Property-tax reassessment may not be fix-all

August 13, 2007

When the extent of Marion County's property-tax woes became clear last month, Gov. Mitch Daniels acted quickly, freezing bills at last year's levels and ordering a reassessment of every local property. The reassessment process will take five months and cost up to $3 million.

But don't expect it to significantly alter the property-tax equation, warns Franklin Township Assessor Becky Williams, who also serves as president of the Indiana Assessors Association.

"A whole lot of people out there have their hopes up that this will make a big difference in their taxes," she said. "I'm laying bets that it doesn't."

In Indiana, property taxes are based on the assessed valuation of land and structures times the tax rate established by the government. In his reassessment order, Daniels noted that the assessed values for nearly three-fourths of Marion County's 22,100 commercial and industrial parcels did not change over the six-year period from 1999 to 2004. Since real estate tends to appreciate over time, the governor saw that as a red flag.

But Williams disagrees. She said the reassessment is simply political cover for the higher-level officials whose spending and tax-exemption decisions led to Marion County's unpalatable tax rates.

"I really am mad about this, because the township assessors have been getting a bum rap. I resent the idea that township assessors can't do their job and don't know trending," she said. "This is all a stall tactic. They're hoping the Legislature will come up with something and put an end to this whole thing."

In its formal Aug. 1 reassessment order, the Indiana Department of Local Government Finance faults township assessors for what it describes as "grossly inequitable assessments and tax bills." Citing statistical measures, the order notes concentrations of assessment problems within particular Marion County townships.

The DLGF order requires Marion County Assessor Greg Bowes to hire certified professional appraisers from the private sector to serve as technical advisers on the reassessment, which must be finished by Feb. 1. Bowes is working on an RFP for the project, which he hopes to release this week.

"Sooner is better," he said. "I want to move as quickly as I can on it."

But all nine of Marion County's township assessors already have had help from a private firm. Since 2002, Indianapolis-based Assessment Advisors LLC has provided them consulting and related software for assistance with the valuation of commercial and industrial property. In 2006, Assessment Advisors received $110,000 for a "trending study" to help update Marion County's commercial and industrial property values from their 1999 assessments to their market worth on Jan. 1, 2005.

Assessment Advisors President Timothy VanKirk, a professional appraiser since 1976, said township assessor errors aren't to blame for Marion County's problems with business property valuation. And neither is he.

He said Assessment Advisors' trending study accurately measured changes to market conditions in the retail, office, industrial, lodging and general commercial sectors from 1999 to 2004. During that time, Indiana and the rest of the United States suffered through an economic recession and the aftershock of 9/11.

As a result, he said, the office and industrial sectors lost a great deal of value, but gained most of it back. The result was a net change of zero. In the same six-year time frame, VanKirk said, lodging properties lost value. After enduring their own drop in value, retail properties, such as shopping malls and restaurants, bounced back for a gain by the start of 2005--the date upon which 2007 tax bills were based.

That explains why the assessed valuation of 16,000 Marion County business properties remained essentially static, VanKirk said. And reassessment of Marion County properties as ordered by the DLGF will produce the same results, he said. Another private firm will simply reach the same conclusions about market conditions and update the originally flawed data.

"The work I did was absolutely right," he said. "It's technically correct. It's well-documented, and I'm proud of it."

The problem, he said, is that when the state switched to a market-value property-assessment system in 2003, assessors had to start with flawed older assessments that predated the changeover.

Township assessors correctly applied the state's rules to adjust property assessments for appreciation "trending," he said. Errors from the old assessment system were simply carried forward.

To ascertain its properties' real market value, VanKirk said, Marion County needs nothing short of a full-fledged, parcel-by-parcel reassessment for market value. Because of its cost scope and difficulty, that's never been done.

"Most of this stems from trying to bump the old jalopy along," he said. "Getting to a market-value state is a difficult process, but it shouldn't have been this difficult. Once you decide you're a market-value state, you reassess properties based on market value. You don't adjust the old bad numbers. That's the crux of the issue."

Daniels' diagnosis that Marion County's business valuations are inaccurate is correct, VanKirk said. But his cure falls short of the radical surgery necessary.

"If Indiana is truly a market-value state and is to provide equitable assessment to residential and commercial property owners, the old, cost-based [commercial and industrial] assessments cannot simply be factored to current market value. They are systematically flawed. They are wrong and no amount of factoring can get them right," he said.

"This is true of Marion County and it is true for the other 91 Indiana counties. Indiana simply but critically needs to complete market-relevant reassessment of [commercial and industrial] properties statewide. Now."

Marion County Assessor Bowes has higher hopes for the DLGF-ordered reassessment. He said a concentrated and well-organized effort can produce a more accurate result than the township assessors did the first time.

Whether better business assessments will have much impact on property-tax bills is another question. Bowes said initial estimates show that Marion County's commercial and industrial properties are between 3 percent and 10 percent undervalued. Higher business valuations could decrease the tax burden on homeowners. But not necessarily significantly.

Bowes said he hopes the Legislature will concentrate on the high cost of government spending and the impact of various property-tax credits and exemptions. Those factors lead to higher tax rates and are, he said, a far larger influence on the size of tax bills.

"I'm confident we're going to increase the value of commercials, because the statistics show they were undervalued. That will ease the burden for homeowners. The question is how much," he said. "Whatever we do, we're only fighting around the margins."

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