The Politics of Assessment
A Panel Discussion

Dan Sullivan, Francis Peddle, Ted Gwartney,
Joshua Vincent and Steve Gardner

[Reprinted from GroundSwell, January-February 2009]

The following presentations were made during a panel at the Council of Georgist Organizations conference Thurs., July 10, 2008, in Kansas City, MO. The following was prepared from an audio recording and notes by GroundSwell editor Nadine Stoner. Dan Sullivan is Director of Saving Communities. Francis Peddle is a director of the Canadian Research Committee On Taxation. Ted Gwartney is Chief Assessor of Greenwich, CT. Joshua Vincent is President of the Center for the Study of Economics. Steve Gardner, Public Policy Research Center, University of Missouri.

DAN SULLIVAN

Those who went to the Pittsburgh conference heard the atrocities of what happened in Pittsburgh. (See Sept.-Oct. 2001 GroundSwell, "Was Pittsburgh Sabretaged?") Now I will just give the very condensed version of it and then thoughts on assessing and politics in general. Pittsburgh did its own assessing until the late 1940s, I think until 1948, and the head of assessing was Percy Williams who was also the head of the Henry George Foundation at that time. Assessments were very accurate, the land values were very well done. And then the county took over the assessing on the argument that consolidating the assessing function would reduce overlap. When I got involved in 1978 the land assessments were a very accurate reflection of what those values had been in 1948. As we started increasing the land tax, a strange thing happened, the land values started going down in the most trendy neighborhood in all of Pittsburgh because those people would appeal their assessments and the county didn't really have a way to defend them. Those people were the most politically connected and very influential and paid a lot in campaign contributions. It got worse and worse until finally Civil Service assessors started leaking corruption to media people. They leaked it to me and I leaked it to the media people. And there was a big hue and cry and a rival Democrat won the election. Many of the people who were appointed to the assessment board were not assessors, they were just real estate honchos. Though they are not supposed to be involved in politics, they threw their weight to the Republicans. The Republicans laid off 85 assessors. There were several people who were leaking it actually but one was rather flagrant about it. They knew who she was and she had seniority that was 83 from the bottom so they laid off 85. In case two people would have retired, she would have come back so they had to prevent that. She went to Florida and became an assessor in Florida where the assessors are paid more, but it doesn?t matter because there is very little property tax in Florida.

Then they hired a private company called Sabre Systems, who was a computer company that serviced municipalities, and had done computer work for municipalities for a long, long time. And they hired some appraisers who do appraisals for banks. We can talk about the difference between assessors and appraisers but my distinction is assessors do wholesale work and appraisers will say I am going to figure out what this house is worth and get some data; I think they are a little less accurate because it is much easier to gather an intense amount of data if you can apply that data to all the houses. It is very expensive to gather and sort through all that data and apply it to one house. The appraiser is not in charge; the computer company is in charge. A lot of appraisers use Mass Appraising and my reaction to this is art can hire science but science cannot hire art. Assessing is an art and they laid off 85 assessors who were practiced at an art. Then they hired a computer company with computer geeks deciding what art is and hired people to work for that company who don't understand anything except what the computer tells them. So we got pretty bad assessments.

They redefined land in violation of the state law. The land under my house is worth $9,000 and the one next door that is identical was said to be worth $1,000. Zoning doesn't allow the houses that are there which is a subject for another discussion. My land is under a house and therefore, it has a variance that allows the house to be there, the variance they said was a land value. I argued that the variance is a building value because if there is no building there is no variance. They said you were granted a variance because you were grandfathered in. They said the vacant lot next door was never granted a variance. I said the lot next door had a building on it when the zoning law was passed. The building went, the value and the variance went. It didn't matter, and I didn't have the resources to fight this in court. The whole assessment scheme is in the Pennsylvania Supreme Court now so somebody who does have the resources is fighting it.

My sense of things is that the assessors themselves are the least corrupt. Politicians are not so much corrupt because they get bribes but because the public is corrupt. The public is corrupt because the people in the richest neighborhoods show up in mass. At one public hearing this woman wearing a mink thing on her shoulders talked about how the elderly are poor. Somebody said we have special tax giveaways for the elderly poor, and she said we don't want your charity. And I thought you are not entitled to it, lady, you spent $10,000 on something to put on your shoulders. So the public is really the most corrupt aspect of the assessment system. Whenever there is a reassessment and assessments are made better, people who scream about how bad the reassessments are still below what they should be assessed, but much closer to what they should be assessed. They basically want the poor neighborhoods to pay their own taxes and their taxes, too.

I think the assessors are operating under a system where no good deed goes unpunished. We need them because land tax died when this bad reassessment came in Pittsburgh. They need us because there is nobody standing up for the assessors. It rings hollow when the people who do the assessing try to stand up for themselves. "You are just doing this to try to protect your job" kind of thing. We need to start getting involved in the assessment issue and step away from the land tax thing and realize that without good assessments you can't have a land tax. The assessment issue is the first issue.

All the assessors in Pennsylvania are appointed. In Philadelphia they are appointed by the Judiciary. It is not working well there either. But I always considered assessors to be judges of sorts. Regarding elected versus appointed, I think both of them have problems. An elected official has to run on the assessments track record. If he is appointed he is appointed by somebody who is running on something entirely different.

FRANCIS K. PEDDLE, Ph.D., Barrister and Solicitor

I am from Ottawa in the province of Ontario in Canada. The assessing authority in Ontario is the Municipal Property Assessment Corporation (MPAC). I want to highlight some of the public's disenchantment with this assessing authority. My perspective is going to be from the taxpayer appeal standpoint. I have represented people in tax appeals for over 20 years. I will focus on some of the public's disenchantment of where the focus lies now. MPAC came into existence after a change in legislation in the late 1990s. The assessing used to be done by the Ministry of Finance in Ontario. The government changed it and turned it into a Crown agency which actually contracts with municipalities. Municipalities are legally obligated to contract with MPAC to do assessments for that municipality. MPAC is a big organization. It has a budget of around $160 million and assesses about $1.45 trillion of property value. 85% of those assessments are residential. The public agitation against MPAC comes from the residential side. Of course, there are disputes by the industrial and commercial and multi-residential classes, but they do it in a nuanced way with ongoing tax appeals with hired guns.

This comes back to the issue of disclosure which is always a big issue with respect to property assessments. One of the things that has developed is a very advanced electronic registration system in Ontario that we created in private partnership with an organization called Teranet, Inc. They have digitized over a hundred million documents, which was a billion dollar project over 10-15 years.

As a real estate lawyer I can now register your mortgage from my home office. I can access the system as I am a licensee and lawyers can do this. It is probably the most advanced electronic registration system in the world. Now the land transfer tax that goes with the registration of every deed automatically goes to MPAC. There is a fee. This gives them the property values since the consideration for the sale is on the deed and the land transfer fee is a percentage of the purchase price. MPAC is a sub-licensee of Teranet.

Teranet has worldwide exclusive rights; there are proprietary restrictions on what they can do with this that has caused some access problems. Also, the other side of it is that MPAC has developed some commercial products to sell to financial services and they claim proprietary interest over this also and you can't disclose it that way. So we have the agreement with Teranet and they have their own commercial product development in which they are claiming intellectual property rights.

The other issue is the relationship between MPAC and the judicial body that reviews appeals if you complain about your taxes, and that is called the Assessment Review Board (ARB) in Ontario. It is the only place to go for the actual trial de nova as we call it, trial of fact. If you want to go to high court you have to do it by an application for leave to appeal which is very difficult to do and you have to go to divisional court in Ontario, the court of Superior Justice. It is not easy to do that. Most people 90% of the time go to the ARB. There is a tense relationship between the ARB and MPAC. MPAC views the ARB as some kind of lower operation with political appointments of people making decisions over assessments that they have no clue. There is a real clash between the ARB's approach which is more particularized property assessment approach to things versus the assessors and their mass appraisal approach. So MPAC views ARB as arbitrary and too supportive of the taxpayer.

The issue there is a legal issue of equity versus current value. Property in Ontario has to be assessed at current value. A lot of the politics of assessment comes from volatility in the real estate market. We all believe the land value tax will smooth that out and take care of it, but it won't really. There will always be some degree of the guy next door puts up a 2-story house and raises your land value. It is true, I believe, that the land value tax will eliminate a lot of these problems and take away the volatility, but that is a big problem. What happens is that politicians come in and say, OK we are just going to freeze the assessment. The legislation of the late 1990s went to annual assessments. I think it is a good thing and we can certainly do that with all the digitizing of all this data. They then had a lot of run up as was globally the case of real estate values, in the first years of the new century. Then there was the issue of a political set of problems of those assessments for 2006-07-08 years. In 2009 we are into a new reassessment. The next tax bills in Ontario are going to change.

There is the issue of politicians dealing with the volatility and also MPAC tending to be under-resourced. They basically take the position we can't do it every year. We don't have enough people to go out and do municipal assessments. So in 2006 the Ombudsman of Ontario got involved, and he made a lot of recommendations on how to clean up the system. Most of his recommendations are not assessment reform recommendations, and 90% of them are procedural issues.

There are three quick areas that are of prime importance. One is the issue of disclosure. These assessing authorities develop Mass Appraisal system models. There is a syntax of formulas used, the databases used, etc., but basically they don't want to reveal them and say it wouldn't help the ordinary taxpayer much anyway. So it is very hard to get all the information that goes into the mass modeling for neighborhoods and things like that.

The next issue is current value versus equity. The ombudsman says it should all be on current value. We would all agree with that. I as a tax lawyer representing the guy who is appealing his taxes, will go in and look at the current value of the individualized property and that is how I win my case. That is how I convince the Board, the ARB to come around to lowering the assessment by bringing this data in, which he may have and may not have accounted for, or he creates some fiction somehow that you sold your property on the base year valuation date of $300,000 but we are going to assess you $500,000 because that is what our model tells us to do. I, of course, say the best evidence is the sale on the valuation date.

The other issue is legalistic, the onus of proof. The onus of trying to show that the assessment made by the assessing authority is not correct is currently on the shoulders of the taxpayer, of the property owner. The Ombudsman said no, there are reasons why you should not do that. He wants to switch the onus to be on the assessing authority. MPAC disagrees with that at this point. That could really shift the politics of appeals, and would change the approach of representing people before these Boards.

TED GWARTNEY, Chief Assessor of Greenwich, CT.

As an assessor I am going to give you some remarks that I have received from people. Some are humorous. People come in and honestly express their views and try everything they can do to get a reduction in their assessment.

About the assessing profession, first, I think almost all assessors are honest, hard working individuals who are attempting to do the best job they can within the budget they have to estimate property values. Once in a while you hear about corruption and it is written up in the newspaper. Fortunately, when there is corruption I think the crooks get caught and voted out. Most in the assessing profession are hard working individuals who do an excellent job. I like the comment about it being kind of like a Judge because it really is. Assessors are responsible for making hard decisions about what property is worth, and that is a judgment call. To do that you have to analyze and look at all the evidence there is. They have to talk with the people and listen to what their views are and then make a judgment call. It requires a lot of education and experience.

Here are some comments that people have made.

"Why not value everything for less than what it is worth and then no one would complain."

Unfortunately, this does happen in some assessing jurisdictions but the assessors should be valuing very close to market value. What many people don' realize is that if you are doing a perfect job, if on average you are getting everybody near market value, The average assessment means the middle point, and that means that half are slightly above or slightly below market value. And of course you hear from those that are above the average. And that is part of an open system where people can complain when they feel like they are assessed too high.

"Why don' we just look at sales that sold for less than my house?"

Some sales are sold for more than what they are worth, and other ones are bargains. People get bargains, and we have to realize that. And in assessing we do a verification of all the sales, and we have to flag out those that are not really valid market evidence: sales within families, problems or sales with a special interest involved.

"I am planning on selling my house. It is assessed for less than it is worth. Please add on all the improvements that I have made in the past years."

I have had many real estate agents come in and say exactly that. "We are going to sell this house for $X and you have it appraised for 90% of $X (that). Are you sure you have all your information correct?"

"If you really think my land is worth this much, why don' you buy it?"

Once in a while you have to say, well, if you really want to sell it, for that low price maybe I will buy it.

"I know I can sell my house for many times what I paid for it, but I just want to live here."

Great, we want you to live here too, just pay your fair share of taxes.

This comment comes from my own experience. I completed a revaluation in Hartford, CT in 1973. We had used an automated system and we had revalued all the property. Hartford had a poor north end and a moderate south end. After we completed the revaluation, all of a sudden people realized that people in the poorer north end had been paying higher taxes than they should have been, and people in the moderate south end were not paying their fair share of taxes. That became a political issue. Finally the town attorney called me up and he said well, you must find a reason not to use this revaluation or we will find a replacement for you and he will find a reason. That is actually true and it is probably the best thing that ever happened to me. I told him I am not going to change it; there is nothing wrong with the revaluation. I gave my friend Mason Gaffney a call, and I said I don' like this job that I have and do you have any suggestions. He said, well, you know, they are talking about doing something for the school tax and the assessment reform in British Columbia, and I was just appointed at the Research Institute up there, so let me talk to the new government and see if they need any assistance. So I got a one year contract to go to British Columbia and it was the real opportunity of my life because I got to be involved in what became a total reworking of the assessment system and the school tax. I became the Assessment Commissioner and stayed there for 13 years. It helped my career and my future. I am now back in Connecticut and I have a lot of friends in Connecticut, and Connecticut does one of the best jobs of assessments of anywhere in the United States. So I think we have a very good system.

Sales in most states are public information. In Connecticut in particular all deeds get recorded and we get an electronic copy within a few minutes of all the deeds as they are recorded and we process them immediately. Every morning we have six appraisers who come to our office just to check on the sales that occurred the prior day just to keep them current of what is happening. The Assessor' office is a vital source of information about what is happening in the community. Also, we have a geographic information system and the public makes good utilization of the assessing office.

JOSHUA VINCENT

I am following in the foot steps of Steve Cord who always said adjure assessors, ignore assessments, but we can't. There comes a time when we have to face the fact that if there are inequities in assessment, even if we brought in a land value tax it wouldn't improve things and indeed might hurt the lives of very poor people. We can't have a land value tax on the ground in the city if we don't have numbers.

I have every zip code in the city of Philadelphia, and these are numbers from the fiscal year 2007. I sorted it by the poorest median income neighborhood to the richest. Whoever knows Philadelphia knows that north Philadelphia east is by far the poorest neighborhood in Philadelphia. That is the median, the assessment ratio is 72%, the assessment ratio that is required by the state of Pennsylvania for Philadelphia to meet which they do city-wide. And this is where the politics of assessment come in. They satisfy the law by reaching a median of 72%. That is the median of income. We have the median income for north Philadelphia of $13,800 a year, median family income. That is about as poor as it gets in a city in this country. Then we get up to Manayunk where we have an average median income of $43,000, etc. You can see the trend. What's interesting is that if we take the ratio of market value, in other words what the government assessors say the property is worth to actual sales, you see not as strong a correlation downwards. In the same neighborhood, north Philadelphia east, they are valued essentially at 117%, almost 117% above market value. The legal target is 72%. The poorest neighborhood is valued at 117%. Then when you get to the richer neighborhoods you see that they are assessed at far below what the target is. And that is essentially the issue that we have to face every day as people who think that the property tax should be the primary source of revenue for government and that the land value tax should be an alternative. When you match these two together you can see the upward trend of income and essentially more of a broken tooth, but as you go to a richer neighborhood you see that the percentage of value to actual sales gets dramatically different.

We often talk about other states. In the city of New London, CT, they just had a reassessment done, and the target there is supposed to be 100% of market value. We took all the arms length sales, just like in the last case, arms length meaning an appropriate exchange for property, not a family and not a special purchase. You have this sort of a weird aspect where a boarding house is valued far above what was paid and then you down to commercial buildings. Single family is about 80%, and then down here you have some very big ticket items indeed. This is after the reassessment in 2008. We have the biggest sale in New London in about 10 years and it is an office building . It sold for $2.5 million, but the appraisal is $815,000. Go down to one family again and you see that the difference between the appraisal and the arms length sales prices (these are aggregated, these are the totals) is fairly dramatic. Again you can look, one is supposed to be the median line and you can see literally hundreds of houses (this is disaggregated data) that are valued at 47% of true sales price , and then you see up here the ones that are assessed way above what 100% of market value is. This is sort of composite of GIS and regular spread sheets; houses that are poor (in other words, houses that sell for $100,000 or less ) are often valued above 100% of market value. Essentially data is going to be key to overturning the bad politics of assessments.

In Allegheny county where we have been working, we have an example what I call the sin of base year values. Base year values are so popular with elected officials because, of course, you can say at the citizens meetings, at which only the middle class or the bourgeoisie show up, we are just going to keep your values essentially where they were and not much is going to change.

In the entire county of Allegheny I picked at random a few towns that Dan Sullivan and Dr. Herbert Barry and other people from Allegheny County know, but the Sabre Systems assessment is the fair market value, the appraised value that was established in 2001-2002. The Democratic Chairman, whose name is Amarato, said we are going to freeze assessments because that is the fair thing to do. This is Fox Chapel which is delightful place where people have horses and their children's teeth are all straight, and the median income is very high. You can see that when the appraisal was done the house values were very high, but that is a base year. But what if we start looking at fair market residential sales prices, and look at the sales prices over the past three years, and you see that the difference, the drop is pretty dramatic. Fox Chapel is now 60% of what the fair market is. Sewickley Hills is a much smaller place, but still just as delightful, with Chevy Suburbans and wooden side wagons, and they have a high median income as well and you can see they have dropped to about 60% of market value. Then we go to Sewickley, which is middle class, and you see that they have maintained their relationship to the old market value. In Wilkensburg , which is an equity distressed place, they are bearing the highest brunt and a statistically significant higher brunt of property tax now that this base year system has been put into place. With this data I have been able to replicate it all over the state of Pennsylvania, in New York State, and in Connecticut. It is a trend. It is a pattern. It is a system of practice.

In closing, I say annual assessments please.

STEVE GARDNER

The people in this room share an almost universal belief that the taxes on land should be greater than the taxes on human made improvements. A great number of finance experts throughout the country and world agree. I would suggest that one of the many reasons that it is not happening is that in the United States we are not prepared to make it happen, and we are not prepared to make it happen because of politics. As you know and as this panel has discussed this morning, in order to make any property tax system work properly you have to get the values right. Getting the values right in a split rate system is more difficult than in a single rate system because you have to get two values right. Because of the state of the art in regard to getting land values right is more difficult than it is to get improvement values right. Why? It is very simple in my mind; it is because of politics. Largely, I think we pay attention to the wrong politics. It is very common for people to say, well, assessors don't get the values right. That is because of politics, and it is because in many cases they are elected and that is what they are paying attention to. It is because assessors don't like to be buried in appeals and therefore it is better to underassess than to overassess. It is because assessors don't want to be super unpopular and have to deal with all the recriminations, media, complaints, and phone calls, and in a few cases, I would submit, it is because you need to take care of buddies. However, I believe we should pay a whole lot more attention to property values. In most states in the U.S. there is a state level authority whose job is to police whether assessors are getting the job done properly and to raise fire alarms when issues are significant.

Before I get to them, let's talk about the legislatures a little bit. A lot of attention with regard to the legislature has to do with dealing with "policy change". But there is very little attention to what the legislatures do or don't do with regard to getting the implementation of the property right. The reason for that is that they do not care. Why don't they care? Well, number one, in the U.S. the money from the property tax goes to local benefit, not the state government. So as a state legislator if property taxes represent a fraction of 1% of the budget, why would I give that particular policy a lot of attention. Second, if there is a reason to give it a lot of attention, it is probably that it is just very complex. A legislator has a hundred issues to deal within any given session, so why would I deal with one of the most complex and arcane. So, what does the legislature care about? And when do they care about the property tax? Only when the public screams. And when the public screams, what does the public care about? They care about the results and the symptoms of the problem. They do not care about the underlying cause of the problem. They have no clue in most cases as to what it is. And so the legislature reacts. And how do they react? They react by addressing the symptoms and ignoring the underlying causes. There is supposed to be a fix for all that, and that is the state agency. I am going to refer to them as the State Tax Commission because that is the phrase used in a lot of states, but it varies. Why don't they get the job done? Because of politics. Who do they serve? In theory they serve getting the implementation consistent with the law. But do they? What kind of politics do they face? While they are supposed to police assessors, if they don't please assessors you got a whole bunch of assessors running to the legislature. And legislators often care about what is local, not what is general, in other words, the law.

Another reason that the state tax commissions have politics that veers from what we think it ought to be is because the legislature has wants. The legislature wants to assess farmland value, they want to take care of senior citizens, or they want to take care of rich screamers. Whatever it may be, the legislature has wants, and the legislature has power. And they exercise that power by translating that into that state tax commissions had better do what they want done. Taxpayers also have wants and they are very vocal about those wants when they get upset. For example, when assessors in the past may not have done the job right, and then they decide to do it right, then there is a big change and that concerns the taxpayers.

State tax commissions also have their own agendas. They have what they want. In the present, they want to maintain or increase their appropriations, and the legislature can say no. Second, they want to make sure that they don't have to deal with a whole bunch of new problems and future problems. Therefore, they are not all that interested in major change, certainly in the short term. What I believe is a very critical issue is that they don't want to admit the problems that they may have caused and therefore they have to defend the past. And as long as you are defending the past, you cannot stand up and say this is what needs to be done to improve the implementation of value.

In short, you can't really proceed to a land value tax system unless you can get valuation right and in most jurisdictions, not all, they are not being done right. And they are not being done right, not because the state of the art isn't there, sometimes because the resources aren't there, but largely because the political forces are such that there is no desire to get it done.