The recent property revaluation in Auburn – which provoked howls of protest from residential property owners – cut a different way for the city’s largest commercial taxpayers.
Although the revaluation will not take effect until April 1, 2006, preliminary estimates of its impact show a shift of tax burden from commercial property taxpayers onto residential property taxpayers.
The tax shift induced by the revaluation is expected to give Wal-Mart Supercenter a 16 percent reduction in its property tax bill this year, according to the city assessor’s office. Tambrands, a Proctor & Gamble subsidiary, is likely to see its tax bill reduced by five percent. In contrast, many residential property owners will see significant increases in their tax bills.
“That’s some of the agitation,” said Ed Desgrosseillers, leader of a new taxpayer’s group called United Citizens of Auburn. “If you poll the citizens of Auburn, there’s a strong feeling – I still feel it – of ‘why is Wal-Mart paying less than we are?’ They got a break.”
The agitation prompted more than a 1,000 people to crowd into Central Maine Community College Gym in Auburn on November 21 to complain about the shifting of the tax burden. Similar situations exist around the state. “Houlton land revaluation provokes community,” reads a headline in the Bangor Daily News. “Lakefront owners bear brunt of Standish revaluation,” reads a headline in the Portland Press Herald. And in the Lewiston Sun Journal, “Huge valuation jump facing Paris taxpayers.”
Revaluations – necessary to ensure taxes are assessed equitably – are one of the most contentious, misunderstood issues in municipal government. The Maine Constitution says that “general valuations” are to take place at least once every ten years, but the booming housing market is dragging communities into the dreaded process more often now. Some 54 communities [see list on page 8] were overdue for revaluations last year, according to a list generated by the property tax division of Maine Revenue Services.
“That’s quite a number,” conceded David Ledew, head of the property tax division of Maine Revenue Services. “It’s a reflection of the market.”
One new twist in the latest surge of revaluations is who gets hit.
When a revaluation is done in coastal towns and communities with inland lakes, ponds or rivers, it tends to shift the tax burden onto those properties with water frontage or water views. When revaluations are done in communities with large amounts of commercial and industrial property, the tax burden typically shifts away from the businesses and onto the residential property owners.
Auburn’s revaluation increases the residential share of the overall property tax burden from 39 percent to 48 or 49 percent of the taxes, according to the assessor’s office. (Because the housing market has outpaced other real estate sectors, Wal-Mart’s tax bill will decrease even though it’s actual valuation has increased from $16.1 to $18.7 million.) Portland’s 2004 revaluation increased the overall residential value portion of the tax base by 12.5 percent as the commercial part of the tax base decreased by 8.8 percent. South Portland’s 2002 revaluation increased the residential share of the tax burden from 36 percent to 40 percent and another revaluation is in the offing.
Revaluations in coastal communities have already precipitated secession movements on Peaks Island and Chebeague Island in Casco Bay. High real estate values and the education cost-sharing formula are also prompting Harpswell to consider leaving the four-town School Administrative District 75.
But if you think revaluations are controversial in coastal communities, they may be even more controversial in service center communities. Auburn City Assessor Cheryl Dubois has the perspective of having overseen revaluations in both working-class Auburn and more affluent Yarmouth.
“The outcry has been bigger in Auburn,” said Dubois. “People here don’t make the income the coastal and Portland communities make. There’s a lot more on fixed incomes ... People will lose their homes, will have to sell. That’s what we’re hearing. They’re really scared.” Not surprisingly, anti-tax activists are mobilizing in Auburn.
Equitable Taxation
The Maine Constitution requires that property taxes be assessed equitably and according to “just value.” Maine courts long ago equated just value with market value. This is ad valorem taxation, meaning that property will be assessed according its real (or market) value — “what a willing buyer would pay a willing seller”. Of course mass appraisal, or revaluation, is more complicated than that, since the assessor looks at many properties – some of which have sold recently, other that have not.
The first step of the full revaluation process is analyzing sales data to create a new valuation model. Property sales are the comparables used to determine the market value of the properties that did not sell. Once the analysis is completed, the model will include cost and land schedules to calculate building and land assessments. Once the model can calculate assessments that come close to the property sales chosen as comparables, in a consistent manner, it’s good to go. These values can then be applied to the properties that did not sell. Building and land values are calculated from this model. Lot values also are run through the sales model. Individual properties are grouped into classes of property with similar characteristics, such as neighborhood character and location. Adjustments are made for shape, topography, view, etc. To complete the revaluation, a variety of cross-tabulations are made comparing the proposed values to what the model indicates should be the value. When it's over, shifting of value and tax burden occurs within classes of property (e.g., non-waterfront homeowner onto waterfront owner) and from one class of property to another (e.g., commercial onto residential) .
If revaluations are so equitable why do they create such turmoil?
Part of the reason, of course, is that the losers in a revaluation just don’t want to hear the bad news.
Sometimes Things Go Wrong
Last year, Wiscasset hired Murphy Appraisal Services in Gardiner to update all property values using “good strong baseline data” from the last revaluation in 1998. It cost the town $8,500, plus the in-house time of an assessor’s agent, and some selectmen’s time. Murphy was not retained to explain and defend the process, and selectmen waited until the results were released to begin an education campaign. In hindsight, both turned out to be a mistake, said Town Manager Andrew Gilmore.
“We were trying to educate people in the heightened emotion of the moment,” said Gilmore.
Last fall, selectmen rejected Murphy’s work. It had less to do with the quality of the work than the unpleasant reality it reflected, according to Gilmore. Wiscasset has still not come to grips with the decommissioning of the Maine Yankee nuclear power plant, which began after the last revaluation in 1998, he said. At one time, Maine Yankee had contributed $12 million a year in taxes.
“Thirty years of Maine Yankee has built an environment and expectations of a high level of service and low tax bills,” said Gilmore.
Loss of that cushion fell hardest on waterfront properties and village properties, he said.
“It’s a punch in the stomach. In the heyday of Maine Yankee they [waterfront property owners] were paying $600 a year and now they’re paying five to seven thousand dollars a year,” he said.
Wiscasset voters in November authorized spending $250,000 for a complete revaluation, which will include developing new baseline data. It has only been since the November vote that non-waterfront property owners have come to realize that they stand to benefit from revaluation, said Gilmore.
“For whatever reason, 85 percent [of residents] hadn’t come to grips with the issue. Since the vote, we've heard more and more, 'we wish we'd stuck with Murphy'," said Gilmore.
Perception of Politics
Another factor in the turmoil over revaluations may be the lingering perception that politics play a role in revaluations.
In 2004, Newcastle hired Horace “Bud” Taylor, a former town official studying to become a professional appraiser, to revalue buildings. Before Taylor was done, a governance committee became “quite unhappy with the way things were proceeding,” according to Selectman Lee Straw.
The unhappiness stemmed from a fear that Taylor’s work could not be trusted because he was “part of the good old boy’s network.” The fear proved to be unfounded, though it was rooted in the practice years ago of cutting deals with certain old-time families with river frontage property that “you’ll never be charged for river front,” explains Straw.
Still, the power of perception is strong, so while Taylor was still conducting his revaluation, the selectmen also hired Parker Appraisal to conduct a revaluation of land values.
In the end, it was Taylor’s work that withstood the scrutiny.
“He gave people a real assessment,” said Straw. “He was doing things by the book as it turned out. He was doing a very good job.”
Selectmen rejected the land values developed Bob Gingras of Parker Appraisal and will contract to have the work done again. “We didn’t give Gingras the time to do the job properly,” said Straw. He said it was not a difficult decision to have the revaluation redone because the board spent only $3,200 to hire Parker Appraisal. “It wasn’t like we’d wasted a whole bundle,” said Straw. The lesson, he said, is “more communication."
“Do not try to do it fast,” said Straw.
The new revaluation – the budget for which has not been set – will expand the number of neighborhoods in town to give greater precision to the changing values, he said.
Even when politics are not involved, revaluations always involve an element of discretion, which opens them to controversy. State law guides municipal assessors towards the revaluation process when municipal valuations are 30 percent under market values (as reflected in State Valuation) and/or there is an equity problem among the classes of property in a community.
But, there’s more than one way to update values. Complete, or full, revaluations are the most accurate approach to updating property values since new data is gathered and there are individual inspections of property. A full revaluation picks up property changes that might have been made since the last revaluation. Partial revaluations, often done by the municipal assessors instead of hiring a revaluation company, are sometimes used to save time and money. Partial revaluations often target properties that have had physical changes since the last complete revaluation. Information gathered from these inspections can be used to improve the town’s assessment ratio and assessment equity as shown in the “co-efficient of dispersion” (COD). “Factoring” is also a tool used by some assessors to improve the town’s assessment ratio. Assessors can either factor all properties (works best when the property base is homogeneous) or certain classes of property (e.g., shorefront) where sales information shows a significant variation from the town’s overall assessment ratio. With factoring, all property or classes of property are adjusted by a percentage.
“You’re not going to find a definition of revaluation,” said Ledew. “It can mean different things to different people. My own definition is it’s a restoration of equity.”
Misinformation
Another element in the turmoil is misinformation. There’s a common misconception that revaluations are a back-door tax increase. Perhaps, it stems from the coincidence of timing – revaluations are usually announced just before taxes are levied. A revaluation has nothing to do with the size of the overall tax commitment, it merely adjusts how it is apportioned.
Another misconception is the threat of a state takeover, which is often invoked to cajole citizens to accept a revaluation. Truth be told, the state is no more eager to tangle with revaluations than local officials.
Consider the state’s response to Kennebunkport, which has three times voted down money to conduct a revaluation, most recently in November 2004. State officials have done little more than speak to town officials about the need for a revaluation, even though Kennebunkport values are 48.2 percent of market values, second lowest in the state, according to state figures.
David Ledew of the MRS property tax division conceded the state is reluctant to intervene. “They need to answer to their own taxpayers,” said Ledew.
He said the state’s power under law is so unwieldy that it hamstrings the state from using it. State law allows the state to roll back “assessments,” but says nothing about ordering a revaluation “going forward,” said Ledew. In effect, it allows the state to undo tax bills already sent out, he said. “You can imagine the fiscal turmoil that would occur,” said Ledew. “It is, in essence, a power reserved for the most egregious situations.”
The only sanction for falling below the 70 percent threshold is loss of state reimbursement for tree growth, open space and farmland land, a class of property that receives tax benefits. But loss of reimbursements hurts only some towns, said Ledew. “The reimbursements are critical to small towns, but that particular penalty is negligible to other towns,” said Ledew.
There are no current plans to ask Kennebunkport voters for money to conduct a revaluation.”We’re giving it a rest,” said Lorraine Brooks, assistant to the Kennebunkport Board of Assessors. In the meantime, waterfront homes in Kennebunkport are still being taxed as if they were worth half as much as the $1.5 million they fetch on the market, a subsidy borne by non-shorefront owners “They [non-waterfront property owners] don’t understand this.” says Brooks.
Weight of property taxes
Finally, there’s no escaping another factor in the controversy around revaluations – the sheer weight of property taxes.
The property tax is the largest of the three big taxes collected in Maine, accounting for 40 percent of total receipts. (The other two big taxes are sales and income). The property tax is also the most visible. It comes in the mail once or twice a year and for some homeowners, it’s the biggest check they write each year.
Municipal officials are on the front line, and are viewed by many citizens as being responsible for the property tax bill. Ironically, in most communities, it is the decisions that are made by the residents at town meetings and school budget meetings that ultimately determine the size of the property tax commitment. The fact that most property taxes go to support education, which in many towns comes from an assessment levied by an independent school district, is not fully understood by many residents.
Decisions of the state and federal governments also affect the level of property taxes. State or federal mandates and the level of intergovermental aid (GPA, revenue sharing, CDBG) have an indirect impact on the size of a person's property tax bill. “Whatever is left has to come from the property tax,” notes Wiscasset Town Manager Gilmore. “Municipalities are on the front lines of the broad issue of state tax policy.” No wonder anti-tax groups like to use revaluations as occasions to build their organizational strength. “They’re perfect forums for anti-tax groups.”
We’ve seen it in California, where revaluations driven by a booming real estate market in the 1970s, triggered the tax rebellion that resulted in the landmark Proposition 13. And we’ve seen it in Maine, a revaluation in the early 1990s was a precipitating factor in Long Island breaking away from Portland and forming its own town. Recent revaluations are fanning secessionist sentiment on Peaks Island and Chebeague Island in Casco Bay.
No wonder Portland is soft-pedaling its revaluation. It was completed in 2004 but initially shelved. The main reason, according to City Councilor James Cloutier is that Portland hoped to ease the impact with passage of significant property tax relief in the Maine Legislature. Last year, the city council voted to phase in implementation over a two-year period.
Cloutier said he is very sympathetic to concerns that the overall property tax burden is too high, even with expansion of the circuit breaker and homestead exemptions.
For regular people, this is a tremendous burden,” Cloutier said. “Unlike most of the rest of the country, Maine does not have a substantial property tax exemption for the primary family home.”
If you doubt the overall property tax burden contributes to the controversy, consider the situation in Maine’s vast North Woods, where lakefront property is experiencing the same run up in residential real estate values as the rest of the state. The tax shift toward lakefront trophy homes is especially pronounced because undeveloped land is mostly commercial forestland, which means it’s taxed hardly at all. (Under the state’s tree growth program, land growing softwood trees in Aroostook County is valued at the flat rate of $127.50 per acre. By contrast, a houselot on Moosehead Lake might be valued at $100,000 an acre.)
The state is currently conducting its fourth revaluation of property in five years in the Unorganized Territory. Bob Doiron, who oversees tax assessments in the Unorganized Territory for Maine Revenue Services, expects the revaluation to go smoothly because the overall tax burden is so low in the Unorganized Territory.
"The saving grace for us is that the mill rates are pretty low, in the single digits," said Doiron.
Taking some of the pain out
There’s one practical way communities can ease the sting of revaluation – update values more often. That way, instead of a big valuation shift, homeowners get more frequent, smaller shifts. Until recently, this was prohibitively expensive and cumbersome because it would have meant updating thousands of property cards by hand. Computers, of course, have made things much easier. Software is now available that allows adjustments to be made across whole property classes without separate data entry for each property. So called Computer Assisted Mass Appraisal software is now in use in an estimated 100 or more communities, according to Ledew. An increasing number of communities now have the staff and expertise to conduct in-house revaluations every year. Auburn, for example, has recently installed a CAMA software package, according to an article in the Lewiston Sun Journal.
“One of the biggest complaints we’ve heard with this revaluation is that we waited too long to do it,” Dubois told the paper. “By keeping track of it year-to-year, we shouldn’t see a bump like we did this year,” she said. “Our values should track with the market, going up or down when the market does.”
SIDEBAR
Below 70%
According to Maine Revenue Services, the 54 communities listed below fall under the 70% assessment ratio guideline established by State law. This percentage is derived from comparing municipal valuations in 2003 to the 2005 State Valuation.
Durham - 67.73 percent
Wales - 69.6 percent
Frenchville - 66.91 percent
Moro Plantation 67.77 percent
Bridgton - 68.6 percent
Long Island - 47.78 percent
North Yarmouth - 62.28
Portland - 66.80 percent
Raymond - 62.36 percent
Strong - 69.53 percent
Brooklin - 57.52 percent
Brooksville - 66.57 percent
Deer Isle - 50.06 percent
Mount Desert - 63.22 percent
Orland - 59.11 percent
Otis - 62.11 percent
Sedgwick - 61.09 percent
Southwest Harbor - 68.53 percent
Winter Harbor - 66.52 percent
Monmouth - 68.22 percent
Mount Vernon - 66.78 percent
Wayne - 68.07 percent
Appleton - 61.64 percent
Hope - 65.72 percent
North Haven - 65.72 percent
South Thomaston - 61.07 percent
Boothbay - 66.14 percent
Bremen - 55.4 percent
Damariscotta - 66.46 percent
Nobleboro - 56.12 percent
Westport Island - 69.27 percent
Whitefield - 62.78 percent
Denmark - 61.19 percent
Otisfield - 63.09 percent
Carroll Plantation - 64.81 percent
Garland - 68.43 percent
West Bath - 66.82 percent
Belmont - 59.84 percent
Burnham - 66.27 percent
Montville - 56.43 percent
Dennysville - 69.29 percent
Jonesport - 65.25 percent
Machiasport - 63.29 percent
Milbridge - 59.37 percent
Robbinston - 69.34 percent
Steuben - 45.65 percent
Cornish - 69.31 percent
Eliot - 68.94 percent
Kennebunkport - 48.23 percent
Limerick - 63.25 percent
Newfield - 60.30 percent
Ogunquit - 50.14 percent
Shapleigh - 55.22 percent
Waterboro - 59.55 percent