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The taxpayers of Gilbert definitively got screwed in this deal! The real question is who got the money that was stolen from the taxpayers to pay for this overpriced land, which the Gilbert rulers paid almost 10 times the market value for.

Did the members of the Gilbert city council get kickbacks from the deal? Did the lawyers that created the deal get kickbacks?

Source

Gilbert's pricey land deal raises more flags

Tax benefits listed in e-mails stir questions

by Parker Leavitt - Apr. 1, 2011 12:00 AM

The Arizona Republic

E-mails released by Gilbert officials show the town structured a $50.2 million land deal to include potential tax benefits for the seller by stating that the property was being acquired under the threat of eminent domain even though it wasn't.

The agreement also allowed dairy farmer Bernard Zinke to potentially claim millions of dollars in tax breaks by stating that he had donated rights of way for roads and utilities even though he may have been compensated for it.

Zinke has repeatedly declined to comment on the sale, and there is no way to tell whether he actually took advantage of the tax breaks without reviewing his private tax returns.

The town's land purchase from Zinke first came under scrutiny last year, when The Arizona Republic revealed that Gilbert officials failed to obtain an appraisal for the land, which the town intends to use for its parks system.

Subsequent investigations show the town paid up to four times what the land was actually worth.

Attorney General Tom Horne last month said that his office would review the transaction to determine whether there was any criminal wrongdoing.

Horne's office did not respond to a request for comment Thursday.

This week, the town posted hundreds of pages of attorney-client privileged documents pertaining to the sale on its website in response to residents' accusations that officials had withheld information about the sale from the public.

The documents include an e-mail to then-Town Manager George Pettit from Kelly Schwab, a contract attorney who represents the town.

In it, Schwab states that she put language into the purchase agreement indicating the town threatened to use eminent domain, a law that allows governments to appropriate private property, giving Zinke the right to defer taxes on capital gains from the deal.

"Also, I left in the threat of condemnation provisions even though Gilbert is not really threatening condemnation as it might have some tax advantages for Mr. Zinke," Schwab wrote on Dec. 24, 2008, about two months before the deal went through.

Schwab declined to comment on the e-mail this week because the land sale has been turned over to Horne's office for investigation. She did say that her law firm, which provides contract legal services for the town, was not involved in negotiating the deal.

Two of the primary negotiators on the deal are no longer with the town: Pettit was forced into retirement last year; and Paul Mood, a former capital-projects coordinator, took a job with Fountain Hills.

Gilbert paid $300,000 per acre in early 2009 for two large undeveloped parcels in the town's rural southern area, where nearby land sold for $35,000 per acre around the same time.

The town did not order an appraisal on the two main parcels before the purchase, but existing appraisals on part of the property suggested a per-acre value of about $67,000. Along with 142.5 acres intended for future parks, the town acquired strips of right of way for road-widening projects in the area.

Gilbert bought the land after lengthy negotiations with Zinke, who officials say has a formidable legal team and could have challenged any use of eminent domain.

In February, the Town Council agreed to post all documents related to the land deal on its website, including meeting minutes, memos and contracts.

Last week, the council voted to waive attorney-client privilege on several e-mails from the town's legal team, some of which indicate significant tax benefits were made available to Zinke.

In addition to the potential eminent-domain tax break, the documents also show that Zinke sold the largest parcels outright but donated several strips of right of way, worth an estimated $4.8 million.

Land donated to a municipality can be used as an income-tax deduction, Phoenix attorney Ellis Carter said. A taxpayer can generally deduct up to 50 percent of gross income in a given year with a five-year carryover period, she added.

However, the documents show that, in exchange for the donation, Gilbert paid $7.4 million for Zinke's personal property and dairy infrastructure, including stalls, fans, troughs and pumps.

"Unique to this acquisition agreement is that Gilbert is purchasing dairy operating equipment and improvements . . . in exchange for Mr. Zinke donating all the right of way," town officials wrote in a report to the council dated Jan. 20, 2009.

If the dairy purchase was made as a quid pro quo for the right-of-way dedication, it is not a true donation and the tax deduction would be invalid, said Vincent Everett, CEO of Works of Life International Ministries, a non-profit group that deals extensively in real-estate donations.

The condemnation provision in the purchase agreement allows the seller to defer capital-gains taxes if the money is reinvested in land of at least equal value within two years, according to Brenda Blunt, managing director of CBIZ, a Cleveland-based financial-services company.

Attorneys contacted by The Republic differed on whether the condemnation clause in the Zinke contract was appropriate.

Dale Zeitlin, a Phoenix eminent-domain attorney, said such language is typically included in agreements when government is acquiring private land.

"This is a plain-vanilla clause," Zeitlin said. "He can reinvest that money favorably, and it doesn't affect the city. We put that on every sale of private property to the government."

Scottsdale City Attorney Bruce Washburn, however, said his city includes a condemnation clause only "when it's true and when it's requested." He declined to elaborate on what circumstances that would include.

Phoenix Deputy Finance Director Mary Vivion-Withrow said her city uses the clause "when, in fact, we have acquired the property under those conditions."

Even when both parties agree on the terms, if the city approached the landowner, he may not be considered a willing seller, she said.

Although eminent domain could have been used to take Zinke's land for a public purpose, town officials have said that they wanted to avoid a potentially lengthy and expensive condemnation case.

Zinke was an unwilling seller when approached in 2006, according to a timeline of negotiations prepared by town officials. The timeline indicates that it was Zinke who contacted the town two years later about selling the land and that Pettit agreed to discuss a deal.

Pettit negotiated with Zinke over the next year before bringing the deal before the Town Council for approval in January 2009.

News of the purchase quickly circulated in the real-estate industry, and the $300,000-per-acre price tag raised eyebrows among local land experts.

Last fall, the Town Council ordered an internal audit, retrospective appraisal and third-party legal review of the transaction.

Scottsdale appraiser Dennis Lopez was contracted to provide an opinion on what the land would have appraised for if officials had sought an appraisal during negotiations in 2008. His report showed that parcels of the land were worth $162,000 to $232,000 per acre, but e-mails between Lopez and Gilbert Senior Program Manager Jeff Kramer suggest that those numbers are much higher than the actual value because he appraised certain parcels separately rather than bundling them together.

Lopez could not immediately be reached for comment.

Gilbert Mayor John Lewis, who had expressed optimism when Lopez's report found that the town may not have overpaid by as much as originally thought, said he trusted Lopez to provide an accurate report.

"When we hire a professional, until they prove otherwise, I assume they will follow the appropriate standards," Lewis said.

The town was reluctant to provide an official statement regarding any of the newly released e-mails because of the potential Horne investigation.

"We're hesitant to engage in any concurrent research or investigation until we allow the state to do its work," said Beth Lucas, town spokeswoman.

Source

Gilbert formally asks state to investigate Zinke land deal

by Parker Leavitt - Mar. 15, 2011 12:44 PM

The Arizona Republic

Gilbert Town Attorney Susan Goodwin has sent state Attorney General Tom Horne a formal request to investigate the town's 2009 Zinke land acquisition for future parks and rights-of-way.

The letter provides general background on the deal and a list of nine people Horne's office may wish to interview regarding the $50.2 million deal.

• Town posts 8,000 pages from land deal

• Another deal: $115K for land valued at about $37K

• Appraisals did exist before Zinke deal

The names include former Town Manager George Pettit, former Capital Improvement Program coordinator Paul Mood, appraisers Marc Barlow and Dennis Lopez, Gilbert program manager Jeff Kramer, dairy farmer and landowner Bernard Zinke, attorneys Jeff Schneidman and Gary Birnbaum and Town Manager Collin DeWitt.

Goodwin's letter provides basic information on the deal, which included 142.5 acres of undeveloped farmland, which the town bought for $300,000 per acre. Gilbert also purchased dairy infrastructure for $7.4 million in exchange for the dedication of about 5.5 miles of right-of-way, valued at $6.7 million.

The Republic disclosed last September that experts questioned the high per-acre cost.

For information and documentation, the letter refers Horne's office to a new database on Gilbert's website where officials have uploaded more than 8,000 pages about the Zinke land deal.

The letter did contain an error in referring one of the largest properties purchased in the deal: The 62-acre parcel is at the southwestern corner of Greenfield and Germann roads, not on Val Vista Drive as the letter states.

The other large parcel includes 80 acres on the southwestern corner of Greenfield and Chandler Heights roads.

The town did not order appraisals specific to the acquisition of those parcels, a fact that has been "much criticized by the public and the press," the letter states.

But the town had appraisals conducted in 2007 on a substantial part of the land that put the value at $67,000 an acre.

"As a result of this new information, we believe and the Gilbert Town Council believes additional investigation should be conducted," the letter said.