Onondaga County Water Dist. v. Board of Assessors of Town of Minetto
| Decision Date | 13 May 1976 |
| Citation | 39 N.Y.2d 601,385 N.Y.S.2d 13,350 N.E.2d 390 |
| Parties | , 350 N.E.2d 390 In the Matter of ONONDAGA COUNTY WATER DISTRICT et al., Respondents, v. BOARD OF ASSESSORS OF the TOWN OF MINETTO, Appellant. In the Matter of ONONDAGA COUNTY WATER DISTRICT et al., Respondents, v. BOARD OF ASSESSORS OF the TOWN OF VOLNEY, Appellant. In the Matter of ONONDAGA COUNTY WATER DISTRICT et al., Respondents, v. BOARD OF ASSESSORS OF the TOWN OF OSWEGO, Appellant. In the Matter of ONONDAGA COUNTY WATER DISTRICT et al., Respondents, v. BOARD OF ASSESSORS OF the TOWN OF SCHROEPPEL, Appellant. |
| Court | New York Court of Appeals Court of Appeals |
Robert G. Hurlbutt, Oswego, and Walter G. Farnholtz, for Board of Assessors of Town of Minetto and another, appellants.
Richard C. Mitchell and Eugene F. Sullivan, Jr., Oswego, for Board of Assessors of Town of Volney and another, appellants.
John F. Lawton, Syracuse, for respondents.
Petitioner water district brought four separate proceedings to review the 1969 real property tax assessments by respondent towns on its water pipeline facilities located within the respective towns in Oswego County (Real Property Tax Law, art. 7). The parties stipulated that the determination made for 1969 would be binding for the 1970 and 1971 assessments.
Special Term denied the petitions and confirmed the assessments. The Appellate Division reversed and remanded for a determination of the amount of 'functional depreciation' to be deducted from cost in arriving at the value of the facilities.
On remand, Supreme Court dismissed the petitions, finding that no functional depreciation had been proved. The Appellate Division reversed and granted the petitions, allowing a 50% Deduction for functional depreciation. Respondents appeal.
The issue is whether the owner of specialty property, planned and constructed with a capacity for service in excess of present needs but in reasonable anticipation of future needs, is entitled to a deduction for 'functional depreciation'.
There should be a reversal. 'Functional depreciation', commonly referred to as 'obsolescence', may also connote a capacity of the property for service in excess of reasonably anticipated needs. This type of functional depreciation, termed 'superfluity', is properly deductible from cost as a factor diminishing the value of the property. Where, however, as in this case, the excess capacity for production was planned and constructed in reasonable anticipation of future needs, that is, with deferred utility, there is no functional depreciation. This is because the excess capacity does not diminish the value of the property but instead constitutes a real element of value. Thus, it was error to allow a deduction for functional depreciation in this case.
The Onondaga County Water District was organized pursuant to article 5--A of the County Law as a nonprofit agency to develop from Lake Ontario a source of public water supply for Onondaga County, and eventually for parts of Oswego County.
The water system was completed in June, 1967, when it began operation. Water is taken from Lake Ontario at the City of Oswego and passed through a treatment plant in the Town of Oswego. The water is then pumped through a pipeline, crossing portions of the Towns of Oswego, Volney, Minetto and Schroeppel, to a terminal in Clay, Onondaga County, from which it is then distributed to facilities in Onondaga County.
On May 1, 1969, the taxable status date, the water system was operating at about 25% Capacity. Deliberately planned and constructed to meet the future needs of Onondaga County and parts of Oswego County, the system has an estimated useful life of 40 years. By 1969, its use had steadily increased since starting operations two years before, and its use is still increasing.
The boards of assessors of the four Oswego County towns assessed the property at full value, based upon the actual cost of construction. Reproduction cost was not used, apparently because of the newness of the facilities.
While accepting original cost for assessment purposes, the water district nevertheless contends that, since the system was operating at only 25% Capacity, the remaining 75% Of capacity represents an 'overbuilding', thus entitling it to a 75% Deduction for 'functional depreciation'.
All real property must be assessed at 'full value' (Real Property Tax Law, § 306; Matter of Hellerstein v. Assessor of Town of Islip, 37 N.Y.2d 1, 3, 371 N.Y.S.2d 388, 389, 332 N.E.2d 279, 280). Where property is regarded as a 'specialty', that is, property designed for 'unique' purposes and for which there is no market, the proper method of valuation is ordinarily reproduction cost less depreciation (see Matter of Semple School for Girls v. Boyland, 308 N.Y. 382, 389, 126 N.E.2d 294, 296; cf. 2 Orgel, Valuation Under Eminent Domain, § 211, at p. 95).
While the parties agree that, apparently because of the newness of the facilities, actual construction cost is the convenient method of valuation, the controversy centers around the propriety of allowing a deduction for 'functional depreciation'.
Functional depreciation has been defined as '...
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