STONE, JUSTICE (dissenting).

I cannot agree in the result for the simple reason that I disapprove of the process by which it is, and only by which it can be, reached. That process seems to me but the adoption of an opinion on the facts when it is supported by none and opposed by all the facts.

My inability to concur is due wholly to the fact that to me the evidence falls far short of showing that "the price which could be obtained * * * at private sale" rather than a "forced or auction sale" is substantially below $15,500. The valuation of the building at $2,000 is important only because there is no suggestion that it is out of repair, or untenantable, or that other or different improvement could get more rental income.

Only Mr. Scott, the assessor, and his assistant, Mr. Carlson, testified in support of their valuation. On direct examination Mr. Carlson expressed the opinion that the value of the whole property was "approximately $20,000." He nullified his conclusion by stating that "the actual value" which he was attempting to fix "should be what would be a fair value for the property in normal conditions." Obviously he was ignoring the depressed conditions, both those general ones of our now long continued hard times, and the special ones, to be dealt with later, affecting this particular property. His appraisal is so far based upon an assumed future recovery of value, rather than the present worth, that it furnishes no support for his opinion.

Mr. Scott's opinion was that the lot, exclusive of the building, was worth, in May, 1932, $18,650 (the figure at which it was assessed). We postpone to another paragraph consideration of certain circumstances which he advanced in support of his judgment. His ultimate conclusion was based, so he testified, upon "a difference between the sale value or market value and actual value." He admitted that "the sales value should relate only to ordinary conditions and not to a forced sale or auction sale nor political upheaval sales" and should be measured by "ordinary conditions as existing over a long period of years." He would probably go back "as far as my records go here, studying the business and the town and the prospects" to arrive at a "fair value." As of May 1, 1932, his considered judgment, as stated by himself, appears to have been that "there was practically no actual [sale] value. There was many sellers without purchasers," with very many "distress offers." Foreclosures were numerous. He admitted that his opinion was based upon what he called "intrinsic," rather than sales, value and doubted that the lot could have been sold, at any time during the last five years, for $7,000. He was not sure that it could have been sold, under the existing conditions, for any price. One factor, he said, bearing especially hard upon this block is that it is "particularly depressed with long-time leases and everybody trying to get out from under."

For defendant were two witnesses, both realtors. One, Mr. Stephenson, had been managing the property for some time. It was acquired by defendant upon mortgage foreclosure in February, 1933, for $6,087.75. The mortgagor's efforts to sell her equity of redemption had failed. Afterwards, and up to the time of trial, defendant's agents had tried to move it for $6,500, with no results save a tentative offer of $5,500 with a down payment of $500. That deal did not go through. For the years 1931 to 1934, inclusive, the net rentals, before payment of taxes and with no charge for overhead or allowance for depreciation, averaged $199.50. Mr. Stephenson valued the property at a maximum of $6,000. Mr. Bowman appraised it at a top figure of $6,500. He had extended experience in making appraisals, for commercial purposes, of Duluth real estate. Both stressed the presence of the adverse, and absence of the favorable, influences later to be mentioned. Opposed was no testimony showing the existence in fact of elements upon which to base a higher appraisal.

Speculative factors of value are to be considered but only for the worth they add presently and not for some conjectural addition they may possibly make in the future. That distinction is often difficult of application. A pending development may add real worth to all property within its influence. Again, where a new project remains altogether conjectural, it would flout all rules of proof and decision for the trier of facts to give it weight simply because some witness has ventured prediction as to the distant and exceedingly uncertain future. For example, the Great Lakes-St. Lawrence Waterway, as far as we can see, is still too much of a sitter, not in the lap of the gods, but rather in that of politicians representing eastern, and particularly New York and Montreal, opposition, to have actually increased the value of real estate in Duluth. If, perchance, it is otherwise in fact, we must be shown by proof. In weighing elements of speculation in present value, both assessors and judges are required by the law to be soundly realistic rather than conjecturally prophetic or blindly hopeful. It is actual, present value that they must determine and not future worth.

In the instant case there is scant, if any, evidence of speculative value. The record shows no special promise of increased value for this lot for a long time to come. True, it is within three blocks of Duluth's civic center with its fine courthouse and other public buildings. But it is on the wrong side to have gained as yet any proved increment of value. Duluth's development for nearly ten years, and the trend of increased values, as disclosed by the evidence, has been westerly and away from this property, rather than easterly, toward it.

The property is located in what has been called the "Bowery" of Duluth. It was formerly much frequented by a large, picturesque, free-spending, floating population. Their trade was the mainstay of its business. Of their component classes, the lumberjacks are now but a memory of more affluent and generous times. The miners, too, are gone. They may return, but the record is silent as to how soon or when. In a third group are the longshoremen and sailors — not gone, but much diminished both numerically and financially. They seem to do their spending in other portions of the city. When, if ever, they will return to the "Bowery" no one can know. The whole picture as sketched by the present record negatives ponderable elements of even speculative present value. Remains only the general one that all of us hope for improvement, as we have been doing for upwards of five years. Evidence of such mere hope, without more, establishes nothing but its own existence. Nor can it do more until the hope is converted into a confidence of the kind that leads to investment of money or, at very least, some expression of a willingness to invest it in the subject matter.

The valuation of defendant's property, even as reduced below, should be taken on this record as one which did not make enough allowance for the effects of the depression and other proved adverse influences.

Even before the depression struck, value of all property in the Duluth "Bowery" had been much reduced by local trends. Business had been moving to other sections of the city. The whole block was not helped by the location across Superior street of the passenger terminal of the "Soo Line" Railway. Even in the "horse-and-buggy days" the substitution of such a terminal for the ordinary run of business houses, including places of amusement and refreshment, would not have helped the opposite property. Since motor traffic has so much reduced the passenger business of railways, the deleterious effect is increased tremendously. That factor was stressed by evidence in In re Taxes of Potlach Timber Co. 160 Minn. 209, 199 N.W. 968.

It is apparent that had the issue been, as here, one merely of excessive valuation, not extending into the constitutional field of due process, the judges dissenting in G. N. Ry. Co. v. Weeks, 297 U.S. 135, 56 S.Ct. 426, 80 L. ed. 396, would have been in agreement as to result. Eliminating the constitutional question, even the dissenting opinion is authority for the proposition (the majority view is expressly so) that this case and its single issue of value is to be considered (the presumption attending the assessment itself being refuted by the facts and decision below) precisely as though it were a condemnation case, and the state, or the city of Duluth, or the county of St. Louis were held to pay $15,500 for the bare lot. If this were a condemnation proceeding, such a finding of value could not be sustained on the present record.

Earnings, gross or net, are seldom, if ever, the sole test of value. But they are a highly important factor when, as here, the only use of the property is to produce rental income. In a condemnation case the Supreme Court of the United States said:

"The value of property, generally speaking, is determined by its productiveness — the profits which its use brings to the owner. Various elements enter into this matter of value. Among them we may notice these: Natural richness of the soil as between two neighboring tracts — one may be fertile, the other barren; the one so situated as to be susceptible of easy use, the other requiring much labor and large expense to make its fertility available. Neighborhood to the centers of business and population largely affects values. For that property which is near the center of a large city may command high rent, while property of the same character, remote therefrom, is wanted by but few, and commands but a small rental. Demand for the use is another factor." Monongahela Navigation Co. v. United States, 148 U.S. 312, 328, 13 S.Ct. 622, 627, 37 L. ed. 463, 468.

Here, in spite of its location near "centers of business," and because of proved, adverse conditions, no improvement in which is reasonably predicted by evidence or aught within judicial knowledge, the property cannot "command high rent." After payment of taxes, there is, and for many years there has been, a loss. For some time only two of the four store rooms in the building have had tenants. Such 50 per centum occupancy or less for long has prevailed in the whole block. In the block next to the west the condition is worse. Where, as here, the property is not used by the owner for his own purposes and there is no evidence that other than the present use would make the property more profitable, it goes without saying that, the other factors being as they are, speculative present value being almost if not quite absent, very low earnings over a long period, under management that is not criticized, go almost, if not quite, to the point of making impossible a valuation relatively high in proportion to one based on a capitalization of established earning capacity.

We are acutely aware of the disarranging impact which a reversal would have upon the executive and administrative work of assessing real property for taxation in this state. That affords us no escape from, and can justify no evasion of, our duty to apply the law, as made by the legislature, to the facts of the case. On the present record, I can see no way to discharge that duty other than by a reversal and an order for a new trial. Affirmance encourages by so much the prevalent habit of passing on to owners of real estate the residual burden of government upkeep remaining after all other present sources of revenue are exhausted. By so much we add judicial encouragement to the failure to give our tax structure the overhauling it needs in the interest of real estate owners, who for long have borne much more than their share of the burden. That adds nothing of legal justification for my own conclusion. But it does suggest a very desirable result which might attend its adoption.

The rule for assessing at "true and full" value is the same for urban business lots (with one of which we are now concerned) as for all our taxable lands, whatever their use or location. That urban property is bearing at least its full load of taxation and responding by payment somewhat better than all other real estate is shown by the records of the Minnesota tax commission. As of January 1, 1936, the three most populous counties, Ramsey, Hennepin, and St. Louis, had 50.6 per cent of the total real estate valuation of the state. But, as of the same date, only 35.6 per cent of the total delinquency was chargeable to them. Furthermore, they carry a disproportionately large amount of the local tax disadvantage resulting from the gross earnings taxation of the real estate of public utilities. In 1930, according to the report of Mr. E.A. Young, as assessor of Ramsey county, $47,452,403, or an amount equal to 12 per cent of the total locally taxed real estate valuation of the county, was taxed under gross earnings tax laws and therefore exempt from local taxation. For the community, such tax disadvantage may be offset in part by the economic advantage resulting from the special uses of the locally untaxed property. But that general benefit does not much comfort the owner who, in the particular case, must suffer a loss because the best earnings that diligence can secure for his property will not pay the annually recurring taxes thereon.

Ostrich-like, we would be but self-blinded to inescapable fact if we did not realize that much of property value actually existing in former, more prosperous years had disappeared. When, if ever, it will return in whole or in part no one knows. It has not returned yet, and assessors, no more than anyone else, for any practical purpose (and taxation is exceedingly and painfully practical), can base values upon elements the absence of which is demonstrated. The admonition to tax at real rather than assumed or hoped for value is not judge-made. It comes from the lawmakers, representing the people in that function and for that purpose. To tax-gatherers it declares, in effect, "Tax you must, but loot you shall not."

LORING, JUSTICE (dissenting).

I concur in the dissent.

UPON APPLICATION FOR REARGUMENT.

On October 9, 1936, the following opinion was filed: