger

network of reservoirs that serve the Delaware by providing water in times of

drought and low flow conditions.        Although the reservoir makes regular

releases of water for conservation purposes, there have been only four ordered

large-scale releases to counter drought conditions since construction was

completed in 1988.

      Construction of the reservoir was led and supervised by Public Service

Electric and Gas Company (PSE&G), one of the members of the owning

consortium, acting on its behalf as the "managing utility."        The sole fact

witness at trial was Robert Uniszkiewicz, manager of construction estimating

for PSE&G, and a thirty-four-year employee of the company. He manages a



                                                                         A-1498-16T3
                                        3
group of civil, electrical and mechanical estimators responsible for estimating

construction-related costs for all PSE&G projects. Uniszkiewicz was tasked

by PSE&G to estimate the costs of building the Merrill Creek Reservoir.

      The parties stipulated the highest and best use of the property is as a

reservoir, and that the cost approach is the appropriate method for valuing the

improvements. They also stipulated the fair market value of the land for tax

years 2011 through 2013 was $4,800,000. They stipulated to the qualifications

of all experts testifying at trial and to the admission of their reports. Finally,

they agreed the total assessment of the property was $220,822,300 for tax

years 2011 and 2012, and $220,725,800 for 2013.

      Each side presented a real estate appraisal expert and an expert who

estimated costs of construction of the improvements. The parties and their

experts having agreed that the cost approach was the best indicator of fair

value for this special purpose property, see Dworman v. Borough of Tinton

Falls, 1 N.J. Tax 445, 452 (Tax 1980), aff'd, 180 N.J. Super. 366 (App. Div.

1981), the focus of the expert testimony at trial was on their differing methods

for calculating the cost of reproducing or replacing the reservoir and its

attendant improvements, see Int'l Flavors & Fragrances, Inc. v. Union Beach

Borough, 21 N.J. Tax 403, 417 (Tax 2004) (explaining the two elements to a




                                                                         A-1498-16T3
                                        4
cost approach as "land value and the reproduction or replacement cost of the

buildings and other improvements").

      Merrill Creek's experts employed the quantity survey method, described

in The Appraisal of Real Estate as "[t]he most comprehensive method of cost

estimating." Lawrence Assocs. v. Lawrence Twp., 5 N.J. Tax 481, 526 (Tax

1983) (quoting American Institute of Real Estate Appraisers, The Appraisal of

Real Estate 216 (7th ed. 1978)).

            In its strictest application, it is a repetition of the
            contractor's original process of developing a bid
            figure. A quantity survey is computation of the
            quantity and quality of all materials used and of all
            categories of labor hours required, to which unit cost
            figures are applied to arrive at a total cost estimate for
            materials and labor. To this are added estimates for
            other contractor costs such as permits, insurance,
            equipment rental, field office, supervision, and other
            overhead, plus a margin for profit.

            [Ibid. (quoting The Appraisal of Real Estate 216-17
            (7th ed.)).]

      Joseph Novelli, Merrill Creek's expert construction cost estimator,

testified as to how he prepared an estimate of the cost to reproduce new the

reservoir improvements less depreciation for the tax years at issue. See Gale

& Kitson Fredon Golf, L.L.C. v. Twp. of Fredon, 26 N.J. Tax 268, 283 (Tax

2011) (explaining the cost approach involves "a replication, through the use of

widely accepted cost services . . . of the cost of the components of the building



                                                                         A-1498-16T3
                                        5
to be valued, less . . . depreciation" (quotation omitted)). Visiting the site,

inspecting the improvements and using the "as-built" drawings, he performed a

"quantity takeoff" by identifying the materials used to construct each

component of all improvements, calculating dimensions where necessary, and

estimating the quantities used in construction. He then consulted the RSMeans

Manual, a nationally recognized publication that provides construction cost

surveys relied upon by appraisers and cost estimators, to ascertain the cost of

each item. Novelli testified he multiplied the quantity of each material by its

code in the RSMeans manual. He applied time and location modifiers and the

RSMeans software provided him the total cost for each component including

labor at union rates.   For the few items without an RSMeans code, he

consulted the Marshall and Swift Valuation Service, another widely accepted

building cost manual, see Ford Motor Co. v. Edison Twp., 10 N.J. Tax 153,

181 (Tax 1988), aff'd, 127 N.J. 290 (1992), called suppliers or vendors or

estimated the cost based on his own experience.

      After costing out every component on the as-built plans using the

quantity survey method, Novelli summed them to obtain total "hard" costs,

representing material and labor, for each tax year. To those amounts, he added

a five percent contingency to account for extra work due to unforeseen

conditions or changes, ten percent for general conditions, and ten percent for



                                                                       A-1498-16T3
                                      6
general contractor overhead and profit. Novelli then added 14.25 percent in

"soft" costs, consisting of items such as architectural fees, engineering fees,

insurance and legal fees. Novelli testified he found total hard and soft costs of

$192,370,411 for tax year 2011; $202,214,888 for tax year 2012; and

$200,301,947 for tax year 2013.

      Finally, Novelli deducted depreciation from each component using the

"age-life" method. See Brockway Glass Co. v. Twp. of Freehold, 10 N.J. Tax

356, 367 (Tax 1989) (explaining "in the cost approach, depreciation from all

causes is subtracted from the cost of reproduction new as representing a loss in

property value"), aff'd, 12 N.J. Tax 263 (App. Div. 1991). He first determined

the estimated useful life for each component and divided it by its effective age

to derive a depreciation factor, which he applied to reduce the cost of the

component.     Novelli found final depreciated hard and soft costs of

$128,962,021 for tax year 2011; $132,888,329 for tax year 2012; and

$128,632,204 for tax year 2013.

      Mark Sussman, Merrill Creek's real estate appraisal expert used

Novelli's cost estimates as the basis for his proposed valuation of the property.

Sussman worked with Novelli in developing the component-based depreciation

analysis Novelli applied to determine depreciated hard and soft costs for each

tax year. Sussman further reduced the value of the improvements by fifteen



                                                                         A-1498-16T3
                                       7
percent for functional obsolescence, reasoning that a reservoir of substantially

less capacity would have been sufficient in light of the limited number of times

the Delaware River Basin Commission has ordered the release of water into

the river. See CPC Int'l, Inc. v. Englewood Cliffs, 193 N.J. Super. 261, 265

(App. Div. 1984) (explaining functional obsolescence as a term to describe the

reduction of an improvement's market value based on costly features installed

to please the owner or unique to the improvement's special purpose that do not

enhance market value).

      Sussman considered and rejected adding an "entrepreneurial profit"

factor to the project's costs, representing a value enhancement for the

developer's expectation of a reward or the anticipation of entrepreneurial

profit, because the consortium only built the reservoir after being directed to

do so by the Delaware River Basin Commission. See Westwood Lanes, Inc. v.

Borough of Garwood, 24 N.J. Tax 239, 249 (Tax 2008) (noting New Jersey

courts include entrepreneurial profit where improvements were made to

property with the anticipation of realizing a profit on sale). Using Novelli's

hard and soft cost estimates and depreciation analysis, applying a functional

obsolescence factor and adding the stipulated land value, Sussman opined the

total value of the property was $104,905,000 for tax year 2011; $107,356,000

for tax year 2012 and $103,385,000 for tax year 2013.



                                                                        A-1498-16T3
                                       8
      In contrast, Harmony's experts relied on a "trend analysis," which

involved looking at the actual costs of the project and applying a multiplier to

trend those costs forward to the tax years.      See Hackensack Water Co. v.

Borough of Haworth, 178 N.J. Super. 251, 261 (App. Div. 1981) (explaining

the elements of the trended original cost methodology). For proof of the actual

costs of the improvements, Harmony relied on Uniszkiewicz, the head of

construction estimating at PSE&G, who explained how he estimated the

original cost of the reservoir project and how it compared to the actual cost the

owners incurred in completing the project.

      Uniszkiewicz testified that before construction began, he spent between

two and three years working with an engineering firm to develop a

construction cost estimate. In 1984, prior to construction, he estimated the

total project would cost approximately $217 million to complete.               He

explained that figure was divided between "bid" and "risk," with bid

representing the "contract face value for the job," and risk representing "all the

issues that could happen from the base cost." He testified that of his initial




                                                                         A-1498-16T3
                                        9
budget figure of $217 million, $136 million represented the base or "bid" and

the remaining $30 million "risk assessment and contingency." 1

      Uniszkiewicz revised his estimates in 1986, changing the base "bid" as

the scope of the project changed and modifying the "risk" or management

reserve "based on the uncertainty of the project," but his predicted total project

cost remained at $217 million. After construction, Uniszkiewicz calculated the

project's actual costs and compared it to his estimate. The final actual cost of

the project was approximately $215 million representing a base of $131

million and change orders of roughly $84 million, to which he added a punch

list reserve of $5 million, representing a difference of roughly $2 to $3 million

off his original estimate of $217 million. Uniszkiewicz agreed with Harmony's

counsel that his estimate of $217 million was remarkably accurate given the

size of the project.

      Uniszkiewicz acknowledged, largely in response to cross-examination

by Merrill Creek's counsel, the several difficulties PSE&G encountered during

construction, including discord between PSE&G's project manager and the

general contractor, leading to the project manager's replacement; thirty-nine

days of rain at the start of construction, which delayed the schedule and

1
  Uniszkiewicz's estimate for bid and risk totaled $167.2 million. He testified
the $217 million budget also accounted for acquisition costs, management
services, utilities, engineering fees and construction management.


                                                                         A-1498-16T3
                                       10
required the erection of a bubble over the site at a cost of over $300,000 to

permit work to continue "in the winter as if it was summer"; and "a lot of

environmental issues," including shutdown of the site for a month by the

Warren    County    Soil   Conservation    District   over   sediment   control.

Uniszkiewicz testified the design of the project evolved "from beginning to the

end." He explained that "[m]aterials were changing, the laydown areas were

changing, the amount of materials were constantly changing," because "[a]s

they did more engineering they found that they had to modify it as they went

along."

      Uniszkiewicz reviewed on cross-examination a letter from the general

contractor from July 1986 complaining about PSE&G's mismanagement of the

project and the attendant delays, disruption and escalating costs. Specifically,

the contractor complained of deficiencies in the project design, inefficiency of

the site organization, interference from the environmental regulators, differing

site conditions "of a surprising magnitude" and the adverse weather.

Uniszkiewicz agreed with Merrill Creek's counsel that the contractor's claims

resulted in a number of requests for additional payment in the form of change

orders.

      On redirect, Uniszkiewicz conceded the general contractor's July 1986

letter was typical of the types of letters PSE&G regularly received from



                                                                        A-1498-16T3
                                      11
contractors attempting to establish a basis for additional payments on a pro ject.

Uniszkiewicz agreed with Harmony's counsel that his estimate anticipated

unforeseen costs, and that some of those costs, such as those resulting from

issues with the design and site conditions, would be the same if the

construction were undertaken in 2010.

      Uniszkiewicz was unable to quantify the degree of increased costs

attributable solely to mismanagement or incompetence. He also acknowledged

that some of the change orders requested by the contractor actually decreased

costs. Ultimately, Uniszkiewicz observed that even with all of the changes,

the final cost of the project, including the punch list reserve for items to be

completed after construction was finished, exceeded his estimate by only $3

million.

      Eric Ditchey, a licensed civil engineer with a master's degree in

geotechnical engineering who specializes in working on dams and hydraulic

structures, testified for Harmony about the costs of construction. He testified

he had been involved in the design of ten or twelve new dam projects and sixty

or seventy dam rehabilitation projects, as well as in the construction of twenty

to twenty-five dam related projects.         Ditchey explained he was asked by

Harmony to review the Merrill Creek Reservoir and develop what it would

cost to build in 2010, 2011 and 2012 dollars and to give an opinion on what



                                                                         A-1498-16T3
                                        12
the service life of the reservoir should be and what an appropriate method of

depreciation would be, based on his experience in the design and construction

of such projects.

      Ditchey testified he inspected the site and reviewed the as-built plans for

the reservoir, several inspection reports and Uniszkiewicz's 1986 cost estimate

and final cost compilations.     He determined to trend the original costs of

construction because in his professional opinion, the design and construction

of the dam remained "perfectly appropriate" despite the passage of time. He

testified that if the reservoir were constructed today it would be built in the

exact same way it was built in the 1980s. There would be no changes in the

design, the methods of construction or the materials used.         Ditchey also

testified that no aspect of the project would cost less.

      Ditchey testified he considered, and rejected, a component cost analysis

because he did not believe he could come up with an accurate number for cost

of construction given the complexity of the project and the inability to

ascertain some of the specifics of the construction. According to Ditchey,

having access to the level of detail provided by Uniszkiewicz's cost

compilations was a great advantage in accurately calculating the cost of

reproducing the reservoir during the tax years at issue by trending the costs

forward.



                                                                        A-1498-16T3
                                        13
      Ditchey analyzed PSE&G's cost compilations and the as-built drawings

to determine how much the improvements actually cost at the time of

construction. He determined the total cost, including both hard and soft costs,

was approximately $215 million. But after deducting more than $11 million

for the value of the real estate and the cost of some furnishings in the visitor 's

center he considered should be categorized as personal property, he concluded

the actual cost of constructing the improvements in 1988 would be

$203,934,813. He testified based on his experience in designing dams and

reservoirs and supervising their construction that $203,934,813 would have

been a reasonable cost for construction in 1988, considering the complexity of

the project.

      Ditchey then "trended" the historical costs forward to determine what the

cost of the improvements would be if the project were constructed in tax years

2011, 2012 and 2013.      To derive a trending factor, Ditchey consulted the

RSMeans historical cost indices, the Consumer Price Index, the Construction

Cost Index and the Building Cost Index.         He relied most heavily on the

RSMeans indices because they dealt specifically with heavy construction,

appropriate for a reservoir project. He concluded the project's trended cost,

before depreciation, was $416,027,019 for tax year 2011; $434,381,152 for tax

year 2012; and $440,499,196 for tax year 2013.



                                                                          A-1498-16T3
                                        14
      Ditchey testified he regularly employed the same trending analysis when

he developed an engineer's estimate of construction costs for clients replacing

or rehabilitating a dam or reservoir built fifteen or twenty years before. He

explained his firm would look at the original cost of construction and use the

RSMeans indices to calculate what it would cost to construct the same project

today, which the client would then use as a benchmark in putting the project

out for bid. Ditchey testified that trending original construction costs for dams

and reservoirs using the RSMeans indices was "common practice," and that

based on his experience, the trended figures he computed represented a

reasonable cost of constructing the Merrill Creek Reservoir in the tax years in

question.

      Ditchey testified he calculated depreciation by assigning the entire

reservoir a service life of 100 years, the same service life the New Jersey

Water Supply Authority assigned to the Manasquan Reservoir built at roughly

the same time. Ditchey determined straight line depreciation would be most

appropriate for the reservoir and thus divided the chronological age of the

structure by 100 years to obtain the depreciation factor.       Ditchey readily

acknowledged that some components of the project, such as the visitor's center

or certain mechanical parts, might last less than 100 years.       He testified,

however, that the mechanical components were not subject to abuse and



                                                                        A-1498-16T3
                                       15
Merrill Creek was one of the best maintained facilities he had ever seen. He

believed that with proper maintenance the reservoir could last 200 years.

Ditchey concluded the design and construction of the reservoir and the way it

was maintained actually made his 100 year service life a conservative estimate.

He calculated trended costs after depreciation as $324,256,353 for tax year

2011; $334,453,093 for tax year 2012; and $336,492,441 for tax year 2013.

      In response to questions from the court about the reliability of Novelli's

quantity takeoff analysis, Ditchey explained why he thought it less reliable

than trending original costs in the case of dams and reservoirs. According to

Ditchey, dam engineering and construction is different from the cost

estimating associated with the construction of buildings because the majority

of the work on a dam is in the foundation well below grade where it is difficult

to fully assess conditions ahead of construction.

      Ditchey explained that although dam engineers would typically take core

samples and run permeability tests to get a sense of the kind of seepage they

could expect through the foundation rock, "there's only a limited number of

holes you can drill during the investigation or design phase," making it

"unlikely that you're going to really understand the full and true permeability

of the rock." Ditchey explained it was thus very common to find conditions




                                                                        A-1498-16T3
                                       16
worse than anticipated "just because your borings didn't hit all the porous areas

when you did the subsurface investigation program."

      Because there are typically so many unknowns, Ditchey explained that

for dam engineers and general contractors to "have an actual bid and/or

construction costs from a dam project, regardless of the age of that data is

very, very important." He readily acknowledged that the actual costs on which

he relied included multiple change orders that made construction more

expensive, but he contended many of them were the result of difficult site

conditions that any contractor would have encountered. He maintained those

change orders represented

            a real cost that . . . needed to be spent to build that
            reservoir. So, accepting that and in trending that
            forward to me is totally appropriate. To do the
            component approach by just taking quantities off the
            as-builts then going to Means to get a unit price, there
            was no way to include some of those costs that the
            contractor had to incur.

      Ditchey used the "borrow material" to illustrate his point. Merrill Creek

is an earthen dam.     Ditchey explained that he did not know where the

contractor got the soil and rock or "borrow material" used in the dam, but

assumed the majority was pulled from a borrow pit "on-site relatively close to

where the embankments were constructed," as that is "the only way a project

like this with this many millions of cubic yards could be constructed



                                                                        A-1498-16T3
                                       17
economically." Ditchey explained he "didn't have to worry about where they

got it because" it was already "included in [his] cost where the contractor got

the material and how far he had to take it to put it into the dam." In contrast,

            [t]o do the component approach, the person doing it,
            Mr. Novelli, would have to make some assumptions
            on where that material was gotten, you know, where
            the borrow sources were, how far they were and I
            don't know how he would do that. . . . I didn't see the
            information on the as-builts and I think that's what he
            said, as well. He didn't know that — how far away the
            material had to come from.

      When Merrill Creek's counsel asserted that the unforeseen conditions

and the materials and methods for dealing with them would all be reflected on

the as-built drawings, Ditchey replied, "[n]ot necessarily." He explained:

            If there was a change in quantity or an addition of a
            material[,] that would be shown on the as-builts, but if
            say the material that they intended to use for the core
            [of the dam], as an example, if it came out of the
            borrow area much wetter than they anticipated, they
            would have to then do extra effort to dry that material
            or get it to a certain moisture content. [2] That would
            be an added cost that, I don't know where or how they
            would reflect that on the as-builts.

      Ditchey asserted that for someone trying to assess what it might cost to

replicate a dam project, "how a contractor chooses to bid that work or how the


2
  Uniszkiewicz testified the rain made the soils wetter than what the engineers
deemed acceptable for the dam, requiring the contractor to dry them out before
using it in the construction.


                                                                          A-1498-16T3
                                        18
ultimate cost works out because of change orders associated with those

unknowns, that's all very valuable." Ditchey concluded that for him and he

believed it "standard practice within the engineering community, the

compilation of these bid tabulations from previous projects, we as dam

engineers put a lot of value on that and having that type of information, [and]

being able to trend it forward."

      Harmony's real estate appraisal expert was Louis Izenberg. He agreed

with Ditchey's use of a trend analysis to determine market value of the

reservoir improvements because the trended cost approach relied on fewer

"hypotheticals" than the quantity survey approach in replicating costs of

construction of the reservoir. He explained that the inability to obtain precise

information about the quantities of the material used in the dam resulted in

"that first input if you will [having] to be an opinion of someone else and that

follows for the next thousand inputs — that it was an opinion based upon

opinion."

      Izenberg asserted that because the reservoir would be built in the exact

same way if constructed in the applicable tax years, the trended cost approach

was most appropriate in calculating value because it accorded great weight to

the project's actual cost. Izenberg's report states he calculated replacement

cost, rather than reproduction cost, but he testified the trending multiplier takes



                                                                          A-1498-16T3
                                        19
into account modern materials and methods, thus making reproduction and

replacement virtually the same in this case.

      Izenberg used Ditchey's calculated actual cost of $203,934,813 as his

baseline figure for the actual cost of the improvements in 1988. He further

reduced that number to approximately $199 million by deducting amounts he

determined were linked to land acquisition, rather than improvements. After

reviewing Ditchey's report and the Marshall & Swift Valuation manual,

Izenberg used a double trending multiplier for tax year 2011, meaning the cost

to build the dam in 2011 would be twice what it cost in 1988.         Izenberg

increased that multiplier by three percent in tax years 2012 and 2013, thus

applying a multiplier of 2.060 in 2012 and 2.120 in 2013. After applying the

multipliers to the base cost, his calculated replacement cost was approximately

$398 million for tax year 2011, $410 million for tax year 2012, and $422

million for tax year 2013.

      Izenberg also added an entrepreneurial incentive factor of ten percent to

further increase the replacement costs in each tax year. He testified he did so

because the concept of market value embodies the majority of behaviors that

people involved in real estate would undertake and most people invest in real

estate for profit, although he acknowledged the reservoir was not built for

profit or resale. With that factor included, the total replacement cost was



                                                                       A-1498-16T3
                                       20
approximately $438 million for tax year 2011, $451 million for tax year 2012,

and $464 million for tax year 2013.

      Izenberg testified he rejected functional obsolescence because he found

nothing in the discovery to support a finding of excess capacity, and certainly

nothing from the Delaware River Basin Commission to that effect. He then

applied a depreciation factor to the total costs, using the age-life method. His

approach differed from that of Sussman, who had engaged in a component -by-

component depreciation analysis for every improvement on the property.

Izenberg found an effective age of twenty years for the improvements for all

three tax years. He found a 100-year useful life for the reservoir as a whole,

and applied a twenty percent depreciation factor for each tax year.

      After reducing for depreciation and adding the stipulated land value,

Izenberg's final market value estimate for each tax year in rounded dollars was

$355,000,000 for tax year 2011; $365,750,000 for tax year 2012; and

$375,250,000 for tax year 2013.

      On cross-examination, Izenberg was queried about the reasonableness of

trending construction costs consisting of a $131 million base bid and $84

million in change orders.    He took issue with the assumption that change

orders were synonymous with cost overruns in light of Uniszkiewicz's pre-bid

cost estimate, and his testimony that total cost of construction was within $3



                                                                       A-1498-16T3
                                      21
million of PSE&G's original estimate. Izenberg emphasized that the contract

came in within budget and on schedule, making trending those costs the most

credible method of estimating what it would cost to build the same reservoir in

the exact same manner in 2010 and the ensuing tax years.

      The Tax Court judge found both parties' experts "produced generally

credible valuation reports and rendered credible testimony." Merrill Creek Res

C O Proj. Direct v. Harmony Twp., 29 N.J. Tax 487, 495 (Tax 2016). He

concluded, however, that "the testimony and cost conclusions of Harmony's

cost estimator," an engineer specializing in the design and construction of

dams, was "more compelling" and the trended cost approach used by

Harmony's appraisal expert was "most appropriate" on the facts. Id. at 495-96.

      The judge agreed with Harmony's appraisal expert that in assessing true

value of the reservoir, there was no difference between reproduction and

replacement costs. Id. at 496. Finding the trended original cost approach "an

accepted methodology," id. at 498 (citing Transcon. Gas Pipe Line Corp. v.

Bernards Twp., 111 N.J. 507, 542 (1988)), the judge found any concern about

its reliability given the age of the reservoir was assuaged by the undisputed

testimony "that the reservoir would be built the exact same way today as it was

in the 1980s" and the accuracy of the original costs of construction, ibid.




                                                                         A-1498-16T3
                                       22
      Although accepting Harmony's cost trending analysis, the Tax Court

rejected inclusion of entrepreneurial incentive, agreeing with Merrill Creek

that "the reservoir was built because the [Delaware River Basin Commission]

required it be built" and "profit was not the primary motivation." Id. at 499-

500; see Tex. E. Transmission Corp. v. E. Amwell Twp., 13 N.J. Tax 24, 42

(Tax 1992), aff'd, 18 N.J. Tax 126 (App. Div. 1999).

      The Tax Court was also persuaded by Merrill Creek's argument about

the excess capacity of the reservoir, finding its "expert provided credible

evidence for a 15% deduction for functional obsolescence due to an incurable

superadequacy." Merrill Creek, 29 N.J. Tax at 502. Acknowledging "[t]he use

of replacement cost can eliminate the need to measure many, but not all, forms

of functional obsolescence such as superadequacies and poor design," ibid.

(quoting Appraisal Institute, The Appraisal of Real Estate 386 (13th ed.

2008)), the court noted replacement cost should, in theory, "implicitly

eliminate functional obsolescence," ibid. The Tax Court found, however, that

although Harmony's experts acknowledged design factors, including the

reservoir's size and the infrequent discharge orders, "its limited sedimentation

load that enhances its effective capacity and function, its current capacity to

handle future rainfall and seismic activities, and its anticipated continued




                                                                       A-1498-16T3
                                      23
functionality due to superior maintenance," they "failed to account for much of

the excess construction costs testified to by Merrill Creek's witness." Ibid.

        Adopting Harmony's cost approach adjusted to eliminate entrepreneurial

incentive and apply a fifteen percent deduction for functional obsolescence,

the Tax Court arrived at a true value of $263,700,000 for tax year 2011;

$271,461,000 for tax year 2012; and $279,022,000 for tax year 2013. Id. at

503. Although the valuations exceeded the assessments for each tax year, and

Harmony filed counterclaims, the ratios between the court's true values and the

original assessments being within permissible Chapter 123 limits, see Glen

Wall Assocs. v. Twp. of Wall, 99 N.J. 265, 271 n.2 (1985) (explaining "[t]he

'Chapter 123 ratio' is the average ratio of assessed value to market value of all

property in a town or tax district," (citing N.J.S.A. 54:51A-6)), the court

affirmed the assessments, Merrill Creek, 29 N.J. Tax at 503.

        Merrill Creek appeals, arguing the Tax Court erred in using a cost trend

analysis based on inflated and unreliable historic costs going back over twenty

years. Amicus Royal Institute of Chartered Surveyors echoes Merrill Creek 's

arguments.3 Harmony cross-appeals, arguing the court erred in disallowing

entrepreneurial     incentive   and   allowing    a   deduction      for   functional

obsolescence.     Our review of the record convinces us that none of these

3
    Merrill Creek is paying amicus's fees and costs in this court.


                                                                             A-1498-16T3
                                         24
arguments is of sufficient merit to warrant extended discussion in a written

opinion. See R. 2:11-3(e)(1)(E).

      The scope of our review of judgments of the Tax Court is, of course,

limited. United Parcel Serv. Gen. Servs. Co. v. Dir., Div. of Taxation, 430

N.J. Super. 1, 7 (App. Div. 2013). Because "[t]he judges presiding in the Tax

Court have special expertise . . . their findings will not be disturbed unless they

are plainly arbitrary or there is a lack of substantial evidence to support them."

First Republic Corp. of Am. v. Borough of E. Newark, 17 N.J. Tax 531, 536

(App. Div. 1998) (quoting Glenpointe Assocs. v. Twp. of Teaneck, 241 N.J.

Super. 37, 46 (App. Div. 1990)).

      The Tax Court reviews challenged property tax assessments pursuant to

N.J.S.A. 54:3-21.    "The settled rule is that there is a presumption that an

assessment made by the proper authority is correct and the burden of proof is

on the taxpayer to show otherwise." 125 Monitor St. v. City of Jersey City, 23

N.J. Tax 9, 13 (App. Div. 2005) (quoting Aetna Life Ins. Co. v. City of

Newark, 10 N.J. 99, 105 (1952)).         The taxpayer must present "sufficient

competent evidence to overcome the presumption, that is, to establish a true

valuation of the property at variance with the assessment."          Ibid.     "Such

evidence must be definite, positive and certain in quality and quantity to

overcome the presumption." Ibid. Once the presumption is overcome, "[t]he



                                                                             A-1498-16T3
                                        25
court must then turn to a consideration of the evidence adduced on behalf of

both parties and conclude the matter based on a fair preponderance of the

evidence."    Ford Motor Co. v. Twp. of Edison, 127 N.J. 290, 312 (1992)

(citation omitted).

      Applying those standards here, we find no error in the Tax Court's use of

a trended cost analysis to value the Merrill Creek Reservoir, a textbook

example of a special purpose property. As our Supreme Court has observed,

there is no single "approach that must be followed in valuing real property."

Pantasote Co. v. City of Passaic, 100 N.J. 408, 414 (1985). "There can be no

rigid rule. The answer depends upon the particular facts and the reaction to

them of experts." New Brunswick v. State Div. of Tax Appeals, 39 N.J. 537,

544 (1963).

      Contrary to Merrill Creek's assertion, trended cost analysis is not

"discredited by New Jersey Tax Court precedent," although it is likely correct

the methodology is somewhat rarely used, at least in comparison with other

methods employed in a cost approach in the reported cases. But it is easy to

see why. Trended cost analysis is most often used in valuing true special

purpose properties, see Transcon., 111 N.J. at 542; Hackensack Water Co. v.

Old Tappan, 77 N.J. 208, 217 (1978), which are relatively rare things, see Ford

Motor Co., 127 N.J. at 312; see also, The Appraisal of Real Estate 397 (13th



                                                                       A-1498-16T3
                                      26
ed.) (noting cost index trending is "useful for estimating the current cost of

one-of-a-kind items when standard costs are not available").

      The Tax Court was correct that trended cost analysis is a perfectly

acceptable valuation method in this state in the right circumstances, and one

our Supreme Court has specifically endorsed. See Transcon., 111 N.J. at 542

(noting "the trended original cost approach, suggested in Hackensack Water

Co., 77 N.J. at 217-18, and outlined in Haworth, [178 N.J. Super. at 261], . . .

may in some cases be a more convenient valuation methodology" for equitably

calculating replacement costs of special purpose property).       We likewise

affirmed the Tax Court's use of a trended cost analysis in valuing "a 'one of a

kind' corporate headquarters of unique design" in Beneficial Facilities Corp. v.

Peapack & Gladstone Borough, 11 N.J. Tax 359, 375 (Tax 1990), aff'd, 13 N.J.

Tax 112, 113 (App. Div. 1992).

      Moreover, there was ample substantial credible evidence to support the

Tax Court judge's finding that the trended cost approach produced the best

approximation of the reservoir's true value in the tax years at issue. Merrill

Creek presented no evidence to rebut Ditchey's testimony that the dam and

reservoir would be built the same way today as it was in the late 1980s with no

changes in the design or the means and method of construction.             That

testimony undercut one of the practical limitations of the trended cost method,



                                                                       A-1498-16T3
                                      27
namely, that "as the time span increases, the reliability of the current cost

indication tends to decrease." The Appraisal of Real Estate 397 (13th ed.).

      The other practical limitation in applying the cost trending method,

ascertaining the accuracy of historical costs, was also not an impediment here.

Not only were detailed cost compilations of the construction readily available,

Uniszkiewicz, the PSE&G employee responsible for estimating the costs of the

reservoir project in the 1980s, remained at the company as manager of

construction estimating and testified at trial. While Merrill Creek asserts in its

brief that construction of the reservoir was an "unmitigated disaster," the trial

testimony does not bear that out.

      Uniszkiewicz, the only fact witness to testify at trial, testified the project

was completed on time and under budget. When Merrill Creek's counsel asked

if the "project [was] beset by cost overruns," Uniszkiewicz disagreed, replying

"[t]here were a lot of changes that occurred that were part of the risk and not

part of the base. . . . [W]e had the money in the budget . . . but we were hoping

not to spend all those risk dollars up front like we did." Further, Uniszkiewicz

was clear that a number of the "risk dollars" were spent as a result of design

changes from unanticipated site conditions that would be the same regardless

of whether the dam was built in 1988 or 2010.           Uniszkiewicz's testimony




                                                                           A-1498-16T3
                                        28
strongly supported Ditchey's opinion that those change orders represented "a

real cost that . . . needed to be spent to build that reservoir."

      The record simply does not support Merrill Creek's assertion that the

"original costs being trended are inflated and unreliable." To the contrary, it

provides ample support for the Tax Court's finding that the original

construction costs of the reservoir were sufficiently reliable and reasonable to

support trending them to ascertain true value.

      We also reject Merrill Creek's argument that the Tax Court judge trended

personal property costs of $19 million, thus violating the Uniformity Claus e,

or that Harmony's experts rendered net opinions because they could not

identify the particulars of each item Merrill Creek asserts was personalty. The

law is well settled that soft or indirect costs such as engineering and architect 's

charges, environmental site planning, interior design, the expenses of a

landscape architect, the cost of bringing utilities to the site, project

supervision, a traffic consultant, financing charges, interest and taxes during

construction, insurance and legal fees are all properly included in the cost of

improvements for the purpose of establishing true value.            See Beneficial

Facilities Corp., 11 N.J. Tax at 379.

      Merrill Creek compiled a list of items from the cost sheet that it asserts

constituted personalty that should not have been trended, including $13 million



                                                                           A-1498-16T3
                                         29
for settling claims with the contractor, $4 million for public relations, and a

list of smaller items such as $600,000 for the installation, maintenance and

dismantling of the bubble that permitted work to continue through the winter

months, a $441,000 premium for extended hours and cold weather concrete

and $640,000 for emergency action sirens. Although the Tax Court did not

address these items in its opinion, we cannot find the failure to do so

constituted reversible error.

      First, we note that Harmony's real estate appraisal expert trended costs

of approximately $199 million, not the $220 million final costs including the

$5 million punch list reserve. Izenberg used Ditchey's calculated actual cost of

$203,934,813, including hard and soft items, as his baseline figure for the

actual cost of the improvements in 1988 and further reduced that number to

$199 million before trending the costs forward.              Second, Uniszkiewicz

testified that the disputed claims with the contractor were nothing out of the

ordinary,   suggesting   the    expenses    could   fairly   be   characterized   as

administrative expenses incidental to a $220 million construction project.

      Finally, none of the specific items Merrill Creek identifies, the bubble,

cold weather concrete, the public relations expense or emergency action sirens ,

impugns the Tax Court's implicit conclusion that Harmony carried its burden

to show those items as fairly included in the real property tax assessment. See



                                                                           A-1498-16T3
                                       30
Gen. Motors Corp. v. City of Linden, 20 N.J. Tax 242, 265 (Tax 2002). Other

courts have considered public relations a reasonable expense incidental to

construction of a controversial project, see Pub. Serv. Co. v. Town of

Seabrook, 580 A.2d 702, 704 (N.H. 1990) (including public relations among

indirect costs for Seabrook nuclear power plant), and the record supports a

conclusion that the construction related items and emergency warning sirens

are costs that any prudent person reproducing or replacing the reservoir would

pay, see Transcon., 111 N.J. at 531.            Merrill Creek's contention that the

testimony of Harmony's experts should have been excluded as net opinion for

their failure "to do a scintilla of due diligence in regard to the original

historical costs" borders on the frivolous. 4


4
   We also regard as meritless Merrill Creek's assertion that we should reverse
this case based on an error in the opinion that Novelli, Merrill Creek's cost
estimator, was an "engineer who specializes in contamination sites," while
correctly observing that Ditchey was a licensed engineer who actually
designed and supervised the construction of several dams. The Tax Court
corrected its error to accurately describe Novelli as a real estate appraiser
whose reservoir and dam-related experience was limited to cost estimation. In
an amplification letter issued pursuant to Rule 2:5-6(c), the court noted the
corrected factual error did "not change or affect the decision in the case in any
way," but instead "reinforce[d] the court's finding that [Harmony]'s expert was
'more compelling.'"

      Having reviewed the testimony of both experts, we readily agree. These
were not two licensed engineers with different specialties. Ditchey was the
only expert to testify with actual engineering experience in dam design and
construction. His response to the court's questions about the reliability of
                                                                  (continued)

                                                                           A-1498-16T3
                                         31
       The issues Harmony raises on its cross-appeal require but brief

comment.     The Tax Court's elimination of entrepreneurial incentive is

consistent with Tax Court precedent. See Tex. E. Transmission Corp., 13 N.J.

Tax at 42 (declining to apply entrepreneurial incentive to a pipeline project

"exclusively constructed by regulated operating companies for use in their

business at costs which are passed through to the ratepayers"); Lawrence

Assocs., 5 N.J. Tax at 535-38 (applying entrepreneurial incentive as an

element of market value of the Quaker Bridge Mall but not the highway

overpass providing access to it because it was not constructed "with the

expectation of earning a profit separate from that derived from the Mall

itself").

       Although the Tax Court's application of a fifteen percent deduction for

functional obsolescence might be a closer question on this record, we find no

reversible error.    The Tax Court based its deduction for functional

obsolescence on both excess construction costs and superadequacy, accepting

the opinion of Merrill Creek's real estate appraisal expert Sussman that a

reservoir of substantially less capacity would have been sufficient to

accomplish the Delaware River Basin Commission's goal of providing a source

(continued)
Novelli's quantity takeoff analysis for producing an accurate cost estimate for
reproducing the dam and reservoir makes the Tax Court's point obvious.


                                                                       A-1498-16T3
                                      32
of fresh water to offset consumptive use by electric power plants located along

the Delaware River during droughts and low flow conditions. Merrill Creek,

29 N.J. Tax at 502.

      The record support for that conclusion is thin, consisting of only a single

document entitled "Strategy for Resolution of Interstate Flow Management

Issues in the Delaware River Basin," prepared at the request of the

Commission in 2004. That document, while stating the water flow yield for

the reservoir during extreme drought conditions was double the consumptive

use of the existing electrical grid, also notes, however, that the reservoir was

designed to accommodate future needs. More important, there is nothing in

the record as to why the reservoir was built to a sixteen billion gallon capacity.

Without knowing whether the regulator required the existing capacity or

whether it could be built smaller today, a conclusion on superadequacy is

difficult. See BP Pipelines (Alaska) Inc. v. State Dep't of Revenue, 325 P.3d

478, 492-93 (Alaska 2014) (finding functional obsolescence for oversized

pipeline based on use value as integral part of owner's oil business).

      Resolution of whether functional obsolescence based on superadequacy

was appropriate here is unnecessary, because the Tax Court also based its

finding on excessive construction costs, which is supported by the record. See

Brockway Glass, 10 N.J. Tax at 367 (noting "[f]unctional obsolescence is



                                                                         A-1498-16T3
                                       33
measured by excess construction costs and/or excess operating expenses").

Although refusing to agree with Merrill Creek's counsel that the project was

"beset by cost overruns," Uniszkiewicz acknowledged that over a month of

rain at the start of construction and mismanagement leading PSE&G to replace

its project manager led to increased costs, notwithstanding that the project

came in within budget.

      We are accordingly satisfied the evidence supports the Tax Court's

conclusion, based on Uniszkiewicz's testimony, Ditchey's analysis and its own

expertise, that the original costs to construct the reservoir were both

sufficiently reasonable and reliable to support trending them forward and that

the taxpayer was entitled to a fifteen percent deduction to value for functional

obsolescence due to increased costs of construction. See In re Consolidated

Edison Co. of N.Y., Inc. v. City of New York, 869 N.E.2d 634, 636 (N.Y.

2007) (noting in a reproduction cost case that "allowing for increased

consideration of functional obsolescence may, in the appropriate case, further

the purpose of valuation proceedings — to arrive at a fair and realistic

appraisal of the value of the property at issue").

      Affirmed.




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