Talking points — Impact on property values, and resulting tax increases

Hi all, here’s a white paper written by Fred Harding (a member of Maiden Rock Concerned Citizens) developed that addresses the issues of property stigmatization by sand mines.

Property Valuation as it relates to proximity of a sand mine
By Fred Harding

As we know, the state of Wisconsin in the 1980’s determined how businesses are assessed for taxation purposes.  The laws are incredibly intricate, specifying how different buildings, machines and the like are subjected to varying levels of taxation.

We all understand that as residents of the area, we pay property taxes that do not fall under the same rules.  The state has established different formulas based on property fair market value for residential properties.

We understand that our property taxes are used to pay for village services, as well as county and state services.

When property values decrease due to a variety of factors, we still need to pay those same high taxes.  When property values decrease due to factors that are beyond an individual homeowners control, it seems unfair; our taxes don’t necessarily decrease, but the value of one of our most important assets has fallen.

The concept of property value being adversely impacted by proximity to an unpleasant business or industry is called stigmatization.  It’s been studied at an academic level for many years; Professor Diane Hite, an economist with Auburn University is one of the foremost scholars on the topic.

In 2011, after the stock market and housing market “adjusted”, EOG negotiated with the town of Howard, Wisconsin to try and arrive at a fair and equitable agreement prior to EOG working in their lands.

EOG, formerly Enron Oil and Gas, is a fortune 500 company.  At the conclusion of negotiations with Howard, EOG agreed to a number of extraordinary terms, including guaranteeing the value of resident’s property.  In other words, EOG agrees to take the word of an independent appraiser, and if the house in question does not sell for the appraised amount, EOG shall pay the difference between offer and appraised value.

EOG agreed to these terms because they realized that research has shown the following extraordinary statistics:
1.     A house within 1/3 of a mile of a mine declines in value 30%
2.    A house within ½ of a mile of a mine  declines in value 20%
3.    A house within 1 mile of a mine declines in value by 15%
4.    A house within 2 miles of a mine declines in value by 9%
5.    A house within 5 miles of a mine declines in value by 5%

This information was provided at the Wisconsin Towns Association Meeting, held on December 1, 2011 and January 12, 2012.

But for arguments sake, let’s not take the word of a fortune 500 company negotiating with a team of lawyers against a small town in Wisconsin.  Let’s take a look at more local facts.

Red Wing, Minnesota, is located within 20 miles of the village of Maiden Rock.  Along with Ellsworth, Wisconsin, it is one of the larger municipalities in the area.  A local real estate agent, Mark McCaughty, works for Coldwell Banker in the Red Wing office.  Prior to working in Red Wing, he worked in Hibbing, Minnesota for several years.  He reports that a home now going into Foreclosure in proximity to a proposed mine site there has had the following value history.
1.     Original mortgage of $400,000
2.    Listed as foreclosure in late October, 2011, at $259,000
3.    Current list price is $214,000
4.    His opinion is the property will sell for around $200,000.
Current assessed value by the county is $348,000.  The house is, in his words, “newer, and in excellent condition”.  When asked why the value had dropped so precipitously, he replied  “Even Foreclosures will have trouble selling because of the frac sand locations.”

Another local realtor, who asked to be anonymous because he has to do business with folks on all sides of the issue, commented on Monday, the 19 of March “A rational person would easily realize that properties adjacent to any mining operation … are going to see a negative impact on re-sale values and marketability.”

Bringing it all together, the mine will not increase property values.  Selling property will be at a lower level than assessed by the county values.  Individuals looking for a peaceful residence may find that the artifacts associated with mining and transporting finished product are not conducive to their goals.  Stress on housing stock and on road stock will put people into a place where there home is worth less, but to make up for damages to roads they will pay more in taxes.


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