In 2006, after the Anchorage Baptist Temple lobbied the Alaska Legislature to change the law so more of its two-dozen-plus church-owned staff houses would be exempt from taxes, chief pastor and Republican activist Jerry Prevo told the state:
"Ministers and educators who own or are buying their own house will not be exempt."
Prevo made that assertion because the law only gave a tax break to a home fully owned by a church.
But at the time Prevo was writing those words for an op-ed column in the Daily News, Prevo's son, the Baptist Temple's lighting technician and a minister ordained in 2002 by his father's church, was secretly accumulating equity -- an ownership interest -- toward the purchase of his tax-free home, according to testimony and documents in the son's divorce trial last year in Anchorage. Jerry Prevo's church claimed a tax exemption on that home, telling the city it was the owner.
Another pastor had a sales agreement for the purchase of his tax-free home from the church, and still does, according to the church's attorney, Kevin Clarkson.
And they aren't the only staff members of the Baptist Temple with that deal. Two other Baptist Temple pastors have the same unwritten arrangement with the church as Prevo's son, Clarkson said. To this day, the church claims tax exemptions on all four properties.
In an interview, a series of email exchanges and a written response to questions posed to Prevo by the Daily News, Clarkson said the arrangements are not real property sales because the deeds remain in the church's name and the pastors don't get all the benefits and liabilities of home ownership.
He described the deal as a kind of "bonus compensation" for the pastors, not a real-estate transaction. He asserted the church hasn't violated state law in its applications for tax exemptions on the homes.
The law requires local assessors to exempt homes occupied by ministers or religious educators if the homes are owned by their church.
But in his divorce trial, Allen Prevo said his deal with the Baptist Temple was indeed a real estate transaction. He testified that he had built up about $180,000 in equity in his $300,000 home, which he agreed to split with his wife, Holly Jo. He and his wife both testified that the financial arrangement with the church was a "mortgage" on their home, not a retirement or bonus program.
For Prevo's son, who lives in a two-story, 2,650-square-foot home on Banbury Drive in East Anchorage, the tax exemption from the city has resulted in a savings for him and the church -- and a shift of the tax burden to other city taxpayers -- of about $30,000 since 2004, when the Baptist Temple obtained the property.
As a result of the facts that emerged in the divorce case, city officials say they are now investigating whether the church was improperly getting breaks on taxes for the Banbury Drive property and other homes recorded in the Baptist Temple's name.
If a church was selling a home to a pastor, said state assessor Steve Van Sant, "he would have an interest in it and it wouldn't meet the criteria for the exemption." The same would be true for a pastor who had equity in a home otherwise owned by a church, he said.
'PAPER MORTGAGE'
City officials will have to determine whether the equity is "fictitious" based on a "paper mortgage," as Clarkson said, or is real, as Allen Prevo and his wife testified in court and as the documents that emerged in the trial suggest. (Clarkson described a "paper mortgage" as an agreement that provides for compensation to church pastors without the obligations of a normal mortgage, such as a requirement that a purchaser make regular payments.)
Anchorage Municipal Assessor Marty McGee declined to comment because of the ongoing investigation. In 2004, an investigation he conducted of Baptist Temple properties found the church had improperly claimed exemptions on homes used by a janitor, teachers and a music director.
Those properties were briefly returned to the tax rolls. They came off again in 2006 when the Alaska Legislature broadened the scope of the exemption at the Baptist Temple's request to include religious school teachers and ordained ministers who run "ministries."
The current investigation concerns a long-term practice of the church, only becoming public because of the divorce, to allow its senior pastors to build equity in their church-owned houses through payroll deductions.
Clarkson said the practice dates back to about 1994. From then until about the time of the city's 2004 investigation, the Baptist Temple used a written contract, a copy of which became an exhibit in the Prevo divorce.
The three-page document is titled, "REAL ESTATE INSTALLMENT SALES AGREEMENT." It provides for regular payments with interest from the pastor to the Baptist Temple, requires the church to transfer the deed to the pastor at the end of the term, and allows the church the first right to repurchase the house at market value if the church wants to keep it as a parsonage.
Clarkson said it was "unfortunate" that the attorney working for the church in 1994 "used the language of a sales agreement." He declined to name that lawyer.
Allen Prevo had that agreement for the first tax-exempt church house he and Holly Jo occupied, at 6601 E. 16th Ave. When they moved to their current home, about 2004, the church allowed them to transfer their accumulated equity from the first house to the second, according to their testimony.
Even as the city was investigating the Baptist Temple's tax exempt properties in 2004, the church didn't turn over copies of the sales agreements to municipal taxing authorities, according to Clarkson and city files reviewed by the Daily News under a public records request. Clarkson said filing the documents wasn't necessary.
Under legal advice from the church's law firm around 2004, Clarkson said, the church switched to an unwritten program.
Today, three pastors benefit from the unwritten program, Clarkson said. They are Allen Prevo, the Rev. Glenn Clary (the Baptist Temple's administrative pastor) and the Rev. Tony Smith (in charge of the Ambassadors Bible-study group and the Baptist Temple's nursery "ministry").
The Rev. Tom Cobaugh, the church's "minister of education" and chief administrator of its Christian school, moved into his house in 2002 when the written agreement was still in effect.
"He has had it since because he's never moved and you don't want to take it away from him, so they haven't," Clarkson said.
The current city investigation was just the outcome Allen Prevo had sought to avoid, according to Holly Jo. She testified in the trial that Allen scoured the house for the written document from the East 16th Avenue home, which was signed by Jerry Prevo.
"Allen searched the house over trying to find that (document) when this divorce was going down, because he did not want me to have a copy of it for court proceedings because he did not want to get the church in trouble for how they do their housing," she said, according to a recording of the proceedings.
Holly Jo Prevo had secured the three-page document several years ago in a lock box in California so it would "not disappear." It became an exhibit in the case.
"As far as the original signed copy, who signed the original, do you know?" her attorney asked.
"Allen signed it and Jerry Prevo signed it," Holly Jo testified.
"Is there any doubt that he was purchasing that home?"
"No doubt whatsoever," Holly Jo said.
Allen Prevo described it similarly in his own testimony.
"I've worked for ABT for 15 years -- you have to at least work there that long and then they will make a way for you to be able to make your rent go toward your equity in your home," Allen Prevo testified. "If you continue to stay there and you eventually pay off the home, then the home is yours. But it's all done, basically, verbal agreements, nothing in writing."
Allen Prevo testified on April 5, before Holly Jo brought to court her written copy of the sales agreement on the East 16th Avenue home.
In a brief interview, Jerry Prevo said he believes he and the church have acted properly, but if the city reaches a different conclusion, the church will pay the taxes.
Allen Prevo's attorney, one-time Republican gubernatorial candidate and attorney general nominee Wayne Anthony Ross, asked for an order sealing the divorce case records after the trial concluded last summer. He said he was trying to protect the couple's three children, but Holly Jo's attorney, Phyllis Shepherd, opposed making the record secret.
"It appears that (Allen Prevo's) primary concern is not so much the protection of his children, but to protect his father, 'a high-profile individual in the state of Alaska and a well-known national figure,' " Shepherd wrote.
Superior Court Judge Frank Pfiffner sealed the case on Aug. 29, but not before an Anchorage gay, lesbian and transgender rights advocate, Melissa Green, obtained some of the court documents and wrote about them in her blog, BentAlaska. (Prevo's longtime opposition to local gay rights proposals has made him a foe of advocates.)
Van Sant, the state assessor, said several people sent him copies of Green's blog.
"It made us raise our eyebrows at it," he said. He immediately called McGee, the municipal assessor, who said he saw it too and had begun an inquiry.
OPENING THE DIVORCE CASE
The Prevo divorce case remained sealed until the Daily News sued to open it, arguing that the questions raised over the tax-exempt status of Baptist Temple properties was a compelling reason for making public its documents and testimony.
Of the 28 individual parcels listed by the municipal assessor in the name of the Anchorage Baptist Temple or its pre-statehood predecessor, Bible Baptist Church, 17 were fully exempt from property taxes in 2011. One is the Baptist Temple itself on East Northern Lights Boulevard and another housed the former Bible Baptist Church, now a preschool and bus barn on DeBarr Road.
Fourteen of the exempt properties are residences. They range from a four-plex on East Fourth Avenue occupied by religious school teachers to Jerry Prevo's 13-room, 6,266-square-foot home with four-car garage on Baxter Road near the Baptist Temple.
Jerry Prevo said he wasn't building any personal equity in his home. His agreement with his church allows him and his wife to remain there for life but doesn't provide for a transfer to his name, he said.
Larry Linegar, a 20-year member of the Baptist Temple's governing Board of Deacons, said he believed the church's program for its senior ministers was proper.
"They're not given any ownership in the house -- there isn't any formal deeds or recordings or anything that reflects any kind of ownership in the property," Linegar said in an interview. "I'm a little hesitant to say they're actually developing equity. However, it looks like that, but there's no legal change in the ownership of the house."
If the city reaches a different conclusion, "we'll either change the program or we'll pay the taxes," Linegar said.
In his findings in the divorce case, Judge Pfiffner noted that while the Anchorage Baptist Temple retained legal title to the property, "ABT and Allen Prevo have an unrecorded agreement in place whereby Allen Prevo owns the equity in the residence" obtained through his payments on a "paper mortgage."
According to the audio recording of the divorce proceedings, as Allen Prevo testified April 5 about his undocumented mortgage agreement, Pfiffner became increasingly curious about the arrangement. At several points, the judge took over questioning from the lawyers.
"In other words, effectively the church is giving you a no-interest loan to live in the house?" Pfiffner asked Allen Prevo.
"Yes sir," Allen Prevo said. "It was a good deal, sir."
"It's a heck of a deal," the judge agreed. "I don't know anybody else who gets a zero-percent mortgage."
As Allen Prevo and attorney Ross struggled to describe the arrangement, Pfiffner remarked, "I'm willing to have you all explain things a lot more, but my concern is that if there were a tax appraiser for the municipality of Anchorage sitting in this courtroom, things would not look good, or if there were a reporter for the Anchorage Daily News sitting in this courtroom, things would not look good ... I'm seeing all of this stuff and hearing all of this, and I'm thinking -- whoa."
While Pfiffner said his chief concern in the courtroom was the equitable distribution of marital assets between Allen and Holly Jo Prevo, he found the property ownership situation remarkable.
"I've got part of the explanation here, but frankly, it's pretty loosey-goosey to me, to use a legal term," Pfiffner said.
CITIZEN CRITIC
In 2004, Clyde Baxley, then an East Anchorage resident and longtime critic of Prevo, discovered how much information he could gather about the Baptist Temple on the Internet and began to research its tax-exempt properties and the people living in them.
"Come to find out that he had a total of 15 properties designated as tax exempt," Baxley recalled in a recent interview. "What he would do is just about anybody in his church he could call a minister, no matter whether he could read the Bible or not. He would put them in his church properties and basically the taxpayers, by way of tax exemption, were subsidizing his quote ministry, his employees. I didn't like it."
Baxley found some of the residents were school teachers. One was a janitor. With his friend and anti-corruption campaigner Ray Metcalfe, he hired local attorney David Shoup and complained to the Anchorage Assessor, McGee.
There was some history in the conflict.
Prevo and Clary, both social and political conservatives, were deeply entrenched in the Republican Party. Both had been national delegates -- Prevo was chair of the Alaska delegation in 2000 when the party nominated George Bush -- and Clary was once a candidate for state Republican Party chairman.
Baxley and Metcalfe, one in the freight business, the other in real estate, were leaders of a Republican breakaway group with more libertarian and anti-establishment views, a party they named Republican Moderate.
Shoup recalled the three of them meeting with McGee.
"Marty McGee's attitude was, 'Look, the mayor and I are all in agreement on this, and we're going to see if we can't get them taxed,' " Shoup said.
Also around that time, then-Assemblywoman Fay Von Gemmingen was writing to Van Sant, the state assessor, about the same issue. In an interview, she said she understood that a church itself should be tax exempt as well as the home of the church's chief pastor.
But she said she drew the line at the second tier of ministers and the teachers at the Baptist Temple's Christian school.
"The Anchorage teachers don't get theirs exempt. It just seemed like it was really hurting the people of Anchorage because everybody ended up paying for their property taxes," she said.
One other issue arose at the time: a suspicion that some of Prevo's ministers were getting a portion of the proceeds when their tax-exempt homes were sold. That would have been a violation of their tax-exempt status, and Von Gemmingen mentioned that in a letter to Van Sant.
In a reply on May 21, 2004, Van Sant wrote, "I requested information three times from the ABT regarding proceeds of the sale of one parsonage, which I had also been told by several people went to the individual rather than the church. I was informed all three times that someone would get back to me and let me know whether or not that was actually the case. As of this date, I still have not received an answer."
Van Sant recommended that the city use its enforcement clout to get the church to answer.
SUSPICIOUS SALES
The city, meanwhile, had discovered four recent sales of formerly tax-exempt properties that raised suspicions, and asked the church about each. Two of the homes had been occupied by Clary, the church's administrative pastor; the other two were the homes of the Rev. Stu Karpiuk, the Baptist Temple's children's pastor and the official in charge of its "bus ministry," and the Rev. Ron Slepecki, a principal at the Baptist Temple's Christian school.
Clary's response on behalf of the church struck a tone of annoyance.
"Your request for information about the sale proceeds from four properties that the Anchorage Baptist Temple owned and sold continues to perplex us," he said in his Aug. 20, 2004, reply.
Clary didn't directly address the question of whether he or the other two pastors received checks or credit from the church as a result of the sales. Nor did his letter to McGee mention the real estate installment sales agreements.
Instead, he wrote that the sales proceeds from the homes were deposited in the church's bank account and he provided closing documents to prove it. He insisted it was the church, and not the pastors, who owned the properties before the sale, and it was the church who got the money for them.
Did money or credit go from the church to the pastors in connection with the sales? Clarkson, the Baptist Temple's attorney, said that question was irrelevant to whether the properties were appropriately exempted from taxation before the sales. The Baptist Temple was still the owner, he said. At the same time, under the installment sales agreement, Clary's "earned bonus calculation goes with him," Clarkson said.
In a recent interview, Slepecki, the former religious school principal, said he tried to get into the church's home equity program around that time but was turned down. Slepecki said church officials were concerned about publicity -- the tax challenges by the city, von Gemmingen's correspondence with Van Sant, and lawsuits by Baxley, Metcalfe and the Alaska Civil Liberties Union were generating substantial news coverage between 2004 and 2006.
"I had heard from others that the church had financed a couple of the other homes for other ministers at an interest rate less than you could get on the street," Slepecki said. "I figured, why not me? I'd been faithful and had served faithfully, so I asked and I was told it was not good timing because at the time the tax issue was in the press," Slepecki said. That shouldn't have mattered, Slepecki said, unless Baptist Temple leaders "felt dirty."
In November 2004, the city rejected four of the Baptist Temple's exemptions and restored the properties to the tax rolls -- one for the residence of a janitor, two for teachers, and one for the church's music director. It accepted the church's explanation for the proceeds of the four properties that it sold.
The response of the church was to lobby the Alaska Legislature to broaden the exemption law to include religious school teachers and the leaders of church ministries like music. The change was inserted as an amendment to another bill, bypassing committee hearings, and passed in 2006. Then-Sen.-Lyda Green, R-Wasilla, the sponsor of the amendment, said the language was written by then-Sen. President Ben Stevens, R-Anchorage.
The change angered city officials who had worked to put the Baptist Temple property on the books.
"They went down and Ben Stevens changed the law and I think basically undermined our effort to limit the number they could claim were ministers," said Anchorage lawyer Fred Boness, the city attorney at the time. "They had a minister of athletics and a minister of singing and a minister of all those kinds of things. We said that wasn't right."
But the new law survived a challenge by the ACLU and remains in effect today. The law broadly defined a minister as someone ordained "according to the standards of the religious organization" and employed by the organization "to carry out a ministry."
Slepecki, who was employed at the Baptist Temple for nine years and a volunteer even longer, questioned Allen Prevo's ordination.
"Basically (Jerry Prevo) feels like everybody that does anything for the church is a minister-type thing," Slepecki said.
But as a real minister, "you do baptisms, you preach the Bible and things like that. That would not describe Allen," Slepecki said. "He didn't go to Bible college, he was not a ministry-called person so much, he did lighting and sound and things like that. ... you could say (his ordination) was for convenience, it was for saving money."
Holly Jo Prevo was more direct in her testimony: "They ordained Allen a few years ago to where he could legally live in the home and not have to pay taxes."
Slepecki testified for Holly Jo Prevo in the divorce case. About a month later, he made a final break with the Baptist Temple, quitting as a volunteer Sunday school teacher.
The church didn't respond to a written question from the Daily News asking whether Allen Prevo ever delivered sermons, conducted Sunday services, preached the Bible, officiated at weddings or funerals and the like. Attorney Clarkson said Allen Prevo met the requirements of minister under Alaska law because he met the Baptist Temple's standards for minister.
"Allen Prevo has responsibility with respect to the broadcast staff of ABT, which involves having a spiritual devotion and prayer with them when they meet as a group every Sunday," Clarkson said in an email message. "Since Allen Prevo's ministry group is not able to be in the auditorium when ABT does communion (because they have to run the giant screens, videos, etc.), he administers communion to them while Pastor Jerry Prevo is doing it in the auditorium."
Reach Richard Mauer at rmauer@adn.com or 257-4345.
By RICHARD MAUER
Anchorage Daily News