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By J. DOUGLAS ALLEN-TAYLOR 

A week after it was issued to the public, a City Manager’s report on more than $250,000 in mis-taxed properties in the city of Berkeley has raised as many questions as it answered. 

The eight-page “Escaped Property Tax Assessments” memo from Acting City Manager Phil Kamlarz was prepared for Mayor Bates and the City Council last week following questions raised by citizens and the Daily Planet that two properties of prominent Berkeley developer Patrick Kennedy were not being billed for Berkeley fees and assessments. 

The Kamlarz memo named 10 properties that either were under-taxed by the city or may have been mis-taxed, including four properties developed by Kennedy’s Berkeley-based Panoramic Interests company. The original question was raised at City Council two weeks ago concerning the Kennedy-developed Gaia Building on Allston Way. 

The inquiry thus far has focused on systems failures within the way the City of Berkeley bills its property fees and assessments. There have been no allegations of fraud by the property owners themselves. 

The questions concerning the Kamlarz escaped taxes memo surround the nature of an agreement reached in the last two weeks between the city and Kennedy on his mis-taxed properties, as well as how a branch bank office on Shattuck Avenue owned by the Bank of America came to be assessed as a parking lot rather than as a commercial building. 

Kamlarz wrote in the memo that “Mr. Kennedy and staff have met and reached agreement on the square feet to be taxed for each property, the dollar amounts calculated related to each, and the total amount due by property.” That raised questions that the city was negotiating with Kennedy on the size of his property tax assessments and fees. 

But both Kamlarz and Berkeley Revenue Collection Manager Heather Murphy said in separate telephone interviews that this was an incorrect impression. Kalmarz said that there was “no formal agreement” between the city and Kennedy. 

Murphy speculated that the confusion may have come from the language of the memo itself. 

“When I read the [Kamlarz] report [and the term ‘agreement’] I said, ‘Oooh, that doesn’t sound good,’” Murphy said. “Why did we use that term?” 

But the Revenue Collection Manager also used the term “agreement” several times in the interview to characterize what occurred in recent days between city staff and Kennedy concerning the Gaia Building assessments, though the exact terms of that agreement remain unclear. 

According to Murphy, at her direction, one of her staff members from the Revenue Collection Office took measurements of the Gaia Building after the controversy over the escaped assessments surfaced and her office was directed to investigate the matter. 

“My staff member came up with what the actual square footage of commercial property is, and what the actual residential property is, and then what are the parking spaces. Based on that agreement as to what that square footage is, we came back and determined what [the Gaia Building’s] assessments were,” she said. 

“It wasn’t like we made any negotiated agreement on what’s residential and what’s commercial and what’s parking. We came to agreement as to what the square footage was and how it would be taxed. [Kennedy] was taxed according to what that calculation came out to be.” 

Murphy said her office will assess the Gaia Building at 65,950 square feet of residential space, 10,767 square feet of commercial space, and 7,898 square feet of parking lot. 

Kamlarz said that city Finance Director Fran David is still working with Kennedy on such issues as when the building permits were finalized and when the building was actually occupied. Kamlarz also said discussions with developers over the actual square footage of buildings were not uncommon in Berkeley, emphasizing that Kennedy “did not get any special treatment different from any other taxpayer in similar circumstances.” 

“Usually, cities measures improvements for taxable purposes based upon lot size,” Kamlarz said. “Berkeley bases it upon square footage. When we first [started doing this] in 1980 we had a zillion complaints. 

“Sometimes there’s a difference in what they have in the records in the permit center for gross square feet and what may be taxable, and you have to reconcile that. Many times when we first did this stuff, we had to go out and measure almost every lot that we got a complaint on. It took us two or three years to go out and measure everyone’s square footage. So discussions with a property owner to reconcile these differences is not unusual.” 

Kamlarz said that no formal, written agreement has yet been reached with Kennedy on the Gaia Building back assessments, nor has a schedule been formalized on paying the back assessments. 

As for the Bank of America branch, the Kamlarz memo noted that its correct assessment “was missed in the past few years due to a staff data entry error, which inadvertently...tied the address to the parking lot rather than the building.” 

The bank branch is located on the corner of Shattuck and Henry in North Berkeley. A chart included with the memo indicated that the error took place somewhere between the 2000-01 and 2001-02 tax years, and that the Bank of America would be back billed for a total of $19,260 for the past three years. By law, parking lots are not billed for all city fees and assessments. 

However, a review of building permits pulled for the property could not determine why city staff would have had a reason to make changes in the assessment rate in either 2001 or 2002. City records show only that a new awning and a flower stand were built at the branch during that time. 

The current Bank of America branch building was built in 1978, replacing an older branch building next door. The older Bank of America building was then razed to make room for an expansion of the bank’s parking lot. 

While the branch address is listed at 1536 Shattuck, the bank building and parking lot parcels include two other addresses on Shattuck and two on Henry Street. These “orphan addresses,” as they are called by city staff, are addresses of original buildings, no longer existing, which were consolidated into the Bank of America property. 

Possible confusion surrounding these “orphan addresses” may have contributed to the error in the building’s assessment.  

But the real problem, according to City Auditor Ann-Marie Hogan, “appears to be due to a failure of internal controls.” The City Auditor is an elected official and is independent of the City Manager’s office. 

“The city’s assessment system shouldn’t allow a data entry error to delete a parcel,” Hogan said. “It should make it difficult to delete a parcel from the tax rolls. And when any staff member is deleting a parcel [such as apparently occurred in the Bank of America situation], an exception report should go to their manager making clear why it was done. On the face of it, that kind of internal control is not in place on a parcel deletion in the city of Berkeley.” 

Hogan pointed out that the City Auditor’s office has pointed out such failures of internal controls to the City Manager’s office as far back as 1994. 

Such internal controls should mandate that “only certain specified people have the ability to delete and add parcels,” the City Auditor said, adding that “you want to make sure that any parcel deletion is documented. You want to make sure that anyone who uses a password to delete passwords doesn’t loan their passwords to anybody else. In addition, you want to have all these procedures documented. These were [the City Auditor’s] audit recommendations way back in the early 90’s [when other escaped parcels were found].” 

Hogan pointed out that this is not a new problem in Berkeley. In a 1996 memo addressed to then-Mayor Shirley Dean and Berkeley City Council concerning an audit of the city’s Clean Storm Water property assessment program, the Auditor wrote that “the Auditor’s Office has issued five reports [between 1994 and 1996] regarding significant loss of revenue because of internal control weaknesses related to billing [by the City of its Clean Storm Water assessments]. 

“These weaknesses include failure to properly document billing systems and to perform billing procedures, to reconcile data, to ensure integrity of databases, and to exercise adequate oversight. Lack of timely implementation of improvements recommended by these audits could result in significant loss of revenue to the City because of time limits on collectibility.” 

Because the city cannot capture back fees and assessments that were the city’s own error beyond three years, the recent Kamlarz escaped assessments memo did not give details of any fees and assessments missed before the 2000-01 tax year. 

In a 1999 memo to the Mayor and City Council entitled “Response To Audit Recommendations,” then-City Manager James Keene wrote that “many of the audit recommendations [including the Clean Storm Water recommendations] have been addressed. ... However,” he added, “accuracy of the City’s square footage data remains a major unresolved item...” 

Hogan says that other than from the assertion contained in the 1999 Keene memo, she doesn’t know if the city is implementing her recommendations for tightened internal controls. Hogan said that her office would probably formally again address the issue of internal controls for city property tax assessments in its Year 2005 Audit Plan. 

Discussion of the Kamlarz memo, originally scheduled for Council’s Nov. 4 meeting, was held over until Nov. 25 at the request of Councilmember Dona Spring. Spring said she had several additional questions on the escaped property assessment issue which she wished to be answered by the City Manager’s office before the matter comes before Council.