Monday, March 07, 2005

Property Assessment Monday

Just a couple of thoughts I had during my commute into work this morning as I muddled my way through traffic.

[Ed.note: The spell-checker has decided to stop working. We appollogize for any mispeelings.]

First, it seems that there are some distinct classes in an ideal reassessment:
(1) Those that saw their values change because of change to the unit.
(2) Those that saw their values change because of change to the community.
(3) Those that saw their values change because of change to the general economy.

So, if any of these are in the positived direction, it's a net win to the homeowner, i.e, the value of their house increases. (Exception is #3 if we're talking about adjustment because of inflation.) If any of these changes are in the negative direction, it's a net loss.

Second, assessment should equal sales price (projected). Assessment can only equal sales price if there has been a transaction. Therefore, the county needs to make certain projections based on comparable sales. This, we'll admit, is hard.

OK, one could argue that the comparables used do not match the value of the assessed unit, which is a legitimate complaint. A yearly assessment is probably the best way to do it; the assessors need to make sure that they are up to date on the latest values and shifts in market trends.

Third, a high assessment is good if you are looking at the value of your house, your share of equity in the house, and your ability to sell the house. It is bad if you are only concerned with taxes. [We will all agree that no one likes to pay taxes.] Well, why is the proposed Onorato cap on the assessment and not on the municipal taxes? Aren't people really complaining that the increased value is leading to the increased taxes? To satisfy those concerns, shouldn't there be an anti-windfall provision so that municipalities are forced to readjust their milliage rates?

Oh... there is. 5%

In effect, Onorato is artificially depressing the projected value in order to keep taxes low, but not giving a truly assessed value. This is a boon to the higher income brackets who's 4% cap will be a greater amount than a lower income 4% cap, but who will still be able to sell their property at the higher "market" rate.

Fourth point and I'll let you go. One of the objects of traditional Bricks & Mortar Economic Development is to increase the overall value of a community. Pittsburgh builds 50 new houses in Garfield, the value of Garfield increases, the surrounding assessment increases, tax revenue increases, and the City has more money to do other stuff with.

Capping the amount an assessment can increase in a given year artificially depresses the projected benefits of bricks & mortar economic development, stifiling the ability of the City to increase its tax revenues.

So not only do surrounding homeowners lose the benefits of a positive revaluation, but the City misses out on real income. A quick back of the envelope calculation is showing that with a 4% cap in place [assuming that assessments changes are fairly evenly distributed, but with only a 25% declining rate] the taxing bodies lose out on about 10-20% of the original revenue over and above they would have received if they were only stuck with the 5% anti-windfall provision.

Simply put:
Old Total Value: $24,370,701.20
Old Total Revenue: $716,742.32

New Total Value: $31,581,581.32 (Random, evenly distributed change, 75% of properties showing increased value)
New Total Revenue: $928,814.31
5% Anti-Winfall Revenue: $745,412.02

4% Capped Total Value: $22,140,331.54
4% Capped Total Revenue: $651,147.15

Net loss in this example to the taxing bodies: $65,595.17 over old assessment.

Just some thoughts.

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