February 2019

UNITED STATES – February 2019

Contents USA - THE PROBLEM WITH PROPERTY TAXES...... 3 USA - LESSONS FROM AMAZON'S DECISION TO CANCEL NEW YORK CITY HEADQUARTERS ...... 4 USA - SANDERS’ ESTATE TAX PLAN WON’T LIKELY RAISE THE REVENUE INTENDED ...... 6 USA - HOW BIG-BOX STORES BILK LOCAL GOVERNMENTS ...... 6 USA - THESE MAJOR U.S. CITIES ARE SEEING PROPERTY TAX INCREASES THIS YEAR ...... 8 USA - THUNE LEADS COLLEAGUES IN REINTRODUCING A PERMANENT REPEAL TO THE ESTATE TAX ...... 9 USA - SANDERS PROPOSES ESTATE TAX OF UP TO 77 PERCENT FOR BILLIONAIRES ...... 9 USA - THE SELF-STORAGE PROPERTY-TAX CONUNDRUM: ALTERNATIVES TO BETTER OUR COMMUNITIES ...... 10 CALIFORNIA ...... 12 PROP 13 SPLIT-ROLL TAX INCREASE WOULD HURT BUSINESS, AND AFFORDABLE HOUSING EFFORTS ...... 12 CALIFORNIA BUSINESSES SHOULD REJECT EFFORTS LEVERAGING THREAT OF SPLIT ROLL FOR OTHER TAX HIKES 13 CHANGING PROP. 13 COULD WORSEN CALIFORNIA’S HOUSING CRISIS. HERE’S HOW ...... 14 HAWAII ...... 15 PROPERTY TAX CHANGES COMING ...... 15 ILLINOIS ...... 16 REAL ESTATE TAX 2019: NEW ASSESSOR, NEW POLICIES ...... 16 ILLINOIS STATE AND LOCAL GOVERNMENTS SPEND MOST IN NATION ON PENSIONS ...... 17 NEW COMMISSIONER WORKS WITH COUNTY ASSESSOR TO MAKE WEBSITE EASIER TO USE ...... 18 PROPERTY TAX RATES NEARLY DOUBLE SINCE 2007 AS RESIDENTS LEAVE HARVEY, ILLINOIS ...... 19 IT'S TIME TO MODERNIZE THE ASSESSOR'S OFFICE ...... 20 OTTAWA CONSIDERING EXTENDING DOWNTOWN TIF ...... 21 WHY ARE FOLKS LEAVING CHICAGO? UNFAIR TAXES ...... 22 INDIANA ...... 23 TAX COURT UPHOLDS 26 PERCENT INCREASE IN HOME VALUATION ...... 23 INDIANAPOLIS ...... 24 COUNTIES FIGHT BIG BOX STORES ON PROPERTY TAX APPEALS ...... 24 IOWA ...... 25

International Property Tax Institute IPTI Xtracts- The items included in IPTI Xtracts have been extracted from published information. IPTI accepts no responsibility for the accuracy of the information or any opinions expressed in the articles. P a g e | 2

OUTGROWING THE EFFECTS OF PROPERTY TAX REFORM ...... 25 MASSACHUSETTS ...... 27 REAL ESTATE TAX REALITY ...... 27 BOSTON CITY COUNCIL WANTS FAIR SHARE FROM PILOT ORGANIZATIONS ...... 28 MICHIGAN ...... 29 MICHIGAN SUPREME COURT AGREES TO HEAR PROPERTY TAX CASE ...... 29 MTA SHARES ASSESSMENT AND PROPERTY TAX BASICS ...... 30 MONTANA ...... 31 BILL WOULD CREATE PROP-TAX MORATORIUM FOR NEW BROADBAND CABLE IN MT ...... 32 NEBRASKA ...... 32 NEBRASKA PROPERTY TAX FIGHT ...... 32 PROPERTY TAXES REMAIN A PERENNIAL PROBLEM ...... 33

NEW HAMPSHIRE ...... 34 A LESSON IN THE BURDEN OF PROPERTY TAXES ...... 34

NEW JERSEY ...... 35 OVER $200K SPENT ON TAX APPEALS FOLLOWING CITY REVALUATION...... 35 YOUR VACATION TO THE JERSEY SHORE IS ABOUT TO GET MORE EXPENSIVE. BLAME IT ON TAXES...... 35 SOME JAW DROPPING NEW JERSEY PROPERTY TAX NUMBERS ...... 38

NEW YORK ...... 38 PIED-À-TERRE TAX GAINS CITY COUNCIL SUPPORT WITH NEW RESOLUTION ...... 38 CHALLENGING YOUR NYC PROPERTY VALUE ASSESSMENT MAY BE EASIER THAN EVER ...... 39 THE $238 MILLION PENTHOUSE PROVOKES A FIERCE RESPONSE: TAX IT ...... 40 NYC PROPERTY TAX OVERHAUL PITS NEIGHBOR AGAINST NEIGHBOR ...... 42 LEVELING THE PLAYING FIELD ON PROPERTY TAXES WON’T BE PAINLESS ...... 45

NORTH CAROLINA ...... 46 HOW’S THE MECKLENBURG PROPERTY REVALUATION GOING? HERE’S AN EARLY CLUE ...... 46 OHIO ...... 46 AUDITOR CRITICS ASK STATE TO ORDER NEW PROPERTY REVALUATION ...... 46 END EXTRAVAGANT TAX BREAKS FOR THE WEALTHY ...... 48 CRITICS FEAR SYSTEMIC MISTAKES IN LUCAS COUNTY AUDITOR'S HOME VALUES ...... 49 TENNESSEE ...... 52 ELECTROLUX UNDERPAID TAXES BECAUSE OF LAND ASSESSMENT UNDERVALUED BY $100 MILLION ...... 52 TEXAS ...... 53 THE PROS AND CONS OF PROPERTY TAX REFORM IN TEXAS ...... 53 ANALYSIS: HERE’S YOUR PROPERTY TAX CUT, MAYBE. HEADS UP — IT’S EXPENSIVE ...... 54

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ANALYSIS: SOMETHING’S MISSING FROM THE OPENING BID FOR PROPERTY TAX “RELIEF” IN TEXAS ...... 55 ‘BRING THE POWER OF THE DIGITAL AGE TO THE PROPERTY TAX PROCESS,’ SAYS BAKER INSTITUTE EXPERT ..... 56 TEXAS PROPERTY APPRAISAL SYSTEM NEEDS A MAJOR REVAMP ...... 57 SENATE COMMITTEE STARTS WORK ON REFORMING PROPERTY TAX ...... 58 WHY TEXAS PROPERTY TAXES ARE EXPECTED TO SKYROCKET AGAIN THIS YEAR ...... 59 TEXAS LEADERS' PROMISE OF 'PROPERTY TAX RELIEF' IS A FAR CRY FROM A PROPERTY TAX CUT ...... 60 VIRGINIA ...... 61 WALMART SEEKING ROLLBACK ON WARRENTON STORE TAXES ...... 61 WISCONSIN ...... 63 BATTLE OVER WISCONSIN'S 'DARK STORE LOOPHOLE' TOUCHES NEW RICHMOND, HUDSON ...... 63 WISCONSIN MOST RELIANT ON PROPERTY TAXES IN MIDWEST ...... 64 5 ‘DARK STORE’ MYTHS DEBUNKED ...... 64 WISCONSIN GOVERNOR PROMISES TO CLOSE ‘DARK STORE’ TAX LOOPHOLE ...... 66

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USA - The Problem with Property Taxes

What is wrong with a property tax?

As we continue to explore the reasons behind our efforts to eliminate property taxes, the concerns with a property tax as a means of taxation must be examined.

For those who are just getting involved, this article is the second in a series explaining the basis behind our property tax elimination bill.

The right to personal property sets the United States apart from other nations. Outside the United States, the rights to property have long been subject to the realm of kings and queens – a feudal society of sorts.

There is a tremendous anger surfacing due to the relentless loss of property and our government’s explosive spending binge. Ravenous government spending mortgages ourselves, our children, and our property to an unrelenting assault by a government which is out of control.

The major negatives with property taxes relates to these very issues:

 Property taxes are fixed expense with no regard to the person’s ability to pay.  One’s property serves as collateral for potential unlimited government spending.  Taxes on property value reduce the incentive to maintain property  The regressive nature of the property tax makes home ownership that much more elusive for much of the population.

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Taxes on property have been debated incessantly for decades. What started out as an “innocent” means of raising taxes has blossomed into a perceived unlimited source of funds by which government can make promises of future benefits to a select few to the detriment of the remainder of us. Property owners have the choice of either paying the taxes dictated for them by politicians or risk losing their property through foreclosure and tax sale.

Contrary to popular belief, the property tax system started in the United States dates at the time of the founding of our nation. At that time however, it is important to remember the historical context in that only the gifted few owned property. Only property owners at the time of the founding of our nation were permitted to vote.

The evolution of our republic has allowed the opportunity for owning property and of voting rights to expand to most of the population. As such, the antiquated notion of the property tax may negatively impact the very people who are now just beginning to enjoy the American dream evolving in the great experiment of the United States.

The negative impact of a property tax system is that your property serves as collateral for government promises. Ever increasing property taxes have allowed municipal governments and schools to make promises that they could not possibly keep if they did not have such a reservoir of potential funds at their disposal.

These “promises” have precipitated a record number of bankruptcy filings of municipalities since 2010. The settlement of these bankruptcies will most certainly raise the level of debate of property taxes to unparalleled heights. The outcome of this battle will most decidedly determine whether or not American citizens have the right to own property.

With the rapid rise in property taxes needed by most jurisdictions to cover their promises and with lower pay and higher unemployment of taxpayers throughout the nation, the property tax is now forcing millions of Americans to reassess where they live, how they live, and if they can ever retire let alone own their home.

The U. S. Constitution addresses and protects property rights in so many ways: Source: “The Constitution and Property Rights”

“The Founders were worried that Congress might use the tax system to loot property owners in some states for the advantage of other states. Accordingly, they required that direct taxes (mostly importantly property and income taxes) be apportioned among the states (Article I, Section 2, Clause 3 and Article I, Section 9, Clause 4).

They granted the federal courts jurisdiction over interstate land claims and interstate debts to limit the extent to which state courts could discriminate against the property rights of out-of-staters (III-2-1 and III-2-2).

They added the Full Faith and Credit Clause (IV-1) partly to require state courts to honor property records in other states.

The Founders gave Congress an unlimited power to dispose of public land (IV-3-2), but only limited power to acquire or hold land (I-8-17 and certain incidental powers). This was because they wanted most publicly-owned land to be transferred to the private sector.

They also inserted a number of other checks and balances, designed partly to protect minorities from unfair property confiscations.”

Today, threats to property, particularly your home, are at epic levels and the battle will shape the landscape of our nation forever.

The American dream of home ownership and the liberty inherent in property are at risk.

Ending property taxes will begin to restore the American dream to those most negatively affected by such an antiquated system as a property tax.

USA - Lessons From Amazon's Decision To Cancel New York City Headquarters

 giving tax breaks to specific companies is a bad idea. International Property Tax Institute IPTI Xtracts- The items included in IPTI Xtracts have been extracted from published information. IPTI accepts no responsibility for the accuracy of the information or any opinions expressed in the articles.

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 local politics and policy can also significantly influence whether a business succeeds

Amazon recently abandoned plans to build half of its “HQ2” in New York City. The company was going to receive about $3 billion in taxpayer subsidies for its New York office, and it appears that a small-but-vocal group critical of the subsidies had something to do with its change of plans.

This whole ordeal was a mess, but hopefully it’s taught companies and governments some valuable lessons.

First, giving tax breaks to specific companies is a bad idea. There’s substantial evidence that such tax breaks are largely a waste of money. They typically don’t have much influence on a company’s final decision and the promised benefits—more jobs, more economic growth—either don’t materialize or would have occurred regardless. Playing the tax-subsidy game is like betting against the house—everyone thinks they’ll win but in the end they’re left with empty pockets and little to show for it.

Second, companies need to think differently about where they locate. From an economic standpoint, New York City is attractive with its highly skilled labor force, dynamic and innovative environment, and huge market. But local economies don’t exist in a vacuum. For better or worse, local politics and policy can also significantly influence whether a business succeeds .

Amazon should have been aware of this considering its experiences in Seattle. Last May, Seattle tried to levy a $275 per- employee tax on Amazon, while several local officials have been vocal about the company not paying its “fair share.” Some also complain about Amazon’s contribution to Seattle’s high housing costs. This despite the fact that Amazon has generated billions of dollars in income for locals, as well as the sales tax and property tax dollars that go along with it.

In light of all this, one would think Amazon would want to hedge its bets by locating part of its corporate operations in a city more open to business. Instead, it doubled down by picking New York City, another city with several anti-corporation officials and community leaders. New York State Senator Michael Gianaris (D-Queens), for example, said that Amazon ruins communities and U.S. Rep. Alexandria Ocasio-Cortez (D-Bronx) praised Amazon’s decision to leave as a case of everyday New Yorkers defeating “...Amazon’s corporate greed.”

Of course, some of the backlash against Amazon was due to the tax breaks it was scheduled to receive, which is understandable. But that’s not the whole story. Many New York and Seattle officials think that big companies such as Amazon and their wealthy executives should do more to alleviate the problems that city policies often create or exacerbate.

Take homelessness in Seattle. Sure, it’s always going to take money to build housing in an expensive city. But the city’s zoning rules—heavily tilted towards single-family housing—also must change before enough housing can be built to truly bring down costs for residents. Simply raising taxes on companies like Amazon without allowing more apartments and other multi-family units is not a serious plan.

Or consider subway funding in New York City. Mayor Bill de Blasio wants to raise taxes on the wealthy to fix the dilapidated subway before addressing core problems like the system’s substantial inefficiencies. For instance, it costs about 67% more to move a subway car one mile in New York than it does in London or Paris. Again, any plan to fix the problem via more money alone is not a serious one.

So where might Amazon have gone instead? Several of Amazon’s 20 finalist cities are in the 10 most economically free metropolitan areas, as ranked by economist Dean Stansel in a recent study. These include Miami, Dallas, and Nashville. The New York metro area ranked 49th. Miami or Dallas may lack some of New York’s economic advantages, but from a policy perspective they are likely to be much less antagonistic.

That said, it’s hard to feel too bad for Amazon. It and other companies that clamor for subsidies are an important part of the problem. Amazon’s public announcement for HQ2 bids seems like a mistake now. If it had gone about its business quietly, its investment decisions probably wouldn’t be front page news today.

But public officials who insist corporations are responsible for society’s ills are also in the wrong. Corporations don’t deserve taxpayer money, but big problems like homelessness, deteriorating infrastructure, drug abuse, and joblessness shouldn’t be pinned on them either.

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It’s easy for politicians to demonize rich corporate executives and demand they fund solutions. Most of us aren’t rich and thus won’t have to chip in, making for an easy sell. But a lack of money is often not the biggest problem, and solutions that ask more people to contribute force public officials to maintain some fiscal discipline.

It’s not clear how we get to a better place from here, but this Amazon fiasco has highlighted how terrible the current system is and that’s a start.

Adam A. Millsap is the Assistant Director of the L. Charles Hilton Jr. Center at Florida State University and an Affiliated Scholar at the Mercatus Center at George Mason University.

USA - Sanders’ Estate Tax Plan Won’t Likely Raise the Revenue Intended

Today, Senator Bernie Sanders (I-VT) introduced a plan to make the estate tax more progressive, in hopes that this wealth transfer tax will raise as much as $315 billion over ten years, and as much as $2.2 trillion from the estates of current billionaires after their passing. Sanders’ top marginal rate would return the estate tax to its historic high of 77 percent—the top rate that existed from 1942 to 1976.

But despite the progressivity, there is good reason to believe Sanders’ plan won’t raise revenue as intended.

Currently, the estate tax levies a 40 percent tax on the total value of property passed to heirs beyond a roughly $11 million exemption for individuals ($22 million for married couples). Sen. Sanders’ plan would:

 Reduce the exemption to $3.5 million, and tax the value of estates up to $10 million at a rate of 45 percent  Tax estates valued between $10 million and $50 million at a rate of 50 percent  Tax estates valued between $50 million and $1 billion at 55 percent  Tax estates valued at more than $1 billion at a rate of 77 percent.

This progressivity could hamper revenue collections for a few reasons.

For one, this tax on the wealthiest would target (0.2 percent of the country, according to Sen. Sanders) with relatively high marginal tax rates that increase with an estate’s value. Because of the high rates and the progressive rate structure, high-net- worth individuals will have a strong incentive to shelter their assets to avoid the tax.

In general, tax avoidance is costly both from an economic standpoint (because it encourages unproductive tax planning) and a revenue standpoint, as people hide their money from tax collectors. But the estate tax generates particularly large compliance costs. In fact, research has shown that the compliance costs associated with estate planning are actually greater than the revenue the estate tax generates.

And perhaps most importantly, Sen. Sanders’ plan is problematic because it would increase the estate tax’s burden on investment, a key driver of economic growth. To the extent that Sanders’ plan encourages people to consume their income instead of invest it, it will reduce economic output, and with it, government revenues on a dynamic basis. This is because reductions in the size of the economy reduce the output available to government to tax.

While progressivity may look appealing—particularly at a time when policymakers in Congress seem to be competing on how best to extract revenue from the wealthiest in the country—it may not raise the revenue intended.

USA - How Big-Box Stores Bilk Local Governments

They lower their property taxes through a surreal trick called “dark store theory.” States are finally fighting back.

A multibillion-dollar philosophy question is rippling through small-town America. If you build something that is fundamentally useless to anyone but you, should you have to pay property taxes on it? International Property Tax Institute IPTI Xtracts- The items included in IPTI Xtracts have been extracted from published information. IPTI accepts no responsibility for the accuracy of the information or any opinions expressed in the articles.

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Dozens of big-box stores are arguing the answer is, essentially, no. As the country confronts an epidemic of retail closures, spurred by e-commerce, obsolescence, changing economic geography, and corporate mismanagement, mega-stores are using their shuttered rivals as “comps” in fights with local appraisers in order to reduce their tax bills.

In Escanaba, Michigan, for example, the Wisconsin-based home improvement store Menards has spent half a decade fighting the city’s property tax assessment—by comparing its shop there to, among other sites, two shuttered Michigan Walmarts that were sold as industrial properties. You can see why the Michigan Tax Tribunal bought that argument, knocking the assessed value of the (operating) Menards down from $8.21 million to $3.66 million. The concept is called “dark store theory,” because working stores are compared to closed ones, and it makes a kind of intuitive sense: How do you measure value except by what someone else will pay?

That seems like a fine standard for tax assessments until you look at big-box retailers. The unwieldy, windowless hangars are ill- suited for adaptive reuse. Thousands of them lie vacant in malls around the country, depressing the resale market. To make matters more complicated, many big-box companies will not sell their vacant properties without an anti-competitive deed restriction. One reason the Michigan Walmarts ended up as low-rent industrial properties was because the chain had a stipulation in the deed of sale: no big groceries or discount stores allowed.

It’s a bit like if I hired the Kool-Aid Man School of Door Frame Design to design my house with cookie-cutter apertures of my own body between rooms—then forbid the sale to anyone my height. Even though I had spent a bunch of money on those kooky doorways, the low resale value could be used to justify a low tax bill on all my me-shaped projects.

City and state governments see dark store theory as a huge threat—and are beginning to push back against the scheme. In Wisconsin, new Gov. Tony Evers says his budget proposal will close the dark stores loophole in the state, where the practice was discussed during the campaign. Lawmakers in Indiana are debating a bill on the subject this month. Their peers in Michigan are trying to settle the matter too, based in part on the success of Escanaba in challenging the practice—and convincing a state appeals court to overturn the decision of the Michigan Tax Tribunal.

They are chipping away at what chain store influence has made a massive problem. In City Lab, Laura Bliss reports that the strategy has been deployed in more than 20 states. There are 300 big-box appeals underway in Indiana alone. In Texas, the state comptroller says the state could lose $2.6 billion a year if the model catches on. Hundreds of millions of dollars have already been shaved from the tax rolls nationwide, according to Standard & Poor’s, forcing cities to raise residential property taxes or cut back on public services. Marquette, Michigan, had to close its library on Sundays to pay Lowe’s back $755,000 after a successful “dark store” challenge to its tax bill.

Elise Nieshalla, a council member in Boone County, Indiana, argues that her county’s dispute with the store Meijer—which is asking for $250,000 in tax refunds—has bigger implications, because dark store theory is contagious. “The impact is not just the impact of Meijer,” she says. “It’s the impact of all the other stores that are going to be at our doorstep seeking a significantly reduced assessed value based on the application of dark store theory to their situation. The time to close this loophole is now.”

Dark store theory is an economic affirmation of architects’ long-held view that big-box stores represent throwaway design, as unappealing after use as an old pair of sneakers. Some empty big boxes have evolved into churches, city halls, data centers, and even a shelter for migrant children. But most are worse than useless: With deed restrictions, outgoing retailers salt the earth, banishing prime commercial land to low-rent uses.

“We’re seeing this theory spread all over the United States,” says Larry Clark at the International Association of Assessing Officers in Kansas City, Missouri. “Especially in a small town where they have one Walmart and that’s their entire retail, if the value is significantly reduced”—decimating the town’s property tax revenue—“they may have to think long and hard before giving incentives to big-box stores.”

Escanaba is a city of 12,500 people in the Upper Peninsula, with a pretty downtown that opens onto Lake Michigan. “It’s such a huge fight, and we’re a small town,” says Patrick Jordan, the city manager. “But we are fighting this fight on behalf of every Michigan municipality, and we’ve passed the hat around and they’re sending money to help us fight.” After victory in a Michigan appeals court, Escanaba and Menards will conclude their five-year battle in front of a three-judge panel this spring, with implications for the rest of the state.

For small towns where property taxes make up most of the budget, the dark store theory challenges conventional assumptions about city planning, in which the attraction of a mall or mega-retailer is seen as a tax base anchor. It’s especially damaging in International Property Tax Institute IPTI Xtracts- The items included in IPTI Xtracts have been extracted from published information. IPTI accepts no responsibility for the accuracy of the information or any opinions expressed in the articles.

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places like Michigan, where a 1994 constitutional amendment ensures that taxable value can’t rise by more than 5 percent a year. Under the dark store theory, it would take centuries for Escanaba to bring Menards’ assessed value back to its former levels.

In cities where property taxes can be raised, a bigger burden is on the way for homeowners and owners of the locally owned, mixed-use properties downtown that have been put out of business by big-box stores. In Escanaba, some of those buildings date from the 19th century and have happily cycled through dozens of uses. (Ironically, the highway subsidies that made big- box commerce viable in the first place were proposed by planners who had declared the older urban environment obsolete and therefore worthless.)

The dark store argument is a reminder of the structural power that the country’s consolidated retail giants have over local politics and finances. Real estate developers have been captivated by the idea of obsolescence for more than a century, in part to provide a tax break in addition to run-of-the-mill depreciation. That’s one reason they think it makes sense to preclude future competition at a site, even it means losing money on the property sale.

In 2015, the city of Cottage Grove, Minnesota, sought to buy a vacated Home Depot at the mall. The company would only agree to sell if the city committed to ban any nearby rivals—extending a noncompete clause from Home Depot’s mall tenure (standard operating procedure) well past the store’s demise, ensuring a hardware desert. In response, Cottage Grove Mayor Myron Bailey encouraged residents not to shop at Home Depot. “Menards is in my community,” he told the Pioneer Press. “I am going to shop at Menards.”

Over in Escanaba, the roles are reversed. “I talk smack about them whatever chance I get,” Patrick Jordan, the city manager, says of Menards. “I’ll drive 50 miles to shop at Home Depot before I spend money at Menards.”

USA - These Major U.S. Cities Are Seeing Property Tax Increases This Year

Which major cities are facing property tax increases?

Many U.S. cities are seeing higher tax bills because of gains in the real estate market. Chicago is one of those places, said Andrea Raila of Raila & Associates.

There, properties are reassessed every three years, she said, and the most recent reassessment was last year. The tax on the property is 10% of the estimated market value. For example, a $2 million home has a $200,000 assessment.

Homeowners on the city’s Gold Coast may have seen spikes of 50% or more in their assessments, she said.

In addition, the property tax rate in Chicago went up, according to a statement from the Cook County Clerk’s office.

"Average residential taxpayers in the City of Chicago and the north suburbs should expect to see roughly a 3% increase in their tax bills," it said. "South suburban homeowners will see an average increase of about 5%."

Special initiatives often fuel tax increases, as well, said H. Michael Soroy of the Law Offices of H. Michael Soroy in Los Angeles. There, voters approved a new parcel tax in November, the Measure W tax, a.k.a. the Safe Clean Water Parcel Tax.

Homeowners in L.A. County will see an additional 2.5 cents on each square foot of "impermeable area" of their properties, including areas "covered by hardscape-like materials," according to the city’s website for the program.

That includes buildings, driveways, sheds, pools and other features, but not gardens or "permeable areas."

But although local municipalities can raise taxes for initiatives to fund special projects, property taxes in California are 1% of the value of the home the year it was purchased and increases are capped at 2% a year, Mr. Soroy said.

Property taxes rose for homeowners in L.A. in 2017, as well. The city saw a 7% tax increase in 2017, the 2018 property tax report by ATTOM Data Solutions.

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Property taxes rose in 58% of the 217 metropolitan areas analyzed in the report, according to the data. Dallas had an 11% increase, the largest uptick, followed by Houston with a 10% rise, Miami, 5%, and Philadelphia, 4%.

The 2019 property tax report is expected in April, a spokeswoman from ATTOM said.

USA - Thune leads colleagues in reintroducing a permanent repeal to the estate tax

Sen. John Thune announced he is leading an effort to repeal the federal estate tax this week.

The federal estate tax, also called the death tax by some, is a tax on property that’s transferred from a deceased person to their heirs. That property includes both physical and financial assets, such as cash, land, real estate, stocks, bonds and mutual funds.

Thune’s bill, the Death Tax Repeal Act of 2019, has been backed by many of his Republican colleagues, who argue that it can be devastating for farmers, ranchers and family-owned businesses.

“Oftentimes, family-owned farms and ranches bear the brunt of this tax, which threatens families’ agricultural legacies and makes it difficult and costly to pass these businesses down to future generations,” Thune said in a statement.

Gov. Kristi Noem has also been a critic of the federal estate tax, often reiterating the story of how her family almost lost their farm as a result of the tax following her father’s unexpected death.

Noem, along with other lawmakers, have also said they oppose the estate tax because they believe it’s a double tax.

According to Senate Majority Leader Mitch McConnell, “The estate tax doesn’t serve any purpose except forcing family farms and family-run businesses to waste precious capital on costly tax planning and in too many cases, paying taxes on income or property that have already been taxed once.”

The purpose of the estate tax is to provide a backup to the capital gains tax. Normally, the wealth that accumulates on an asset over time is eventually taxed when it’s sold. The estate tax is designed to tax property that’s accumulated wealth, but won’t be taxed until it’s passed down.

The estate tax has been reduced considerably since the Tax Cuts and Jobs Act was passed in 2017. Under the new law, less than 0.1 percent of estates are required to pay the estate tax, and 90 percent of taxable estates are owned by the top 10 percent of income earners.

Married couples are exempt from the tax if their assets are worth less than $22.4 million, along with individuals with assets worth less than $11.2 million.

According to an analysis from the Tax Policy Center, in 2017, before the new tax act went into effect, an estimated 80 small farms and closely held businesses across the US were subject to the estate tax. The analysis defined small farms and businesses as having less than $5 million in assets.

With the new law, no small farms and businesses under that definition will owe an estate tax.

The higher exemption created by the new tax laws is set to expire in 2025. Thune’s bill would completely eliminate the tax.

USA - Sanders Proposes Estate Tax of Up to 77 Percent for Billionaires

Independent Senator Bernie Sanders is proposing to expand the estate tax on wealthy Americans, including a rate of as much as 77 percent on the value of estates above $1 billion.

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Sanders of Vermont, who is considering a second run for president, said in a statement that his plan would apply to the wealthiest 0.2 percent of Americans. It would set a 45 percent tax on the value of estates between $3.5 million and $10 million, increasing gradually to 77 percent for amounts more than $1 billion. The current estate tax kicks in when an estate is worth about $11 million.

The legislation would raise up to $2.2 trillion in taxes from the families of all 588 billionaires in the U.S. with a combined net worth of more than $3 trillion, according to a summary of the plan.

Sanders’s plan comes as potential Democratic challengers to President Donald Trump eye progressive tax ideas intended to reduce income inequality. Senator Elizabeth Warren of Massachusetts has proposed an annual 2 percent tax on households worth more than $50 million. Sanders, who ran in the Democratic primary against Hillary Clinton in 2016, hasn’t yet said whether he’ll run in 2020.

Addressing Inequality

The estate tax exemption was $3.5 million as recently as 2009. The 2017 GOP tax overhaul increased the exemption to $11 million through 2025, and some Senate Republicans are renewing an effort to repeal the tax entirely.

While Sanders and Warren represent one approach to reducing income inequality –- breaking up concentrations of wealth among top earners –- other Democratic candidates are directing their efforts toward the lowest income brackets.

Tax Liability

Polls show that voters are becoming more receptive to the idea of increasing taxes on the wealthy. Freshman Democratic Representative Alexandria Ocasio-Cortez of New York floated a 70 percent top tax rate on incomes of $10 million or more, an idea that 59 percent of people supported in a Hill–HarrisX poll conducted Jan. 12-13.

The Sanders plan would nearly double the estate tax liability’s that some of the wealthiest Americans would owe under current law, according to calculations released by the senator along with details of the proposal. Amazon.com Inc. founder Jeff Bezos, the world’s richest man, would owe $101 billion based on his current net-worth, up from $53 billion. Facebook Inc. founder Mark Zuckerberg’s estate tax liability would jump to $41 billion from $22 billion.

The Sanders legislation would also end tax breaks for so-called dynasty trusts, estate planning tools that have become more popular under Trump’s tax law, which increased the exemption to about $22 million for a couple.

Break for Farmers

Dynasty trusts can be funded with cash, stock or other assets, and structured to pay each generation only some of the trust’s proceeds while the rest of the money grows free of estate and gift taxes. With the right planning, a trust funded up to the maximum $22.4 million tax exemption can wind up being worth far more than that.

In his plan, Sanders is including a special break for farmers, allowing them to reduce the value of their land by as much as $3 million to reduce or completely eliminate the amount of estate tax they owe. Critics of the estate tax have said land-rich, cash- poor family farmers are hurt by the tax because they don’t have the liquidity to pay the tax. However, the tax hits relatively few family-owned businesses and farms — about 80 in 2017 — according to the Urban-Brookings Tax Policy Center.

The estate tax exemption has been a favorite lever for Congress to adjust in recent tax legislation. The current roughly $11 million exemption for an individual has risen from $650,000 two decades ago. The winners can end up being estate tax advisers as they continually make adjustments to their client’s plans.

“The more you muck around with the exemption amount, the more you mobilize the estate planning industry and pull money into it,” said Kyle Pomerleau, an economist at the Tax Foundation, a Washington-based research group. “People will continue to shift their affairs around to game the exemption changes.”

USA - The Self-Storage Property-Tax Conundrum: Alternatives to Better Our Communities

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When property taxes deter real estate investing, it has a domino effect that harms our local economy. A self-storage owner and developer offers two solutions—vacancy tax and consumption tax—that can better serve our communities.

In the state of Kansas, property taxes skyrocketed 156 percent between 1997 and 2017. In Illinois, they’ve become such a burden that it would take three decades for a freeze to return property taxes to 1990 levels.

Property taxes are paid by every U.S. citizen, no matter if you’re a homeowner, apartment renter, self-storage owner or real estate investor. The average American household spends more than $2,000 a year on property taxes to help support community parks, roads, schools and much more. But these taxes have become increasingly unpopular over the years, with $14 billion going unpaid annually. In fact, a Gallup poll found that people prefer to pay income tax, state sales tax and Social Security.

It isn’t a surprise that when property taxes deter real estate investing, it has a domino effect that harms our local economy. Investors are careful with their time and money. If a state or region has extremely high property taxes, they’ll avoid it like the plague. When this happens, you can expect to see:

 Poor property values  Property taxes passed off to office tenants, apartment renters, self-storage customers and others who use these properties  Declining communities

So, what’s the solution? Property taxes aren’t going to just disappear overnight. From my experience as a self-storage owner and developer, I see two alternative solutions that can better serve our communities: vacancy tax and consumption tax. What do they have to offer?

Vacancy Tax

In many cases, investors will purchase property and leave it sitting vacant for long stretches of time. When residential or commercial homes and buildings are left unused, there are less taxes to go around to support community services and initiatives.

This is leading many cities and regions to consider imposing a vacancy tax, which can help deflate investment “bubbles” and moderate speculation in overheated markets. For example, take Vancouver, British Columbia, where there are an estimated 8,500 vacant homes. This led the city to invoke a vacancy tax in 2016, which is expected to generate up to $30 million. San Francisco is also considering vacancy tax to curb the shortage in housing and increase positive revenue in the city.

Consumption Tax

This tends to be considerably undervalued, despite being easy to collect and extraordinarily difficult (if not downright impossible) to avoid. Consumption tax generates revenue on the purchase of goods and services. Unlike property tax, which is billed once per year and is much easier to avoid paying, it’s is collected immediately at the time of sale.

If those benefits weren’t enough, consumption tax can be structured with exemptions for basic products and low-income residents. As taxation expert and economist Curtis Dubay has said, it’s “fair and efficient.” This is especially true when compared to the challenges that come with property taxes.

Lessening the Blow, State by State

For states like Illinois and Kansas, vacancy and consumption tax may heal some of the pain of property tax. Even in states that aren’t currently suffering from high property taxes, these alternatives can help avoid a future crisis.

It’s time to transition out of our reliance on property taxes and turn to more effective solutions that can help drive greater state revenue and improve the communities in which we live and work.

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CALIFORNIA

Prop 13 Split-Roll Tax Increase Would Hurt Business, and Affordable Housing Efforts

No longer the ‘Golden State,’ California is the ‘tax-me’ state

California Gov. Gavin Newsom announced during his budget press conference he is on a mission to force cities across the state to build more affordable housing, or risk losing state transportation dollars. But with a Constitutional Amendment initiative on the 2020 ballot threatening to remove tax protections on commercial and industrial properties, Newsom’s affordable housing construction boon may end up being a bust.

In the past eight years, local governments across the state have enacted more than 800 general and special taxes on businesses and residents – perhaps incentivizing cities and developers could be more effective.

The liberal dream to undo Proposition 13

“It has been a liberal dream for decades to undo parts or all of Proposition 13, the seminal California initiative limiting the property tax rate,” the Sacramento Bee reported last year.

Proposition 13 was passed by voters in 1978 because as property values rose rapidly through the 1970s, property taxes also skyrocketed, driving many families and retired couples out of their longtime homes.

Prop. 13 was so effective when it was passed, within two years, 43 states implemented some kind of property-tax limitation or relief, 15 states lowered their income-tax rates, and 10 states indexed their state income taxes for inflation, the Hoover Institute reported.

With passage of Prop. 13, property tax increases were limited to no more than 2 percent per year as long as the property was not sold. Once the property is sold, it is reassessed at 1 percent of the sale price, and the 2 percent yearly cap becomes applicable to future years, allowing property owners to be able to estimate the amount of future property taxes.

Yet opponents of tax limits continually say publicly that big corporations get away without paying their “fair share” of property taxes. It’s a common theme in California politics.

However, since 1978, all legal challenges to this have been overturned by higher courts of law, according to Jon Coupal, president of the Howard Jarvis Taxpayers Association, named for the author of Prop. 13. Coupal said that Prop. 13 has been one of the most adjudicated laws in the history of the state, yet continues to hold fast.

Opponents of Prop 13 Seek to Split The Tax Protections, Target Businesses

A coalition of organizations supportive of higher taxes qualified a constitutional amendment for the 2020 ballot, to gut one of California’s only remaining taxpayer protections: Proposition 13.

Proposition 13 was a landmark decision by California’s voters to limit property taxes.

However, if the “split roll” is passed by voters, this would tax commercial and industrial properties at market value, rather than when the property is reassessed because of a sale. It’s already a constant challenge for commercial property owners because counties annually attempt to reassess a property’s value without a sale occurring, forcing property owners to appeal the tax amount. And counties are not justifying or quantifying the increase in commercial property values forcing owners to appeal.

Proposition 13 protections for homeowners will remain in place.

Yet, Proposition 13 has stabilized the flow of property tax revenue to local government. It has served as a conduit to stop the volatility of market values from affecting the flow of property tax revenues to cities.

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According to Coupal, split-roll proposals will adversely impact the cost of doing business in the state, result in higher prices and reduced employment. Coupal also said that a split roll could have unintended consequences for small businesses, many of which lease property from large business owners.

The state’s politicians have long claimed that Prop. 13 is behind California’s volatile reliance on taxes. And there is a well-worn myth that property taxes disproportionately fall on homeowners instead of commercial property owners. But studies consistently find that commercial and industrial property is being assessed for tax purposes at values that are closer to market values than is the case for owner-occupied residential property.

“Not only did Prop. 13 not slow down the tax burden” on California landowners, Coupal said, “we’re not a low-tax property tax state. We’re in the middle.” Coupal said efforts to rework Prop. 13 would be exactly the wrong message to business and job- creators.

California businesses should reject efforts leveraging threat of split roll for other tax hikes

Gov. Gavin Newsom wants to make a deal for tax reform in California. Perhaps echoing his campaign slogan, “Courage, for a change,” he told reporters that Gov. Jerry Brown “had no interest in this, even at the peak of his power, influence and insight.”

Courage is an interesting thing in politics. It sometimes recalls the joke about the most common “last words” in the English language: “Watch this!”

Newsom said he would like to use an initiative that has qualified for the 2020 ballot as leverage in a wider negotiation. The California Schools and Local Communities Funding Act would revoke the protection of Proposition 13 from most commercial properties, requiring the reassessment to market value on a regular basis. Under current law, assessments are based on the purchase price of the property and can rise no more than 2 percent annually until a change of ownership occurs.

The proposed measure would create a “split roll” property tax, sparing homes but sharply raising taxes on California businesses, collecting about $11 billion per year for cities and school districts to divide.

“My desire is to use this as an exercise in bringing the parties together to see if we can compromise on a more comprehensive tax package,” Newsom said.

The package would likely include a new sales tax on services similar to one proposed last year by Sen. Bob Hertzberg, D-Van Nuys. Senate Bill 993 was opposed by a long list of business groups, trade associations and taxpayer advocates. It was allowed to die quietly.

Now Newsom is raising the possibility of a grand bargain, a negotiation in which businesses might be persuaded to support a new sales tax on services in exchange, perhaps, for the split-roll property tax measure being withdrawn, or for exceptions and exemptions from the law.

The California Schools and Local Communities Funding Act contains exemptions for certain commercial real estate, including apartment buildings and some small businesses. SB993 contained exemptions for schools, child care facilities, government agencies, and certain businesses including automotive parts and restaurants.

Now, everything is negotiable.

Under a state law passed in 2014, the proponents of an initiative have the opportunity to withdraw the measure after it has qualified for the ballot. This allows advocates to negotiate with the Legislature and the governor for a new law that addresses their issues without a costly election-year battle. Similarly, the Legislature can place a new measure on the ballot by approving it with a two-thirds vote in the Assembly and state Senate.

What this means for ordinary Californians is that their signatures on petitions to place a measure on the statewide ballot are now just one more bargaining chip in a backroom negotiation that will determine who pays, and how much.

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California businesses don’t have to play ball with the governor. They could oppose both the property tax increase and the sales tax on services. Homeowners would certainly join them in fighting an attack on Proposition 13, and a sales tax on services has been killed in the Legislature before.

Gov. Jerry Brown cautioned as he left office that the cost of doing business in California is already high. It’s a heads-up that the new governor would be wise to keep in mind.

Changing Prop. 13 could worsen California’s housing crisis. Here’s how

For four decades, Proposition 13, the property tax reform that passed in 1978, has been blamed for many of the ills that have befallen California.

Working with Howard Jarvis, a Proposition 13 co-author, and later running his taxpayers association, I have followed the multiple attacks on the measure, many silly and outrageous. Now the attacks are amped up along with a supposed, but flawed remedy.

In discussions of where new money would come from to solve the Los Angeles Unified School District labor dispute and teacher’s strike, a ballot measure designated for the 2020 statewide ballot to change to Proposition 13 often is mentioned.

The initiative promises to split the property tax roll between commercial and residential properties.

If approved, the split roll initiative would come with long-term problems and exacerbate issues that were raised during the teachers’ strike that would affect all of California.

Implementing a split roll would mean that commercial property would be taxed at market value. That would bring in more revenue to schools and local governments. But supporters of the split roll stop the discussion at that point, and fail to discuss the far-reaching consequences of undoing Proposition 13.

High housing costs were a constant refrain during the teachers strike. The lack of housing makes it more difficult for teachers to live near where they work, a curse for many middle class Californians.

Imagine what would happen if split roll were a reality. What do you think would happen when local governments would choose between green-lighting a commercial venture that would bring in gobs of new revenue for government as opposed to approving a housing project?

Just as taxpayers make adjustments to reduce their taxes, government officials embrace projects that will increase revenue. There are many examples of such behavior on both sides of the tax equation such as the infamous window tax of the 18th and 19th centuries in Europe.

In response, homeowners boarded up windows to avoid the tax. Tax collectors have similar reactions in the opposite direction. They will certainly okay revenue-producing developments ahead of housing projects.

Apparently there was no concession by the teachers’ union in the strike settlement to control pensions and health costs, two items that are driving the district toward insolvency, according to the Los Angeles County Board of Education and Los Angeles Unified School District Superintendent Austin Beutner.

Pension and heath costs are a big problem for local and state governments, just as they are for schools. The alternative is to turn to taxpayers to fund these generous benefits while taxpayers themselves struggle with their own retirement and health care situations.

But there is an element to the troubled pension situation that could be further damaged by a split roll. Many pensions rely on commercial properties to increase portfolios. With raised property taxes, commercial properties will be devalued and another debilitating weight would be added to government pensions holding business properties.

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Under Proposition 13, property tax revenues have increased well beyond inflation and population growth. The property tax under Proposition 13 is the steadiest tax in the state because during economic downturns only recently purchased property is re-evaluated downward.

Under Proposition 13, most property taxpayers continue to pay the expected taxes due while both sales and income taxes reduce sharply in a recession.

If all commercial property tax rates are pegged at market value, and a recession hits, commercial property would be reassessed downward and local and school budgets will take a huge hit.

In addition to these problems, business owners forced to pay higher property taxes would pass those costs onto consumers, and that would diminish the state’s economy.

For residential property taxpayers there is another thing to keep an eye on. Is the move toward a split roll the first step to taking away Proposition 13 protections from homeowners?

At a recent speech to the Palos Verdes Chamber of Commerce, noted Los Angeles area economist Christopher Thornberg raised the issue saying he would flip the split roll, keeping Proposition 13 on commercial property and getting rid of it on residential property to help local governments fund services related to homes.

You can bet the idea of eliminating all of Proposition 13 is on the mind of those advocating more and more government spending and the split roll ballot fight will be the first test.

HAWAII

Property tax changes coming

Eliminating the solar water tax credit, reclassifying small agriculture lots to residential and repealing an obsolete program are three ways the county could generate revenue and make its property tax code more equitable, according to a report to be considered next week by the County Council.

In all, the county would see more than $1.3 million in revenue or savings annually by making adjustments to more than 20,000 lots.

The Real Property Tax Review Working Group is making the recommendations in its third report to the council. The administration agrees with the recommendations, said county Real Property Tax Administrator Lisa Miura.

“Real Property Tax does view these changes as bringing consistency, fairness and equitability,” Miura said.

At least one solar equipment installer, John Collins with Kona-based ProSolar Hawaii, doesn’t see it that way, at least as far as the solar credit.

“I don’t understand what they’re trying to do,” Collins said Wednesday. “There’s plenty of people who don’t have solar water; electric bills are going crazy. Why does the county want to take away the incentive?”

The solar program, which started in 2008, offers a one-time, up to $300 credit off property taxes for those installing a solar water heater. It applies only to retrofitting existing homes, as all new buildings have been required to have solar hot water installed as of 2012.

The county will continue not assessing the value of solar water improvements when it applies property taxes, just as it does with photovoltaic cells for electricity, which carry no county tax credit, Miura said.

The group researched the possibility of creating a photovoltaic credit, but decided not to recommend a new tax credit, since photovoltaic improvements are also not assessed for property tax purposes, according to the report. International Property Tax Institute IPTI Xtracts- The items included in IPTI Xtracts have been extracted from published information. IPTI accepts no responsibility for the accuracy of the information or any opinions expressed in the articles.

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The solar property tax credit cost the county about $25,000 last year.

A second change will bring in much more.

Reclassifying small agriculture lots of less than 1 acre that aren’t doing agriculture and don’t have a preferential dedicated or non-dedicated ag use, or are in the homeowner class, could bring in an extra $1.3 million this year.

“There are properties under 1 acre of land that have been receiving the agricultural class tax rate when the highest and best use is residential,” Miura said. “Three meetings and a lot of discussion occurred over the agricultural zoning of a huge portion of this island while many of these parcels are clearly utilized as residential and have no intent of doing agriculture.”

Miura said the affected property owners will receive a letter in February and will see their tax classification change from agriculture to the higher residential tax rate this year. The current classifications are not applied consistently, leading to unfairness, she said. The tax office can make the change without a change in county code or council action.

“This is consistent with State Land Use Commission statutes which provide for the construction of single-family dwellings on lots existing before June 4, 1976,” the report states. “There are currently 19,604 parcels which will experience a tax class rate change. 6,665 will experience an increase in taxes with the remaining parcels not anticipated to be impacted by the recommendation.”

Property owners in the agricultural class pay $9.35 in tax for every $1,000 in property value, while those in the residential class pay $11.10 under current property tax rates.

A third recommendation would do away with a tax exemption program known as the “non-speculative residential” program, a move advocated by both the working group and the Real Property Tax Board of Review.

A 2008 law closed the program to new property owners, but those who were grandfathered into the 1958 program may have an unfair advantage over other property owners who can’t participate, Miura said. The program allows property owners to freeze their property value for five or 10 years by dedicating it to their own homestead use. The county’s homeowners property class and a homeowners exemption have taken the place of the program for all but 483 property owners.

Recommended steps include informing all owners currently with parcels in this program of the repeal for tax year 2019, allow all parcels currently in this program to automatically convert these parcels to the homeowner exemption program at the 2019 frozen value and explain the 3 percent cap would then be applied to the tax year 2020.

The impact to the real property tax revenue in tax year 2020 based on the current frozen non spec values would be $23,000 total. In addition, the county will save approximately $4,400 per year in staff time allocated to administering the program.

The working group, made up of property owners and managers, general public and planners, with county staff support, was formed in 2017. Among its goals are to increase fairness, incorporate best practices into tax administration and propose additional tax programs. There is also a committee devoted to agricultural issues.

The council Finance Committee is scheduled to consider the recommendations at its 9:45 a.m. meeting Monday in Hilo, with videoconferencing to the West Hawaii Civic Center, the Waimea and Pahoa council offices, the old Kohala courthouse and the Naalehu state office building.

ILLINOIS

Real Estate Tax 2019: New Assessor, New Policies

Big Changes to Come for Commercial and Industrial Property Owners

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For the first time since the 2011 assessment year, Joe Berrios will not be overseeing the release of Cook County property tax assessments or appeals to the assessor's office. After 30 years of making and reviewing Cook County assessments, Berrios was ousted in favor of political newcomer Fritz Kaegi. Kaegi comes to the office without prior assessment experience, but with a mandate for change.

The new assessor has made it clear that he intends to answer the call for change with reforms in both how initial assessments are determined and how appeals are adjudicated. While this is welcomed by many, it creates uncertainty for taxpayers as changes are on the horizon. Property owners need to be prepared for these changes in 2019 and beyond.

The anticipated reforms are especially relevant for those with property in north suburban townships. Those properties are scheduled to be reassessed in 2019 and represent Kaegi's first opportunity to implement changes. The tentative schedule for the mailing of 2019 assessment notices is available online.

Besides modernizing the office and bringing transparency to the process, Kaegi has stated that he intends to "mark to market" so that Cook County assessments accurately reflect market values. While that may seem straightforward, it represents a sea change if it comes to pass. Based on Illinois Department of Revenue studies, Cook County property assessments have consistently lagged behind actual market values. A mark-to-market approach would negatively affect many property owners in Cook County, especially those in high-market-value areas (e.g., north shore suburbs and commercial areas in Schaumburg and the O'Hare industrial corridor). Many properties in those areas have been routinely assessed at 75 percent to 80 percent of actual market value. If Kaegi's mark-to-market approach is installed, those properties could see assessment increases in excess of 20 percent in 2019.

Kaegi has also expressed a desire to put an end to vacancy relief for individual properties. Owners of multi-tenant residential, commercial and industrial properties have long depended on vacancy relief to lighten their tax burdens in difficult times. (The assessor has routinely granted relief to those owners in the form of a reduced improvement assessment for properties that were less than 80 percent occupied for the assessment year.) Abolishing vacancy relief introduces a new level of uncertainty in the property tax assessment process for multi-tenant property owners.

A mark-to-market approach and the end of vacancy relief are only two of the notable changes that the new assessor will likely implement. There will surely be more to come as Kaegi puts his stamp on the office.

Illinois state and local governments spend most in nation on pensions

According to recent data, Illinois spends nearly double the national average on pensions, measured as a percentage of all state and local government spending.

Unfunded pensions for state and local government employees are a growing crisis nationwide. According to the Pew Charitable Trusts, the 50 states have accumulated a total of $1.4 trillion in unfunded pension liabilities, or the gap between money in pension funds and the value of promises made to government workers, not including local pension funds. Only four states’ pension funds have at least 90 percent funding ratios, despite the fact that taxpayer contributions have doubled over the past decade.

Many states are struggling with pension debt as a result of generous retirement benefits, unrealistic investment assumptions and a growing number of retirees living longer. However, Illinois’ pension crisis remains an outlier in its severity.

The most recent data from the National Association of State Retirement Administrators shows Illinois’ state and local governments spend the most in the nation on pension benefits as a percentage of all state and local revenue at 8.71 percent – nearly double the national average.

Illinois spends nearly double the national average on pensions

Illinois and West Virginia also stand out as states where pension spending has grown rapidly from fiscal year 2005 to 2015.

Total spending compared with total revenues is just one metric showing Illinois’ pension problem is the worst in the nation. Pension debt compared with revenues is another. Last year, Illinois set an all-time high record for state pension debt as a percentage of state revenues, at 601 percent.

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The state’s five systems have at least $133 billion in pension debt, which does not even include local pension debt.

All 5 Illinois pension systems are severely underfunded

Pension-related expenditures now consume more than 25 percent of Illinois’ state budget, crowding out spending on social services, public safety and education.

In addition, a number of local governments are already hiking taxes and cutting core government services to pay for ever-rising pension contributions. For example, in 2018:

 The south Chicago suburb of Harvey faced an intercept of state money owed to the city and had to lay off 18 firefighters and 13 police officers. Pursuant to a subsequent settlement agreement, the city will divert certain tax revenues to its police and fire pension funds.  Chicago faced a more limited intercept of state money, and its pension contributions are set to spike by more than $1 billion over the next five years, despite several tax and fee hikes enacted by Mayor Rahm Emanuel to pay for pensions.  The city of Peoria had to eliminate 27 municipal workers and 38 public safety positions to make pension payments. Currently, 85 percent of the city’s property tax levy goes to pensions, and that’s projected to rise to 100 percent in fiscal year 2020.  Rockford was advised to cut police and fire services and privatize the city water system to make pension payments.  Three smaller communities saw special property tax hikes to pay for pensions: Jerome, Geneseo and Norridge.

Despite the severity of Illinois’ pension crisis, commonsense solutions exist that would protect both government workers’ retirement security and taxpayers.

By amending the state constitution to protect earned benefits, but allowing for changes in future benefit accruals, state lawmakers could pass a pension reform package that reduces annual pension contributions and fully funds the pension systems faster than planned under current law. This plan would enable state and local governments to honor promises made to both retirees and current workers – and would not cut a dime from their checks.

A growing chorus of voices has endorsed a constitutional amendment to enable meaningful pension reform. This includes outgoing Chicago Mayor Rahm Emanuel and the Civic Federation, a Chicago-based research organization.

Pension reform is necessary if lawmakers wish to protect those who will be most harmed by pension insolvency: government workers and retirees. Through meaningful reform, lawmakers would also protect taxpayers, stabilize state and local finances, and revive a state economy that for too long has been held back by tax hikes driven by pension costs.

New Commissioner Works With County Assessor To Make Website Easier To Use

Changes suggested by Cook County Commissioner Kevin Morrison (D-15th) to make information on tax assessments easier to find on the Cook County Assessor’s website were implemented at the end of January.

Officials with the assessors office promise more short term changes by next month and said they hope to see further changes by the end of 2019. The website is the central place property owners can find information on assessed valuation of property.

The northern and north central suburbs of Cook County are having their property values reassessed by new County Assessor Fritz Kaegi’s office this year, a process which currently takes place once every three years.

New assessments for property outside Chicago in the northern half of Cook County are expected to be released this year on a rolling basis, township by township. Those assessments are used, along with taxing district levies, a state multiplier and individual exemptions, to calculate property tax bills.

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Morrison, who lives in Elk Grove Village and represents a large part of the Northwest suburbs, said constituents at several property tax assessment appeal workshops expressed frustration that information on land values, building values and square footage were not all in one central place on the Cook County Assessor’s website.

Morrison said when he visited the Schaumburg Township Assessor’s Office late last year, he saw information on properties in a closed database the township assessor had access to, but the general public did not, where that information was in one central place with easy to find data sets.

In early January, Morrison said he reached out to the newly elected Kaegi, who made those initial changes to the website by the end of that month. And more changes to the website are coming.

“Our office will be transparent in how we determine a taxpayer’s assessment,” Kaegi said in a written statement. “We’ll be publishing our models and code in the coming months and relaunching our website at a future date. But there are other smart changes, like this, that we can make immediately. We look forward to continuing a dialogue with Commissioner Morrison and other elected officials on the improvements in our office.”

Scott Smith, chief communications officer for the Cook County Assessor’s Office, told the Journal two additional changes to make data sets easier to find are expected in mid-March, which can be accomplished without major design or programming changes.

Smith said assessor’s staff members are working with county board of technology officials to develop a plan to relaunch the assessor’s website to something “more modern user friendly… within the year.”

Other long term goals include moving reassessments to once a year across Cook County and garnering data on property rent and income.

Smith said future assessment information would also come with explanations for how assessors arrived at their conclusions, both for individual properties and by townships for both commercial and residential property.

Property tax rates nearly double since 2007 as residents leave Harvey, Illinois

Declining home values and a shrinking tax base have created a bigger property tax burden for Harvey, Illinois, homeowners. For their higher taxes, residents get corruption, debt and fewer services.

A legacy of corruption in Harvey, Illinois, is costing residents by quickly growing their property tax burden.

The south Chicago suburb’s struggle with plummeting home values, coupled with a dwindling population, has resulted in a nearly doubling of the amount residents pay in property taxes relative to the value of their homes.

In Harvey, the average effective property tax rate – what homeowners pay in property taxes as a percentage of their homes’ estimated market value – was 82 percent higher in 2016 than it was a decade earlier, according to a report by the Civic Federation, a government financial watchdog.

The Civic Federation report measured changes in average effective property tax rates in Chicago and 28 other northeastern Illinois communities between tax years 2007 and 2016, with those taxes actually paid the following year. Of the 12 Cook County communities included in the study, Harvey property owners in 2017 paid the highest effective rate for both residential and commercial properties at 6.9 percent and 15.4 percent, respectively.

What does that mean for Harvey homeowners? For a resident occupying a home with the city’s median value of $72,400, property taxes paid in 2017 were $4,996. That’s $2,252 more than a house of the same value would have been taxed in 2006, but the double whammy is that Harvey’s median home value fell 28 percent during the decade.

For a community of about 25,000 where the median household income is less than $24,000, the report’s findings are especially disheartening: As a depressed local economy pushes home values down, residents’ effective property tax rates climb up; and as more residents leave the city, those left behind must shoulder a larger share of the burden.

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Harvey’s 6.9 percent residential rate is more than 200 percent higher than the 2016 statewide median of 2.29 percent. While Harvey’s average effective rate has fallen from its 2012 peak of nearly 9 percent, it remains nearly double what it was a decade ago – and among the highest in the state.

The blighted suburb’s inability to keep up with pension contributions for government workers caused property taxes in Harvey to skyrocket. The city owes over $87 million in pension debt, and has already been forced into severe service cuts due to pension pressure, including layoffs for dozens of public safety workers.

In 2018, Harvey’s poor pension funding levels resulted in the state comptroller intercepting $3.3 million in tax revenues. While Harvey eventually reached a settlement with the state, the city still owes $9 million to its police pension fund and $14.2 million to its fire pension fund.

What’s worse, Harvey’s crisis was only the prologue to the state’s grave pension story: A number of Illinois municipalities have since found themselves facing similar circumstances.

Illinoisans face the second-highest property tax burden in the nation, a phenomenon driven primarily by the unsustainable growth in pension costs.

Hiking taxes on a shrinking population has repeatedly failed to rescue the state’s dismal finances. The only path toward stability – and property tax relief – is through serious, lasting pension reform pursued at the state level.

It's time to modernize the assessor's office

With one simple law, Springfield can decrease risks and costs to real estate participants while boosting transparency, creating valuable market data, and improving our state’s investment climate and reputation.

Since being sworn into office in December, I have talked with some of the biggest real estate investors in the world, the CEOs of banks, small business groups and neighborhood economic development organizations. They all share one common refrain about our assessment system: Transparency means predictability. It reduces uncertainty. It brings down the cost of doing business.

The world’s leading institutional investors view the commercial assessment system in Cook County as full of risk and uncertainty. The globalizing real estate market is deterred by the idiosyncrasies and opacity of our system.

This has real economic consequences. Uncertainty hurts lending and leasing terms, resale prices, and investment activity. As a result, investing in Cook County requires a higher premium to enter our market due to this additional risk. This is why investors pass us by time and again.

The solution? Achieve predictable, fair and transparent assessments by requiring property owners to submit basic rent and real estate operating income information at the start of the assessment process.

This would require a legislative change: the passing of H.B. 2217, a bill sponsored by House Assistant Majority Leader Will Davis and Senate Revenue Chair Toi Hutchinson, with co-sponsors from leaders in both houses of the General Assembly. H.B. 2217 would give the Cook County Assessor’s Office—and other Illinois counties that choose to opt in—the ability to require owners of income-earning properties to disclose basic rent, real estate income, and expense information. Those who do not comply would be subject to a fine.

Many smaller properties are exempted, including commercial properties with a market value under $400,000; and residential properties with six or fewer units, or with a market value under $1 million.

Currently, income and expense information is required at the point of appeal. The Board of Review takes in this data and uses it to determine a property’s value, one appeal at a time.

The Assessor’s Office is in the business of mass appraisal. If we were equipped to require this data up front, at the start of the assessment process, we would be able to determine market-level rents for every part of the County.

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In many other parts of the country—New York, Virginia, Massachusetts, and Washington D.C.—commercial properties are required to disclose their income and expenses. Not coincidentally, real estate participants tell us that these are among the best assessment systems to emulate.

Enacting this legislation will allow for richer data, unprecedented transparency, and more predictability for everyone. Developers could require less of a margin of error when deciding whether to invest. Lenders could lend more against a property’s value. Potential buyers could have more confidence in the future path of assessments, and current owners could generate more resale value for their buildings.

The legislation also protects privacy by requiring that sensitive data submitted to the Assessor’s Office not be subject to Freedom of Information requests; it can only be published on an aggregated and anonymized basis.

Once aggregated and anonymized, the data that the Assessor’s Office receives will be of tremendous value throughout Cook County. Chicagoans concerned about the recent closure of retail stores on the South Side, for example, could compare year-to- year retail rent, occupancy, and valuation trends to determine the best plans for development.

For a county the size of Cook, a paper-driven, ad-hoc method of data collection goes against the efficiency taxpayers expect and deserve. With one simple law modernizing our assessment system, Springfield can decrease risks and costs to real estate participants while boosting transparency, creating valuable market data, and improving our state’s investment climate and reputation.

Fritz Kaegi is Cook County assessor.

Ottawa considering extending downtown TIF

The city of Ottawa’s downtown tax increment financing (TIF) district could be getting an extension before it expires in 2022.

But it needs every participating taxing body to agree to the extension and send a letter of approval to the Illinois General Assembly, which would add an additional 12 years and take the TIF district to 2034.

City Engineer Dave Noble said at Tuesday night’s City Council meeting that developers have come to the city for a TIF deal, but by the time they build and have their first assessment, they only receive three years of rebates.

“That’s not enough to bother with so they won’t talk to us,” Noble said Tuesday.

The Ottawa Elementary School District continued its assessment of the city’s agreement on Wednesday, but school board members noted they haven’t received any funds from the first TIF agreement, which gave no rebates.

Superintendent Cleve Threadgill said the district has undergone and put off a number of its own expensive maintenance projects, with the district sometimes finding itself in large deficits and in need of increased revenue.

“It’s basically the taxpayers who have to pick up that cost as we have to bond for it,” Threadgill said.

Threadgill estimated around $1.5 million was not available to the school district as a result of the TIF.

What is the agreement?

In an agreement with the necessary taxing bodies, the city would declare a surplus and give them 50 percent of the taxes they would have received if the TIF had expired, but not on any new projects.

In Ottawa Elementary’s case, this would be around $65,000 annually.

The extension would allow the city to use the remaining 50 percent to address collapsing buildings, offer programs such as facade improvements and also reach agreements with new incoming businesses.

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The alternative is ending the TIF, and the taxing bodies would receive 100 percent of the taxes on the current developments but end the associated programs and incentive plans downtown.

More development but less cash for districts

The agreement is similar to the one conducted when the Northern TIF, which extends from Interstate 80 to Dayton Road, was extended two years ago.

The city declared a surplus revenue during Tuesday night’s council meeting and fulfilled its promise, sending around $2.5 million back to the taxing bodies while allowing new developments to come in as the TIF district was extended.

Mayor Bob Eschbach praised the Northern TIF and the developments it has brought so far.

“Sometimes people have problems with TIFs, but there’s no question in my mind that Petsmart (Distribution Center) would not be there without the TIF and now we’re at the point where all those monies are being distributed to all the taxing bodies, the school and the city of Ottawa,” Eschbach said. “It shows that’s a pretty effective tax increment financing district.”

The downtown TIF pales in comparison to other city TIFs with regard to the amount of money it brings in, with Noble noting it contains vacant properties in need of repair but not vacant space. He said an extension could ensure future funding to improve and continue to grow the downtown.

“The downtown has gotten a lot better, but I don’t know if it’s over the hump,” Noble said to the Ottawa Elementary Board of Education on Wednesday. “Without funding in a positive direction, it could turn right back down.

“I see the downtown as being the only place of substance where if it really works could generate significant tax assessment for you,” he added.

Still, the district has a number of its own financial concerns and maintenance needs to consider over the entire length of the extension.

The school board is expected to continue the discussion with the city of Ottawa and formally vote on the agreement at a future meeting.

Why are folks leaving Chicago? Unfair taxes

Chicago's general obligation debt backed by property taxes now stands at nearly $9.9 billion — roughly $3,680 for each of the city’s 2.7 million residents

People moving out of Chicago is a social and economic trend that transcends any one constituency, racial demographic or income level. Yuppies, the elderly, whites, Latinos, blacks, rich, middle class, poor, business owners, consumers and taxpayers all grapple with a complex problem that results in people leaving our city and even our state.

In neighborhoods like Pilsen and other parts of Chicago, long-time homeowners have been forced to move out because of their inability to pay high property taxes. Working professionals, blue-collar workers and small businesses owners and consumers of all ethnic backgrounds feel the intense pressure of extreme taxation and fees on plastic bags, cell phones and so on.

There are other causes worth examining. Lack of economic investment in Chicago neighborhoods, high crime, lack of jobs and job training, a police culture that is not always in step with the residents it protects, a political structure that repels trust from citizens who vote for them. And, without a doubt, the single biggest cause is an inefficient and poorly structured tax system that harms the poor and helps those who can afford tax appeal attorneys connected to the political establishment. This same establishment is responsible for our pension debt problem and the endless borrowing that drains our city finances.

So why do so many people leave Chicago? They can’t afford to live with an unfair tax system and problematic finances that hurt the majority of people.

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Worse, we have political and public leaders unable to deal with this core reason. With the election of a new Cook County tax assessor, hopefully the problem will diminish. Serious systematic assessment and tax reforms are needed to even out the playing field.

The next municipal elections should give Chicagoans an opportunity to select someone with the financial ability and experience to approach the Chicago exodus not in a zero-sum scenario, but in a comprehensive way. The newly elected mayor and aldermen will have to make some tough decisions that favor all Chicago stakeholders.

INDIANA

Tax Court upholds 26 percent increase in home valuation

The Indiana Tax Court has upheld a 26 percent increase in a home valuation after finding that the homeowners failed to properly rebut the removal of an obsolescence adjustment.

After the assessed value of their home increased by 26 percent to $187,700 in just one year, Vassil Marinov and Venetka Marinova appealed to the Indiana Board of Tax Review, arguing the assessed value was too high. At a hearing, the Tippecanoe County assessor presented an estimate value using a sales comparison approach and a time trend analysis to show that the original 2014 assessed value of $149,000 actually undervalued the property.

Specifically, the assessor argued the higher assessed value of the Marinovs’ home was within the range of the market sales in their subdivision and was in fact, slightly lower. The assessor had removed a 24 percent obsolescence adjustment applied to the property in 2007 that had reduced its value and determined that his 2014 assessed value of $187,700 brought their home in line with the other properties in the neighborhood.

However, the Marinovs claimed other property assessments in the neighborhood had only increased by 0 to 2 percent between 2013 and 2014, while theirs increased by 26 percent. The Indiana Board ultimately upheld the assessor’s value, finding a prima facie case had been established that the assessment was correct. It concluded the Marinovs failed to rebut the assessor’s evidence.

The Marinovs appealed, but the Indiana Tax Court found their arguments to be unpersuasive in Vassil Marinov & Venetka Marinova v. Tippecanoe County Assessor, 17T-TA-23.

“The evidence in the record demonstrates that a significant amount of the increase in the subject property’s 2014 assessed value is attributable to the removal of the obsolescence adjustment first applied to the property in 2007,” Judge Martha Blood Wentworth wrote. “… The Marinovs did not properly rebut the Assessor’s removal of the obsolescence adjustment because they failed to both identify causes of the purported obsolescence and to quantify the amount of obsolescence they claim should be applied.”

The tax court further noted that rather than offering evidence identifying defects and quantifying the amount of obsolescence to be applied to their home, the Marinovs simply stated that when they purchased the property in 2004, it had some “serious defects” that would cost “about $70,000” to fix.

“Without more, these statements are too remote in time and conclusory in nature to be probative,” Wentworth continued, referencing Long v. Wayne Twp. Assessor, 821 N.E.2d 466, 470 (Ind. Tax Ct. 2005). “Therefore, based on the market-based evidence above, the Assessor properly removed the obsolescence adjustment to reflect the subject property’s market-value-in use.”

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INDIANAPOLIS

Counties fight big box stores on property tax appeals

For years, Elise Nieshalla has served as an at-large council member for Boone County, where she oversees one of the fastest- growing regions in Indiana.

But 2018 ended with a series of challenges, shifting the perspectives of her and fellow county leaders. And it all started with a popular grocery storefront at the heart of Whitestown.

When Boone County assessors priced the real value of the Meijer grocery store at $14 million, the company came back with a new argument, noting that its properties elsewhere in the state — particularly those in economically distressed communities — were valued at a lower price.

Meijer operates at least 30 locations in Indiana, according to a store locator posted to its corporate website. This sign sits in front of a Meijer store in Franklin, Indiana. Photo by Erica Irish, TheStatehouseFile.com.

Meijer, then, set an ultimatum with Boone County: After the Midwest retail chain received an $11.5 million assessment, the company entered into a lawsuit with the county. A third party appraised the property at $14 million. Meijer then demanded their Whitestown property’s worth by lowered to almost 50 percent less than the appraisal.

Under the original assessment, Boone County taxes the property at $61 per square foot each year. If Meijer succeeds in its appeal, that annual rate would drop to $49 per square foot.

After several hearings in late December 2018, both parties were told it could take up to a year for a final opinion from the Indiana Tax Court, Nieshalla said.

Across the state, county assessors and their communities are facing similar challenges from some of the country’s most popular grocery stores, retail outlets and pharmacies.

In particular, Meijer’s case with Boone County exemplifies what a growing number of assessors are referring to as a “dark box store tax loophole,” a process by which retailers will insist properties valued at higher rates should be assessed at rates equal to their lowest-valued, or “dark,” establishments.

This argument assumes properties like the Whitestown Meijer should be assessed without considering factors like daily business traffic.

“Our focus is to keep prices as low as possible for our customers,” Meijer officials said in a statement about the Whitestown appeal. “One of the ways to do that is by making sure we pay a fair and equitable amount of property tax.”

The company declined to discuss the appeal further.

For those like Nieshalla, this argument is problematic. She and those against the theory argue it unfairly permits large corporations to pay less in property taxes on their most active establishment, which ultimately yields more profit for the company while leaving other groups — like homeowners and competing businesses — to pay additional property taxes.

Many of the property taxes paid by big box retailers fund emergency responders, like firefighters and local police, who often respond to retail locations to handle theft reports. In 2017, Nieshalla said, the Whitestown Police Department responded to 158 service calls at the Whitestown Meijer.

“They are not a dark store as far as their use of public dollars,” Nieshalla said.

This trend is nothing new, if one considers the long, if recent, history of appeals in Indiana’s Tax Court and similar chambers around the country. The track record includes appeals dating back to 2012 within Indiana with states like Wisconsin and Texas reporting numerous appeals in the last decade.

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Appeals proliferated in the state after the Indiana Board of Tax of Review ruled in 2014 that a separate Meijer, located off East 96th Street in Marion County, should have received an assessment at $30 per square foot instead of the $83-per-square-foot rate assigned by the county.

In Indiana alone, there are more than 300 pending appeals that involve big box store retailers. The cases span more than 15 counties, touching all corners of the state.

Nieshalla said Boone County declined Meijer’s offer to settle, fearing the number of appeals with other companies would increase.

“We knew other big box stores would be waiting at our doorstep,” she said about the decision.

Now, leaders in the Association of Indiana Counties say they hope to end the ordeal once and for all this legislative session.

County leaders are seeking a legislative fix that would set a state-level precedent for what constitutes a viable property value comparison, potentially putting a stop to costly county appeals and providing taxpayers with “taxing fairness,” according to a document provided by AIC.

“We maintain that the value of a property to the current user and for the current use is a fair and equitable basis for taxation, rather than skipping to the value of the property to a future buyer purchasing it as a vacant building,” the document reads.

Some lawmakers have already answered the AIC’s call.

In the Senate, Sens. Brian Buchanan, R-Lebanon, and Phillip Boots, R-Crawfordsville, filed a bill to address various property tax matters, including several provisions to solve the concerns voiced by the AIC.

Their bill — Senate Bill 623— would introduce protections for county leaders, empowering them to adopt ordinances that could reimburse assessors’ legal fees in appeals that are “uncommon and infrequent in the normal course of defending appeals.”

Additionally, SB 623 would prevent companies who appeal property assessments from using second-generation properties in sales comparisons. In other words, if the company owns an inactive property — like a vacant grocery store that it rents out to seasonal tenants or holiday retailers — it could not compare that property’s assessed value with active establishments, or first- generation properties.

Buchanan said the bill would only impact new big box store appeals, not the hundreds that are already filed or pending before the state tax board.

“When a commercial retailer chooses to appeal, and that’s their right, the counties are often forced to settle,” Buchanan said. “We’ll protect their right to appeal, but we’re also working hard to find a solution everyone can live with.”

IOWA

Outgrowing the effects of property tax reform

One month ago, a lengthy Newton City Council budget work session incited several uses of the phrase “property tax reform” largely attributed to discussions of fiscal year 2019-20 financial cuts and the city’s steady but possibly problematic tax levy.

Although the tax levy has not raised above $17.15 per $1,000 since fiscal year 2016-17, Newton City Administrator Matt Muckler said Iowa’s property tax reform may be starving municipalities’ abilities “to provide basic levels of service” and could compel city staff and council members to be open to the idea of increasing the tax levy in the near future.

City staff reported Newton’s total valuation at about $833.97 million for the current fiscal year, an approximately $11 million increase from last year. The 2018-19 fiscal year reported a similar increase in value. Despite the city’s economic growth, Muckler said the amount of tax dollars the city has to work with is not proportionate to general inflation and the increases to Newton’s total valuation.

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Bipartisan-supported legislation signed by former Iowa Gov. Terry Branstad in 2013 (Senate File 295) reduced commercial and industrial property taxes by up to 10 percent over a two-year period. To make up for cities’ and counties’ losses in revenue, backfill payments out of the state’s general fund were distributed to the local governments. Muckler said tax burdens in Newton shifted from commercial and industrial taxpayers to the residential taxpayers since the property tax reform bill took effect.

Muckler’s observations echo staff comments from the fiscal year 2018-19 budget work session, particularly those of City of Newton Finance Officer Lisa Frasier. She, too, said changes to the state’s property tax reform and multi-residential rollbacks would effect the city for several years to come, the Newton Daily News reported in January 2018.

City staff had to enter the fiscal year 2019-20 work session, Muckler added, with budgets lower than ideal. In particular, the Newton Fire Department and Newton Public Library saw several reductions in their initial proposed budgets this year, resulting in council members suggesting budget alterations to both city entities during a Jan. 26 work session.

“All of our departments, all of our divisions are taking cuts,” Muckler said in a Jan. 25 interview with the Newton Daily News. “We did that last year. Down to the bone. We’re at the basic number of employees we need to provide a basic level of service, and our budgets are at that same bare bones — there’s no fluff.”

As a member of the Iowa State Ways and Means Committee, Iowa Sen. Zach Nunn, R-Boundurant, of District 15, said there are a number of communities where property tax “has continued to creep back up and may have stifled economic growth.” The best way to grow the economy, he added, is to make sure communities and their respective property valuations are thriving. Nunn asserts a conversation about property tax reform should also include examinations of valuations and assessments.

“At the same time we want to make sure that our property valuation is not growing at such a pace that it’s putting people out of their homes,” Nunn told the Newton Daily News Jan. 31. “My concern is that we see property assessments raise a level — some in east Polk County alone, my area — by double digits. That means someone who’s a pensioner (or) somebody who is living on a limited budget that may have already paid off the mortgage of their house is finding that the taxes now are what’s going to force them to sell and move to a downsized property.”

Nunn stressed the best way to grow the City of Newton’s budget is to have more people living in the community to spend money to generate sales tax, income tax and property tax. Increasing tax levies to generate more revenue for municipalities, Nunn argued, has the inverse effect, further highlighting Muckler’s desire to not raise the tax levy for citizens unless it is a “last resort.”

Raising the tax levy, he continued, could reduce the number of people who are moving to the community, as well as those who are already living in town or are making long-term investments to residential properties. Nunn argued that lowering property taxes could potentially attract new businesses and new builders to town to increase the tax base.

Still, the property tax reform backfill has provided its own set of challenges for cities. Although Newton has seen growth since the legislation passed in 2013, the town has not grown as much as other communities, especially in areas west of Des Moines. Nunn said backfill dollars need to continue supporting communities but questioned if towns that have seen massive economic growth should be tailored off for other areas in need.

“Because it doesn’t make sense that a community that’s shrinking is helping subsidize a community that’s growing,” Nunn said.

State Rep. Wes Breckenridge, D-Newton, of House District 29, acknowledged some cities and counties have seen enough growth “to exceed the numbers they were before” the property tax reform bill was passed.

“Understandably, they maybe don’t need the backfill because their commercial and industrial taxes have grown and that commercial and industrial growth has occurred to help build those dollars back up and past what they were in 2013,” Breckenridge said Wednesday. “Unfortunately for us in Jasper County, that doesn’t appear to be the case.”

Muckler said the City of Newton is experiencing higher valuations and lower overall revenues since the state lawmakers passed property tax reform legislation almost six years ago. In fiscal year 2012-13, the city earned a total valuation of about $837.58 million at a tax levy rate of $14.99 per thousand. Since then, Newton has not surpassed that valuation. Muckler’s goal is to obtain “double digit increases” (like $11 million) every year for the next decade and make a conscious effort to prepare infrastructure for the years to come. International Property Tax Institute IPTI Xtracts- The items included in IPTI Xtracts have been extracted from published information. IPTI accepts no responsibility for the accuracy of the information or any opinions expressed in the articles.

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“I’ve got to outgrow the effects of property tax reform,” Muckler said. “What this city has been doing before I got here (in 2017) and has been continuing since I’ve been here is being very aggressive about how we grow and how we make decisions for the long term to make sure that we’re growing.”

The Newton City Council has scheduled a presentation with the Iowa League of Cities in March to further discuss the effect of property tax reform on municipalities in the state.

MASSACHUSETTS

Real Estate Tax Reality

It is said that taxes are one of life’s two certainties. The other one isn’t so welcome, either. While the following explanation may not change anyone’s tax bill, I hope it goes some way to educating the public about how taxes are determined. Truth is, Revere’s tax rate, as well as our average single-family tax bill, are among the lower in the region and among comparable municipalities.

Misunderstanding and misconception about how real estate taxes are determined fuels anger. A frequent complaint that comes to any Mayor’s Office suggests that a particular neighborhood was singled out for a substantial increase. Some blame me, or the assessors, or the City Council, as if one of us unilaterally chose to impose substantial burdens on individuals. Those criticisms are simply incorrect.

Property taxes are a product of a comprehensive formula set by Massachusetts law. Property taxes are based solely on the value of a home and the land around it. The tax rate is multiplied for each thousand-dollars of a property’s assessed market value. The recent, rapid, and substantial increase in property values in some parts of Revere triggered, for some, a tax bill increase even though our tax rate dropped to $12.11 in 2019 from $12.96 in 2018. In fact, our current tax rate reflects a dramatic decrease since 2014, when it was $15.55.

I have heard some people complain that real estate taxes are based on real estate values. But Massachusetts law, like that in most every state in the country, requires that property values form the basis of municipal real estate taxes. Quite frankly, real estate values are the most objective measure one can devise to set real estate taxes. A property’s market value is derived from independent market forces, free from government decree or political motivation.

Massachusetts law also requires that tax rates are applied to 100 percent of a property’s assessed market value, which is determined annually. Revere employs the services of an independent real estate assessment company to compile property market value data.

Once a municipality’s tax rate is set, it is applied uniformly across the entire city, as required by state law. In other words, there is no tax rate for one section of a city and another for another section of the city. Massachusetts law permits only two classifications of real estate tax rates: one for residential property and another for commercial property. Every residential property owner pays the same rate, and every commercial property owner pays the same rate. The total amount of the tax is based on the assessed value of the property.

Property taxes are the most significant source of the revenue needed to fund the city’s operation. What do they pay for? Think of every aspect of municipal government: our public schools, our police and fire departments, maintaining our streets and sidewalks and parks, maintaining our public buildings, libraries, providing social services, recreation opportunities, trash removal, snow removal, keeping vital records, making health and safety inspections and enforcing state regulations—all of it, along with the cost to administer and equip every aspect of it.

Before the start of a fiscal year, a municipal budget process projects the cost to run the city. The budget I submitted to the Revere City Council for the current fiscal year was created after lengthy and careful deliberation with every municipal department. The City Council, which holds the final say on municipal spending, concurred with practically every bit of my budgetary estimates.

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Massachusetts law limits a city to raising total the total tax levy by no more than 2.5 per cent each year. Revere’s total tax levy for FY 2019 was $86,416,689. Using that figure, our Assessors take the total assessed value of all commercial and residential real estate in the city, based on market data, and establish a single base tax rate to raise the amount of the total tax levy. Commercial property is then assessed at 1.75 per cent of the base tax rate, the maximum allowed by law. That amount, the commercial tax levy, is applied to the total tax levy, and the remainder determines the residential tax levy.

While this is a very fundamental illustration of how taxes are determined, it largely explains the process. Revere allows exemptions for widows, elderly, veterans, and blind property owners. Revere is one of only two cities in Massachusetts to offer the senior exemption that gives seniors the chance to receive an owner-occupied exemption. Revere also offers the Senior Work-off program which gives seniors another avenue to earning money off their taxes. In addition, my administration remains committed to instituting a tax exemption for all owner-occupied properties.

This will happen only through stringent budgetary practices. In Revere, property taxes will pay approximately 41 percent of the total city expenditures. But our residential property taxes pay some 78 percent of the total tax levy. This is why I am committed to expanding Revere’s commercial real estate tax base, which will alleviate some of the burden on residential taxpayers. One example of this commitment is the redevelopment of Suffolk Downs, which is projected to generate over $40 million in tax revenue for our city.

The remaining amount of money collected to run our City derives from state-sourced funding nicknamed the “Cherry Sheet” revenue, the water and sewer enterprise fund, local receipts of fees, excise taxes, room tax, meal tax, and state and federal grants. We vigorously pursue all sources of revenue to minimize our municipal tax burden.

When all is said and done, Revere’s 2019 residential tax rate of $12.11 is lower than our neighboring communities such as Winthrop ($13.18), Saugus ($12.18), Salem ($15.10), Malden ($13.27), Chelsea ($14.25) and Everett ($12.38). Revere’s 2019 average single family tax bill of $4,581 is lower than nearby communities such as Lynn, Medford, Salem and Saugus. The increase in property values in Revere is a good thing. It proves that our city is thriving. Our fiscal policies, our financial stability, and the prospects for our city’s future all point in a positive direction. When the value of a single family house in a section of our city jumps by 20 or 30 percent, it is an indication that people want to live in Revere.

I agree with them. And I will continue to run our city on as lean a budget as possible, and keep our taxes as low as necessary to run a strong city.

Brian Arrigo is the Mayor of the City of Revere.

Boston City Council Wants Fair Share from PILOT Organizations

During the regular city council meeting, the Boston city councilors discussed institutions and organizations that do not pay property taxes and how to get a fair share of financial contributions from them.

Councilors Annissa Essaibi George and Lydia Edwards sponsored the motion, requesting a working session on the topic.

Boston has a PILOT (payment in lieu of tax) program where they ask cultural, educational and medical organizations to make voluntarily contributions since they do not pay taxes. In 2018, the city gained $33.6 million contributions, which was an increase from the year before. However, some institutions are still not meeting the requests by the city. There have actually been several organizations that have given no contributions. The council held numerous meetings last year about the issue.

“We have seen an increase in contributions,” said Edwards on Wednesday. “But we need to be at 100 percent.”

Edwards said the city needs to do new assessments on these organizations’ properties, since the last time the city did so was a decade ago. She also believes the city needs to develop guidelines as to what community benefits are. One of the reasons why these organizations do not pay taxes is because of the community benefits they offer Boston. However, Edwards pointed out there is no set standard by the city as to how “community benefits” is defined. She said one organization last year told the council one of their benefits is students do not have to go to Boston Public School because they can go to their school.

“That’s embarrassing,” she said. “That’s insulting.”

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Essaibi George thanked the organizations for their contributions, but said they also rely on public services like everyone else.

“They use our infrastructure. When they call police or the fire department, they come,” she said. “This is a call for what is fair.”

The councilor reminded the council that budget season is just around the corner and the city heavily relies on property taxes.

Councilor Josh Zakim agreed with Edwards, saying the city needs to do updated property assessments. He also doesn’t like that the PILOT program is voluntarily.

“That’s a problem,” he said. “They need to pay their fair share.”

MICHIGAN

MICHIGAN SUPREME COURT AGREES TO HEAR PROPERTY TAX CASE

The Michigan Supreme Court will hear a case later this year in which officials took a man’s property for $8.41 in unpaid taxes.

The Michigan Supreme Court agreed to hear a case later this year over government officials having confiscated a man’s property for $8.41 in unpaid interest on taxes and kept the $24,500 it fetched at auction.

Uri Rafaeli failed to pay the interest owed on property taxes for a rental property several years ago. Oakland County, Michigan eventually foreclosed on his property for the $8.41 plus $277 in additional interest and fees. The county sold his property at an auction in 2014 for $24,500 and kept the whole amount.

Rafaeli sued Oakland County for the difference, but a trial court ruled he had forfeited his property. An appeals court agreed.

The appeals court said the officials acted properly under the state’s General Property Tax Act, which requires officials to take property for any amount of unpaid taxes and keep all the proceeds if they sell it.

Fifth Amendment Case

The Pacific Legal Foundation asked the Michigan Supreme Court to review the case on the grounds Michigan’s General Property Tax Act violates property owners’ Fifth Amendment rights, says PLF attorney Christina Martin.

The Takings Clause of the Fifth Amendment to the U.S. Constitution says the government cannot take private property “for public use, without just compensation.”

“The fundamental problem is that the Act fails to recognize that equity in real estate is protected by the Takings Clause in the U.S. Constitution and the Michigan Constitution’s counterpart: Article X, Section 2,” said Martin.

“[The Act] claims the power to entirely swallow that equity, no matter how valuable the property or how small the debt,” Martin said.

‘More Than It Is Owed’

Martin says she hopes the Michigan Supreme Court will rule that when the government seizes property, it does not have a constitutional right to keep more than what the former property owner owes the government.

“We recognize that government has the power to sell property to collect a debt, including statutory penalties, costs, and interest,” said Martin. “But when government takes and sells property to collect a debt, it should not be allowed to keep more than it is owed. But that’s exactly what Michigan’s General Property Tax Act purports to authorize.”

A favorable ruling in Rafaeli’s case would require the government to give him the remaining funds from the auction of his property.

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Most states do refund the surplus, says Martin, but Michigan is one of a few states which either require or allow the government to keep all the profits from the sale of private property. Massachusetts, Minnesota, North Dakota, and Oregon have such laws.

“At minimum, to respect the Takings Clause, when the government sells property to collect a tax debt, it should have to refund the surplus profits from the sale of foreclosed property to the former owners,” Martin said.

“In Rafaeli’s case, that would mean the government should have refunded the $24,215 from the sale of [his] house, which exceeded [his] tax debt, interest, penalties, and fees,” Martin said.

‘Poor Discretion’

Although the General Property Tax Act allows for seizure of property, it is against common sense for the government to keep more than it is due, says Patrick Wright, vice president of legal affairs at the Mackinac Center for Public Policy.

“It is fair to say that regardless of the constitutionality, refusing to accept a late payment for $8 is ridiculous,” said Wright. “The county officials seem to have exercised poor discretion in deciding to process this.”

Michigan’s property laws are primarily meant to be sources of revenue, like all tax laws, Wright said. “The presumption would be that people should pay a portion of the tax commensurate with the value of property.”

Oakland County made $22.5 million from tax foreclosure auctions from 2006 to 2015, according to the Detroit News.

The foundation’s appeal brief is due in February, and oral arguments before the court “will most likely be scheduled for October 2019,” Martin said.

MTA Shares Assessment and Property Tax Basics

Shila Kinder is passionate about her job as Assessor for Mecosta County, a profession that requires understanding complex tax laws, organizing large amounts of data, and gracefully discussing tax bills with residents who may disagree with her work.

That passion also extends to teaching elected officials across the state how assessment and taxation work. Kinder gave a four hour workshop on behalf of the Michigan Townships Association in Okemos on Jan. 31, a class that left officials feeling more empowered as conversations of taxes come up in their communities.

Some basic things to know about assessments are:

~ Dec. 31 is the day of assessment for all properties in Michigan. Taxes are based on the value that day. If someone’s house burns down on Jan. 2 or 3, they are still assessed based on the home having been there until the next assessment. The same is true with improvements. If a lot is vacant on Dec. 31, but has a house in Feb or March, the lot is still assessed as vacant until the next Dec. 31.

~Everything is taxable except when it is specifically exempt. Statutory exemptions include religious, charitable, educational, and governmental organizations. There are also exemption programs for a variety of reasons, such as instituting green features, confined animal farming operations, some agricultural applications and more.

~Michigan’s Constitution requires that taxation be based on value of property, and that taxation must be fair. Taxes pay for services like education, roads, police and fire protection, records, administration, parks, downtown developments, libraries and more.

~Municipalities may have their own assessor, they may hire an independent assessor, or they may contract with the county.

~Properties are assessed for actual value, then taxed at the “taxable value,” which is 50% of the actual value.

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~Michigan law restricts the increase of property taxes to the rate of inflation. However, when a property is sold, the cap is removed and taxes can go up to be based on the current value. This jump in taxes can be a surprise to a new property owner.

~Properties are classified based on actual use, not on zoning. Property owners may want their classification changed so they can get an exemption, so it’s important to make sure the accurate use is reflected. If a property has multiple uses, the use that adds the most value is the one that is used for classification. For example if a property has $200,000 value in farm land and $100,000 for a home, the property is agricultural. However if a property has $200,000 in farm land and a $350,000 house, the property is residential.

~Assessors determine value by looking at similar properties that have sold in the area. They may also go out to properties to look at additions, modifications, new structures, and other changes.

~Added value of construction is calculated based on official numbers set by the state for cost to build as well as cost of depreciation each year. There is a base number, and each county has a multiplier for that to reflect variances in regional values/costs.

~Values are further refined by an “Economic Condition Factor,” which adjusts values for the local economy, even looking at specific neighborhoods within a municipality. For example, in a city with a lake, the neighborhood with lake would have a different ECF than the neighborhood without the property-value-enhancing views.

~Assessment roles must be completed by the first Monday in March.

~Once an assessor turns in the rolls, they cannot make any adjustments or corrections. Any changes must be done through appeal

~If property owners disagree with an assessment, they can appeal to the local Board of Review. The Board of Review is made up of community residents, people who know the neighborhoods being discussed.

~An appeal needs to focus on the matter of the value assigned by the assessor. “What is your property worth, and how can you prove it?” Kinder said.

Kinder talked about the value of having an assessor who is skilled at working with the public, including answering questions of city leaders and responding to inquiries from residents and business owners.

“A lot of times residents just want to feel listened to,” Kinder said. “We hear complaints like ‘I don’t like how that assessor talked to me,’ or ‘they didn’t return my call,’ or ‘they didn’t answer my question.” Kinder said good communication builds trust and makes the process easier for everyone.

She also said that appeals are common, and not a reflection of quality of work. She added that appeals often increase when there are more homes being sold, because people are trying to get a lower assessment, or they may simply be surprised by the tax bill.

Also, there can be mistakes made or changes that an assessor may not know about. “That’s why we have this process. It’s why we have these layers of protections and appeals,” she said. “The goal of assessment, and the law, is to have a system that is fair and equitable.”

The Michigan Townships Association offers advanced classes for those who want to learn more about the assessment process, and is particularly useful for residents serving on local Boards of Review. For more on Michigan Townships Association, check out their website.

Property owners in Oakland County who want to know more about assessment and taxation, and to see what data is available for their property, can visit the Oakland County Treasurer’s Website.

MONTANA

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Bill would create prop-tax moratorium for new broadband cable in MT

A bill creating a five-year moratorium on property taxes for new fiber-optic cable in Montana would help expand high-speed Internet into underserved areas of the state, its sponsor said Tuesday.

Sen. Jason Ellsworth, R-Hamilton, said the tax moratorium in his Senate Bill 239 could be a key economic driver for the state, particularly rural areas.

“The common kind of call (I’ve heard) is, `How do we keep Montanans employed here?” he told the Senate Taxation Committee. “How do we keep businesses chugging along? This is the way. This is the future.”

Telecom companies and other business interests spoke for the bill, saying it would help offset the high cost of expanding fiber- optic cable to bring both Internet and cell-phone service to more of rural Montana.

“What Senate Bill 239 does is leave more money in my pocket on an interim basis, so I can build broadband connectivity out to more customers,” said Jason Williams, CEO of Blackfoot, a Missoula-based telephone co-op and telecom provider.

Yet local governments and the Bullock administration opposed SB239. They said it’s another property-tax exemption that narrows the tax base that cities and towns rely on for revenue.

Tim Burton of the Montana League of Cities and Towns said almost 99 percent of property tax revenue in Montana goes to cities, towns and school districts.

“This (bill) probably has a good policy goal, but what we need to do is take some time to look comprehensively at what our tax policy needs to be in Montana,” he said.

Eric Bryson of the Montana Association of Counties also noted that state law already includes a property-tax abatement for new businesses, that can be requested and granted after public hearings. It allows abatement of up to 75 percent of the initial property-tax bill – not an entire moratorium like SB239, he added.

“It’s an incentive for the proponents of this bill to do exactly what they say they want to do,” he said.

Under SB239, new fiber-optic cable and equipment to deploy its use would be exempt from any property taxes for five years. Starting in the sixth year, taxes would be phased in at 20 percent a year for five years.

Geoff Feiss of the Montana Telecommunications Association said one of the group’s members spends about $2.7 million a year on fiber-optic networks. SB239 would save the company about $330,000 over 10 years, he said.

Williams of Blackfoot said his firm would use that money to invest in more fiber-optic cable within its service area.

Doran Fluckiger of Southern Montana Telephone, which is based in Wisdom, said the company has installed more than $15 million worth of fiber-optic cable in the last decade to serve about 650 customers – and that its property taxes have increased 135 percent.

“Many areas don’t provide fiber-optic service due to the high cost,” he said. “Southern Montana is still installing fiber-optic cable for our customers, but the cost is exorbitant.”

The Senate Taxation Committee will vote later on the bill. NEBRASKA

Nebraska property tax fight

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Nebraska lawmakers are again battling over property taxes, looking for ways to bring down what experts call some of the highest taxes in the country.

There are three different plans being debated. Senator Tom Briese's plan includes increasing alcohol and cigarette taxes. This plan also adds taxes on candy, pop, and bottled water, bringing in an extra $782 million.

Senator Curt Friesen's proposal would bring in half a billion by increasing alcohol taxes, adding taxes on groceries and car repairs, while providing more state aid to school districts.

Governor Pete Ricketts' plan caps local property tax increases, adds property tax credits, and changes the way farm land is valued.

Property taxes remain a perennial problem

Another year, another legislative session; will this be the year Nebraskans get some form of relief?

As I'm writing this in late January, this year's unicameral legislative session kicked off only a few weeks ago. It's a longer, 90-day session this year, and there have been several bills introduced to help address Nebraska's ongoing issue of property tax relief.

This includes LB314 introduced by Sen. Tom Briese, which would adopt the Remote Seller Sales Tax Collection Act and also would add $468 million to the Property Tax Credit Fund — bringing the direct property tax relief fund total to $692 million; LB662, sponsored by Sen. Curt Friesen, which would terminate the Tax Equity and Educational Opportunities Support Act (over time, changes to the TEEOSA formula have led to less state aid going to public schools, leaving property tax payers to shoulder more of the burden); and LB483, sponsored by Sen. Steve Erdman, which would change Nebraska's land valuation system to one that is income-based.

It goes without saying that property taxes are a perennial issue for Nebraska and have been since at least the 1930s — see related article: Property taxes on the mind of state legislators in 1935. It is said that Nebraska farmers pay anywhere from $80 to $120 per acre in property taxes, and Nebraska consistently ranks among the top-10 states for highest property taxes. However, passing legislation providing property tax relief has been a challenge over the past few years.

Last year, several bills that would have provided new revenue for school funding, and that would have established a refundable income tax credit were introduced, but none received the 33 votes needed to break a filibuster. Most were postponed indefinitely and never made it to the governor's desk for approval. Critics argued these proposals didn't provide enough relief.

After no property tax relief was provided through legislation, the Yes to Property Tax Relief Committee collected signatures for a ballot initiative to provide $1 billion in property tax relief by creating a 50% refundable income tax credit for property taxes paid for K-12 education. However, last spring, the group announced it was abandoning its petition drive and would focus on another avenue for property tax relief.

This year, several proposals have been introduced, including Gov. Pete Ricketts' own proposals, which would establish a statutory floor of $275 million for the Property Tax Credit Relief Fund, establish a 3% cap on property tax increases by local governments, and provide $51 million in new property tax relief through the Property Tax Credit Relief Fund.

Ricketts has voiced his opposition to LB314 and the Remote Seller Sales Tax Collection Act, stating he would not raise any taxes to provide property tax relief, and has indicated that meaningful property tax relief packages would need the support of both urban and rural senators — something he said is not likely to happen.

Meanwhile, critics of Ricketts' proposals have argued that they don't provide enough tax relief soon enough, and farmers and ag organizations alike have called for a more balanced three-legged stool of property, income and sales tax.

Of course, by the time this article sees print, one of these proposals may have been signed, and others may have been killed on the floor. Time will tell if any bill providing property tax relief is passed this session.

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While it's fair to say that fixing the property tax issue in the long run will take a big-picture approach by either creating new revenue or increasing taxes on income or sales, it's also true that some relief is better than no relief. We must start somewhere, even if it is a small step forward.

NEW HAMPSHIRE

A lesson in the burden of property taxes

When it comes to raising revenue, an old aphorism credited to the late Louisiana Sen. Russell Long, longtime chairman of the Senate Finance Committee, generally applies: “Don’t tax you. Don’t tax me. Tax that fellow behind the tree.”

In New Hampshire, the fellow behind the tree is usually the property-tax payer, so watch your wallet.

Earlier this month, Monitor State House reporter Ethan DeWitt described the difficulties mental health care providers face when hiring and keeping staff. The next day, Brendan Williams, president of the association that represents nursing homes, said the same problem afflicts the institutions, public and private, that provide long-term care for elderly residents who’ve exhausted their financial resources.

New Hampshire’s reimbursement rates under Medicaid, the federal health care program that covers the poor and the indigent, are the lowest in the land. Neither class of institutions can afford to pay what it takes to attract and keep employees. Licensed nurse assistants in nursing homes, for example, make $12 per hour. That’s not a livable wage. Mental health workers, once trained, soon leave for better paying jobs.

Senate Bill 308, sponsored by Democratic Sen. Cindy Rosenwald, would increase the state’s Medicaid reimbursement rate for mental health care, which is matched 50-50 by the federal government, by 12 percent. The price tag, if fully funded, is $115 million. It deserves to pass, but her bill does not address nursing home funding.

Inadequate state funding of mental health care centers and nursing homes transfers costs to property owners in the form of higher law enforcement and incarceration costs at county jails and higher taxes to keep nursing homes afloat. And then there’s the state’s gross underfunding of public education, which unconstitutionally transfers costs to local taxpayers, virtually guaranteeing another school funding lawsuit.

A 2018 study by the New Hampshire Fiscal Policy Institute highlights the unfairness of relying on property taxes to pay for things the state should fund. Under the state’s constitution taxes must be “reasonable and proportional,” so the disparities in the burden inflicted on property-rich and property-poor communities is unconstitutional.

Local tax rates per $1,000 valuation depend on local spending, of course, but the biggest factor is the amount of taxable property per capita. Cities like Manchester, Nashua and Concord have high total property values but relatively low property values per capita.

Communities with resort and lakefront property or a major taxpayer like a power plant or regional shopping mall and relatively small population have very low tax rates. Communities with many people and fewer assets to tax, think places like Franklin and Pittsfield, have very high tax rates.

Newington led the state, in the institute’s report, with $1,376,078 of valuation per capita. It was followed by Waterville Valley, where Gov. Sununu’s family and associates own a ski area, at $1,333,676. Those communities are outliers. New Castle, with $748,201 per person, came in third.

Contrast those values with $64,132 in property value per capita in Pittsfield, $60,721 in Boscawen, $52,514 in Claremont and Berlin, in last place, at $39,816. Berlin’s 2017 tax rate was $39.19. New Castle’s tax rate was $5.85. The gaps show up in other ways. More than half of Franklin’s students were eligible for reduced-price lunches in 2017. In Bow the figure was 5 percent. Communities with the highest tax rates also tend to have the highest poverty rate as well.

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New Hampshire, the nation’s second oldest state, needs fully staffed nursing homes. It sorely needs fully staffed community mental health centers. It needs quality teachers and schools for every student. What it doesn’t need, especially its poorest residents, is higher property taxes.

NEW JERSEY

Over $200K Spent On Tax Appeals Following City Revaluation

After New Brunswick completed the first revaluation of property in 26 years, municipal leaders were anxious to share news that taxes for many homeowners had dropped.

Mayor James Cahill, in his state of the city address on Jan. 1, touted the city has the second lowest property taxes in the county.

Not everyone was happy with the revaluations, and as a result the city was faced with a slew of tax appeals, and the cost of fighting those appeals.

City council members at their meeting early this month increased allocations from $195,000 to $225,000 to pay for lawyers representing the New Brunswick in tax appeals.

The law firm of Hoagland Longo, Moran, Dunst & Doukas, which is based in the city, handles that work for New Brunswick. There are still appeals that have yet to be resolved.

"Commercial properties have been involved in most of the appeals," said City Attrorney T.K. Shamy.

According to city figures, there were 452 appeals filed last year, which was actually less than the 471 appeals filed in 2017.

Both of those numbers of appeals are less than were seen in early years, according to Cahill's office. The re-education in appeals is viewed as a positive sign, said city spokeswoman Jennifer Bradshaw.

She said municipalities typically see many more appeals after a revaluation.

“This indicates that our 2017 revaluation had a very high level of acceptance by the city's property owners," Bradshaw said.

Following the new valuation of all city property, the average residential property tax bill dropped about $700, from an average of $6,870 per property in 2016 to $6,164 in 2017, according to figures from the state Department of Community Affairs.

About 2,500 property owners saw their tax bill go down, but another 1,500 owners saw their bill increase. About 1,000 owners saw little or no change through the revaluation.

The effect of the appeals from 2018 is not immediately clear. The city did not immediately respond to questions about whether appeals resulted in significant reductions in property tax bills, or how the appeals would impact city revenues.

Your vacation to the Jersey Shore is about to get more expensive. Blame it on taxes.

Heather Adams and her family live in a suburb of Pittsburgh, a five-hour drive from the Jersey Shore. But they’ve been renting the same house in Wildwood one week every summer for the past decade. Until this year.

Adams said the family won’t have their regular place a block from the beach on East Pine Street come July, and they might even skip the Jersey Shore altogether, thanks to a decision by the state to apply taxes and fees totaling 11.625 percent to certain rental properties for the first time this summer season.

Combine the newly applied tax and fee of $400 for the Adams’ usual rental, with a $400 rent increase the owner was charging, and the resulting $4,300 total cost of the house this summer was simply too high for the Adams family’s budget. International Property Tax Institute IPTI Xtracts- The items included in IPTI Xtracts have been extracted from published information. IPTI accepts no responsibility for the accuracy of the information or any opinions expressed in the articles.

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“Now, with the tax, we can’t afford to stay there anymore,” said Adams, 39. “I can actually go to Disney for five days and I don’t have to lift a finger. All my meals are cooked for me, and I don’t have to clean before we leave.”

The sales and use tax of 6.625 percent and motel occupancy fee of 5 percent are being added to properties rented out by their owners through word-of-mouth, local listings or homesharing apps like Airbnb and VRBO. They were both imposed under a $37.4 billion budget deal cut last year between Gov. Phil Murphy and fellow Democrats who control the state Senate and Assembly.

The legislation extending the sales tax and hotel fee to short-term rentals also authorizes certain counties and municipalities to impose a variety of variety of additional, smaller taxes if they choose.

Proponents say imposing the tax and fee levels the playing field between property owners using the increasingly popular home sharing apps and the state’s hotels and motels, which have had to pay sales tax and the occupancy fee, whether they’re a gleaming tower attached to a casino or a cluster of cozy cabins run by Mom and Pop.

And under what’s known as a “carve-out” for licensed real estate brokers, properties rented through a broker remain exempt from the sales tax and occupancy fee, the assumption being that brokers have overhead that already add to the cost of the properties they handle.

For example, as one property owner pointed out, the standard broker's fee paid by owners in Ocean County is 12 percent, just about the same as the combined sales tax and occupancy fee that now applies to properties rented without brokers.

“I think what this new law does is level the playing field, from the hospitality perspective,” said Scott Smith, director of state & local tax at the CohnReznick LLP, a nationwide tax consulting firm. Up until Oct. 1, property owners listing their places on marketplaces like AirBnb weren’t required to collect sales tax, Smith said.

But what the requirement also does, its opponents say, is drive up the cost of renting along the shore, which could price out some families altogether, while leaving others with less to spend if they do still manage to book a place.

And, of course, fewer bookings hurt property owners, whether rent money is their primary income source, or simply a way to offset mortgage payments, maintenance costs and property tax bills on what otherwise serves as their own summer getaway.

A coalition lobbies for repeal

Property owners along New Jersey's beaches have banded together under an umbrella group known as the New Jersey Shore Rental Coalition to lobby for repeal of the new tax and fee on their places.

Versions of repeal legislation have been introduced in the state Senate (S3133) and Assembly (A4520). But both bills await a hearing, and property owners say word of the new tax and fee is already scaring away renters.

“I can tell you, I have lost two bookings that total four weeks,” said Duane Watlington, a Long Beach Island property owner who is vice president of the coalition.

Those four weeks at Watlington’s duplex, which is two doors from the beach and has its own backyard pool, amount to $18,500 in rent, he said. And while he recouped $5,000 thanks to a week-long rental in one of the units, he said it’s now getting late in the season to book higher-end accommodations like his.

The impact of the new tax and fee extends well beyond the Jersey Shore, because property owners and renters live all over New Jersey and beyond.

Jill Kellett lives in Denville, but rents out the house she owns in Cape May.

Kellett said her renters are particularly sensitive to the cost the tax will add to her house, a modified Cape Cod-style 2-bedroom amid the ornate Victorians the resort is famous for. At $1,000 to $1,375 a week, depending on the date, she said her place is one of the least expensive options for budget-conscious visitors to the picturesque and pricey resort.

She also complained that properties rented through a broker are exempt from the sales tax and fee. International Property Tax Institute IPTI Xtracts- The items included in IPTI Xtracts have been extracted from published information. IPTI accepts no responsibility for the accuracy of the information or any opinions expressed in the articles.

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“My clients have to pay that 11.625 percent, but if they go through a realtor, they don’t have to pay that,” Kellett said. “A lot of people got scared and just said, ‘I’ll just go with a realtor so I don’t even have to deal with this.’”

Like other property owners, Kellett could rent through a broker, but that would cost her a broker's fee roughly equal to the combined sales tax and fee, plus, she said, "if I go to a realtor, I risk the chance of losing customers that I’ve built up for years."

And while her overhead may be low, Kellett said it's not as if she has no operating costs. For example, she pays Cape May $200 for an annual fire inspection, and another $135 for a mercantile license allowing her to rent her house.

The latter is akin to fees and accompanying registration requirements being implemented or considered by some municipalities in response to the growing popularity of AirBnB and other homesharing apps.

Higher rental costs mean less to spend

Critics of the newly applied tax and fee say it also threatens businesses that depend on overnighters at the shore, either by driving visitors away or leaving them with less to spend at local bars and restaurants, T-shirt and taffy shops, and arcades.

“By doing this, they are not being friendly to businesses,” said Marty Shapiro, a board member of the New Jersey Amusement Association, who is also a former owner of the Gateway 26 arcade in Wildwood, where he still works part time when not treating patients at his chiropractor’s office.

In fact, Gateway 26 is the Adams family’s favorite arcade, where the kids have typically spent most of their $100 vacation allowance. The kids also get a similar allotment for souvenir purchases.

More significantly, Heather Adams added, “We go out to eat every night.”

That means at least two dinners at the Hot Spot, a pizza-plus restaurant on Wildwood’s boardwalk, where Adams said her party of eight spends at least $150 per meal. They spend even more at pricier joints, like the $247 they dropped last summer at Wildwood’s Hawaiian-tinged Surfing Pig.

Wildwood’s mayor, Ernie Troiano Jr., said he wasn’t firmly for or against taxing short-term rentals.

The issue is less pressing for Wildwood because most of the lodging there is made up of rooms in the city's famous Doo Wop hotels, which are already subject to the sales and occupancy charges, and could benefit from what some say is now a more level playing field.

“Everybody has a good argument,” Troiano said. “My argument would be that anything that can generate additional revenues for the towns is not the worst thing. Then again, if it’s going to discourage people from coming here, it has to be looked at and figured out.”

Sharing instead

Adams said that while her usual house was now out of the question, she was weighing a cheaper place in Wildwood that’s not as nice. And, of course, there's always Disney World.

Adams did say that, while her family was priced out of their usual summer rental in Wildwood, its owner told her the house was snatched up quickly by takers willing to pay the higher cost.

Rob Stephens, a tax consultant who founded MyLodgeTax.com, doesn't think the state's new tax and fee will keep regular renters away from the Jersey Shore.

“People are going to go to Cape May because they like to go there,” Stephens said. “They’re not going to say, ‘Lets go to Martha’s Vineyard because [the shore's] going to be 11 or 12 percent more expensive.”

And certainly some renters, even those hit hard by this year's added cost, will find ways make it back down the shore this summer, even if things won’t be quite the same.

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Jeanne Davis, a single mom who lives in Rockland County, New York, said she usually rents a place in Beach Haven for the one vacation a year she can afford to take with her two daughters, ages 7 and 8.

This year, Davis said, the new tax and fee meant a place of their own would be too expensive, so she and her daughters will be sharing a place with another single mom and her 8-year-old son.

SOME JAW DROPPING NEW JERSEY PROPERTY TAX NUMBERS

If it wasn't for property taxes, would New Jersey be #1 for anything. Well, another publication confirms we're at the top of the property tax mountain.

There are many lists you'd rather not have the state you live in be on top of, and certainly property taxes are among them, and yet once again, our Garden State is the confirmed property tax leader.

This time around, it's 24/7 Wall St. confirming what just about all of us already knew. We pay property taxes in the Garden State that make residents of every single other state in the nation say 'wow'.

The fact that we top this list does not surprise us, but looking at some of the numbers are eye opening at the least, and in some cases downright nauseating. Look at these stats if you dare.

Our effective property tax rate is 2.16%. It's the highest in the nation and one of only two states north of 2% (Illinois is the other).

Per capita property taxes $3074.43. Ouch, that's tops in the nation as well. And it's also one of only two states over $3000, with New Hampshire at about $3054.

Knowing that the property taxes in New Jersey are through the roof is not news to most of us, but that doesn't make some of these numbers jaw dropping anyway.

I'd love to say it's a small price to pay for living in a great place like the Jersey Shore, but it's not. It;s a very, very high price to pay.

NEW YORK

Pied-à-terre tax gains City Council support with new resolution

A record-breaking $238 million condo sale has galvanized support for the “oligarch tax”

City Council members are leveraging ire over billionaire Ken Griffin’s purchase of a $238 million Central Park South penthouse to galvanize support for a stalled state bill aimed at creating a new tax on part-time New York residents—dubbed the pied-à- terre tax.

Council members Mark Levine and Margaret Chin, who respectively represent the Upper West Side and Lower Manhattan, plan to introduce a council resolution in support of the tax, which was originally introduced by State Senator Brad Hoylman in 2014. Under the bill, the pied-à-terre tax (a pied-à-terre is a unit kept for occasional use) would levy an annual tax on non-primary residences valued at more than $5 million and could rake in some $650 million per year for city coffers, according to city Comptroller Scott Stringer.

“It’s simply not right that we are forgoing this revenue from people who can well afford it at a time when our city has such pressing revenue needs on so many fronts,” fumed Council member Mark Levine at a Monday news conference on the steps of City Hall. “We want to show that there is broad political support for this basic measure of fairness.”

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The council resolution comes after Griffin’s purchase—which is the most expensive apartment in not just New York City, but the country—sparked state-wide outrage that the swanky four-story pad at 220 Central Park South will likely not be Griffin’s primary residence and thus not subject to local income tax.

Hoylman’s pied-à-terre tax would work on a sliding scale, with a 0.5 percent tax levied on homes between $5-6 million with a maximum of 4 percent plus a $370,000 fee for homes valued higher than $25 million, according to Hoylman. The tax revenue generated from the pricy part-time pads would go toward funding municipal necessities.

“I like to call it an oligarch tax because there are foreign owners currently purchasing property in New York City—tens of millions of dollars—not contributing to city services,” said Hoylman, who has re-introduced the bill this legislative session. “It’s not just our firefighters and our police that make this city safer it’s our laws, and they’re benefiting from the rule of law by knowing that their dollars are kept preserved [in New York City.]”

New York already has what is commonly referred to a mansion tax—a one percent tax on homes worth more than $1 million— but fervor for the levy is gaining steam after Griffin’s penthouse purchase. Griffin, who is worth $10 billion and is 45 on Forbes’ list of top 400 wealthiest Americans reportedly purchased the multi-million dollar unit “as a place to stay when he’s in town,” his representatives told the Wall Street Journal. A chorus of elected city and state officials were quick to pounce on the astronomical purchase and call for a pied-a-terre tax. Gov. Andrew Cuomo is also open to the tax, according to the New York Times.

“We’re talking about the 1 percent of the 1 percent and those folks can afford to make New York a better place,” Assembly member Harvey Epstein, who supports the bill, said Monday. “If we’re going to talk about fairness and equity ... this is one step forward in being progressive—progressive taxation for those who can afford it.”

Other major municipalities have made similar moves including Vancouver, which enacted a similar tax last year—the Empty Homes Tax. The levy brought in $38 million in additional funds for the city and reduced the number of vacancies by 15 percent. London, Paris, Hong Kong, and Sydney have also implemented some sort of tax on non-primary homes—in Hong Kong property owners pay 15 percent of their home’s value while in Paris they pay a prodigious 60 percent.

Hoylman’s bill went nowhere when it was originally introduced in large part because of pushback from the real estate industry—insiders previously slammed the idea as “nothing but a bad idea” for the market. Hoylman pushed back on skeptics who charge that the tax would scare off wealthy prospective buyers from sinking millions into city units that won’t serve as their primary residence.

“The amount of money is so small compared to the value of the apartment that I don’t think [the tax is] going to make an appreciable difference,” Hoylman said of those mulling purchases. “And individuals who use New York City to stash their cash should pay a premium on it.”

Challenging Your NYC Property Value Assessment May Be Easier Than Ever

Last month, all property owners in New York City received property value assessments from the city’s Department of Finance. The value, which is determined based on past data submissions, current market conditions and other factors, determines the real estate taxes that will be charged for the upcoming year.

Property value assessments often increase annually but do not coincide with the actual financial conditions of the property for the year of assessment. For this reason, these assessments can be appealed to the New York City Tax Commission, which will perform an independent administrative review.

How to Challenge Your Assessed Property Value

To challenge the property value assessment for an income-producing property, a Real Estate Tax Certiorari filing can be made. Working together with property owners and their respective attorneys, a certified public accountant can assist in preparing the information necessary to determine if filing a certiorari is the right action for the upcoming year.

Changes to Certiorari Filings

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The type of certiorari filing to be used depends on the property class. The most common is Form TC201 for “income-producing property” and presents general information on the property, rental occupancy and the income and expenses schedule.

On January 24, 2019, the New York City Council approved a measure that reduces the filing burden for properties assessed under $5 million. Prior to the ruling, income-producing properties with assessed values of $1 million or more and income exceeding $100,000 required an accountant’s certification (Form TC309) to accompany Form TC201. That actual assessed value threshold has now been raised to $5 million. Therefore, if the property’s actual assessed value (not transitional) is under $5 million, only Form TC201 is required.

If your property value is assessed at $5 million or more, Form TC309 will still need to be completed by an independent certified public accountant who will perform an audit of the information provided by the property owner on Form TC201 and reconcile any items that are not included in the income and expense schedule.

Behind the Numbers

The information reported on the certiorari form is governed by the Tax Commission of the City of New York and will not reflect the exact operations as they appear on the real estate owner’s internal financial statement. Some of the most common items needing to be reconciled on the accountant certification are estimated allowances and projections, building depreciation and interest income and expenses, along with amortization of mortgage costs.

The certiorari process does not end with the certiorari filing. Once the report is filed (by March 22, 2019) the property owner’s attorney files a petition, upon which questions may be raised by the city’s Tax commission related to matters such as the increase and decrease of income and expenses from previous years.

Time is Running Out

If you have not already, it is important to review your current property value assessment in light of your annual year-end financial position. Consult a CPA and an attorney who specialize in the real estate industry and can help guide you through the process of identifying the best plan for your property, complying with upcoming deadlines and potentially discovering real estate tax savings for the following and upcoming years.

The $238 Million Penthouse Provokes a Fierce Response: Tax It

The sale of a $238 million penthouse apartment at 220 Central Park South in Manhattan has spurred discussion of a possible pied-à-terre tax.

For the last five years, a bill that would create a so-called pied-à-terre tax in New York has languished in the State Legislature, where proposals for new taxes often go to die.

But after Kenneth C. Griffin, a hedge fund billionaire with an estimated net worth of $10 billion, added to his personal real estate portfolio last month by closing on a $238 million apartment on Central Park South, things may soon be different.

The record purchase — surpassing the cost of the next most expensive home in the United States by more than $100 million — was a stark reminder that when wealthy buyers like Mr. Griffin purchase expensive apartments as second homes or investments, New York City and the state get less financial benefits. If the buyers live out of state, they are not subject to state or city income taxes, and do not pay New York sales tax while outside the state.

A pied-à-terre tax would institute a yearly tax on homes worth $5 million or more, and would apply to homes that do not serve as the buyer’s primary residence.

Large cities around the world have been grappling with how to make wealthy absentee property owners pay for the privilege of owning secondary residences, a recent report from the Real Estate Institute of British Columbia shows. Sydney, Paris and London have all recently added or increased taxes on the purchase of secondary homes.

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In Hong Kong, nonpermanent residents pay a 15 percent fee on the value of the home, and foreigners pay an additional 15 percent fee. Singapore has restrictions on the purchase of residential property by foreigners and a 15 percent tax. In Denmark, foreigners are required to obtain permission from the government to purchase secondary homes.

In Vancouver, where the greatest concentration of vacant properties is downtown, owners of empty residential properties are charged a 1 percent tax based on the assessed value.

In 2018, the number of vacant homes declined by 15 percent and about $33 million in taxes is expected to be collected — a revenue stream earmarked for affordable housing.

“The best level to do this at is the city level, because the taxes can go right back into fixing the problem,” said the mayor of Vancouver, Kennedy Stewart, who favors increasing the tax to 3 percent.

Until recently, elected officials in New York have been less receptive to a pied-à-terre tax. The bill, first introduced in 2014 by State Senator Brad Hoylman, a Democrat who represents some of the wealthiest neighborhoods in Manhattan, has been blocked by the ruling Senate Republicans.

But Democrats seized control of the Senate in November, and legislative leaders are now considering the bill.

“It’s something we haven’t discussed in the conference yet, but we will,” said Mike Murphy, a spokesman for the Senate Democrats.

Michael Whyland, a spokesman for the Assembly speaker, Carl E. Heastie, said the legislation, sponsored in the Assembly by Deborah J. Glick, will be “closely” reviewed as part of the budget process.

Richard Azzopardi, a senior adviser to Gov. Andrew M. Cuomo, said the administration was open to it as well.

Senator Hoylman acknowledged that the nearly quarter-billion-dollar apartment was a perfect poster child for his bill, saying that stratospheric sales like this “are the gifts that keep giving.”

In three previous tries, State Senator Brad Hoylman of Manhattan has seen his pied-à-terre tax bill die without even coming to a floor vote; he hopes this year will be different.

“A $238 million purchase puts things into perspective,” he said.

Indeed, the City Council speaker, Corey Johnson, said he planned to urge legislators in Albany to authorize the pied-à-terre tax when he testifies there during budget hearings next week. Mr. Johnson’s support suggests that if the Legislature passes such a bill, the Council would then give its approval to implement it, if necessary.

“I saw the story about the $238 million penthouse that someone might not even live in, and said now is the time to renew the call on this,” Mr. Johnson said in an interview. “I think this is doable and we should start the conversation now.”

It’s time for a pied-a-terre tax. We should tax luxury non-primary residences, like this one likely will be.

Mr. Johnson, who is exploring a run for mayor in 2021, said that in his district, which includes the High Line, there are “apartments that are crumbling and apartments 50 feet away that are selling for millions of dollars.”

Mr. Hoylman’s legislation would create a sliding tax surcharge: For properties valued between $5 million and $6 million, a 0.5 percent surcharge would be added on the value over $5 million. Fees and a higher surcharge would apply to homes that sold for more than $6 million, topping out at a $370,000 fee and a 4 percent surcharge for homes valued at more than $25 million.

The office of the city comptroller, Scott M. Stringer, estimated that a pied-à-terre tax would bring in a minimum of $650 million annually if enacted today. “For us, $650 million a year is a lot of money to deal with things such as our subway crisis,” Mr. Stringer said, “but it’s a rounding error for the people who own these expensive part-time apartments.”

The people most likely to be affected by the tax are the “international elite” who can afford it, he said.

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There were 75,000 pieds-à-terre in New York City in 2017, up from 55,000 such units in 2014, according to the New York City Housing and Vacancy Survey. In spite of the increase, the share of pieds-à-terre that comprise vacant units unavailable for sale or rent remained at about 30 percent in both years.

Mark Levine, a city councilman who represents Upper Manhattan, will propose in a forthcoming white paper that money from a pied-à-terre tax should be dedicated to fixing the city’s public housing stock and to create affordable housing. “Even the Victorian-era robber barons who built all these mansions were living there,” Mr. Levine said.

And because the city’s property tax system is antiquated, co-ops and condos are not taxed at their true market value, but on the income generated by similar rental buildings. A property tax reform commission is currently studying how to revise the city’s tax system.

“I would argue they need to pay more than the baseline property taxes because the value of the real estate depends on the viability of New York City, the quality of the public services, and they are not effectively carrying their weight for that,” said James Parrott, director of economic and fiscal policies at the Center for New York City Affairs at the New School, and a member of the property tax reform commission.

New York City is the second largest location of Mr. Griffin’s firm, Citadel. The company has been expanding in the city, recently acquiring more space at an under-construction Midtown office tower on Park Avenue; company officials suggested that commercial real estate taxes, combined with the taxes that Mr. Griffin will pay on his apartment, amounted to a significant contribution to New York City. Zia Ahmed, a spokesman for Mr. Griffin, declined to comment.

Mr. Parrott, who wrote a 2014 paper for the Fiscal Policy Institute that was the basis of Mr. Hoylman’s legislation, estimated that Mr. Griffin would have to pay $8.9 million per year if there was a pied-à-terre tax.

New York State does have a so-called mansion tax, a 1 percent tax levied on homes that sell for $1 million or more. That tax brought in $1.1 billion for New York City from the 2016 fiscal year to present, according to the Department of Finance.

Mayor Bill de Blasio, a Democrat who says income inequality will be the most important issue leading to the 2020 presidential election, has called for an expansion of the mansion tax, using Mr. Griffin’s apartment purchase as an example of what is “fundamentally broken in our country.”

Yet some people believe that this is not the right time for a pied-à-terre tax in New York. Kathryn Wylde, president of the Partnership for New York City, said many wealthy people had made the decision to leave the state after President Trump’s tax legislation reduced the amount of deductions that can be taken for state income and property taxes to $10,000, an amount easily surpassed in higher-tax states like New York.

NYC Property Tax Overhaul Pits Neighbor Against Neighbor

‘Revenue neutral’ requirement means winners and losers

Disparities within tax classes leave every owner fending for self

The push to reform New York City’s property tax system is a zero sum game that has various types of home owners, developers, investors, and even renters jostling with each other for a leg up.

The commission formed to update the city’s complicated tax structure for the first time in more than 20 years is instructed to make any proposals “revenue neutral.” That means tax cuts for one group have to be balanced with increases for another group—places in Staten Island pitted against Manhattan; condo owners versus investors; even a state assemblymember against Mayor Bill de Blasio over whose cuts get offset with increases.

“If you’re going to keep the revenue the same, roughly half the people are going to be winners and half are going to be losers,” Mark Willis, a policy fellow at New York University’s Furman Center for Real Estate and Urban Policy, told Bloomberg Tax. “Potential losers tend to be more motivated to object to the change, making for a difficult political fight.”

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The revenue restriction is meant to ensure that the city doesn’t suddenly find itself on the short end of a plummeting tax stream. Property taxes account for an estimated $26.4 billion in the current fiscal year, or 45 percent of total city revenue. But the requirement also creates an “every owner for himself” situation that’s likely to ratchet up political and legal debates and slow any proposals to level the playing field.

‘Punished’ for Rent Stabilization

Competing owners and interest groups have been taking their cases to the advisory commission.

Kara Kelly, who’s family has owned a ten-unit apartment building on Manhattan’s Upper West Side for some 75 years, told the commission at a hearing last year that new buyers snatching up buildings and converting them to luxury living spaces have driven up her property taxes and put her business at risk. She also said she can only pass on a limited amount of the cost to renters in units covered by the city’s rent stabilization program.

“We are being punished for being part of a system that helps keep rent affordable, a system which on principal which we generally support,” Kelly said. “Why are we taxed like these ultra luxury single-family mansions when half of our units are rent stabilized?”

New York City property owners are divided into four classifications, pitting those classes against each other as natural rivals in the reform process. Condominium and cooperative housing owners (lumped with large residential properties in Class 2), for instance, often complain that a larger share of their property value is taxed than is for single-family and small home owners (Class 1). Others point out that condo and co-op rates are based on rental income values, which are typically lower than the sale values used to calculate taxes for other residential properties.

The system has also generated significant differences in tax bills within classes, as a maze of caps and exemptions limit increases and favor owners in neighborhoods where property values are surging. That has owners in places like Staten Island and the Bronx complaining that their effective tax rates are a much larger percentage of their property’s value than for homes and commercial space in Manhattan and Brooklyn that could fetch a bigger price tag on the open market.

“That makes it incredibly challenging,” Ana Champeny, a researcher at the nonprofit Citizens Budget Commission and former city Finance Department tax analyst, told Bloomberg Tax of the disparities. “We say the owner-occupied properties should have the lowest tax burden overall, but if you were to reduce some of the differentials you’re likely going to need to increase the share of the levy for some of those owners.”

The city advisory commission, formed last year by de Blasio (D) and City Council Speaker Corey Johnson (D), has held a series of public hearings so far as it works on drafting a set of recommendations.

Game of Homes

One trigger for the commission’s creation was a lawsuit alleging that the current property tax rates and assessments scheme discriminates against owners in minority-heavy neighborhoods. The court battle highlights some of the competing interests at play.

A group called Tax Equity Now NY (TENNY) is focusing its lawsuit largely on the negative impact of high property taxes on single- family home owners and renters. But the organization also represents investors, developers, and residential and commercial property owners most likely to benefit from any reduction.

TENNY’s members include some of the city’s largest property owners, like the Durst Organization, RXR Realty, the Related Companies LP, Two Trees, and Silverstein Properties Inc. Civil rights groups like the National Association for the Advancement of Colored People, the Black Institute, and LatinoJustice are also involved in the organization.

“It’s true that there are likely to be winners and losers,” Martha Stark, the group’s policy director and a former city finance commissioner, told Bloomberg Tax. “What brings us together is that the current tax structure is untenable and unfair. Our group really believes in a fair tax system.”

Co-op and condo owners were left out of the group. “We weren’t invited to participate in the lawsuit,” Mary Ann Rothman, executive director of the council of New York Cooperatives and Condominiums, told Bloomberg Tax. “The lawmakers seem to

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have assumed when they created the system that single-family homes are where the voters are, but we would suggest that condo owners also own homes, we vote, and we are involved.”

Large residential rental (Class 2) and commercial (Class 4) property owners say they’ve been left holding a disproportionate share of the tax bill. Those properties are taxed at 45 percent of a property’s market value, while single-family homes and residences with two or three units are assessed at 6 percent of their value.

Class 4 owners currently pay more than 42 percent of the city’s entire property tax levy, despite representing a little more than a quarter of the total property market value, according to the finance department. Class 2 owners represent another quarter of market value and pay about 37 percent of the citywide levy.

Class 1 property owners, which account for more than 46 percent of the market value, pay 15 percent of the citywide levy. Class 2 owners, utility companies, represent 3 percent of the market value and pay 6 percent of the levy.

The Real Estate Board of New York, a formidable industry trade association, wants the city to alleviate the tax burden on income-producing properties.

“A fair real property tax system requires not only an equitable distribution of the levy but an equitable burden based on value and ability to pay,” Michael Slattery, REBNY’s senior vice president told the advisory commission at an October 2018 hearing.

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The commission, led by former city housing chief Vicki Been and Marc Shaw, a deputy mayor in Michael Bloomberg’s administration, also has to consider disparities within the property classes.

Lags in assessments and caps on how much rates can be increased—6 percent a year and 20 percent over five years; 8 percent a year and 30 percent over five years for condos and co-ops with 10 units or fewer—have made where the property is located perhaps more important than what it’s worth for tax purposes. Even when a Class 1 property is sold, that might not have much impact on its tax assessment. Caps remain intact and values are based on comparable sales in the area, including but not limited to the sale of the property itself.

Critics of the system often point to De Blasio’s property tax bill as an example of the disparity. The mayor and his wife last year paid a total of $7,000 for two homes in the Park Slope neighborhood of Brooklyn reportedly worth more than $3 million combined. That’s less per home than what many Staten Island residents say they pay for property worth a fraction of the market price.

For instance, State Assemblymember Nicole Malliotakis (R) last year paid nearly $5,500 in property taxes on her single-family home in the Great Kills section of Staten Island. The property was assessed at a value of roughly $560,000, according to staff for Malliotakis, a frequent critic of the tax structure.

“Low- and middle-income neighborhoods are subsidizing the property taxes of homeowners in more affluent and expensive neighborhoods in our city, and that is wrong” Malliotakis told the commission at a hearing on Staten Island.

A spokesman for De Blasio didn’t return a request for comment this week.

Carol O’Cleireacain, an economic consultant and advisory commission member, said at a recent hearing that the panel is being asked to “completely change a system that was put in 40 years ago for a different economy and a different set of housing.” Because tinkering with one area of the system will necessarily impact others, the stakes are high.

“Do you know how much damage we could do if we break it?” O’Cleireacain asked witnesses at the hearing.

Leveling the Playing Field on Property Taxes Won’t Be Painless

Property tax notices for the upcoming 2019-2020 fiscal year have been sent out by the city’s Department of Finance. That’s the bad news. The Advisory Commission on Property Tax Reform is due to come out soon with proposals for the first major overhaul of the city’s opaque and unloved property tax system in more than two decades. That may be even worse news.

Why? Because, as Bloomberg Tax reports, property taxes feed $26.4 billion into the city’s treasury every year, nearly half of all revenues, and the commission has been instructed to make any reform proposals “revenue neutral.” That means a tax cut for one of the city’s four tax classes will have to be balanced with increases to one or more of the other classes. For every winner, there will be a loser. Leveling the playing field will not be a painless exercise.

“If you’re going to keep the revenue the same, roughly half the people are going to be winners and half are going to be losers,” says Mark Willis, a policy fellow at New York University’s Furman Center for Real Estate and Urban Policy. “Potential losers tend to be more motivated to object to the change, making for a difficult political fight.”

The revenue restriction is meant to ensure that the city doesn’t suddenly find itself on the short end of a plummeting tax stream. But the requirement also creates an “every owner for himself” situation that’s likely to ratchet up political and legal debates. Condominium and cooperative housing owners (lumped with large residential properties in Class 2), for instance, often complain that a larger share of their property value is taxed than is for single-family and small homeowners (Class 1). Others point out that condo and co-op rates are based on rental income values, which are typically lower than the sale values used to calculate taxes for other residential properties.

One thing is certain: the fight over the tax commission’s recommendations is going to be a dog-eat-dog affair. Tax reform, it turns out, is one of those areas where you should be careful what you wish for.

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NORTH CAROLINA

How’s the Mecklenburg property revaluation going? Here’s an early clue

Mecklenburg County owners received their new tax values for the first time in eight years with notices being mailed on Wednesday, January 23, 2019. The median increase for residential property was 43% with commercial property at 77%.

Remember the 2011 Mecklenburg County revaluation? We do. It was a nightmare of municipal incompetence and crisis mismanagement. By the time it was over, more than 41,000 property owners had filed appeals of their property values, and the county was forced to undergo a costly and embarrassing do-over.

Fast forward to 2019 and a new revaluation. Property owners learned their new tax values late last month. Are things different this time around? Here’s a number that provides the biggest clue:

As of last Friday, 5,489 appeals have been received by the Mecklenburg Assessor’s Office since values went out on Jan. 23 — less than half the 5,000-a-week pace at this point in 2011. Even better: After hitting an early peak, the number of total appeals per day has begun to decline. Certainly, that pace could change as a May 20 appeals deadline approaches, but all signs indicate that the county is going to get far fewer than the 2011 number and something more in line with the 18,000 who appealed in 2003. That’s good news.

“From my standpoint, that’s how it feels right now,” Mecklenburg assessor Ken Joyner told the editorial board last Friday. Joyner is reluctant to drop the confetti at this point — it’s early, after all, and his office is receiving some legitimate complaints on values. But we regularly explore on these pages how things don’t go the way they’re supposed to in government. Let’s spend a few moments on when they do.

What’s different with Reval 2019? Several things, Joyner said, but the biggest is also the most basic: Assessors are looking at more properties with their own eyes. Sounds simple, but before Joyner took over he assessor’s office in 2013, many Mecklenburg properties hadn’t been physically examined in 10-15 years. The industry standard is six years.

Now, officials have completed a physical walkaround of 82 percent of Mecklenburg’s 306,000 taxable parcels. That includes all the properties that had major or minor valuation issues eight years ago. “We’ve gone back to Assessment 101,” Joyner says. “We’re trying to get the system back to a standard of what our peers are doing across the country.”

Another big difference from 2011: Joyner, with encouragement from County Manager Dena Diorio, has dramatically changed how information is communicated to the public. He has overhauled the county’s reval website and simplified the reports that are mailed to property owners. Joyner also has made staffers available to people coming in off the street with questions about their valuation, and his office has held or scheduled information sessions for 148 neighborhood associations, civic clubs and other organizations.

Not all is going smoothly, certainly. Social media is dotted with valuation complaints, and there are reports of whole neighborhoods being questionably valued, including one in Pineville where houses surrounding a pond were suddenly deemed “waterfront property.” Mecklenburg commissioners also appear to be headed toward raising property taxes above a “revenue neutral” rate to support an ambitious agenda that includes universal pre-K and more money for schools.

Joyner’s office isn’t a part of those decisions, however. “I have no skin in the game,” he said of the relationship between revaluation and taxes. “All I want is for your value to be correct.”

So far, for the most part, that appears to be happening. Good job.

OHIO

Auditor critics ask state to order new property revaluation

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A retired employee from the Lucas County Auditor’s office believes the latest countywide property revaluation was done so poorly that he has asked Ohio’s tax commissioner to order a do-over.

Toledoan Jerry German, who served as the chief assessor and director of real estate during his nearly 30-year career with the county auditor’s office, submitted a complaint Sunday to Tax Commissioner Jeff McClain alleging “misfeasance and malfeasance” by Lucas County Auditor Anita Lopez during her six-year revaluation completed in December.

He and his former colleague Brian Jones have been independently reviewing Ms. Lopez’s work, and they contend there are widespread inequities. Mr. German and Mr. Jones identified hundreds of homes that shared the same square footage, year built, condition, and neighborhood but differed in value after the reappraisal.

“It’s so totally inequitable,” he said.

He also contends Ms. Lopez did not follow the state’s requirement to have certified appraisers do a final in-person review of all properties in Lucas County before values are set, an accusation Ms. Lopez rejects.

“I am asking the tax commissioner to re-look at it, and, if he finds that there is fraud, to order a new reappraisal,” Mr. German said. “And don’t let her office try again on this. I’m saying order her to have it done by an outside firm.”

Ms. Lopez continues to defend her values as fair and said she believes Mr. German and Mr. Jones are attacking her credibility out of personal bitterness. Both left the auditor’s office after Ms. Lopez, a Democrat, defeated the Republican incumbent Larry Kaczala in the 2006 election.

Ms. Lopez said she has not seen a list of properties that Mr. German believes are improperly valued, but she would be willing to look through it and defend her valuations or fix legitimate inequities.

“Do not try to do this at the taxpayers’ expense,” she said. “If you have a problem, run against me in 2022.”

Lucas County has historically conducted its six-year revaluation in-house rather than hire a mass appraisal firm like most other Ohio municipalities do, and 2018 was no different. She said it would cost about $4.5 million in taxpayer money to completely redo the work.

“If we’ve made an error, we’ll fix it,” Ms. Lopez said. “But I am not going to entertain the thought of spending taxpayer dollars in Lucas County on a personal vendetta by Jerry German and Brian Jones.”

Shelley Wilson, a tax program executive in the state’s department of taxation, said her department doesn’t have the authority to order any county to redo its reappraisal.

They do review and sign off on an auditor’s aggregate values before they can take effect, and officials did eventually approve Ms. Lopez’s aggregate property value increases for Lucas County’s 22 municipalities after unprecedented back-and-forth in December.

Ms. Wilson had to order Ms. Lopez to raise her aggregate values to match what the market called for, something she can’t remember needing to do in her nearly 25-year-career. In the end, the aggregate values met the state’s standards.

“They complied, and we approved those values,” Ms. Wilson said. “I think that was our position on the results of the reappraisal.”

She suggested Mr. German take his complaints to the state auditor’s office if he believes Ms. Lopez has acted improperly while in office.

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End extravagant tax breaks for the wealthy

Cincinnati officials are once again rushing through millions of dollars in tax breaks for businesses as emergency ordinances.

Cincinnati City Hall has generated a 20-year flood of more than $3 billion in tax abatements since 1999. The city and The Cincinnati Board of Education now have an opportunity to assure that all Cincinnati property owners pay their fair share to support the Cincinnati Public Schools (CPS) and other key local services.

In 1999, the city and the school board entered into a 20-year tax abatement agreement soon to expire. The big issue facing the city and the school board in 1999 related to lost property tax revenue arising from the construction of two new "tax exempt" stadiums on the riverfront. The city agreed to pay $5 million annually to CPS to compensate for lost tax revenue. In return, CPS agreed that the city could grant tax abatements on as much as 100 percent of improved property value for up to 30-year terms.

Abated commercial developers would enter into PILOT (payments in lieu of taxes) agreements to pay the equivalent of real estate taxes on just 25 percent of improved abated value. Other recipients of property taxes, such as indigent care, child, family and children services, the zoo and library, got nothing.

It’s a challenge to pin down the number of abatements granted by the city since 1999, the Cincinnati Federation of Teachers estimates that the city has granted at least 300 abatements under the Community Reinvestment Act, and about 1,400 additional residential abatements. There have been dozens of additional tax increment financing and Port Authority abatements.

The Hamilton County Auditor reports more than $3.4 billion in abated commercial and residential property value in the city. That is about 20 percent of all commercial and residential property value in the city. In other words, real estate taxes are not paid on about $1 of every $5 in commercial and residential property value in Cincinnati.

CPS relies on local real estate taxes to provide a quality education to more than 36,000 students. Important local institutions also rely almost exclusively on property taxes, including the library, the zoo, children’s, family and senior services, indigent health care, county parks, etc.

If tax abated property owners paid the same real estate tax rates that most Cincinnati homeowners pay, they would pay about $100 million more in taxes. About $66 million of that would go to CPS. That’s money that CPS could use to provide more crossing guards or school security, repair older buildings, or reduce class sizes.

Tax abatements place an unfair burden on the shrinking percentage of taxpayers who don’t get the sort of "discount" granted to so many wealthy developers and homeowners. For example, why should someone who owns a new home in Hyde Park valued at about $800,000 pay about the same real estate tax as the owner of an older $240,000 home in Westwood or Pleasant Ridge?

Owners of brand new $1 million-plus McMansions and condos are getting comparable tax discounts, while many of our members struggle to pay ever-increasing taxes. That’s exactly the sort of inequity that the current tax abatement system delivers.

Tax abatements were originally presented as a way to encourage development in blighted neighborhoods. So why do most residential abatements go to new homes in Hyde Park, Mt. Lookout, Mt. Adams or Over-the-Rhine?

It’s time to end the era of extravagant tax breaks for the wealthy and well connected. Any new abatement agreement between the city and CPS should include the following elements:

 Increase the annual payment from the city to CPS to at least $15 million to fairly compensate CPS for lost tax revenue due to the extensive abatements granted since the 1999 agreement.

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 Any future abatements (commercial, residential, TIF or Port Authority) should be limited to 50 percent of improved value (not the 100 percent now allowed) and should last for no more than 10 years (as opposed to 30 years now allowed).  Future abatements should be granted only in lower income neighborhoods that truly need development incentives.  Advance public disclosure and public hearings allowing input from the school board and impacted community councils before any tax abatements are approved.  Establish a Tax Abatement Oversight Committee with the power to review and make recommendations on future tax abatements and abatement policies, with representation from the Board and other institutions impacted by tax abatements.  The school board should be empowered to specifically approve or reject any individual development calling for a tax abatement in excess of $1 million.

The city and CPS should end the era of tax abatement handouts. All city property owners should pay their fair share to support our schools and public local services.

Critics fear systemic mistakes in Lucas County Auditor's home values

There are two homes in Toledo’s 4200 block of Hunters Trail that look nearly identical, both in sight and on paper.

Both were built in 1971 in a raised ranch style with the same square footage. Both feature four bedrooms, one full bathroom, and one half bathroom.

But there’s one thing very different about the houses: their property values.

One is valued at $80,800, while three houses down the other is valued at $48,800. One owner pays just over $2,000 in annual property taxes; the other pays about $1,300.

Hunters Trail isn’t the only street in Lucas County where nearly identical homes differ widely in value. There are hundreds of examples in Toledo, with more in Holland, Maumee, Oregon, Springfield Township, Sylvania, Sylvania Township, Waterville, and Whitehouse.

County Auditor Anita Lopez said there are several reasons values may differ — home remodels, foreclosure sales, citizen feedback, or human error — but her critics fear there is something systematically wrong in the way she assigns values to each property.

Valuations in Toledo can vary greatly even within the same neighborhood. All of the highlighted homes are the same size and were built in 1975.

Looking at the data

State law requires county auditors to reappraise all property every six years to determine its fair market value on which to base property taxes.

It’s a cumbersome process that requires auditors to essentially scratch all property values they had on the books and determine new values based on the physical characteristics of a property, its location, and recent sales.

Ms. Lopez completed her sexennial revaluation in December, but two former employees of the Lucas County auditor’s office are so concerned about possible inequities in home values and property taxes that they’ve launched their own investigation into how she revalued roughly 175,000 residential properties in 2018.

Jerry German, a Republican, retired after nearly 30 years as the director of real estate when Ms. Lopez, a Democrat, defeated Republican incumbent Larry Kaczala in the 2006 election. Brian Jones also left the office after Ms. Lopez took over. He now works for the Wood County auditor.

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Both have spent their careers doing mass appraisals, and for the past couple months they’ve been combing through Ms. Lopez’s reappraisal data for inequities.

What they found are hundreds of examples of houses that share key characteristics but which have property values differing by the tens of thousands of dollars.

“The people who have identical houses should be paying identical taxes and have the identical value,” Mr. German said. “It’s just not fair.”

They looked for assessor blocks — portions of neighborhoods with similar characteristics — that had two or more properties identical in square footage, year built, construction quality, condition, and number of stories.

They identified about 7,400 homes that fit those parameters and were in assessor blocks where the highest and lowest valued houses differed by at least $5,000. More than 5,300 were part of assessor blocks that recorded differences of at least $10,000 between the highest valued property and the lowest.

More than 3,000 were in groups with differences of $20,000 or more; 590 saw a difference of $50,000 or more in their assessor block; and six were in groups with differences of more than $100,000.

“Her tagline is ‘fair and equitable.’ She says that all the time,” Mr. Jones said, referring to Ms. Lopez. “It’s not even close. This is off the chart to be bouncing around like that with the values.”

Mr. German and Mr. Jones contend that if Ms. Lopez did her revaluation correctly, residential properties with the same basic attributes would share the same value, and their owners would pay the same amount in taxes.

“The only way to fix this, truly fix it, is to completely scrap everything that she’s done and completely redo it,” Mr. Jones said.

‘Nature of the game’

Lucas County’s 2018 revaluation wasn’t a smooth process, but Ms. Lopez stands by her work.

It was marked by a dispute with state taxation department officials, who told her she wasn’t raising overall property values enough for what the market called for.

She countered that her values were more equitable to taxpayers, but the state in an unprecedented move ordered her to increase most of the aggregate values of Lucas County’s 22 municipalities. She eventually complied in December after it became clear the county would otherwise lose critical state funding.

Despite the controversy, Ms. Lopez said she is “absolutely confident” in her revaluations. She said state officials did not order a new revaluation, only an increase to each municipality’s aggregate values.

“If the state had a problem with our revaluation, they would have said that,” she said. “The state said the values were too low. They did not question the process.”

Ms. Lopez said Mr. German and Mr. Jones have harbored “bitterness and anger” toward her since she won the 2006 election, and she believes they are attempting to undermine her credibility.

“When are they ever going to accept the fact that I’m not going to operate the way they did?” she said. “They went for the highest values. I promised the citizens that I won’t overinflate values.”

Every county’s reappraisal must be approved by the state’s taxation department before the new values are set in place and tax bills can be sent out. Although it was a rocky process, state officials said they did not see anything seriously amiss with Lucas County’s sexennial revaluation.

Mass appraisers are required to assess a home in person, but they aren’t required to look inside a property like they would if they were appraising for a home loan. Most Ohio counties contract with professional firms to conduct their sexennial revaluations, but Lucas County is one of the few that handles the work in-house.

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Shelley Wilson, the state’s tax program executive in the tax equalization division, said her department does not have statutory authority over individual parcel values, so they don’t review them. But they do compare an auditor’s aggregate values to the real estate market to make sure they’re in line before they give a revaluation their stamp of approval.

“I think that if there were anything systematically wrong with a reappraisal, we would be able to tell something in our review,” Ms. Wilson said. “But to discover individual instances where two houses quote-unquote should have similar values, that’s not something we would find.”

Mr. German contends the issue isn’t the aggregate values, it’s the disparity between individual properties. And for that he blames Ms. Lopez, not the state.

“The big problem is taxpayer to taxpayer. There’s no equity,” he said.

Ms. Wilson said setting property values isn’t an exact science. Mr. Jones may believe two properties should be valued the same, but an appraiser may think differently.

She said one could likely find examples of homes in every Ohio county that have similar characteristics but were assigned different values, but it’s not necessarily an indication of a broken system.

“Even in the very, very best mass reappraisal,” she said. “It’s just the nature of the game.”

‘More feedback’

Ms. Lopez acknowledged there are homes that on paper look like they should share the same value, but she said there are a number of reasons why in reality they do not.

She puts a lot of stock in citizen feedback. For example, a homeowner may argue that their value should be lower than a neighbor’s value if they haven’t done any home renovations but their neighbor has.

Because mass appraisers don’t set foot inside the homes they’re assessing, it’s up to citizens to provide those types of details, Ms. Lopez said.

“If you think someone is not in line with everyone in your neighborhood, contact us,” she said. “The more feedback we get from citizens and the business community, the better. We want people to feel confident in their values.”

Ms. Lopez said a recent foreclosure is another reason why a home may appear too low in value. On paper, it may have the same characteristics as its neighbor, but it wouldn’t be able to sell for the same price.

There’s also the possibility the auditor made a mistake. On Feb. 6 a homeowner reported a property in Toledo’s 7000 block of Altonbrough Drive likely was valued improperly. The home has historically been worth more than $200,000, yet the revaluation put it at $145,000.

Ms. Lopez said her employee intended to type in a value of $245,000 but entered it incorrectly. Because of citizen feedback, she said, they were able to correct the mistake.

“I am not claiming we’re perfect,” she said. “When something is brought to my attention, we will fix it.”

Feud continues

Because the state Department of Taxation does not investigate disputes involving individual properties, the only option for Mr. German and Mr. Jones is to file complaints with the Lucas County Board of Revisions regarding each property they believe is improperly valued.

The board is comprised of representatives from the county auditor, county commission, and county treasurer who reconsider values based on evidence such as building conditions or recent sales.

Frances Lesser, executive director of the County Auditors’ Association of Ohio, said citizens often become invested in the sexennial revaluation process because it impacts personal property and personal finances. International Property Tax Institute IPTI Xtracts- The items included in IPTI Xtracts have been extracted from published information. IPTI accepts no responsibility for the accuracy of the information or any opinions expressed in the articles.

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“There are heightened emotions during the valuation process. People care about it,” she said. “The fact that people in Lucas County are interested is a positive. It’s an important thing.”

Mr. German and Mr. Jones also are waiting for Ms. Lopez to respond to several outstanding public records requests, including a list of dates to confirm when each Lucas County property was reviewed in person during the 2018 revaluation process. They have also requested emails between Ms. Lopez and her employees, as well as copies of Board of Revision complaints and copies of informal property value challenges.

Mr. German on Feb. 12 filed a complaint with the Ohio Court of Claims stating the auditor has failed to provide more than half the materials he asked for.

Ms. Lopez said that she has not denied any of their requests and is complying with public records law, just not as quickly as the former Lucas County employees would like. She said inundating her office with public information requests is part of the more than decade-long “bitter, political feud” between them.

“We’re not going to be intimidated by a political opponent,” Ms. Lopez said.

Mr. German maintains the investigation is about getting the values right, not about politics.

“When you see the inequity that’s been introduced into the system, it makes me kind of sick,” he said. “We tried very hard. If we weren’t completely up to value, at least we were fair from house to house to house.”

TENNESSEE

Electrolux underpaid taxes because of land assessment undervalued by $100 million

Property values for Electrolux's land and factory in southwest Shelby County were underestimated by about $100 million, County Assessor Melvin Burgess told county commissioners Wednesday morning.

The property value, which determined how much the company owed in taxes, was estimated around $40 million but that number failed to account for the modern factory and the robotics, machinery and raw materials inside it, Burgess said.

That means while Electrolux's tax burden was already lowered through a payment-in-lieu-of-taxes (PILOT) incentive that saved the company about 90 percent of its city taxes and 75 percent of its county taxes, it paid even less than it owed because of the underestimated property value.

Including the PILOT meant to reduce its taxes for 15 years, Electrolux received more than $188 million in incentives to open the Memphis factory and create 1,240 jobs paying an average of $14.65 per hour.

The company announced last week plans to close the Memphis plant by the end of 2020. All 530 employees have until then to find new jobs. The closure announcement sparked the further scrutiny that revealed the property was undervalued.

Over the next 10 days, the assessor's office will re-evaluate the exact worth of the building and the land to determine how much Electrolux will need to pay in taxes until it leaves Memphis.

Understaffing led to underestimated property value

In 2011, before the factory was built, an application for incentives listed the value of the land at $8 million.

The property was set to be reassessed under previous administrations in 2013 and 2017. The assessment was first rescheduled and then, when it was conducted later, the focus was placed on the land and not the building due to staffing issues, said Yvonne Parron, senior director of communications for the Shelby County Assessor of Property. International Property Tax Institute IPTI Xtracts- The items included in IPTI Xtracts have been extracted from published information. IPTI accepts no responsibility for the accuracy of the information or any opinions expressed in the articles.

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"An audit revealed that Electrolux's unique characteristics were not accounted for," Parron said. "That's why those numbers were significantly undervalued, and it was technically an oversight due to understaffing. Those 23 vacancies did contribute obviously to that oversight."

The assessor's office can go back and reassess the value of the Electrolux property for up to two years. It's not yet clear if the company will be required to pay back taxes on the new, accurate value, said Javier Bailey, chief administrator for the assessor's office. The staff will work with the county attorney to determine if that is legal.

"What this whole Electrolux endeavor has shown us is that we're not sure about the values that have been placed on some of the larger PILOTs," Bailey said.

He added that in PILOT projects that started out as empty land that a company planned to build up, previous assessors didn't not visit the land again to perform an in-person evaluation. Instead, they would either estimate the new value based on the size of the building and comparable projects or another nominal value estimation. That's what happened in the case of Electrolux, he said.

"Electrolux was way off base," Bailey added.

Other PILOT projects may also be undervalued

Based on the Electrolux example, the assessor's office believes other projects that received PILOT incentives may also have been undervalued.

"If there are any issues, we plan to include those in our reappraisal in 2021 because right now, we just don't have the manpower," Burgess said.

While the 23 positions were open, the county saved nearly $700,000 in salaries. That money will go to create a training program to fill those empty positions to ensure there is enough staff to accurately value property by 2021.

Burgess said it's too soon to estimate how many of the more than 250 PILOT projects in the county may have been undervalued.

Despite the issues, a PILOT study conducted by the assessor's office found that PILOTs are not overused and are a valuable tool for attracting businesses to Shelby County, contributing about $1.1 billion in gross value to the economy and creating countless jobs.

TEXAS

The Pros And Cons Of Property Tax Reform In Texas

Local officials are split between those who favor Senate Bill 2 for giving more power to voters, and those who fear it will starve cities and counties of funds to pay for services.

Texas property values are skyrocketing. As a result, the state’s property tax burden is now roughly tied with Illinois’s as the second-highest in the country, behind New Jersey’s. Governor Greg Abbott named property tax relief as one of his emergency items for the 2019 legislature. Since then, a reform measure has been sailing through the Senate.

Houston Republican Sen. Paul Bettencourt chairs the chamber’s property tax committee and is the author of Senate Bill 2. “We’re not just fighting for the Texans that are – we’re fighting for the Texans that will be,” Bettencourt said. “We’re fighting for the Texas Dream, which is the number one job creation engine for the country. And right now, property taxes is one of the largest threats to that.”

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Bettencourt tried, but failed to cut property taxes in the 2017 session. This time could be different. “We have two identical bills filed on a tax issue in the House and the Senate,” the senator said. “Now that speaks to [not only] the cooperation and the leadership, but more importantly the determination to get this problem resolved.”

The bills would cap the maximum rate property taxes can increase per year, the so-called rollback rate, at 2.5 percent. Anything higher would have to be approved by the voters. Fearing homeowners wouldn’t vote to pay more taxes, cities with growing populations testified against the bills.

“Dallas has acknowledged that we need to hire more uniformed officers and increase pay for all first responders. Think of what a 2.5 percent rollback rate would do,” said Elizabeth Reich, chief financial officer for the City of Dallas. “Not only could we not keep pace with current response levels, we would not be able to increase staffing or salaries to the levels we need.”

Houston Mayor Sylvester Turner and Harris County Judge Lina Hidalgo have issued similar statements. But not all local leaders share their fears. Chris Hill is County Judge of Collin County, overlapping Dallas. His county’s population has soared over the past six years, putting pressure on public services from courts to road maintenance.

“Many will lament that Senate Bill 2 will cap our property tax revenues and violate the sacred principle of local control,” Judge Hill said. “But quite frankly, we know here that the purest form of local control is allowing our citizens to vote on these property tax increases.”

Homeowners and business leaders largely weighed in for the bill. Dan Allford, owner of ARC Specialties, has manufactured robots and industrial machinery in Houston for 35 years.

“We build big machines that require big buildings. We operate out of three buildings totaling 100,000 square feet. Last year property taxes were our third-highest expense, costing over $5,000 per employee,” Allford said.

Allford said that limits his ability to expand and hurts his customers’ ability to buy his products. He said he’s constantly bombarded by opportunities to move his production offshore, but he hasn’t – yet. “I’m an unapologetic free market capitalist,” he said. “I don’t fear competition. I crave it. I can beat the competition, but I can’t beat tariffs and taxes.”

Texas has been drawing more and more heavily on property taxes to pay for education. Efforts to reform school finance, and have the state pay more, are intertwined with property tax reform. There’s a lot riding on getting it right. Dick Lavine, a fiscal analyst with the progressive Center for Public Policy Priorities, pointed to what happened in California, when residents voted for a measure known as Proposition 13, capping tax growth much as Texas is considering now.

“When I was in high school and college, which was in the 1960s, California was well known for the best schools in the country,” Lavine said. “That’s no longer true, and I think it’s directly because of Prop 13 and undue restrictions on the ability to raise property taxes.”

In the end, the committee easily approved the bill. Next stop, the full Texas Senate.

Analysis: Here’s your property tax cut, maybe. Heads up — it’s expensive

A new proposal to cut school property taxes in Texas perfectly outlines the political problem facing lawmakers: It's terribly expensive, and other taxes have to be raised to pay for it.

Willing to give up some sales tax exemptions to pay for a cut in your local property taxes?

That proposition, from state Rep. Drew Springer, R-Muenster, is the first serious stab at a statewide property tax cut in the current Texas legislative session.

Lawmakers in the House and Senate are already working on legislation designed to slow the growth of property taxes. But those bills, pushed by the governor, lieutenant governor and speaker of the House, wouldn’t lower existing taxes; instead, they would require voter approval for tax revenue increases of more than 2.5 percent.

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Springer wants cuts. But it would cost a small fortune, more than $6 billion a year, and he’s a Republican, and he certainly doesn’t want to try to persuade a conservative Legislature to raise taxes. He wouldn’t actually cut them, either: He’s proposing a swap, cutting local school property taxes by getting rid of some popular exemptions to state taxes.

Springer wants to raise $6.4 billion a year, mostly by getting rid of sales tax exemptions and rules that are in current law. The list has some darlings on it — popular exemptions that might be hard sells in the Legislature and in lawmakers’ districts. Springer would tax sales of motor fuel, on top of existing gasoline taxes; over-the-counter and nonprescription drugs; “non- nutritional” foods, like potato chips, coffee and tea; newspapers and magazines; cuts and stylings at beauty and barber shops; and auto maintenance and repair. The proposal would also end things like prompt payment discounts for retailers remitting sales taxes and the loophole for hybrid and electric vehicle registrations.

Each of those things has a constituency: sometimes a mob of people who’d be affected, sometimes a small group of powerful people who would lose a business advantage.

Previous runs at sales tax exemptions have fallen to pieces under resistance from taxpayers — or, to be more precise, non- taxpayers — who benefit.

But with his other hand, Springer is offering prizes for property taxpayers. Springer says he would give a 50-percent homestead exemption on school property taxes, exempt retail inventories from property taxes and use the balance to “compress” school property taxes by 10 cents — or to 90 cents per $100 property valuation, whichever is higher.

His legislation hasn’t been filed yet, but Springer says the average Texas homeowner’s property taxes would be cut by $1,400. This is a good time to remember the last time state lawmakers spent a bunch of money and promised big cuts in property taxes. The savings promised by then-Gov. Rick Perry in 2006 was $2,000 per homeowner. It didn’t work out to be anywhere in that vicinity when the accounting was all in, and that experience has made some lawmakers skittish about promising property tax relief.

Springer apparently isn’t one of those. He also says his idea would lower the number of districts that pay locally raised property tax money to the state — a system called “recapture” by the education experts and “Robin Hood” in most political town-hall meetings. He also projects that the state would carry a bigger load of public education spending than locals as a result.

If this was a commercial for a new prescription drug, it would have to carry some fine print at the bottom. Something like this:

May cause commercial and industrial property owners who don’t receive the full benefits to revolt, or throw up, or throw up and then revolt; depression among renters who might see no benefits at all in return for their higher sales taxes; a sudden descent on the Texas Capitol by car dealers, auto shop owners, and people with scissors and hair dyes; angst among car owners paying a sales tax on top of a gasoline tax when they fill up; and tears to the eyes of the kids who grab a bag of chips on the way home from school every day.

The plan could ease the pain of property taxpayers. The question is whether this — or other proposals like it that might be in the works — are worth the new pains they cause.

Analysis: Something’s missing from the opening bid for property tax “relief” in Texas

The property tax legislation unveiled by state leaders this week carries an implicit promise — that local school districts will get more state money — but doesn't say where that money might come from.

State leaders are picking up property taxes right where they left the issue in mid-2017, proposing a requirement that voters approve any local property tax increase of more than 2.5 percent before it can take effect.

Need a quick refresher on why this is still on the table? The House wanted a 6-percent limit in 2017. The Senate wanted 4 percent. The governor wanted 2.5 percent. And by the end of the legislative session, the governor, lieutenant governor and speaker of the House were in such a snit over that and other issues that they suspended their customary once-a-week breakfast.

Their eggs and ham had, in effect, gone green.

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Two things stood out at Thursday’s joint appearance of Gov. Greg Abbott, Lt. Gov. Dan Patrick and newly elected House Speaker Dennis Bonnen. They are still in sync on everything like taxes and breakfast. They and the legislative sponsors of property tax bills — Sen. Paul Bettencourt, R-Houston, and Rep. Dustin Burrows, R-Lubbock — gathered for the news media to say they were on the same wavelength, filing identical bills in the House and Senate.

That brings us to the other notable thing: They were so tuned in to their harmonic convergence, they didn’t talk much about what their legislation would actually do, leaving the details to the bill sponsors to explain later.

They did say they were going for a 2.5-percent growth limit on property taxes in local school districts, cities, counties and other government bodies. It’s aimed at overall taxes, a leash on the overall mix of property values and tax rates that determine what happens to the average taxpayer’s bill. Anything that increases a local government’s property tax revenues by more than that would trigger an automatic November election asking voters for permission.

You might wonder how public education is going to get more financial help, as proposed by this same group of elected officials, if the state is going to limit school districts’ ability to levy taxes.

The short answer is that the state’s going to pay for it. The House’s proposed budget for the next two years adds billions to what the state is spending on schools. The Senate’s plan doesn’t spend as much, but the increases are significant (and in one case, more specific: Patrick has proposed $3.7 billion in teacher pay raises). Abbott floated the idea of holding down local taxes and tax increases — an answer to loud and persistent complaints about property taxes — and increasing state spending to fill the gap. And Comptroller Glenn Hegar, the fourth official at those weekly breakfasts, has proposed requiring the state to pay at least 40 percent of the cost of public education, along with any increases due to inflation.

But they haven’t said where the state money will come from. Nobody in the state government’s high places has proposed raising a tax, cutting other state spending to produce money for education, or weeding through the state’s tax exemptions and loopholes to shore up the state’s share of the public education load.

Another number from Hegar: The state will pay 36 percent of the cost of public education in the 2018 fiscal year. It would have to spend money — and apparently have it to spend, this time — to bring its share to 40 percent, and more still to cover regular inflation increases.

None of that is in this first piece of legislation. This one, with the ambitious title “Texas Property Tax Reform and Relief Act of 2019,” isn’t about school finance and doesn’t address what might happen to the local governments that need more money than the proposed caps allow, other than persuading their voters to approve bigger increases.

For now, it’s a fresh attack on the rising property taxes — an attack encouraged by voters across the political spectrum in Texas. They don’t like property taxes.

Despite the show of togetherness among state leaders, this was just their opening bid. Property tax reform won’t include property tax cuts. Local governments would like to end unfunded mandates from the state before they consider state limits on how they raise money. School districts, which weren’t included in the 2017 legislation, might be expected to raise the same kinds of objections the cities and counties raised last time.

Caps like these were a hard sell two years ago and ultimately fell short. The camaraderie of state leaders is a selling point. The content of the legislation is the hard part.

‘Bring the power of the Digital Age to the property tax process,’ says Baker Institute expert

Texas state lawmakers have introduced legislation to bring more property owners into the process of setting tax rates and giving taxpayers better notice about their proposed rates.

Tax expert Jennifer Rabb from Rice University’s Baker Institute for Public Policy provided testimony on the legislation before the Texas Senate Committee on Property Tax at the state Capitol today. She is available to discuss the issues involved with the media.

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Rabb, who is the director and fellow of the McNair Center for Entrepreneurship and Economic Growth and previously served as a tax policy adviser in the Office of the Lieutenant Governor of Texas, said there are three ways to improve the process:

“Eliminate from appraisal notices the estimated property tax levy based on the current year’s assessed value and the prior year’s tax rate, and thereby help property owners understand that the appraisal process is separate and distinct from the tax rate process.

“Bring the power of the Digital Age to the property tax process by creating an individualized, timely, electronic tax rate notice that contains the actual proposed tax rate and effective tax rate, applied to the taxable value of the individual owner’s property. The tax rate notice would be analogous to the appraisal notice under current law in that it would deliver accurate, customized information to property owners about how the tax rates proposed by their local governments would affect their property tax bill.

“Create a system for property owners to provide feedback electronically to local elected officials on the proposed tax rate, and thereby transform the process for opposing property tax increases from a fragmented, time-consuming process requiring a community effort to a consolidated, streamlined process that every property owner could undertake independently and conveniently.”

Texas property appraisal system needs a major revamp

Texas property owners pay some of the highest taxes in the country, and that’s not likely to change soon. One reason is how the state revalues property for tax levies.

Annual appraisals tend to push the value of properties, and property taxes, higher, even if the actual tax rate does not change. Local governments are not inclined to reduce the tax rate because they need more revenue to support the state’s economic and population growth which leads to more schools, road expansions and other infrastructure growth.

It’s a flawed system that pushes the cost of living and doing business in the state higher and leaves many property owners with few alternatives other than litigation to try to keep those costs under control, says Rahul Patel of Patel|Gaines, one of the state’s leading property tax attorneys.

Overworked, understaffed

Each appraiser working in Harris County, the third-most populous county in the nation, has to place a value on about 5,500 parcels every year. That amounts to an overwhelming workload of about three parcels per hour, Patel argues in a column for the Houston Chronicle, and leads to inaccuracies in appraisals.

“Because the state and the local jurisdictions choose to re-appraise property more frequently than they were before, the number of protests has gone up,” Patel says.

In 2018, the Bexar County Appraisal District raised taxable property values an average of 9 percent. More than 100,000 property owners in that district wound up protesting their new property values.

Some of those protests may have been a simple disagreement over how much a property was worth. But others resulted from such inaccuracies as misidentified parcels, failure to take state-allowed exemptions into account or lack of information, such as occupancy rates, that affect the value of commercial real estate.

The inaccuracies are linked to the volume of work, Patel says. With appraisers responsible for so many properties, the appraisal districts lump properties into categories, ratios and valuations that don't always make sense for a specific property. And the cost of rectifying those errors through protests lands squarely on the property owner.

Under-qualified appraisal review boards

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The appraisal review boards (ARB) that decide disputes between the appraisal districts and property owners are composed of volunteers from the community. In many cases, Patel says, ARB members lack the education and experience to determine the merit of a commercial property owner’s argument, and their decisions tilt in favor of the appraisal district.

“We genuinely have a shortage of quality folks who are signing up to be appraisal review board members,” he says. “There are issues of understanding the complexities of cap rates and occupancy, vacancies, how to deal with distressed assets that have mortgages and deficiency issues, and types of funding that are in place. If you do not have an appraisal review board that understands all those complexities, then you have a fundamental problem of getting your point across.”

Patel adds that as appraisal review boards are currently set up, the appraisal districts have a home-court advantage. Many members of the appraisal review boards have been in place for years, are located in appraisal district offices, and are comfortable with the officials at that office. Further, the current system lacks transparency, with voting records of appraisal review board members unavailable to the public.

“You have to realize as a property owner that you’re at a home-court disadvantage,” he says.

It’s a system that leads to litigation, as commercial property owners go to court to get the expertise and individual attention to their case that’s needed for a favorable outcome.

Appraisal review board solutions

A possible solution that could at least reduce the number of appeals that go to court is to revamp local appraisal review boards while adding transparency to review board members’ voting records.

“I think we’re better served as a solution to say, ‘Let’s use a portion of our budget and maybe hire qualified folks to sit on special panels, panels that deal with industrial, commercial, high-rise office buildings, medical facilities, things that require a breadth of information to sit and digest and come up with a better valuation,” says Patel.

He has advocated allowing property owners to pay a fee to have their appeals heard in outside jurisdictions, thus offsetting the home-court advantage. Some of that fee could be used to pay for more highly-qualified appraisal review board members as well.

“The best system starts with having the most educated folks with regard to the types of property that are being heard at the appraisal review board level,” he says.

That means panels of experts should be set up to review valuations for different types of property.

“Right now, appraisal review boards can hear anything from a residential house to a piece of vacant land to a $150 million mixed-use development. When you go to undergraduate school, you don’t all jump into the same class together,” he says.

Senate Committee Starts Work On Reforming Property Tax

Voters would have the power to prevent their local governmental bodies from increasing property taxes by more than 2.5 percent per year under legislation introduced in the Texas Senate and House on Jan. 31.

Senate Bill 2 and identical House Bill 2, both 116 pages in length, propose to amend the current law, in which local taxing authorities may increase taxes up to 8 percent each year before a rollback election would be required. Cries for relief are widespread, given the leeway current law affords and the fact that county appraisal districts may increase the value of property at the same time.

Lt. Gov. Dan Patrick, who presides over the Senate, said, “People desperately need property tax reform, our businesses need property tax reform, and we have set out, on this date, early in session, with a major piece of legislation. We are setting the tone for the rest of the session on this issue,” Patrick added.

In the introduced versions of SB 2 and HB 2, taxing authorities that bring in less than $15 million in annual revenue would be exempt from the new requirements.

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Sen. Paul Bettencourt, R-Houston, chair of the Senate Property Tax Committee, said, “The vexing problem facing taxpayers is that tax bills are going up at least two or three times faster than they can handle. I think that the concept of having a two and a half percent rollback rate across the board means there’s a universal solution.”

According to the Senate News Service, local elected officials have turned out in force to oppose caps on taxing growth, saying it harms their ability to deliver on needed services in their home communities. So far, those efforts have succeeded, as similar measures have failed to reach the governor’s desk in previous sessions.

Patrick said that while he hopes local officials will work with the state on this issue, ultimately property tax reform is coming. “We have been stopped time after time in the past by a total resistance to reform,” he said. “The days of saying, ‘No, we’re going to kill the bill because we don’t want change’ . . . that day is over.”

The Senate Property Tax Committee will meet this week to discuss SB 2. House Speaker Dennis Bonnen soon will assign HB 2 to a committee. HB 2 author Rep. Dustin Burrows, R-Lubbock, chairs the House Ways & Means Committee, which is scheduled to meet this week.

Why Texas property taxes are expected to skyrocket again this year

Texas property taxes have surged for the past several years and are likely to do so again in 2019.

“Commercial properties have seen a double-digit increase year over year,” says Rahul Patel of Patel|Gaines, one of Texas’ leading property tax attorneys .

Texas has one of the highest property tax rates in the country. That’s not likely to change. This year, property values are expected to increase again because several of the state’s critical funding needs remain unresolved.

Rising property valuations drive tax increases

Property valuations in Texas are unlike those in most states. The state re-evaluates all commercial real and business personal property annually. Annual increases in property values raise the property taxes for property owners statewide.

County governments could offset the impact of higher property values by lowering the property tax rate, but they need more tax revenue to support the growth in the state’s economy and its rapid population growth, which has increased the demand for everything from housing to roads to schools to public infrastructure, and, most notably, to healthcare.

That demand means local governments don’t pull back on tax rates when the assessed value of real estate rises. This results in a commercial property owner’s taxes going up even when the rate stays the same.

A recent report indicates that 1,800 businesses moved to Texas in 2016 from California alone. Another report shows Texas’ population grew by 379,128, the most in the United States, from July 1, 2017 to July 1, 2018.

“We have a statewide issue that we don’t really have a grasp on,” Patel says. “We have new schools. We have new infrastructure. Rolling back the tax rate really isn’t an option, but this continued increase is not sustainable.”

And the valuation increases aren’t always accurate. That means some property owners are stuck with a higher tax bill based on incorrect valuations.

Another factor driving incorrect valuations is the state’s practice of including the amount of income the property generates in the valuing process — or, in other terms, the “income approach” — not properly extracting business intangible value not associated with real or personal property.

For instance, a surgeon and a non-profit operating out of identical buildings could generate vastly different incomes, and because of that, they will have extremely different valuations even though the buildings and land are identical, Patel says.

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Determining an accurate valuation of properties is also hampered, he says, because members of the panels that review property valuations, known as appraisal review boards (ARB), often lack the complex commercial real estate knowledge necessary to determine a fair valuation for commercial properties.

When to protest

Property owners who feel their property is inaccurately valued can request a review by their local appraisal review board. That is the first step in the process that may ultimately lead to litigation.

“If you have a commercial property, you should always have someone look at (the new valuation),” Patel says.

Texas has two types of valuations for properties. One is the fair market value. The other is a provision of the tax code that requires real estate to be equally and uniformly appraised to similar properties.

Property owners are entitled to the lower of those two measures, Patel says. So, if one property is valued at $200 per square foot and others like it are valued at $180 per square foot, the higher valuation should be adjusted.

Here are some questions to consider when deciding whether to protest a property’s valuation:

 Is the square footage of the building accurately reflected in the appraisal?  Is the age of the building correct?  Is the location and acreage of your property accurately recorded?  Are all improvements to the property accurately reflected?

“A lot of times there will be simple mistakes in a mass appraisal system. So, it is important to ensure accuracy as reported to or by the county,” Patel says.

Another factor to consider when protesting a valuation is whether you qualify for an exemption that entitles you to a lower property tax rate. Not every property owner is an expert on deciding when and how to protest a property valuation. Commercial property owners need to consult with an expert.

“We have clients who, for the last seven years, email us as soon as the notices come out to have us review their appraisal, and then we determine whether we need to file a protest or not,” Patel says.

Texas leaders' promise of 'property tax relief' is a far cry from a property tax cut

The message handed down Thursday from the three top political leaders in the Capitol and two influential state lawmakers could not have been more clear:

We intend to deliver on our promise to bring property tax relief to tens of millions of Texas. Period. Paragraph. End of story.

So serious were they that they named their top legislative priority for the 2019 session that's about to enter its fourth week "The Texas Property Tax Reform and Relief Act." So let's all start counting the money we're going to save, right?

Eh, not so fast.

The "relief" offered by the legislation in question, House Bill 2 by state Rep. Dustin Burrows, R-Lubbock, and its identical upper chamber companion, Senate Bill 2, by Houston Republican Paul Bettencourt, is not a tax cut. It simply calls for slowing of the pace of rising property tax collections by city councils, school districts, counties, community college districts and other local authorities that live and breathe on the money raised through levies tied to the value of real estate.

The politics of tax relief

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Under the plan announced at a news conference in Gov. Greg Abbott's Capitol reception room, taxing authorities would need approval from voters if their proposed tax rate would increase collections by 2.5 percent or more from one year to the next.

Abbott and Lt. Gov. Dan Patrick have been calling for such a slowdown since they first took office four years ago. And now they are joined by the new House Speaker, Dennis Bonnen of Angleton. And all three Republicans are starting out in lockstep.

That increases the chances that their measure will pass. But not a cinch. School districts, cities and such, most of who elect their council members and trustees without regard to party affiliation, have already begun campaigning against it.

The legislation will likely be the subject of marathon committee hearings. And although the measures started out identical, each chamber can be expected to tweak the details and perhaps even rewrite their respective versions based on what members hear from their constituents.

It could easily end up being the most intensely lobbied legislation of the session between now and May 27 when lawmakers close shop.

Who's paying for public schools?

Complicating the equation is the question of how Texas will pay for public schools. Ten years ago, the state kicked in about half the cost of public educations and the local districts, through property taxes, made up the difference.

But now, the state's share has dwindled to well under 40 percent. So if lawmakers cap what local districts can collect, somebody's going to go hungry unless the state doles out more money. And tax relief legislation, as introduced, does not identify a reliable revenue stream for the state to increase its share of the cost.

Asked if there's a plan in the pipeline to deliver more state money to local schools, the Republican leaders responded, in effect, trust us.

"We're very confident in the governor's plan of 2½ percent," said Patrick. "And we will pass it. Will find the funding to fund it, and we already have many ideas along those lines."

Asked to share a few of those ideas, Patrick parried: "That's what the session is for."

Bonnen was a bit more forthcoming. He noted that projections announced last month as lawmakers were returning to work suggested the state would have some $7 billion more to spend in the two-year budget cycle that begins in September.

"The Senate and the House have agreed already that we will be using billions of those dollars to support our local school districts," he said.

It remains an open question whether those billions will be enough to make up the gap, and whether the booming economy that showered those billions upon the state will continue indefinitely.

So we're still awhile away from breathing a sigh of (tax) relief.

VIRGINIA

Walmart seeking rollback on Warrenton store taxes

Walmart’s lawsuit seeks county tax refunds totaling $344,000 over the last four years. The Walmart theory is somewhat of a new one. They’re doing it across the country.

The world’s largest retailer claims it pays too much in Fauquier County taxes.

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Walmart recently filed a lawsuit challenging its Warrenton store’s real estate tax assessment and seeking a refund of more than $344,000, plus interest.

The county’s assessment company values the big box store and 21-acre site at $15.5 million.

But, Walmart contends the property has a total value of $6.9 million, according to an 11-page suit its lawyers filed Dec. 26 in Fauquier County Circuit Court.

The company pays more than $152,000 a year in county real estate taxes.

Walmart contends it should pay just $68,000 a year.

The Wal-Mart Real Estate Business Trust, which owns the store, appealed its 2018 assessment — conducted by Wampler Eanes Appraisal Group Ltd. of Daleville — to the Fauquier County Board of Equalization. The board denied the appeal.

The county and the board “committed manifest error by failing to apply generally accepted appraisal practices,” Washington, D.C., lawyer Ilene Boorman wrote in the lawsuit.

Walmart deems the appraisal “invalid or illegal, valuing the property using the cost approach to value, even though the improvements on the property were built in 1999 and were too old for valuation using the cost approach,” according to its lawsuit.

In other words, the value of the building should decline with age and dwindling demand for huge stores, the company contends.

Its lawsuit challenges the $15-million-plus assessments in four years, 2015-18.

Walmart and other big-box retailers have used the same strategy to cut local tax bills across the nation, according to a recent New York Times story.

In part, the big retailers contend little market exists for vacant, “dark stores” that have grown in number, reducing the value of still-active buildings.

“We’ve had plenty of challenges to assessments,” County Attorney Kevin Burke said. “The Walmart theory is somewhat of a new one. They’re doing it across the country.”

Walmart’s attorney, Ms. Boorman said by email: “I am not authorized to speak to the press on Walmart’s behalf. It would be best if you contacted their media relations team.”

In the suit, the company seeks to lower its property assessment and to receive tax refunds averaging $86,000 annually over four years. It also seeks 10-percent annual interest, the same the county charges for unpaid tax bills.

The statute of limitations allows taxpayers to challenge assessments going back no more than four years, according to Mr. Burke.

The county’s Walmart assessments have consistently exceeded $15 million, going back at least seven years, according to real estate records.

Although Walmart filed its suit about seven weeks ago, it has yet to formally “serve” the county, which would trigger the need for Fauquier to respond. Thus, the court so far has scheduled no action on the lawsuit.

Fauquier County reassesses real estate once every four years.

The Town of Warrenton also taxes the Walmart property. The company pays about $7,750 a year to the town, with a tax rate of just 5 cents per $100 assessed value.

The Warrenton Walmart does more than $33 million in grocery sales to lead the Fauquier market. Information about the rest of the huge store’s sales remains unavailable to the public. International Property Tax Institute IPTI Xtracts- The items included in IPTI Xtracts have been extracted from published information. IPTI accepts no responsibility for the accuracy of the information or any opinions expressed in the articles.

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The world’s largest retailer, Walmart rang up 2018 global sales of $495.76 billion — more than three times that of Amazon, according to the National Retail Federation.

WISCONSIN

Battle over Wisconsin's 'dark store loophole' touches New Richmond, Hudson

An issue that municipal officials in St. Croix County say is putting the squeeze on local coffers is being targeted by the Tony Evers administration. The Democratic governor earlier this month said he would include a measure to close the so-called "dark- store loophole" in Wisconsin. A 2008 Wisconsin Supreme Court ruling allows retailers to have open stores assessed at the rate of a vacant store, allowing them to pay lower property taxes.

Democrats at the Capitol note the effort has been successful for retailers in Fond du Lac, where Menards saw its assessment reduced by $4 million and a CVS Pharmacy in Appleton received a $350,000 property tax refund after an assessment challenge.

The issue has brought legal action in Hudson and New Richmond, where big-box retailers have sued those cities to recoup taxes under the ruling.

"That's a big one," New Richmond City Administrator Mike Darrow said last week of the issue.

City of New Richmond officials are working with the Wisconsin League of Municipalities to overturn the law.

Walmart filed suit in September 2018 against the city of New Richmond. The lawsuit alleges the $11.35 million value set by the New Richmond city assessor's office exceeded the $4.25 million value claimed by Walmart.

That case was consolidated with an identical 2017 suit brought by Walmart alleging the city of New Richmond incorrectly valued the building at $11.35 million. That year's value should have been $7.79 million, according to the company.

Sen. Patty Schachtner, of Somerset, has been among Democrats backing Evers' proposal. She cites the League of Wisconsin Municipalities in a news release, saying Hudson residential taxpayers could be on the hook for a 9 percent property tax increase "if the dark store strategy is fully implemented."

Menard's filed a suit in December 2018 against the city of Hudson, alleging the 2018 value of its building there was worth no more than. $4.4 million. The city assessor valued the same property at $10.3 million. It seeks a refund of the property taxes— plus interest.

"An actual and justiciable controversy exists as to the 2018 value of the property and Menard's right to a reduction in the value" under state statute, the company stated in its court filing.

Menard's alleges the city's Board of Review didn't grant a waiver it sought and provided only a 90-minute notice in advance of a hearing on the matter.

In its response, the city contended it properly denied the waiver due to non-appearance.

Menard's filed a similar lawsuit against the city of Hudson in 2017, alleging the $9.7 million valuation set by the assessor was incorrect. It alleges the correct value in 2017 was $6.4 milion.

Opponents of the effort to overturn the ruling, including the Wisconsin Manufacturers & Commerce (WMC) group, say they're protecting businesses from "overly aggressive assessors."

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"These companies challenge the illegal assessments in court to bring their taxable amount back to an appropriate amount," a WMC news release states.

"Dark store" legislation was introduced last year at the Capitol, but never got a full vote.

Rep. Shannon Zimmerman, R-River Falls, said he backed efforts to close the loophole last year, but has since taken a more contemplative approach.

He said he's awaiting the new bill to see if its provisions have changed.

"Before saying I'm all in, I want to do my due diligence and review the language," Zimmerman said, adding that he wants to evaluate the argument from businesses "that this claim is really not an issue, but local municipalities creating or finding ways to obtain needed revenue."

For now, "I'm all in investigation mode right now," he said.

Wisconsin most reliant on property taxes in Midwest

Wisconsin’s municipalities rely on property taxes far more than most states, according to a new report.

The state’s municipalities received about 42 percent of their revenue from property taxes, Wisconsin Policy Forum said in a study released Thursday. The national average totals around 23 percent, according to the nonpartisan research group.

The study ranks Wisconsin seventh in the country and top in the Midwest for its reliance on property taxes, the Milwaukee Journal Sentinel reported.

Property taxes account for twice as much revenue for local governments as state aid, the report found.

The findings also show Wisconsin’s property tax caps, which have been in place for more than a decade, appear to be tighter than other states as reliant on the revenue.

“It’s a classic good news-bad news story,” said Rob Henken, the group’s president. “I don’t think there’s any question that the property tax caps have been a contributor to the successful effort to reduce the property tax burden in the state of Wisconsin.”

But Henken said the state is starting to see unintended consequences from the property tax caps, such as rising debt and increased use of wheel taxes.

Local governments have limited options for raising funds when needed, and borrowing provides one of the few avenues of relief for local officials.

In most states, sales taxes are commonly used by municipalities to fund operations. Wisconsin’s sales tax, which is set a 5.5 percent in most parts of the state, is the lowest rate in the Midwest, according to the report.

Henken acknowledge that local spending should be considered, but expenditures weren’t included in the report.

5 ‘Dark Store’ Myths Debunked

MADISON – Gov. Tony Evers announced last week that he would include a proposal in his budget to close the so-called “dark store loophole.” Unfortunately for the governor and taxpayer-funded lobbyists, there is no loophole to actually close.

The myth of the “dark store loophole” was created by taxpayer-funded lobbyists in an attempt to increase taxes on local businesses, and they have spent an immense amount of taxpayer dollars on advocacy campaigns and lobbying to convince the public that there is a problem needing to be fixed. International Property Tax Institute IPTI Xtracts- The items included in IPTI Xtracts have been extracted from published information. IPTI accepts no responsibility for the accuracy of the information or any opinions expressed in the articles.

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However, the misinformation is not based in fact. To correct the record, Wisconsin Manufacturers & Commerce (WMC) is releasing the following Myth vs. Fact information on the issue.

“It is unfortunate to see Gov. Evers taking the sides of local governments whose singular goal is to raise property taxes,” said WMC Senior Vice President of Government Relations Scott Manley. “The so-called ‘dark store’ proposals would do nothing other than make it more expensive to do business in Wisconsin by unfairly targeting small businesses, local retailers and hometown manufacturers.”

Dark Stores: Myth vs. Fact

Myth #1 Big-box stores are using a loophole to significantly lower their taxes, and local governments are losing revenue because they need refund large corporations.

Fact #1 Overly aggressive assessors are using an illegal strategy to dramatically increase the taxable value of local businesses, resulting in larger than normal tax assessments. These companies challenge the illegal assessments in court to bring their taxable amount back to an appropriate amount. They continue to win because local governments are breaking the law. If they would assess property correctly, they would not need to refund property taxpayers in the first place. Additionally, these over- assessments are not just on large “big box retailers,” but also impact small businesses, local main-street retailers and manufacturers. A change in the law could drastically increase property taxes for all businesses, and likely homeowners, as well.

Myth #2 Retailers with new stores are successfully using sales of run-down and empty properties to justify lower property tax assessments.

Fact #2 No judge would accept the sale of a physically deteriorated property as a good indication of value or a comparable sale for a newer building. Municipalities have yet to provide an example where a taxpayer has prevailed in court using sales of physically deteriorated vacant properties to justify a lower assessment of a new occupied property.

Myth #3 In recent years there has been a significant property tax shift to homeowners as a result of businesses challenging their tax assessments.

Fact #3 There has not been a statewide shift in the property tax burden to homeowners. According to the Wisconsin Department of Revenue, over the past 10 years there has been over a two-percent shift in the statewide property tax burden the other direction – from homeowners to businesses. Businesses are paying a higher percentage of the property tax burden than they were 10 years ago.

Myth #4 The “dark stores theory” has led to double-digit percentage increases in residential homeowners’ property tax burden.

Fact #4 A study conducted by the Wisconsin Policy Forum using data from the Wisconsin League of Municipalities showed that only $3.1 million was refunded in all business related property tax challenges in 2017. That represents 0.03 percent of property tax revenue collected, an infinitesimal portion of the tax. Local governments are still collecting over 99.9 percent of property taxes without incident. Wisconsin’s current property tax system is not broken.

Myth #5 Businesses use a disproportionate amount of local services compared to what they pay in taxes.

Fact #5 According to a 2018 study by the non-partisan Council on State Taxation, Wisconsin businesses pay approximately 48 percent of local taxes and fees in the state. Proponents of the bills have provided no evidence to suggest businesses consume roughly half

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of fire, police and EMS services in localities, and they rarely use a wide variety of local services such as parks, libraries, etc. Wisconsin businesses are paying their fair share of the local tax burden.

Wisconsin Governor Promises to Close ‘Dark Store’ Tax Loophole

Walmart, Target, and other big-box retailers around the U.S. are deploying “dark store theory” to slash property taxes. Now the state at the center of this fiscal threat may take action.

In November, CityLab investigated the practice of “dark store theory,” the novel legal argument big-box retail chains like Walmart, Target, and Menards use to slash their property taxes by assessing active stores as if they were vacant. The practice has resulted in the loss of millions of dollars in taxable value to communities in Wisconsin, Michigan, Minnesota, Indiana, and beyond.

Now Wisconsin Governor Tony Evers is pledging to shut it down: His proposed state budget will close the “dark store” legal loophole.

CityLab’s story was followed by additional reports about the issue by the New York Times, Slate, and others. These articles, and the practice itself, have generated vigorous debate about what big-box properties that proliferate across the urbanized U.S. should be worth.

Lawyers representing retailers say that big-box stores are effectively worthless at the point of sale, which should be reflected in the taxes they pay—even while the stores are still active. And many companies file repeat tax assessment appeals until municipalities capitulate. Tax assessors say that this argument defies common sense, and that the lost revenue will eventually force a heavier tax burden onto other homeowners.

State tax boards weighing the two sides have largely been split about who’s right. And municipal finance experts have warned that fiscal havoc lies ahead for local governments across the U.S. if the issue isn’t resolved by state tax laws.

The commitment to close the loophole by Evers, Wisconsin’s newly elected Democratic leader, also follows statehouse lobbying by the Wisconsin League of Municipalities and the Wisconsin Counties Association, two groups representing the interests of local units that levy property taxes. In 2018, state lawmakers considered a bill that would have blocked the practice, but the measure failed to reach a vote.

“Having large big box stores have the property tax levied at a level as if the building is empty is absolutely a non-starter with me," he told reporters this week. "It should be fair for all and in order to do that we have to close that loophole.”

Still, this element of Evers’ budget proposal is likely to find a challenger in Wisconsin Manufacturers & Commerce, the trade group representing retailers that have benefited from this tax appeal tactic. And Indiana, the only state that has enacted legislation to combat dark store theory, has continued to see challenges by commercial property tax payers using the same type of argument.

To Robert Hill, a Minnesota-based attorney who is perhaps the nation’s top lawyer propagating dark store theory on behalf of big-box stores, the issue is a matter of rebalancing the property tax burden that currently weighs too heavily on successful businesses. Corporations must defend themselves from being “discriminated against” by assessors, Hill told CityLab last year.

“We eat what we kill,” he said. “We kill only because they need to be killed.”

Evers’ budget proposal is expected later this month.