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A bankrupt telecommunications company stiffs local governments

Pima County taxpayers have joined stockholders, lenders and customers of MCI WorldCom in getting shafted by the telecommunications giant's scandal-induced, $41 billion bankruptcy.

MCI and WorldCom merged in 1998, and the new company plunged into bankruptcy in July 2002, seeking to get out from under the $41 billion in debt. The filing was the biggest in U.S. bankruptcy history.

Former WorldCom CEO and President Bernard Ebbers was indicted last month by a federal grand jury in New York and charged with fraud, conspiracy and making false statements. Ebbers has pleaded not guilty. But the company's former chief financial officer, Scott Sullivan, has pleaded guilty and faces up to 25 years in prison. Ebbers resigned nearly one year ago. Sullivan was fired in July 2002.

This installment of bust from the 1990s stock market boom has created a lingering hangover in Tucson that has resulted in fewer library books, slower city revenues, higher taxes for homeowners and less money for schools.

Delinquent tax records in the county Treasurer's Office show that the company, which operates as MCI, owes more than $400,000 in property taxes for the last two tax years--including $317,014 for 2002.

Most of what is owed is due to the Tucson Unified School District. Tax statements for the company's chief property in Tucson for 2002 include $126,505 owed to TUSD. All of the taxes due to TUSD and the city are for secondary taxes, which are used to re-pay voter-approved debt.

The city is missing more than $69,215 in MCI property taxes from 2002; Pima County is owed nearly $62,000; Pima Community College is owed nearly $29,000.

Perhaps the greatest hole created by MCI was in the Tucson-Pima Library, operated by the city and funded jointly by the city and county. Taxes to the Free Library District, to which all Pima County property owners pay at the rate of $21.24 for a $100,000 property, could raise a maximum of $11.1 million this year.

MCI owed nearly $30,000 in library taxes for two years. Pat Corella, assistant director of the Tucson-Pima Library, said that money could have gone to supplement the annual $2.6 million book budget.

MCI's delinquent taxes were among the 15,643 tax liens available at the annual auction conducted last month by county Treasurer Beth Ford, a Republican. MCI's late fee--technically, interest--is 16 percent.

Bidders, who vie for tax liens by jockeying for the highest, but declining interest rates that begin at 16 percent, stayed away from the MCI tax debt. Winning bidders buy the tax lien and are re-paid when the delinquent taxes are paid. The trick is to buy a lien as close to the 16 percent interest as possible. If left unpaid for three years, the lien buyer can acquire the property for the price of the taxes.

Those on the list include big and small names. Big, like longtime real estate investor Mike Naifeh, an appraiser whose brother Tom was the dreaded deputy county assessor under Democrat Alan Lang until a successful recall in 1994. Mike Naifeh owed $988 on the Tucson Country Club lot he converted into a half-million-dollar home. And small, like Bruce Friedemann, known in some circles for his money-is-evil rants on cable access television. Friedemann, who began his minor speculation by squatting in a county-acquired home, owed $1,710 on property in Arivaca.

For Pima County, whose treasurer is the central tax collector for all local governments, the MCI matter is complicated by the company's bankruptcy. It forces Pima County to get in line with other creditors.

"We come high, not as high as the Internal Revenue Service, but higher than the average creditor," said Martin Willett, a former deputy county attorney for civil matters and now the deputy county administrator.

Settlement talks are under way.

The MCI holdings are not likely to generate those types of taxes in the next few years. Valued last year for tax purposes at $30 million--including $29.2 million in equipment--the MCI property now is valued at $30,096.

That is not a function of Democratic Assessor Rick Lyons. MCI, along with other telecoms, utilities, mines, railroads, airline property and parcels of standing timber, are "centrally assessed," or valued by the state Department of Revenue.

Moreover, Lyons said, values for MCI and similar companies don't follow the traditional land or property appraisal. They are instead an enterprise value, which considers the value of the company's stock.

Bankruptcy helped spur MCI's huge drop in taxable value in Pima County.

On the other end, MCI announced last week that do-not-call laws prompted it to lay off 4,000 employees, including 850 in Phoenix.

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