Property Tax Issues: Assessors weigh in on how to fix the system

(from Maine Townsman, February 2005)
By Douglas Rooks, Freelance Writer

The state of property taxes has received almost unprecedented attention in recent years. From referendum drives to the halls of the State House, from packed committee rooms to exchanges in coffee shops, Maine’s property tax system has been discussed, reviled and — occasionally — defended.

The effects on the state’s property tax assessors, public and private, have been less evident, but there is no doubt that — in interviews with practitioners around the state — they have been profound.

While the situation might not yet be described as a crisis, it is clear that the forces roiling the waters at the State House have created a counterpart in how assessors see their jobs. There is discontent with the way state government enforces the law, how the Legislature tries to fix the tax system in response to public discontent, how local leadership handles reassessment, and how Maine will be able to maintain good assessing standards into the future.

What’s fair or unfair?

Perhaps the primary disagreement between politicians who attempt to deal with property tax problems and the assessors who try to establish fair values is over what the problem really is.

Jim Murphy, whose small family firm in Gardiner does assessing for Union, Warren, St. George and Friendship, says that, “We’re all being told that property taxes are too high. But that only means that one person’s or community’s taxes are being compared to something else.” The real reason that people perceive taxes as “too high” is that they believe that there’s something unfair about the system, he said. “Personally, I believe that our incomes are too low in relation to the government we’re trying to support.” But at the level of individuals, “People just want to know that they’re being treated fairly in regards to others they know.” Where there’s a perception of unfairness, “confidence in government goes down.”

If the problem in fact is a perception of equity, rather than some abstract, ideal level of taxes, then recent activity at the Legislature — not to mention votes over the last 20 years — could actually make the problem worse, rather than better, Murphy suggests.

Programs like BETR, the Business Equipment Tax Reimbursement, which pays major companies for the personal property taxes they pay; the homestead exemption, which gives resident taxpayers an advantage over non-residents; and even the circuit breaker, which targets state payments to those whose property taxes are high in relation to their incomes, were all enacted to compensate for perceived problems in the property tax system. But their cumulative effect may have been to decrease public confidence in tax equity, not increase it.

And that’s even before the recent passage of LD 1, a mammoth property tax reform package, and six proposed constitutional amendments that could introduce further exceptions to the “just value” clause — interpreted as market value by the state Supreme Court — in the Maine Constitution.

For Bill Van Tuinen, whose firm assesses for Madison and Skowhegan and contracts with numerous other communities, the problem may be even simpler than that. Political talk about the unfairness of property taxes have help create a public mood of discontent, far beyond any rational calculations of how the tax burden may have shifted, or the ability of average citizens to pay their tax bill.

“We’ve heard politicians going on for years about how unfair and regressive the property tax is,” Van Tuinen said. “Well, it’s the major source of revenue we have at the local level, and no one has really come up with an alternative.” In point of fact, while the income tax is more progressive — impacting taxpayers more as their incomes rise — the sales tax, often advanced as a substitute for property taxes — is generally considered more regressive than the property tax.

One criticism Van Tuinen has of LD 1 is the so-called expanded homestead exemption, which converts what was previously a state reimbursement through municipalities into a shared burden of unknown consequences. The idea for an expanded, but only half-funded homestead program, was hatched in the Joint Select Committee on Property Tax Reform, and came in response to no obvious public demand or testimony.

To Van Tuinen, this is just another way of creating “winners and losers” within the same community, and within the same tax base. Even if one agrees that there is value to helping Maine resident homeowners, the “extraordinary looseness of some of the language” in the bill has already created dilemmas for municipal assessors — a point echoed by most of those interviewed for this article.

More changes in the works

Possible constitutional changes affecting the “just value” clause are still pending at the State House, so assessors were wary about commenting about the specifics, but it was already clear that any further changes are likely to make their jobs more complicated and possibly more difficult.

The amendment considered most likely to pass legislative scrutiny would classify “working waterfront” property for assessment under its current use, similar to existing constitutional exceptions for tree growth, farmland and open space. Of the six amendments proposed by the Joint Select Committee on Tax Reform, this one appears to be headed to the November, 2005 ballot. It is less controversial since it tracks existing exceptions for presumed traditional land uses.

“These are good programs because they prevent a change of use simply because of financial pressure on the owner,” said David Ledew, long-time municipal services chief at the Property Tax Division of Maine Revenue Services, and recently named acting division director. “The public benefits because open space is preserved, and a community doesn’t face untimely demands for increased services.”

In fact, the working waterfront amendment is effectively a rerun of a proposed 2000 amendment that cleared both houses of the Legislature by the required two-thirds, and was then narrowly rejected by the voters. It would require that “waterfront land used for or that supports commercial fishing activities” be assessed for its current use, not its market values.

Still, there are issues of concern. Jim Murphy points out that, as an income-based method of assessing, current use is a more intrusive use of government’s taxation powers. Rather than examining the external value of facilities, an assessor may need to see detailed financial information about a business — a requirement that may also limit participation in the existing farmland and open space programs.

A second constitutional amendment would allow municipalities, by local option, to freeze current assessments and then increase them only by inflation until a property is sold. “What’s the benefit to the public as a whole?” asked Murphy. Others agreed, questioning whether Maine would want to go the way of California’s Proposition 13, under which first-time homebuyers may be paying an enormous premium over taxes paid by long-time owners.

Trouble in Harbor City

It isn’t only legislative activity that’s on the minds of Maine assessors, however. Local political decisions can often have a profound impact as well.

The communities around Portland Harbor have been engaged in intense local debates about property taxes for some time now. Both South Portland and Portland have been affected by the steep rise in residential property values that have been typical of the nation, but in Maine have so far been concentrated among southern counties and the midcoast.

South Portland completed a revaluation less than five years ago, and implemented it in 2001 at a difficult time for city government. A massive school referendum bond issue, 100 percent locally financed, had just been overwhelmingly approved by voters, but when taxes went up, citizens weren’t as pleased.

Since 2001, continuing rises in property values have reduced residential property assessments to only 60 percent of full value; commercial property assessments are at 85 percent, according to City Assessor Elizabeth Sawyer. The variance between these different property categories demonstrates the need for a revaluation, which Sawyer has proposed, but so far the city council isn’t buying. It has denied the assessing office the budget item it needs to reassess.

It is the anticipated shift from commercial to residential taxpayers that may be causing the difficulty. Even though the real estate market says the shift has occurred, it will not be popular with homeowners, who are of course much more numerous than business owners and vote in larger numbers.

“There really isn’t anything more we can do in the assessor’s office,” Sawyer said. “The council sets the budget and that’s the way it is.”

Across the harbor in Portland, events have taken a slightly different course. Portland authorized a revaluation of city properties, completed it last year, and then the city council refused to implement it. The new values are known, but they are not yet in effect.

The city council also authorized a local homestead exemption which would have had the effect of shifting the property tax burden, which was clearly going to trend from commercial to residential, back to commercial, thanks to Portland’s possession of a thriving business community. But the Maine Supreme Court struck down the homestead program, requiring the city to, in essence, pay back businesses that paid higher taxes as a result.

The repealed homestead program, however, may be back in a different form. The new homestead exemption contained in LD 1, which provides a state-funded $6,500 exemption and another $6,500 paid locally, will create a situation quite similar to what Portland tried to do last year. So far, the city council has not decided what to do about the suspended revaluation, with some councilors suggesting phasing it in rather than implementing it in one year.

Such talk, it is safe to say, horrifies professional assessors. Said one, who preferred to speak off the record, “You can’t just delay or phase in a reassessment. Either you do it or you don’t. Delaying it just stirs up more trouble.”

Portland City Assessor Rick Blackburn makes it clear that he’s staying well clear of these controversies. He points out that the finance department, not the assessor’s department, was responsible for implementing the city homestead program.

He does point out, though, there are other possibilities beside a homestead exemption to relieve residential property taxation. Massachusetts, for instance, allows municipalities to classify their property tax rates, charging a higher rate for commercial property than for residential. While not necessarily less controversial than other measures, it has the virtue of directness against the indirect approach called for by the homestead.

Blackburn, like many other assessors, wonders whether the numerous provisions of LD 1 have really been thought out. The expanded circuit breaker, for instance, has interactions with the expanded homestead, affecting eligibility for the circuit breaker, but no clear explanation of its effects have yet been offered. The finance director and city attorney were recently dispatched to Augusta to find out, “but they didn’t come back with a whole lot of clarity,” he said.

About the suspended revaluation, he is more optimistic. The city council held workshops in January and February “and came up with some really good ideas.” He thinks the city will come up with an answer by the time property taxes are due.

The state’s role

The current public debate doesn’t include certain long-standing issues between professional assessors and Augusta. Many, for instance, wish the state would take a stronger stand against towns that deviate from established assessing practices. Elizabeth Sawyer points to one growing inland town where selectmen simply refuse to do a comprehensive revaluation. One coastal town she mentions has asked its assessing firm to disregard the value of ocean views from a parcel’s assessment “as if that wasn’t exactly what people are looking for in every real estate ad.”

Mike Austin, former assessor in Bath who now runs his own firm, says he knows of one town that is assessing its property at 50 percent of full value even though “everyone from David Ledew on down” has pointed out that state law requires a minimum of 70 percent.

The requirement of assessment of full value, or as close a practicable, is not of merely abstract importance, Austin said. In the old days, before the state imposed requirements, some towns assessed at as little as 10 percent. “If you were new in town, you get a tax bill with an assessment that indicates you’re being taxed at 20 percent of full value, and think you’re getting a great deal,” he said. “In reality, you were being taxed twice as much as everybody else.”

The state’s role in enforcing assessing standards is unclear and debatable.

“First of all, the statute doesn’t allow us to order a reassessment,” Ledew says. “What we can order is a revaluation, which would mean taking the previous commitment and telling the town to go back and do it all over again.” In practice, this wouldn’t work, he said. “It would put a huge cloud over the town. Most towns would be hard-pressed to do a revaluation themselves, and the waiting list for private firms is two to three years.”

Still, Ledew emphasizes that taxpayers have options, though abatement requests and such sources of information as the sales ratio studies the state provides for each town. They should allow knowledgeable taxpayer to get an informed view of their town’s practices, and take action locally.

Mike Austin suggests that it’s also a matter of manpower. “The property tax division just doesn’t have the personnel it once did. If you have a problem, and request help from Augusta, they often don’t have anyone to send.”

Austin said that, as the sales and income taxes came on line, the state devoted far more resources to those divisions because, in essence, that’s where the money was, or could be obtained through enforcement actions.

But 35 years after the income tax was adopted, the state still gets more revenue from property taxes than either sales or income taxes. And with property taxes very much on the public’s mind, those priorities might need review.

A case for regionalism

While LD 1 is likely to create even more business for assessors and private firms, it doesn’t appear that a steady supply of new professionals will result. The long waits for private reappraisal services may be just the tip of the iceberg.

“What we need is a good advertisement for this profession,” Austin said. “It a great job, and very challenging, but most of us got into it by mistake. It’s not something anyone seems to want to go into.”

Some municipalities are trying to join forces with their neighbors in response to the shortage of professionals. Elizabeth Sawyer is now supervising a staff of three in Westbrook, similar to her own in South Portland, under a contracted services arrangement between the two cities.

She does not sound enthusiastic about the results. “It’s like I’m trying to commute between the two jobs. There’s no way you can provide the same attention to detail and the same support for your staff. If we do regionalize, it will have to be on a much larger basis that this.”

Not many Mainers can remember the Paul Dunham report of 1968, but it is still vivid in the minds of many long-time assessors. That University of Maine study suggested that the assessing function — establishing accurate values for properties to be taxed — could more efficiently and fairly be carried out at a regional level. It suggested establishing 16 regional districts for assessing, which, then and now, just happens to be the number of Maine counties. That suggestion was routed at the Legislature, as lawmakers heard repeatedly from their municipal constituents about the value of local control.

But Maine’s situation is not common. “In all the country beyond the Northeast, assessment is a county, not a town function,” said Austin, who once headed the International Association of Assessing Officers. Some of the techniques used to gather data are quite bold, too. In Iowa and Kansas, counties use annual overflights and aerial photos to track the construction of new buildings on farms.

And although almost nobody at the moment seems to be suggesting a revival of the county assessing idea, there are indications it could work.

For one thing, there has been a de facto regionalization of assessing services as private firms increasingly handle yearly assessing chores. Austin’s firm now consults with 13 towns, including Kennebunkport, Sabattus, West Paris, Roxbury, Durham and Bremen, and does fieldwork for many more.

The largest such firm, John O’Donnell Associates, now does assessing work for 30 towns (more than are in some counties).

Austin says that if municipal officials looked harder at what it takes to do a good assessment, they might be less concerned about local control. “What we’re talking about is getting the most accurate assessment for the least cost. It takes a sophisticated database, and 80 percent of it is based on the numbers. The rest involves a human factor, but that’s what private firms provide, too.”

Establishing values is the first step, he emphasizes. Abatement requests and appeals, and decisions on reassessment, remain in the hands of local elected officials. “It’s what a lot of towns are happy with now,” he said. Having the state or county taking a larger role, then, isn’t out of the question.

Whether the current discontent among assessors is enough to prompt a look at alternative solutions is anyone’s guess. But as talk about regionalization continues at the State House, somebody’s bound to notice.