Why is a Revaluation So Controversial?
(from Maine Townsman, February 2003)
by Mike Laberge, Freelance Writer
Few things give assessors headaches and taxpayers heartburn like revaluations. Almost as soon as notices of new property assessments go out, municipal assessors know to expect the phone calls and visits.
Some people simply want to know how the new assessment for a home or parcel of land was determined. They normally hang up or leave after receiving a reasonable explanation.
Other property owners are more persistent. Far from simply requesting routine information, they seek to challenge the accuracy of an assessor's work. "There must be some mistake," they say. "The value of my property could not possibly have gone up that much." Frequently, such taxpayers take their claims to formal hearings.
As real estate values in southern and coastal Maine climb, leading to more frequent revaluations to equalize municipal assessments, one might expect calls, complaints and challenges to rise accordingly. Surprisingly, most assessing offices aren't seeing such an upswing. That is because assessors are taking more time to educate and inform taxpayers before, during, and after revaluations. They are mailing letters, posting information on municipal web sites and contacting the news media, hoping to spread the word as quickly and widely as possible about the need for a revaluation.
"Our taxpayers are really pretty knowledgeable," said Richard Blackburn, assessor for the City of Portland since 1979.
Blackburn is so confident most taxpayers understand the process that he's now preparing for a revaluation, not by hiring an assessing firm or making a list of properties to visit but by using the mail. Blackburn's office has sent 16,000 letters to property owners describing the structural outlines of properties and listing information such as the number of rooms in a home and any significant improvements made since the last revaluation in the early 1990s. Some documents might even include digitized photographs. In return, taxpayers simply are asked to confirm the accuracy of the information, make changes if necessary, and return completed forms to City Hall.
The process has saved the city an estimated $1 million in consulting fees and related expenses - a significant amount during challenging fiscal times. And the strategy seems to be working: Four out of five property owners have responded. "I would say the general public is pretty well informed, at this point," Blackburn observed.
That wasn't always the case. During a revaluation in the early 1990s, which coincided with an economic recession, Portland held a series of public forums. Large crowds took those opportunities to "blast the assessors," Blackburn recalled.
The revaluation even led residents of Long Island, one of the Casco Bay islands tied to Portland, ultimately to decide to secede from the city. "They were really reacting to the tax bill itself," Blackburn said.
Blackburn and many other assessors have learned their lessons. They are careful now to explain the process, letting taxpayers know that Maine law largely drives revaluations. When property values rise, causing municipal property assessments to fall to 70 percent of market value or below, communities must adjust their property records to reflect current conditions. Following a revaluation, most assessments rise, but to varying degrees, and generally there is a corresponding reduction in the tax rate to generate approximately the same amount of revenue. The result of a revaluation is that some taxpayers pay more, some pay less, and some pay roughly the same.
A revaluation "keeps the tax burden spread equitably," said Mike Austin, a partner with Maine Equalization Consultants in Brunswick. "It recognizes the change in the market."
In recent years, revaluations have been more frequent in southern and coastal Maine. From April of 2000 to April of 2001, for instance, the state's total valuation of property rose by nearly 18 percent in York County, 16 percent in Waldo, 14 percent in Cumberland, and 13 percent in Lincoln. During the same period, in northern and central parts of Maine, by contrast, state valuations rose by just 4.5 percent in Franklin County, 3.7 percent in Penobscot and 2.4 percent in Aroostook.
State valuations for communities are calculated annually by Maine Revenue Service, based on sales data from real estate transactions in a community or geographical area of the state. There is a time lag in the state valuation process. The 2003 State Valuation, for example, reflects real estate sales that occurred in 2001.
In fast-growing areas, municipal valuations quickly can fall out of line, forcing more frequent revaluations. "Values need to be equalized so nobody will pay any more or any less than their fair share of the cost of running municipal government," said David Ledew, supervisor of municipal services for Maine Revenue Service.
The Legislature approved the current law establishing minimum municipal assessment standards during the early 1970s.
At the time, a study found that many communities had been assessing properties at 50 percent or less of fair market value. In some communities, assessments on some properties were as low as 10 percent of their actual values. The purpose of the assessing standards was to increase uniformity and fairness in municipal assessing practices. The standards also help municipal assessors meet state constitutional requirements of assessing property at its "just value" and "equally apportioning" taxes.
The statutory standards set a minimum assessment ratio of 70 percent. The ratio is calculated by comparing the municipal assessment to the most recent state valuation. Under the law, municipalities whose valuation falls below the 70% figure must conduct revaluations, or perform some other method of adjusting those values (a process called "factoring") without adversely impacting the overall quality of assessments.
As an incentive to revalue, communities falling below the 70 percent threshold can face certain financial penalties. According to Ledew, communities falling out of compliance might lose their tree growth reimbursements. This reimbursement comes from the state to communities for property enrolled in the Tree Growth Program. Tree growth property is assessed at its "current use" value as opposed to its "just" value. The state reimburses communities for some of the lost tax revenue resulting from this different classification.
For every point below 70 percent that their municipal assessments fall, Ledew said, communities face a loss of 10 percent of their tree growth funds. Every year, four or five communities are penalized. Ledew points out, however, that smaller communities with low assessment levels often have minimal land in tree growth anyway, giving them little incentive to raise their assessed valuations.
Another incentive for communities to update assessments comes from the Homestead Exemption. The Homestead Exemption was created five years ago and it allows communities to exempt from taxation the first $7,000 of equalized, assessed valuation for qualified property owners. The state then reimburses municipalities for the lost property tax revenue.
The political (not financial) problem surfaces when a resident thinks he is entitled to the full $7,000 exemption, but the community is assessing property at less than full (or fair market) value. For example, residents of a community assessing at 90% of full value would be entitled to a $6300 exemption; at 80% it would be worth $5600; or at 70% the exemption would be $4900.
Ledew said that, for the most part, such incentives seem to be raising compliance. "Basically, we're seeing communities making a greater effort to make sure they have equitable values," he said.
Complying with the law often keeps assessing offices busy, especially in growing coastal communities. Mike Austin says that many coastal properties today are worth at least twice what they were a decade ago. In some cases, the buyers are wealthy individuals from other states who are willing to pay a premium for coastal homes.
Although assessors typically throw out exorbitantly high purchase prices as skewing overall averages, Austin said clusters of expensive coastal purchases nonetheless serve to drive up overall market values. If enough people are willing to pay top dollar for properties in a certain area, market values - and subsequently municipal assessments - will rise.
In Austin's native Harpswell, prices have risen out of reach for many people. "I would have a hard time buying a piece of waterfront property today," he said.
Rising market values and assessments place a burden on fishermen and other individuals living and making their livings along the coast, Austin said. In many cases, lifelong coastal residents are having a hard time keeping up. He knows of lobstermen who have moved their families a couple of miles inland, where property is cheaper. "The sales around them are bringing them up," he said.
When coastal residents of low-to-moderate incomes see higher property tax bills, they tend to want to blame the municipal assessments. "They feel like you're taxing them out of their home . . . They feel like you're forcing them to sell their home," Austin said. "They're trying to survive, and it's very difficult."
Austin said at least five bills before the Legislature seek to address the issue by providing relief to the owners of so-called working properties along the coast. But he is unsure of how they will fare. Establishing a two-tier system - one for wealthy coastal property owners, the other for working-class residents - is likely to face court challenges. "It's really hard to identify how you assess them [differently] without violating the Constitution," Austin said.
In the meantime, assessors say they will continue striving to educate taxpayers. Anne Gregory, a veteran municipal assessor who works for the town of Falmouth, said she strives to "demystify" the process of a revaluation. "I'm an absolute, strong believer in public relations from the beginning of the process," she said.
When a property owner calls, she explains how she does things. Within six months of a revaluation, she chooses a sample of properties in all price ranges and tests her assessments against actual selling prices to see how they compare. Then she adjusts accordingly. The system is vital in a suburb where bare lots in exclusive subdivisions are selling for as much as $275,000, and assessments become outdated within months.
Since September of 2000, assessments fell from 92 percent of market value to roughly 71 percent today, triggering yet another call for a revaluation.
Gregory said Falmouth normally does its revaluations in-house. Taxpayers, she said, tend to be more trusting of a local assessor than an outside consultant, no matter how reputable. She said she tries to treat everyone fairly and compare like properties, to make sure high-end homes don't skew the overall curve. "You just need to make sure you're comparing McMansion to McMansion, and location to location," she said.
Gregory said Falmouth residents, like their counterparts in other growing Portland suburbs, largely are accustomed to revaluations. The problems, she said, often arise in smaller, more rural communities that revise their assessments infrequently. "When communities haven't been revalued in a long time, the people go into shock and find the errors. Those get blown out of proportion," Gregory said. ". . . if you want to know how a revaluation is going, go ask how long it's been since the last one."
The real key, according to Gregory and other assessors, lies in keeping the focus where it belongs - on an overall municipal tax commitment. In the fast-growing Falmouth, demand for services and pressure on schools caused the municipal budget to more than double during the 1990s. In that time, overall spending jumped from $9 million to $20 million. "I keep telling people to focus on the budget," Gregory said.
Bob Konczal, assessor for the town of Freeport, has a similar perspective. "People are highly motivated to try to see something done about the property tax," he said. He agrees that taxpayers in communities with rapidly rising property values are more understanding of the assessing process. "On the one hand, taxpayers don't like their valuations going up," Konczal said. "On the other hand, they're informed enough to know that property is becoming more and more valuable."
He said he believes property values will keep growing, prompting the need for more frequent revaluations, for as long as interest rates remain low and people perceive real estate as a safer investment than the stock market. In the meantime, he will keep doing his job and trying to ensure that assessments are spread equitably. "It's the buyers and sellers in the market who are determining how the slices of the pie are divided up," Konczal said.
When people do complain, as they inevitably will after a revaluation, he tries to keep things in perspective and avoid taking it personally. "You're the bearer of bad news," Konczal said. ". . . I always try to keep it foremost in my mind that I have to pay a property tax, too."