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Base contractor slaps Fairbanks borough with property tax lawsuit

Dermot Cole
An F-16 from the 18th Aggressor Squadron flies over Eielson Air Force Base, Alaska, in this Air Force photo from Sept. 14, 2009. A Rhode Island firm that now owns the housing on Eielson filed suit in federal court Tuesday, saying it is illegal for the Fairbanks North Star Borough to levy $1.855 million in property taxes. Staff Sgt. Christopher Boitz / USAF

FAIRBANKS -- When the Air Force looked for a contractor to own and operate housing at Eielson Air Force Base and five other installations, it advised the company to "assume full payment of property taxes" and include a one-year cash reserve in its financial plan to pay the tax bill.

But Corvias Military Living, the company that took control of more than 900 housing units at Eielson last year, said it never assumed that it would have to pay property taxes nor made plans to pay property taxes. 

Rather, the Air Force statements were to "establish a common ground for the companies responding to the solicitation, so that one did not get an advantage by assuming that taxes are not payable while another might believe that they are,"  a spokesman for Corvias Military Living said. 

The Fairbanks North Star Borough submitted a property tax bill for $1.855 million in July, while continuing negotiations to cut about $1.2 million off that total through a "payment in lieu of taxes" similar to a deal it reached with a company that runs the housing on Fort Wainwright.

But Corvias, which broke off talks with the borough after more than a year, says its property tax bill at Eielson should be zero.

The company on Tuesday filed a lawsuit in U.S. District Court alleging it is illegal for the borough to levy property taxes on its buildings because the Eielson homes are on leased federal land and Congress never authorized local taxes. In 1988, an Alaska Supreme Court ruling approved borough taxation of private property at Eielson, but that was a different military housing program and Congress had OK'd it,  the company contends.

"We believe as a matter of federal law, Fairbanks North Star Borough is precluded from imposing real property taxes on the Military Housing Privatization Initiative family housing located on Eielson Air Force Base," Mark Nettles, communication manager for Corvias, said in an email.

The contract under which Eielson housing became private last September also covers thousands of other dwellings at Edwards Air Force Base in California, Eglin Air Force Base in Florida, Hurlburt Field in Florida, McConnell Air Force Base in Kansas and Seymour Johnson Air Force Base in North Carolina.

The 50-year development deal, valued by the Air Force at $455 million, "will provide new and renovated housing for 3,840 military families using only $87.2 million in government funding," according to an Air Force press release last fall.

Corvias is part of the Corvias Group, a Rhode Island company that bills itself as a "a privately owned, vertically integrated real estate solutions group." It has taken ownership of military housing at 13 installations in nine states.

"None of those projects have paid real property taxes to date and only one other municipality has yet to acknowledge that the MHPI projects are exempt from real property taxes," Nettles said.

From state to state, laws and court decisions have differed on this topic, but federal officials have long acknowledged it as a point of contention. In 1998, the director of the Housing Revitalization Support Office issued a memo saying that contractors should work with local and state governments for favorable tax treatment, but added that the contractor "will be responsible for the payment of any real estate taxes assessed on the project."

In a 2012 interview with a Rhode Island TV station, company founder and CEO John Picerne said the Military Privatization Housing Initiative of 1996 allowed private companies to improve the quality of military housing, which had deteriorated because of a lack of investment by the government.

The privatization process allows the company to sign a 50-year lease for the land and take ownership of the buildings. The company collects rent and earns management fees. By owning the buildings, it can raise money for maintaining, remodeling and building new facilities.

"For the next 50 years the government knows, the Department of Defense knows that the housing will be kept up at a high level versus letting it go down into a sad state," Picerne said of the privatized approach in the 2012 interview.

He said it is a good business, but "after 9/11 this became more of a vocation than a business," helping military families. In an interview that year with the Boston Globe, Picerne said the business started as an "offshoot of a real estate company started by my family. I figured the Department of Defense isn't going out of business anytime soon, and wanted a more recession resistant venture."

The company manages about 25,000 houses on more than 10,000 acres of military property across the country.

In its lawsuit against the borough, the company says the improvements that it now owns on the land will revert to federal ownership in 50 years when the lease on the land ends. The company also said the borough does not provide zoning, restaurant inspections or other services.

The borough does provide schools on Eielson, which is not mentioned in the lawsuit. The annual school budget for the Eielson schools is about $10.4 million. While there is some federal funding for schools, most of it is from local tax dollars or the state.