Wednesday, February 6, 2019

Hate tax revaluation time? Then let’s do it more often. Seriously.

Tear-downs that make way for large new houses, like these in the Cherry neighborhood, drive up property values of smaller, older houses nearby. Photo: Mary Newsom
It’s tax revaluation time! Are you excited? We aren’t either. Seeing your property value skyrocket is only fun if you are planning to sell it ASAP.  For most of us who aren’t real estate speculators, higher values don’t mean more money shoots into our bank accounts, because we can’t easily convert property into extra income unless we decide to raise goats, chickens or marijuana in the back yard.

Nevertheless, revaluations are an important equity tool. If you wait years to do them, you’re giving a tax benefit to wealthier property owners with rising values and giving a comparative tax penalty to properties whose values did not go up as much, or not at all.

If that sounds confusing, read on.

Mecklenburg County has been revaluing its property every seven or eight years. That means someone whose mansion was valued at (we’ll keep to round numbers here) $1 million at the last valuation has been paying taxes on that figure,
even though that same mansion is now valued at $3 million. So $2 million of its value has been, essentially, tax free for some of those eight years.

Now, consider someone whose house was worth $100,000 eight years ago and is now worth $150,000. Yes, they’ve gotten $50,000 in value tax free for some of those eight years. But ... compare that with $2 million.

Finally, someone whose property value went down has been paying taxes on a value that’s too high. For this particular revaluation there aren’t likely to be many who fit that description, since the 2011 revaluation came amid a deep real estate slump with hundreds of foreclosures, followed by recent years of dramatically higher land prices.

In 1990, then-Charlotte Observer reporters Liz Chandler and Foon Rhee did an exhaustive comparison of land sales prices versus assessed values from the previous revaluation in 1983. They wrote:

“Thousands of Mecklenburg County homeowners will pay more than their share of property taxes this year. And their extra taxes will allow tax benefits for a smaller group of homeowners – most with higher-priced homes. Property is being taxed unfairly because county officials are not keeping up-to-date tax values on homes, according to an Observer study of 3,425 home sales last year. That’s because the tax office only appraises property countywide once every four years.” [In recent years the county has revalued every seven or eight years.]

The reporters explained:

“If the tax burden was evenly spread this year – the last year before a new appraisal – all homeowners would pay taxes on 83 percent of the market value of their homes, the study indicates. But that isn’t the case. Areas where home values have risen sharply are likely to be taxed on less than 83 percent. And slower-growing, low- and middle-income areas are more likely to be taxed on more than 83 percent.”

The Observer research, comparing sales prices to assessed tax value, found that during those years county tax officials generally undervalued commercial property more than residential property. That means residential property owners were, in essence, subsidizing business properties. Commercial properties were, on average, assessed and taxed at 65 percent of their market value, the newspaper found, compared to an overall property valuation countywide of 79 percent of its market value. (County tax officials responded that commercial property was harder to assess.)

Some important caveats are needed:

One: A tax revaluation does not automatically mean everyone’s tax bill rises. Elected officials set a tax rate, and they can lower the rate so that, on average, no one’s bill goes up. But if your property is above or below the average, your tax bill would still change, going up or down, depending. If you’re a politician, you know rising property values will have many voters angry, even before the tax rate is set. So if they’re going to be angry regardless, it’s tempting to go ahead and bring in a bit more revenue by not setting a so-called “revenue-neutral” tax rate, since city and county needs are growing along with the population.

Two: According to analysis from Charlotte Observer writers Ely Portillo and Gavin Off, some of the highest percentage increases in value this year are in close-in, predominantly black areas: Grier Heights, Washington Heights, Druid Hills, Villa Heights and Belmont. “On average, property values in those neighborhoods increased by 126 to 156 percent. Many individual properties doubled or even tripled in value,” the Observer wrote.

That means “equity” in property assessments this year could look inequitable, if low-income and minority property owners are hit with proportionately higher tax values. (See Her home’s tax value nearly tripled.)

There is a better way. Revalue property more often. Every two years would be more equitable and  prevent the heart-stopping (and for some people, budget-busting) increases that come from long delays between revaluations. Since 1983 the county has for a variety of reasons mostly deviated from its every-four-years revaluation goal, although they say they plan to resume it.

The 1990 Observer article found that across the country, many local governments revalue more often than every eight years. The reporters wrote:

“In Phoenix, Maricopa County tax assessor Ira Friedman, said: ‘If you have spiraling increases in values, it makes sense from an equity standpoint to revalue property every year. It’s commonly done nationwide. It’s really a simple system.’ ”