Like two lovers awakening to find wilted roses, an empty champagne bottle, and a case of bad breath, things aren’t going so well between Metro and Opryland Hotel.
As if it weren’t troubling enough that hotel officials knowingly defied Metro bureaucrats recently by constructing an illegal sign over McGavock Pike (“Gaylord’s Bad Sign,” Sept. 21 Nashville Scene), Metro and Opryland officials are engaged in legal warring over two high-stakes issues that could mean millions for the prevailing party.
First, the Metro Legal Department recently filed pleadings in Davidson County Chancery Court claiming that Opryland Hotel officials are shortchanging the city in property tax payments; the department has asked for a hearing on the issue. Meanwhile, different Metro attorneys are engrossed in what sources say has been an exhausting back-and-forth with Opryland lawyers over sewer payments that Metro claims the hotel owes.
Both issues are high-dollar. If Metro were to win the property-tax fight, it would mean in the neighborhood of $5 million more in property-tax payments for the cityabout $1.2 million for each of the past four years.
As for the sewer payment negotiations, sources say Metro only recently discovered that Opryland Hotel has not been paying sewage fees associated with discharging certain amounts of wastewater from the company’s powerhouse and laundry facility into the city’s sewage system. Depending on whom you ask, that recent discovery applies to usage dating as far back as 5 to 10 years at a monthly value of between $30,000 and $50,000. The total settlement price tag, then, could be anywhere between $1.8 million and $6 million.
As it stands, Opryland officials are balking at the back sewage payments, saying the city should have known about the discharged water and that it’s unfair to bill the company retroactively. “We did everything by the book, everybody was aware of the system, and changing the rules retroactively is not something we believe should happen,” Opryland spokesman Tom Adkinson says. “Changing the rules going forward, with everybody understanding what the change is, is what [Opryland] has on the table.”
Meanwhile, city officials say they can’t legally or responsibly give such a costly break to any company, much less one that already has been the beneficiary of extensive tax breaks in exchange for building a massive hotel expansion.
“Obviously, the different parties have different perceptions of what the value of the dispute is and how far back it goes,” says Metro attorney Tom Cross. “We’re willing to talk about good-faith efforts about how to resolve it, but if we can’t, we’re going to have to draw swords.”
Deputy Mayor Bill Phillips says Metro lawyers have warned Opryland that if the sewage situation, first discovered last year, is not settled soon, Metro will sue the company. “Basically, what we’ve told them is either it’s time to start talking seriously or go to the next level,” Phillips says.
Meanwhile, the details of the property-tax dispute revolve around the countywide property reappraisal in 1997, when Opryland contested Metro’s value of the hotel at $557 million. Based on their own appraisal methodologies, Opryland officials claimed their property was worth only $440 million.
Unfortunately for Metro, Opryland so far has prevailed for the most part in the property-tax fight at the state Assessment Appeals Court, which determined the property was worth $467 millionmore than the company said it was worth, but still much less than Metro’s valuation. Now, with a disparity of $90 million between the state’s valuation of Opryland Hotel and the city’s, Metro attorneys have gone to Chancery Court, where they may launch a last-ditch effort to reap the approximately $5 million the city would be due if Opryland paid taxes based on the city’s appraisal.
High-dollar commercial tax disputes tend to be rather complex in nature, and this one is no different. But here’s the basic reason why there’s a gigantic $90 million gulf between the state’s appraised value and the city’s: The state has agreed with Opryland that certain aspects of the hotel’s value are so necessary to running the business that they qualify as a deductionin legal lingo, it’s called a “reserve for replacement” deduction.
“Those are things like linens, beds, TV sets, tablecloths, things that hotels use a lot of,” says Paul Krivacka, a Metro attorney. “Metro’s saying [the deductions] remove so much value from the property that is so intrinsically related to the real property, you can’t separate it.”
Krivacka concedes the substantial case law favoring such deductions, including a recent Tennessee Court of Appeals ruling that allows the Grand Hotel in Pigeon Forge to claim such a break. But he says Opryland is a commercial creature like no other. “There are a number of very unique characteristics,” he says. “It’s the largest non-casino hotel in the world, from what I understand. It has revenue centers that are very different from every other commercial property, and it has cost centers that are very different too.”
Opryland, meanwhile, points to the precedent and the other jurisdictions that allow deductions from hotel appraisals. (Generally, these apply only to large properties.) “Fundamentally, we believe that what the standard for the industry is should apply to us, and the courts have agreed,” Adkinson says. “And on a very basic level, any property owner who feels his evaluation isn’t correct is entitled to question it. And here’s a circumstance where there was a dramatic difference, and we wanted to raise the point that here’s the kind of property we are and what the national standards are.”
Krivacka says that while the city has filed the appropriate requests in Chancery Court and is poised to challenge the state’s determination about Opryland’s value, Metro attorneys are still trying to decide whether the fight would be worth the effort. At the very least, Opryland owes Metro $1.6 million in property-tax payments, plus interest, because the company only paid its taxes based on its own $440 million valuation. It must reimburse the city at least for the taxes on the additional $27 million the state attached to the hotel’s value. “Fairly shortly, we’re going to try to make a decision about what to do,” Krivacka says.
As if the property-tax and sewage-payment disputes weren’t compelling enough on their own, theyalong with the sign fiasco Metro officials have called the company onseem to signal a sort of breakdown in the once favorable relationship between Metro and Opryland’s parent company, Gaylord Entertainment.
“You know, there certainly is a sense of the honeymoon’s over kind of feeling about it,” former Mayor Phil Bredesen says of Metro and Opryland. “I think it’s fair to say that 10 years ago, between the hotel and theme park, I mean, [Opryland was] a big dog on the scene. It’s become less so. The city’s grown, we have other entertainment venues like football and those kinds of things, so I guess people don’t step around quite so gingerly anymore.”
Still, he says, the company is entitled to challenge such things as its property appraisal, even though the city has given the company substantial breaks in the past. “We [gave tax breaks] not out of the goodness of our hearts but because that was part of a deal for them to put $100-plus million into a hotel expansion,” Bredesen says. “I don’t look at that as the city was Santa Claus.”
Deputy Mayor Phillips, also chief of staff for Mayor Bill Purcell, says that at the very least, the two institutions could stand to improve communication, which he says “has not been as good as it needs to be and should be on both sides.”
No matter what happens with the ongoing legal struggles between Gaylord and Metro, the company’s reputation has taken a hit. As Bredesen puts it, “At the moment, they’re not being quite the same corporate citizen as some of the other businesses are.”
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