Revaluation: In-house or Not?

(from Maine Townsman, February 1988)
by Michael L. Starn, Editor

A revaluation of property in a community can be both expensive and politically sensitive — two good reasons why a community wants to thoroughly evaluate whether to conduct the revaluation in-house or to contract with an outside mass appraisal firm.

There is no set way in which communities in Maine seem to go about conducting a property revaluation. Some communities do the entire process in-house with existing staff and a few hired field workers; some contract the entire process out to a revaluation firm or to a private sector appraiser; others contract part of the revaluation but conduct part of it in-house, e.g., residential and personal property in-house, industrial and commercial properties outside.

Why do municipalities need revaluations? Fundamentally, it's to have greater fairness in the property tax system. In some instances, it's to stay within the requirements of the law.

According to George Mayo, director of the Property Tax Division, Bureau of Taxation, most Maine communities conduct revaluations way before the state forces them to. The state requires that when your assessment ratio (local valuation to state valuation) falls below 70%, the municipality must do something to correct the situation. Sometimes simple factoring (multiplying the value of all property by a given percentage) can bring the valuations up to an acceptable ratio. However, if the result of factoring pushes the quality rating down (to greater than 20), then a revaluation is generally the only alternative.

Full revaluations involve the inspection and measuring of all (or nearly all) properties in the community. It involves developing a construction cost schedule to determine replacement cost, and it involves a series of statistical analyses to ensure that properties are being assessed at their fair market value (the price that a willing buyer would pay a willing seller). Sounds simple, but it isn't.

One of the key factors prompting most revaluations is growth and fluctuations of value among classes of property. Coastal and lakefront properties have seen a tremendous rise in value in the past few years compared to other types of property.

According to Mayo, most municipalities can get by for a long time with just factoring assuming growth is moderate and variations among classes of property is slight. Only 18 of the state's 493 municipalities received letters from the Bureau this year notifying them that their assessment ratios had dropped to below 70%; and most of these communities will initiate a revaluation process before the State forces them to meet the 70% standard.

Mayo feels that Maine assessors are quite capable of conducting revaluations in-house. "The knowledge of local assessors to do in-house revaluations has improved tremendously over the past 10 years," he said.

He also notes that the trend has been toward the in-house revaluation, even in the larger communities where the job is more complicated and time consuming, "We've seen some excellent results on in-house revaluations," said Mayo.

Mayo sees "local knowledge" as a plus on the side of the in-house revaluation. He maintains that to have a quality revaluation does not mean that a community has to hire professionals, "It depends upon the area and the capabilities of the local assessor," he says.

What are the advantages and disadvantages of the in-house versus the contracted out revaluations? Let's look at what a few Maine assessors had to say.

Full-time assessor Don Cadwell thinks contracting out the revaluation in Augusta was the best thing to do. The city recently entered into a $308,000 revaluation contract with M.M.C, Inc. of Chelmsford, Massachusetts. Augusta has a three-person assessing office and, according to Cadwell, that just isn't enough people to handle a revaluation of this magnitude. The City of Augusta wil! have nearly 8,000 parcels inspected and appraised. This is money well spent, according to Cadwell, for several reasons.

1) It would have been impossible for the city to have done its own revaluation in the time frame set for the mass appraisal firm. Given Augusta's rapidly changing real estate market, this was important.

2) The city currently has a manual system for maintaining assessment records (tax bills are on computer). Part of the revaluation contract was that the city would purchase computer software following the revaluation with all the new building characteristics and pricing information. It is hoped that this will allow the city to then maintain its assessments on computer and to conduct in-house revaluations in the future.

3) When an outsider (revaluation firm) does the revaluation, city officials don't take as much of the heat when it comes to hearings on the new assessments.

To save some on the cost of the revaluation, city staff will do all the mobile homes, and all personal property over the 500 accounts, M.M.C will do. The revaluation process will begin in March of this year and is scheduled for completion by April 1, 1989 so that it can be the basis for the next year's tax bills.

The Town of Kittery, like Augusta, has a history of using outside mass appraisal firms to do their revaluations. Kittery, according to the Bureau of Taxation, was assessing at 55% of fair market value in 1986. Kittery Assessor Dan Sanborn says that dropped to 51% this past year. "An enforcement letter would have come from the Bureau," says Sanborn, had the town not decided to have the revaluation done.

Kittery's reasons for hiring the outside revaluation firm (also M.M.C., Inc.) were similar to Augusta's, with a couple of additional factors.

Kittery has the good fortune of having a very low unemployment rate, less than 2 percent, but it seems that Kittery may have too much of a good thing. Assessor Sanborn says, even if he were to want to do the revaluation in-house, "Who would I hire?"

Another factor somewhat unique to Kittery's situation, was the large and growing number of shopping malls. "We needed somebody with a strong commercial background," says Sanborn.

Even more critical for Kittery than Augusta is the rate of growth in the area. With a growth rate of 20-30 percent a year, a drawn out, in-house revaluation would have been outdated before the new assessments were ever finalized.

Sanborn estimated that in-house, even if he could find the needed employees, the revaluation would have required 6,000 man-hours and taken two years to complete. M.M.C. will complete the job in 8 to 9 months.

While for many communities the arguments for having an outside firm conduct the revaluation are persuasive, the major reason that most communities decide on the in-house revaluation is one that wins over many town officials and property taxpayers — less cost.

Gary Geaghan, Ellsworth's recently appointed assessor, has done revaluations in Falmouth and Bar Harbor and says the cost is 50% or less of what it costs to have a private company do the job. Most assessors interviewed agree that cost is the major factor behind the decision to go with an in-house revaluation.

But, there is another strong incentive and that is "local knowledge." Long-time municipal assessor and now Town Manager of Paris, Grace Emmerton says local assessors "know their community better." Emmerton adds, "I think that you can have just as high quality doing it yourself."

She does concede that outside appraisal firms often have the technical know-how to do utilities, large commercial buildings, and industrial facilities. The Town of Paris recently contracted with two retired appraisers (who worked for mass appraisal firms) to conduct an in-house revaluation. The town also hired Ray Gannon of ARG to appraise personal property.

"It's a two year project," says Emmerton, "but we're growing at more of a controlled rate, and don't have the urgency to finish that other communities might have."

Michael Austin, Bath's city assessor, is currently working on his third in-house revaluations since 1980. Austin says, "computer capabilities make all the difference in the world." With the help of the computer and nights and weekends, Austin has not only done three revaluations for Bath, but also revaluations for West Bath and most recently, Monmouth.

Ellsworth's Geaghan says, "Mass appraisal experience is very helpful if you're going to attempt an in-house revaluation," although he adds, "it's not absolutely necessary." Geaghan had been a project supervisor for SLF, Inc. of Skowhegan prior to becoming a municipal assessor in Bar Harbor. Geaghan, with two in-house revaluations under his belt and starting his third, says that physically inspecting properties, including interior inspections, takes an awful lot of time and organizational ability. For most in-house jobs, "it's at least a two year project," he says.

Several Maine communities have contracted with individuals to conduct revaluations as opposed to mass appraisal firms. Most of these individuals were former employees of the mass appraisal firms in the state during the mid and late 1970's, when revaluation work was plentiful. Some are former municipal assessors.

William Van Tuinen, formerly with SLF, Inc., is the designated full-time assessor of Fairfield and Pittsfield, a somewhat unique relationship, in addition to maintaining the annual assessment information for the towns, he recently contracted to do a revaluation for Fairfield.

Van Tuinen is one of several freelancers in the state doing municipal appraisal work. Others include former Fairfield assessor David Page, Joan Janeski, formerly with Patten Appraisal Associates, Carl Lowe, formerly with James W. Small Co. and the Bureau of Taxation, Robert Duplisea, formerly with Sewall, and William Hamlin.

Van Tuinen's relationship with Fairfield and Pittsfield is different than most in that he is the town's designated single assessor. Most of the other assessing professionals assist boards of assessors in the communities where they work. One known exception is Carl Lowe, who is the full-time assessor in Holden. On a contractual basis, Van Tuinen performs the duties of a municipal assessor.

David Mercier, Fairfield town manager, says the town decided about three years ago to look at privatizing its municipal assessing function. When the full-time assessor position became vacant, the town council debated hiring a replacement or contracting out the service. They decided on the latter.

Van Tuinen is payed roughly between $16,000 and $18,000 a year to be Fairfield's municipal assessor. His contract stipulates that he must be in the town office at least one day a week. He performs specified assessment functions as part of his contract, The town provides him with office space and there is a clerk in the assessor's office to perform informational and recordkeeping functions.

"We've found the arrangement to be very satisfactory," says Mercier. He points to three advantages of this Type of arrangement for assessing services.

1) You pay for what you want. Much of
the assessing work in a municipality does not
require the technical skills of a certified
assessor. These tasks can be performed by
someone at a lower wage scale than an
assessor.

2} Contracting for an assessor means
lower employee costs, i.e., fringe benefits,
workers compensation, vacation, sick leave,
holidays, etc.

3) A non-municipal employee, acting as
the assessor, adds an element of confidence
that his work will be unbiased, since his rela-
tionship with the town is strictly contractual.

Mercier believes that this arrangement would work very well for other communities the size of Fairfield and smaller. He does caution municipal officials in drawing up the contract with the private assessor that carefu! attention be given to what is expected of the assessor, and what is not expected.

The Fairfield Town Manager also warns officials not to enter into this type of arrangement for assessing services purely for the financial advantages. "The community needs to identify its assessing goals," he says. "Decide on the service first then do the math afterward."

State Property Tax Divisions Director George Mayo says that he doesn't know of anything that would prohibit a town from contracting for a single assessor, although he admits it's somewhat unusual in Maine.

Contracting out revaluation work, or even annual assessment maintenance and recordkeeping. is a decision that must be made on a community-by-community basis. The decision should be based on what the community is willing to spend, the specific timing needs of the community, the size and capabilities of its assessing staff, the value of "local knowledge," and any other unique circumstances of the community. Making the tough decisions is what municipal government is all about.