Mercury News
September 19, 2005

Golf course's taxing situation
Property levy on John Fry's land will rise sharply this year

By John Woolfolk

Property taxes could double or triple for electronics magnate John Fry's controversial Morgan Hill golf course project now that the city has moved to dissolve a farmland preservation contract for the 192-acre property, according to Santa Clara County Assessor Larry Stone.

The city's decision is the latest move in a controversy involving one of Silicon Valley's best-known businessmen over his private golf course. Last month, an environmental group asked that the district attorney investigate potential tax fraud violations related to the property.

The farmland preservation contracts date back to 1968 and have given various owners of the property, once a dairy farm, a tax break under the Williamson California Land Conservation Act.

The 1965 law aimed to preserve farmland by letting landowners who keep their property in agriculture or open space avoid being taxed at its full potential market value. The deals can shave 20 percent to 75 percent off the property owner's tax bill.

Fry, chief executive officer of Fry's Electronics, got involved with the Morgan Hill property in 1994 when he founded the non-profit American Institute of Mathematics. The Institute bought the land for $4 million with money donated by his family and a bank loan. In 1997, the Institute sold the property for $4.5 million to Corralitos Creek LLC, a private partnership controlled by Fry.

Fry's partnership sought to expand a small existing nine-hole golf course on the property below a previous owner's former restaurant, the Flying Lady, into world-class links.

But city officials later complained the golf course was largely built without their prior approval. Conservationists demanded an end to the tax break, saying golf didn't qualify as agriculture under the Williamson Act.

Morgan Hill officials have been issuing permits for the project and, as a condition of approval, stated last fall that they would seek an end to the Williamson Act deal.

On Aug. 30, Morgan Hill officials issued a notice of non-renewal of the Williamson Act contracts, which cover the largest two of the Fry outfit's five parcels and include most of the 18-hole golf course.

Non-renewal starts a process in which the annual tax assessment gradually increases over nine years to what it would have been without the Williamson Act contract.

Stone said the two parcels in question are together valued at $507,293 under the Williamson Act contracts. But the parcels' "base year" value — their market worth when Fry's group bought them — is a combined $2,468,335.

That value would be raised by 2 percent a year under Proposition 13, so that by the time the contract is terminated in nine years, the parcels' combined value will be about $3 million, Stone said. Property tax in the county is 1 percent of assessed value.

Under the non-renewal process, the bulk of the added tax is paid at the beginning of the nine-year transition, Stone said.

"They're on track to pay a tax of 1 percent of an assessed value that will be going from about $500,000 to about $3 million," Stone said. "They will take a majority of that increase in the first year."

Fry's officials had no immediate comment. Fry refers calls about the project to Steve Sorenson, a Fry's executive who has shepherded the golf course development. Sorenson was unavailable Friday.

The Committee for Green Foothills conservation group last month asked the Santa Clara County District Attorney to investigate possible tax fraud regarding the property's Williamson Act contracts, and has sought payment of back taxes.

The district attorney's office has since referred the matter to the Morgan Hill city attorney, the county counsel's office and the state Department of Conservation, which enforces the act.

Page last updated September 13, 2010.