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Property Tax Resources

Nov
30

Eagle Ford Shale Ignites Boom

"Natural gas reserves a boom for not just energy industry, but for all of South Texas."

South Texas is humming with activity, much of it attributable to the Eagle Ford Shale and the rapid growth it has brought to the region. The opportunities available and the boom resulting from the Eagle Ford resources have generated significant wealth and economic activity in these modest communities. As the population expands with workers and South Texas hastens to keep up with the surging demand for housing, roads and other infrastructure, property values are on the rise.

The boom has fueled significant tax assessment increases over the past few years. South Texas counties are reaping the benefits of the new prosperity by increasing property values and adding more property to their tax base. The trend serves as a poignant example of how externalities affect value.

What is the Shale?
The Eagle Ford Shale is a geological formation from the Cretaceous period spanning the Mexican border in South Texas into East Texas. It is roughly 50 miles wide, 400 miles long, and pans 30 Texas counties between the Buda Lime and Austin Chalk formations. The shale produces dry gas, wet gas, natural gas liquids and oil.

Some experts believe the Eagle Ford discovery could become the sixth largest oil discovery in the history of the United States. Combine this with the fact that it is as large as or larger than the Barnett Shale play in terms of natural gas reserves, and you have a recipe for a legendary oil and natural gas boom.

Since 2008, the exponential growth in the Eagle Ford Shale has been staggering. In 2008, there were roughly 350 barrels of oil produced in the region per day; today, almost 10 times more barrels of oil are produced per day. And, as of the end of September, an estimated 5,200 drilling permits have been issued.

Benefits to South Texas
In South Texas, housing supply has increased as numbers of transient workers migrate to work in the oil fields, on pipeline projects and in new gas processing plants. From 2000 to 2010, the population in just a six-county region (Dimmit, Frio, La Salle, Maverick, Webb and Zavala) grew by roughly 66,000 people, and housing grew by about 22,000 units.

The results from the new prosperity are evident in the increase in property tax assessment values. For La Salle County's Cotulla Independent School District (15D), total taxable value was over $2.3 billion in 2012, compared to $408 million in 2008. Nearby, the Dilley ISD total taxable value more than doubled to $235 million in 2012, from $103 million in 2008. While the majority of the increase in tax base is due to the value of oil, gas and minerals and the industrial personal property needed for these projects, the ripple effects can also be observed in commercial and residential properties.

For example, lodging room revenues in the oil and gas areas grew by almost 16 percent in 2012, which is more than the state average, according to a report prepared by Source Strategies Inc. for the Office of the Governor, Economic Development & Tourism. Also, room revenues in the city of Alice (Jim Wells County) were $12 million in 2012 compared to $5 million in 2008.
As room revenues increase, appraisal districts have captured the new income streams and raised hotel values.

This is just one example of how the activity from the Eagle Ford boom has filtered down to property values. But while room revenues have been consistently increasing over the last
couple of years, Source Strategies suggests that the growth seems likely to moderate, as revenues during the second quarter 2013 declined slightly in Victoria and Laredo.

Similarly, as the market begins to even out and supply catches up with demand, there may be more stabilization of property values. In any event, property owners should be watchful of market trends in reviewing their property values.

Continued Growth Ahead
Anticipated future production in the Eagle Ford Shale indicates continued expansion in South Texas. By 2021, the Eagle Ford Shale could produce as much as $62.2 billion in output and $34 billion in gross regional products, according to projections by the University of Texas at San Antonio's Institute for Economic Development. More permits continue to be

approved for drilling.

As communities in South Texas catch up with the increased activity, property owners should be on guard against unfair and inflated property tax assessments.

MelissaRamirez150Melissa Ramirez is a principal with the Austin law firm of Popp Hutcheson P.L.L.C., which focuses its practice on property tax disputes and is the Texas member of American Property Tax Counsel (APTC), the national affiliation of property tax attorneys. Ms. Ramierz can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

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Nov
20

Will Flood Insurance Changes Put Property Values Under Water?

"Both residential and commercial policy holders currently benefitting from subsidized rates will see a 25 percent yearly rate increase until each rate reflects "true flood risk" according to the new flood insurance maps to be generated by FEMA. New risk tables will not be available until June 2013, making the magnitude of the adjustments uncertain..."

In Texas, flooding is a part of life. Between the Galveston hurricane of 1900 and Hurricane Ike in 2008, seven major hurricanes and destructive tropical storms have ravished the Texas Gulf Coast. The people of Texas have lived through, and re-built, in the wake of these and many other flooding events.

Congress enacted the National Flood Insurance Act of 1968 to create the National Flood Insurance Program (NFIP), intended to provide an insurance alternative to help property owners meet the escalating costs of repairing damage to buildings and other property losses. The program insures roughly 5.5 million homes, the majority of which are in Texas and Florida. The NFIP also provides building-and-contents flood insurance for businesses.

Communities participating in the program must adopt and enforce a floodplain management ordinance to reduce flood risks in zones recognized as Special Flood Hazard Areas. In exchange, the federal government will underwrite flood insurance for these high-risk communities. The Flood Disaster Protection Act of 1973 made the purchase of flood insurance mandatory for the protection of property within designated special flood hazard areas. Later, the Flood Insurance Reform Act of 2004 further modified the national flood insurance program to reduce losses to property owners with repetitive claims.

Rates for policies under the national program are in most cases substantially lower than privately available insurance, and are the only coverage available for some high-risk locations. Policy premium rates are depicted on flood insurance rate maps (FIRMs) and the mapping process is managed by the Federal Emergency Management Agency (FEMA), which oversees the flood insurance program.

Since 1978, the national flood insurance program has paid more than $38 billion in claims, and in 2012, it insured roughly $1.2 trillion worth of property. In January 2009, mostly as a result of the devastating 2005 hurricane season, the national flood insurance program owed the U.S. Treasury approximately $19.2 billion, with yearly interest payments of more than $730 million. The program's worrisome financial health brought it under scrutiny during the 2009 re-authorization process, and the Government Accountability Office issued multiple reports on the program.

Congress passed the Biggert Waters Flood Insurance Reform Act of 2012 to modify the way FEMA manages the national flood insurance program. The act will require the program's rates to reflect true flood risks, a premium hike that should make the program more financially stable. The 2012 act also calls for FEMA to change the way it implements flood insurance rate maps: Under the act's provisions, actions such as buying a property, allowing a policy to lapse or purchasing a new policy can trigger rate changes, effectively ending subsidies and grandfathered policies.

Both residential and commercial policy holders currently benefitting from subsidized rates will see a 25 percent yearly rate increase until each rate reflects "true flood risk" according to the new flood insurance maps to be generated by FEMA. New risk tables will not be available until June 2013, making the magnitude of the adjustments uncertain.

The uncertainty about rates presents a hazard to property values in high risk areas. The greatest uncertainty and risk to property values, however, may be updates to flood insurance maps, which FEMA is currently preparing.

Some policy changes, such as ceasing to recognize private levies and revisions to historical flood lines, may change the risk rating of many properties. For properties where the risk severity and availability of subsidies are changing, the overall economic viability of the property may be at risk.

Changes to the national flood insurance program have created economic obsolescence affecting the values both of properties currently in the program and of properties not in the program, which may have their risk rating changed by the flood maps' pending revision.

While the magnitude of the change in property values may be unknown for several more months, enough information is available to argue that the additional risk these regulatory changes introduce will reduce taxable values of potentially affected properties. Once all the variables are known, affected property owners should undertake an in-depth analysis of the effect of the regulations on property value to determine whether a tax appeal is necessary to obtain a fair property tax assessment.

RodriganoSebastian Rodrigano is a principal at the Texas law firm of Popp HutchesonPLLC. The firm devotes its practice to the representation of taxpayers in property tax disputes and is the Texas member of the American Property Tax Counsel (APTC), the national affiliation of property tax attorneys. Mr. Rodrigano can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

 

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Oct
31

The Price of Air - New York Ponders Fair Value for Right to Develop Taller Buildings

In order to fund proposed transit improvements in the vicinity of Grand Central Terminal, New York City is considering an air-rights zoning change to allow construction of perhaps a dozen buildings, primarily office towers, that would stand taller than is currently permitted. Developers would be asked to pay the city about $250 per square foot to acquire these new air rights, and the city would use the monies to carry out its proposed public improvements.

The pricing of new air rights under the proposal stands to pit the city against some New York property owners, who could see the value of their own air rights slashed as a result. A question with implications for commercial property owners is, how did the city determine the square-foot charge of $250? An article by Laura Kusisto in the Aug. 13 edition of the Wall Street Journal explores the brewing controversy.

The Landauer Valuation & Advisory organization calculated an estimate of value for the city. Landauer is a division of Newmark Grubb Knight Frank, a well-known real estate advisory firm.

Landauer first determined the value of office land in the Grand Central area, then applied a 35 percent discount. According to Robert Von Ancken, its chairman, residential or hotel uses were not considered in valuing the proposed air rights. Landauer relied on current market data and a methodology used in the past by market participants.

Argent Ventures, which already has a dog in this argument because it owns the air rights above Grand Central, has termed $400 a more accurate unit value. Argent's president has asserted that air rights should not be discounted off underlying land values and might even be worth more than land with the same development potential.

Argent bases this on work performed for it by Jerome Haims Realty Inc. and backed by another appraisal firm. However, as Kusisto notes in her Wall Street Journal article, "Argent has an interest in putting a higher price tag on the air rights because it will have to compete with the city to sell air rights to developers if the rezoning passes."

This controversy obviously sets an existing stakeholder against a municipality that needs to encourage growth in a particular submarket. The value of Argent's Grand Central air rights will be sharply influenced by the city's offerings. The city probably cares as much about creating tax flows from the buildings that would float on the newly created air rights as it does about the selling price, although the Wall Street Journal article does not mention this point.

From a valuation perspective, it would be interesting to review the Landauer and Haims studies, if only to learn in detail how these firms valued the right to create what apparently will be millions of square feet of new office product. Issues such as absorption, the impact of the transportation improvements proposed by the city on market values and the data relied upon to upport the appraisers' conclusions could offer a textbook tudy of a very complicated topic.

Ultimately, the New York City Council must vote on the creation and price of the new air rights.

Pollack_Headshot150pxElliott B. Pollack is a member of Pullman & Comley in Hartford, Connecticut and chair of the firm's Valuation Department. The firm is the Connecticut member of American Property Tax Counsel. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

 

 

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Oct
30

A Reason to Challenge Tax Assessments

"The varying directions of price trends demonstrate that now, more than ever, Atlanta property owners should closely review property tax assessments and make specific determinations regarding the correctness of the valuation. General sales trends and perceptions provide insufficient basis for deciding whether or not to appeal the county assessment notice..."

There is a common perception among assessors that an increase in real estate sales activity is a sign of an improving economy. For a commercial property owner on the receiving end of a tax assessment increase, however, it is a good idea to analyze how the assessor came to his/her conclusions and then decide if the increase is justified, or if a protest is in order.

Sales of office, retail, hotel, multi-family and industrial properties in Atlanta increased in number from early 2010 to late 2012, according to CoStar Group, a national researcher. But does that increase automatically result in higher valuations? What trends do the sale prices over this period indicate on a per-square-foot, per-room, or per-unit basis? More importantly, what conclusions, if any, should the taxpayer or assessor draw regarding valuation of individual properties?

Retail properties accounted for the largest number of commercial, arms-length sales transactions in Atlanta from the beginning of 2010 through 2012. Narrowing the focus of sale price data reveals that the average price per square foot paid for retail properties in that period actually decreased by 20 percent. Full-year data for 2013 is not yet available, but sales through July suggest that the downward trend in average price per square foot for Atlanta's retail properties is continuing.

Atlanta's highest percentage increase in number of sales from 2010 through 2012 occurred in the hotel market; despite the uptick in volume, the average price paid on a per-room basis for hotel properties decreased by about 17 percent. Available year-to-date data for 2013 indicates that the average room rate for hotel properties may be increasing, with an associated effect on hotel valuations, but each property will require a closer analysis of the class of property sold, its location, and other relevant facts.
Atlanta's multifamily sector posted a compelling percentage increase in the number of sales completed from early 2010 through 2012. In this group, the average sale price per unit increased over that same period. But again, valuing a specific property would require an examination of all factors, such as quality and location.

The market's office sales increased significantly in number from the beginning of 2010 to year-end 2012. During that time, the average sale price per square foot increased, but like other categories, specific factors must be examined to arrive at a fair value.

Finally, while industrial properties experienced a dramatic increase in the number of sales from the beginning of 2010 to the end of 2012, the average price per square foot for these properties in Atlanta decreased steadily in 2011 and 2012. Whether this trend will continue in 2013 is unknown. Sales would need to be examined for specific industry types or sub-categories of properties in order to draw worthwhile conclusions about the value of a particular parcel.

The varying directions of price trends demonstrate that now, more than ever, Atlanta property owners should closely review property tax assessments and make specific determinations regarding the correctness of the valuation. General sales trends and perceptions provide insufficient basis for deciding whether or not to appeal the county assessment notice.

Research regarding many personalized, property-specific factors and criteria are involved in making a determination of value, including an analysis using the income approach. Atlanta commercial property owners should question any assessor's suggestion that sales volume recovery in the Atlanta marketplace equates to an increase in the value of their properties.

StuckeyLisa Stuckey is a partner in the Atlanta law firm of Ragsdale, Beals, Seigler, Patterson & Gray, LLP, the Georgia member of American Property Tax Counsel, the national affiliation of property tax attorneys. She can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Oct
27

Madness in the Method Inflates Property Assessments

Though a few large companies may be expanding in the Portland region, it won't necessarily be a boon to property owners.

"The madness is in the method of assessment, because it is impossible for the assessor to physically inspect and appraise each property on its rolls. Instead, the assessor will typically add up a taxpayer's historical investments in a property as reported each year..."

The real estate headlines in Oregon newspapers this month kindled cautious optimism that the economy is in full recovery. One article touted a boom in the residential and commercial markets of Canby, a Portland suburb, while another trumpeted a bash to kick off a $25 million, mixed-use development in downtown Portland.

These positive headlines added to the stimulating effects of last year's expansion announcements by Nike and Intel. News of those companies' plans for growth in Hillsboro bolstered the industrial, office, and residential markets in the Sunset Corridor.

Industrial property owners, be vigilant. This uptick in the economic outlook does not mean there should be a corresponding increase in a property's real market value and a corresponding over-assessment of the property.

It should be simple to spot an inflated assessment. By statute, a property is assessed at its real market value, defined as what a willing buyer and willing seller would agree upon in an open market transaction. Assessments are also subject to Measure 50's maximum assessed value limitations. The assessed value is the lower of the maximum assessed value or the real market value.

Yet over-assessments are common, and the reasons numerous. Despite the economic uptick, there are still significant economic impacts to industry in Oregon resulting in over-valuation of property by the Counties and the Department of Revenue.

The madness is in the method of assessment, because it is impossible for the assessor to physically inspect and appraise each property on its rolls. Instead, the assessor will typically add up a taxpayer's historical investments in a property as reported each year, and equate the cumulative sum of those investments to the real market value of the property — without any regard to market conditions.

Market conditions that impact a company and the real market value of the property can be significant, particularly for an industrial property. Take a high tech campus that was built in the 1970's and designed for a single user. Back then, tech firms favored flex buildings designed for manufacturing, research and development, assembly, and distribution with a typical floor plate of 40,000 square feet. No thought went into an exit strategy when planning the design or layout of the access, parking, integrated utility systems, and location of the buildings on the property.

Fast forward to 2013, when globalization generally calls for overseas assembly plants and distribution centers located strategically to the company's global market. The need for a single-user campus with six or more dated, 100,000-square-foot flex buildings that share interconnected utilities on a single tax lot is gone. Globalization is an economic force that is external to a company and one that drives down the market price of these facilities. It is a form of obsolescence that is rarely accounted for in a property valuation.

Another factor that assessors typically overlook at industrial sites is functional obsolescence. Consider a facility built 30 or 40 years ago. Technology for the manufacturing processes may have advanced over the years, but the building design, including the ceiling height or floor load, may limit the use of the new technology. The overall utility of the property suffers from functional obsolescence that impairs the market value.

The assessor often lacks the people power to drill down into the details of every property. Because property value reflects not only local market conditions, but also the inherent functional and economic obsolescence unique to the property, a property being taxed solely on a trending basis may be over-assessed.

CfraserCynthia M. Fraser is an attorney at Garvey Schubert Barer where she specializes in property tax and condemnation litigation. The firm is the Oregon and Washington member of the American Property Tax Counsel the national affiliation of property tax attorneys. Ms. Fraser can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Oct
19

Use Quality Data to Fight Unfair Tax Assessments

Owners appealing unfair tax assessments must aggressively and specifically examine the general economic climate.

"While area bankers express high hopes for the coming year, that optimism is not reflected in actual lending practices for the past year. According to the St. Louis Federal Reserve Bank, commercial and industrial loan volume in the United States totaled $16.4 billion in 2012, up slightly from $14 billion in 2011."

By accident or design, assessors tend to punish commercial property owners by increasing the assessed value of properties that outperform the market, thereby generating more taxes for the local government. The problem arises from real property valuations based upon a cash flow analysis, which fails to take into account intangible qualities that boost cash flow but are unconnected to intrinsic real estate value.

Intangible qualities that can increase a commercial property's cash flow include the skills of the management and general business reputation of the owners. Assessors have a tendency to value the business rather than the real property. Consequently, assessors punish owners for efficient and successful management. In order to guard against such an outcome, owners appealing unfair tax assessments must aggressively and specifically examine the general economic climate. In analyzing commercial property, appraisers dedicate pages within each appraisal report to the local economy. Time after time, appellate reviewers in their rush to focus on the cash flow of the specific property simply skip over the plethora of general economic data that fills appraisal reports.

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Two measures of local market performance are particularly important in appealing an assessment, however. One metric is retail sales, which provide a clear barometer of general economic conditions. Sales reflect the health of the consumer base and, most notably, employment. With diminished employment, sales fall in the marketplace. The other dataset to examine is the availability of credit for commercial property acquisition and/or development. While valuation authorities rarely acknowledge the relationship, retail sales and credit are inextricably linked.

Follow Sales Tax Receipts

A look at retail sales and availability of credit in the St. Louis marketplace provides a far better foundation for value analysis than do the population counts and various economic facts tacked onto assessors' reports.

In the city of St. Louis, total sales tax receipts increased every year from 2008 through 2012, with just a slight decline in 2010 (see chart). In 2013, however, the trend's trajectory has changed. The city of St. Louis has collected $30.7 million in sales tax receipts year-to-date through May, down 4.9 percent from $32.3 million during the same period a year ago.

Annual sales tax receipts for 2013 in St. Louis based were previously projected to reach just over $120 million based on the actual receipts for the first five months of 2013 and previous years' receipts during the last seven months of the year. However, the closing of a Macy's store in downtown St. Louis in May will dim this picture even further. Banks are feeling regulatory pressure to lower the concentration of commercial real estate loans in their portfolios. Lending to acquire or develop commercial buildings or residential subdivisions tanked during the Great Recession. Today, lenders give more scrutiny to a potential borrower's creditworthiness than before the downturn. The credit quality of borrowers or developers has in many respects become an important factor in the intrinsic value of the project or the real estate itself.

While area bankers express high hopes for the coming year, that optimism is not reflected in actual lending practices for the past year. According to the St. Louis Federal Reserve Bank, commercial and industrial loan volume in the United States totaled $16.4 billion in 2012, up slightly from $14 billion in 2011. Compared to the market's peak loan volume of $26 billion originated in 2008, credit availability in the sector is clearly constrained.

Focus On Fair Market Value

Property owners should keep in mind that the determination of fair market value is based upon not only a willing seller, but also a willing buyer. A willing buyer must obtain financing, and the St. Louis market has tightened up considerably in that regard. A tax appeal based on the scrutiny of credit availability and retail sales will go a long way toward ensuring that careful, prudent entrepreneurship and management will go unpunished by an excessive tax burden.

Wallach90 Jerome Wallach is a partner at The Wallach Law Firm, the Missouri member of American Property Tax Counsel, the national affiliation of property tax attorneys. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

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Oct
12

Supreme Court Rulings Help, Hurt Property Taxpayers

Two recent rulings by the California Supreme Court may have significant effects on the state's property taxpayers. These effects may be both good and bad, depending on your situation.

"The rule in question had watered down Proposition 13's cap on assessment increases by directly offsetting such increases against depreciation on machinery and equipment..."

The California Supreme Court issued two decisions in early August relating to property taxes that will significantly impact owners of commercial and industrial properties in Southern California.

Decision #1: Ruling Clarifies Tax Exemption for Intangibles

The first decision, Elk Hills Power vs. State Board of Equalization, broadly affirmed the exemption of intangible assets and rights from property taxation. County assessors had previously been assessing intangibles that businesses use in conjunction with real property as part of the real property's value. In other words, property owners were paying property tax on the value of the intangibles associated with operating businesses at a property, as well as on the value of the real estate.

The Elk Hills Power decision changes that by prohibiting assessors from including intangibles in the taxable value of the real property. Moreover, if a taxpayer identifies an intangible to the county assessor and shows the value of the intangible, the assessor must review it. So what are the intangibles that are exempted from taxation? The Supreme Court's decision lists several, including franchises, contracts, assembled workforce, customer base and goodwill.

That list is not comprehensive, however, and nearly all intangibles used in the operation of a business are arguably included. So how should property owners respond to the Supreme Court's taxpayer-friendly decision? First, identify the intangibles used in operating any business at the property and, if possible, attempt to value those intangibles.

Next, report the identified intangibles with associated values to the county assessor. This is especially important if the real property was recently acquired, which allows local assessors to establish new Proposition 13 base year values. If discussions with the assessor fail to result in exclusion and exemption of intangible values from the property tax assessment, the property owner should file and pursue an appeal before the county assessment appeals board.

Decision #2: Court Weakens Proposition 13's Cap on Tax Increases

The Supreme Court's second decision, Western States Petroleum Association vs. State Board of Equalization, involved the legality of a new rule issued by the State Board of Equalization for the taxation of petroleum refineries. The question before the court concerned a rule affecting Proposition 13, a law that essentially limits increases on the assessed value of land to no more than 2 percent annually.

The rule in question had watered down Proposition 13's cap on assessment increases by directly offsetting such increases against depreciation on machinery and equipment. For fixtureintensive properties like refineries, food processing facilities and power plants, the impact can be significant The Court struck down the rule, finding the Board had issued an inadequate economic impact report, and thereby failed to adhere to the requirements of the Administrative Procedures Act. In the same decision, however, the Court also ruled that the Board's reasons for adopting the rule were sound.

In fact, in a concurring opinion, one of the Court's justices essentially invited the Board to reissue the rule as long as it followed the procedures for doing so. It appears that the Board may be preparing to do just that. But this time the rule may be much broader in scope, sweeping in all types of properties that are operated with large amounts of machinery and equipment, which assessors refer to as "fixtures."

If the Board issues a more broad-ranging rule, commercial and industrial properties that use large amounts of fixtures will experience noticeable increases in property taxes. In essence, the Supreme Court's decision in Western States mounts to another attack on Proposition 13, much like the "split-roll" attacks that have sought to apply a tax rate to commercial properties that is different from the rate applied to residential properties. While it is possible that the Board will decline to revisit the matter, the current political and economic situation in California suggests it will enact another rule.

CONeallCris K. O'Neall, partner, Cahill, Davis & O'Neall LLP in Los Angeles. The law firm is the California member of American Property Tax Counsel. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

 

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Sep
30

Charlotte Caught In A Web

Inequities in assessments spark tax controversy in North Carolina's banking hub.

Charlotte, the largest city in North Carolina, is the second largest banking center in the United States. Like the larger New York financial cluster, Charlotte suffered grievous job losses and deflation of property values during the Great Recession. As the seat of Mecklenburg County, Charlotte is also at the center of a tax reform effort marked by record numbers of taxpayer protests, the resignation of the tax assessor and an ongoing attempt by state lawmakers to correct local valuation inequities.

Essentially, the lengthy intervals up to eight years — that North Carolina law allows between revaluations, combined with the effects of deteriorating property values since the onset of the recession, set the stage for a valuation imbroglio for property owners in Charlotte and Mecklenburg County.

Prior to its 2011 revaluation, Mecklenburg had last revalued in 2003. The county planned at that time to revalue in 2007. During the course of the last cycle, however, county commissioners decided to postpone the revaluation until 2009. After the banking crisis and resulting real estate market crash of 2008, when real estate sales largely ceased, commissioners postponed the revaluation to 2010, and then postponed it again until 2011, the eighth year in the cycle, when by law the revaluation had to occur. Presumably, political leaders intended the postponements to allow the real estate market an opportunity to stabilize, and perhaps recover.

Those good intentions and the resulting series of postponements proved to be major contributors to what must be regarded as a blown revaluation, despite the best efforts of what has egnerally been regarded as a highly competent assessor and staff.

The assessments produced significant overvaluations of many properties and sparked mass protests from homeowners in sections of the county and a heated debate punctuated by the county assessor's resignation. Taxpayers had filed 1,542 appeals to the North Carolina Property Tax Commission from the Mecklenburg County Board of Equalization and Review as of mid-April this year, the largest number by far from any revaluation in North Carolina's history.

Pearson's Appraisal Service, an outside consultant the county hired to study the revaluation, reviewed a random sample of the revaluation results and discovered major issues. Although much of the revaluation met acceptable assessment standards, the consultant identified inconsistencies involving both uniformity of assessment and valuation in residential neighborhoods which were heterogeneous with in-fill and tear-down activity and in neighborhoods where the current use might not be the highest and best use.

Problems also emerged in connection with commercial properties, including certain office, retail and hotel categories. Substantial problems turned up involving land valuations in addition to many other issues that the consultant characterized
as minor.

Although the county commissioners voted to expand the consultant's study, they were constrained by a state law that prohibits retroactive valuation adjustments and taxpayer refunds for years when assessments had not previously been appealed. Amid continuing and widespread voter dissatisfaction, legislators, with the support of the county commission, introduced unprecedented legislation on March 4, 2013, to correct the 2011 revaluation.

North Carolina's constitution prohibits classifications of property for taxation except on a statewide basis, and provides that "every classification shall be made by general law uniformly applicable in every county, city and town, and other unit of local government." Another section of the constitution prohibits local legislation extending the time for the levy or collection of taxes.

Attempting to draft constitutional legislation that would address Mecklenburg County's unique revaluation needs, lawmakers worded Senate Bill 159 and its House counterpart, HB 200, to be ostensibly applicable statewide, but with preconditions to application of the statute that only Mecklenburg County is likely to meet.

The North Carolina Senate passed SB 159 unanimously on March 28, and after amendment in the House, the bill was returned to the Senate, which concurred in the House amendments on July 18. SB 159 provides that the county must conduct a general reappraisal within 18 months if the following is found to exist:

  • The county has evidence that the majority of commercial neighborhoods possess significant issues of inequity
  • Instances of inequity or erroneous data had a significant impact on the valuation of residential neighborhoods,
  • The county's last general reappraisal was performed in 20082012 when the economic downturn most severely affected home prices,
  • The county's evidence resulted from a review by an appraisal service retained by the county and resulted from a sample size of not less than 375 properties that were examined on site.
  • The reappraisal is to be applicable to all tax years from and including the year of last revaluation,
  • Alternatively, a county meeting the criteria must have a qualified appraisal service conduct a total review of all the values in the county and make recommendations as to true values of the
  • properties as of Jan. 1 of the last general revaluation.

Once in possession of this information, the county would be required under SB 159 to correct incorrect assessments to reflect true value as of Jan. 1, 2011, and apply those corrected values for later years in the revaluation cycle. Refunds would be automatically made, with interest, and under-assessments based on the new values would be subject to discovery assessments under existing tax statutes, but without being subject to normal discovery penalties.

Based on the legislative action, it appears that the Mecklenburg revaluation will drag on for some time. Since the county will be reviewing values, the legislation appears to open the door for taxpayers to identify assessments they think unfair and draw them to the attention of the county for review. And as the legislative note accompanying the bill provides, "a taxpayer or county may have standing to challenge" the legislation and "it is unknown whether a court would find the bill to be local in nature or non-uniform."

In other words, lawmakers recognize the potential for a court to rule the legislation as unconstitutional.

Neely Chuck Neely, Jr. is a partner in the law firm of Williams & Mullen, the North Carolina member of American Property Tax Counsel (APTC), the national affiliation of property tax attorneys. Mr. Neely can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

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Sep
22

Texas Property Tax Change Explained

Property owners to benefit from adjustments in appraisal review boards, appeals and hearings.

"Texas House Bill 585, which passed in June of this year, was written to provide for a fairer and more efficient tax appeal process, and its passage into law may help taxpayers appeal their assessments..."

As the economy recovers and property values rise, real estate taxes are a growing concern for Texas property owners. Each dollar of additional tax is a dollar removed from an income-producing property's bottom line, and some taxpayers will find that the increases in tax appraisals are overreaching and require a formal protest. That being said, taxpayers who protest their property values will likely be pleased with the Texas Legislature's recent revision to the property tax code. Texas House Bill 585, which passed in June of this year, was written to provide for a fairer and more efficient tax appeal process, and its passage into law may help taxpayers appeal their assessments.

Complaints about the state's property tax system often involve a perception of bias on the part of appraisal review boards (ARBs), the citizen panels that hear and decide property tax appeals at the administrative level. A second concern is a perceived lack of responsiveness on the part of appraisal districts with regard to taxpayer concerns. To address this, HB 585 provides for increased oversight of these entities. The new law requires the comptroller to provide model hearing procedures with clear expectations for all Texas ARBs.

In large counties, it also establishes a taxpayer complaint system through a taxpayer Liaison, an intermediary housed at the district and tasked with hearing taxpayer concerns regarding procedures and personnel. The liaison's go-between responsibilities will now increase to include accepting taxpayer complaints and providing clerical support in the ARB selection process.

On top of re-emphasizing oversight and improving accountability, HB 585 tackles another perceived flaw in the property tax appeal system. Appraisal district boards of directors have historically selected ARB members. In Houston, however, a district judge selects Harris County ARB members. ARB member selection in counties with more than 120,000 residents will now take on this same model used in Harris County. Only district judges will possess the power to appoint members.
It's a move that could also have disciplinary implications, as ARB members who do not follow procedures may be removed by a judge as well. And in large counties, the appraisal district will be removed from the panel selection process completely. Aside from the new panel requirements, the new law seeks to make protesting property values easier and more effective. Appeal hearings must now be set for a certain date and time.

If a hearing does not occur within two hours of its scheduled time, a taxpayer may request a postponement. Also, if before a scheduled hearing
a change in value is made with an informal agreement between taxpayers and appraisers, the law strengthens the standards of evidence appraisal districts must provide in order to raise the property value the next year. This could mean less volatility for values. These changes are not the only changes set forth by HB 585, as the new law also provides new procedures for district court appeals. While shifts in accountability and scheduling may seem small, they could indicate a broader trend toward a more fair and equitable Texas property tax system.

As more guidelines favor taxpayers, it improves their likelihood of achieving fair results. What's more, keeping tax values fair will ensure that Texas' ability to attract developers and investors remains strong.


Shalley Michael Shalley is a principal and Patrick McGill a tax consultant at the Austin law firm of Popp Hutcheson PLLC. which focuses its practice on property tax disputes and is the Texas member of the American Property Tax Counsel. Michael Shalley can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it. an Patrick McGill can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Aug
22

Annual Tax Hikes, Layoffs Threaten Chicago's Future

"According to the Cook County Clerk's office, the budgets for all Chicago agencies increased by nearly $75.5 million over the previous year. Practically all of the increase was concentrated in the levies of the Chicago Public Schools. The increase in the tax rate was due to the decline in property values and the increase in levies..."

Two seemingly unrelated events dominated Chicago news at midyear 2013 and underscored the deteriorated condition of local government and the economy. The first bombshell fell In early spring, when the Chicago Board of Education announced that it was closing 50 underutilized schools and furloughing 1,742 teachers and 1,387 other staff members.

The second shoe to drop — real estate tax bills — arrived in the mail at the end of June. Always a source of trauma, this year's notices delivered an unexpectedly heavy blow in the form of a 17 percent tax rate increase.

If Chicagoans fail to demand action from state lawmakers and municipal leaders to address the budget shortfalls driving these dire measures, economic recovery threatens to elude the city for years to come. But the first step toward change is to understand the funding crises behind the news.

Shrinking values, expanding budgets

Two factors that determine real estate taxes are the total value of all property within the boundaries of the taxing district, and the tax rate. In Chicago, declining property values mean taxing entities would need to increase the tax rate from previous years in order to generate the same amount of revenue collected in those years. Unfortunately, local government budgets have grown, requiring even more revenue and driving up the tax rate even further.

By law, all properties within the city of Chicago must be revalued once every three years. The most recent tax bills were based on the revaluation completed in April 2013. That revaluation determined that the aggregate value of real estate in downtown Chicago had declined 7.5 percent since the previous valuation, and values in the residential neighborhoods had dropped between 14 percent and 20 percent.

According to the Cook County Clerk's office, the budgets for all Chicago agencies increased by nearly $75.5 million over the previous year. Practically all of the increase was concentrated in the levies of the Chicago Public Schools. The increase in the tax rate was due to the decline in property values and the increase in levies.
An office building just west of the Loop's financial district illustrates a typical tax impact on a commercial property. The 10-year-old, 400,000-square-foot building was originally revalued at 20 percent more than the prior year's valuation. After appealing, the value was finally set at a 1 percent increase, but because of the increase in rate, the tax bill increased to approximately $3,196,900, up by $343,200 over the prior year's bill of approximately $2,852,700.

A study in schools

Why the increase in school district taxes? After a stormy negotiation period, the Board of Education and the Chicago Teachers Union agreed on a new three-year contract that was ratified by all parties in December 2012. A few months later, the board announced 50 school closures and faculty layoffs.

The schools scheduled for closing were almost exclusively located in the poorer sections of the city where gang activity and indiscriminate shootings have proliferated. Parents are concerned about the safety of their children, and they have mounted strong opposition to the closings. Some have filed a lawsuit attacking the legality of the closings.

The board is blaming a $1 billion budget deficit for the budget cuts and the personnel layoffs. Pension costs alone have increased by $400 million to a total of $612 million for this year, and along with the new teachers' contract have contributed mightily to the deficit.

In 2011, Moody's Investors Service calculated the unfunded liabilities for Illinois' three largest state-run pension plans to be $133 billion. There can be no doubt that that number has increased significantly over the last year and a half. Like the U.S. Congress, the Illinois Legislature has been unable to make the tough decisions necessary to fund the pension deficits. In desperation, the governor has ordered that the salaries of the Legislature be withheld until they can agree on a pension plan. The response of the Legislature was not to address pensions but to file a suit against the governor on the grounds that his order was unconstitutional.

In addition to the board of education's pension problems, according to a local newspaper, the City of Chicago must make a $600 million contribution to stabilize police and fire pension funds that now have assets to cover just 30.5 percent and 25 percent of their respective liabilities. Without an agreement with the state, the deficit could rise to $1.15 billion in 2016.

Chicago has suffered greatly from the recession. Over the last 25 years, the aggregate value of real estate in the Central Business District has never before declined in a revaluation. Since 2009, however, the vacancy rate for office buildings in the Loop has stubbornly hovered around 15 percent, squeezing property cash flows and asset values. These conditions will continue until the city's unemployment rate of 9.8 percent declines significantly.

The increased tax rates and the school closings have coalesced into tangible issues to which Chicagoans could respond, but they are only symptomatic of much deeper problems that must be addressed. If left unaddressed, tax rate increases and layoffs will become an annual occurrence.

JR90James P. Regan is President of Chicago law firm Fisk Kart Katz and Regan Ltd., the Illinois member of American Property Tax Counsel, the national affiliation of property tax attorneys. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

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