As homeowners across the country grapple with the implications of the financial sector turmoil, the credit crisis, declining values and foreclosures, there’s one trend that is safe to predict: the work of tax assessors in determining valuation will continue to be questioned. In the housing boom, the discontent was centered on income not keeping pace with home appreciation. As home prices have declined, there continues to be a disconnect between valuation and market conditions. “We had anger then; we have anger plus exasperation now,” says Mark Haveman, director of the Minnesota Taxpayers Association. A signature event came earlier this year, when Oracle chief Larry Ellison successfully appealed the assessed value of his 23-acre compound in Woodside, Calif., which he built based on a Japanese emperor's 16th century estate. Ellison’s lawyers argued there was limited resale appeal for his home, with guest house, three cottages, a barn, a five-acre man-made lake, two waterfalls and two bridges. San Mateo County tax assessors pegged the estate at $173 million, and Ellison got it dropped to $69.7 million. And under California law, the lower assessment will remain so.
The challenge underscored the argument for property tax assessment limits, in place in some 20 states, often accompanied by a rate cap. But Haveman, addressing the National Conference of State Tax Judges in Nashville September 25, said such measures “are never as straightforward as they seem,” and often creates new problems and “phantom tax relief.” Assessment limits have led to dramatic decreases in the tax base and revenue for local governments, as well as skewing local land use decisions to favor retail over multifamily housing, said Haveman, co-author of the recent Policy Focus Report examining the record of such measures as California’s Proposition 13. In practice, property tax assessment limits result in significant disparities, where one homeowner can pay five times as much as a neighbor with an identical property next door. A study in Minnesota showed that if the assessment limit did not exist, 950,000 homeowners would pay on average $100 less in tax , and 440,000 homeowners would pay on average $227 more. Rather than assessment limits and other instruments aimed at relief, such as levy limits and split tax rolls for commercial and residential, Haveman said, policymakers should focus on targeted relief for those most in need and “truth in taxation” by “connecting the dots – property tax dollars and what they’re being used for. People feel better when they know what their money is going for.” Citing economist Frederick Stocker’s suggestion that the property tax was “designed by a mad architect, erected on a shaky foundation by an incompetent builder, and made worse by the well intentioned repair work of hordes of amateur tinkerers,” Haveman said assessment limits “make a complicated tax even more so.” Direct and targeted relief, such as circuit breakers based on ability to pay, is a superior policy response, he said: “The simplest ideas are the best.”
Introducing Haveman, Joan Youngman, senior fellow and chair of the Department of Valuation and Taxation at the Lincoln Institute, said locking in assessments on the basis of when homes were purchased and their market price at that time is similar to “a sales tax paid on an installment basis.” Copies of Property Tax Assessment Limits: Lessons from Thirty Years of Experience were distributed to the 60 judges in attendance at the conference, which is sponsored by the Lincoln Institute. The annual gathering includes a review of tax law, valuation, finance, economics, and tax policy in the U.S. Recent meetings have featured presentations by national specialists on such topics as the valuation of special-purpose property, exemptions and abatements, taxation of public utility property, sales taxation of remote vendors and electronic commerce, and taxation of special industries such as hospitals and health care organizations.