TP. You are spot on. Although Smith defensive skills could make him worth 12/year.
From watching KG and Duncan for the past 15 years, true defensive ability at the 4 isn't captured in numbers and is more reflected in things like consistency, communication, and focus, areas where Smith doesn't necessarily excel.
Now, Smith's shotblocking and steals could absolutely get him $12 mil a year. That doesn't make him
worth $12 mil a year. That's why I'd be hesitant to sign him longterm at that kind of money with the new luxury tax coming in. For a year or two, if you're mostly playing and developing guys on rookie contracts and so have the spare space, maybe you pay him a little more. But long term, I'd want to see consistent dedication to team defense, which I think he's definitely capable of but hasn't really shown to date.
And he's still a second choice for me, I'd prefer a couple more years of Garnett teaching a generation of young bigs how to play defense. Like Doc said in talking about Bass's performance this year, "if you play with KG, you're going to get better defensively." KG could add a lot of value to guys like Johnson (Big Ten Defensive Player of the Year last year, so he has some tools and desire on that end) and hopefully another big that we pick in this draft, whoever it may be.