Q- How is ‘Equity’ in Taxes measured?
A - Market Value - For example, if you select 3 properties currently worth $150,000 (on the market), the assessments for each should be the same, regardless of the type of property they are. If the City were at 100% of market value, then each assessment for these three properties should be close to $150,000. If these same three properties were assessed at wildly different values, then that is what is referred to as ‘disproportionate’ assessments. That is, properties of similar value but dissimilar assessments. For explanations as to how ‘ratios’ are calculated and definitions of ratios and other statistical measures click here.
Q - What is the point of keeping assessment ratios close to 100%?
A - The State Department of Revenue Administration (DRA) ‘estimates’ our full market value each year. They do this based upon our calculated assessment-to-sales ratio. So, the more accurate our assessments, the less ‘estimating’ the DRA will do, which will help ensure that the City receives it’s fair share when the State calculates State aid to education allocation and allocation of county taxes. Also, the closer to 100% assessments become, the greater the equity becomes among different classes of property. When assessments fall significantly below 100%, it becomes more difficult to retain equity of tax burdens across the City. The State Equalization Standards Board requires that assessments be between 90% and 110% of market value at least once in every five years. As discussed above however, the City ensures compliance to this standard every year, thereby doing away with extraordinary changes in assessments and resulting tax bills. During the last few years, the City’s assessments averaged 95% of market value. The point of all this is to ensure that each taxpayer is paying no more or less than their fair share of taxes every year, which now includes our contribution towards a State education fund and county taxes. For more information on the State involvement in our tax rate and school funding, click here.
Q - Do these changes in assessments cause the City to raise more or less revenue than was authorized by the City Council?
A - NO. As the assessment base (assessments) increase, there is a corresponding decrease in the tax rate. Conversely, if the assessment base decreases, there is a corresponding increase to the tax rate. Simply stated, the amount of property tax revenue the City collects is governed strictly by the City Council (with the exception of the State education tax and the County tax). The tax rate is calculated by dividing the total taxable assessments by the amount of property tax revenue to be raised. So, the tax rate changes according to the authorized revenues and total assessments. For more information regarding the tax rate calculation, click here.
Q - What is the net impact to the City in terms of equity in assessments as a result of these in-house revaluations?
A - When 5-year revaluations are performed assessments are brought in line only once every five years. Thus fluctuations in the market would go un-reflected in assessments in the ‘off-years’. When the fifth year arrives, all assessments would be brought into line with the market all at once, causing dramatic and unpredictable changes in tax bills all at once. In addition, during the interim years, assessments would likely be disproportionate. Recent changes in State Law require proportionality each year. The Department of Revenue Administration performs studies each year for each municipality around the State as to uniformity in assessments. Since 1996 Dover has demonstrated some of the most uniform and proportionate assessments exhibited anywhere in the State. Dover has met and exceeded all State Standards every year. This is a direct result of these annual, in-house updates. These ratio studies can be accessed online: click here and scroll down to equalization.
As previously referenced, for explanations as to how ‘ratios’ are calculated and definitions of ratios and other statistical measures, click here.
Q - What are the differences with in-house versus outside revaluations?
A - A full revaluation by an outside revaluation company could cost Dover between $550,000 and $650,000, over and above the normal costs of ongoing assessing responsibilities. In those municipalities that must perform full revaluations every five years, this would be a reoccurring cost, every five years. Dover has not had a ‘full’ revaluation by an outside vendor since 1992. This means that the City has saved between $1.2 to $1.3 million dollars (in today’s dollars) by implementing an in-house program to perform cyclical revaluations (updates). Beyond the high costs mentioned above, revaluations by outside vendors are notoriously contentious. In addition to the ‘going in’ costs, typically the City is left with hundreds of abatement requests and appeals to the courts. Also, if performed by an outside vendor, they must assess all properties at 100% of market value all at once, causing dramatic shifts in tax burdens and hardship to many taxpayers.
Q - Why not just have an outside vendor complete a revaluation?
A - When a municipality does not have the in-house expertise and resources to perform in-house cyclical revaluations (updates) then they must contract with outside revaluation vendors in order to restore proportionality to the assessment base. In Dover the assessing staff is well versed and experienced with revaluations and have an operating program to ensure consistency in assessments and conformity to State laws on an ongoing basis. Accordingly, there is no need to contract with outside vendors for full periodic revaluations.
Q - Why is the City doing this assessment update?
A - New Hampshire statutes require assessments to be ‘proportionate’ each year. Since 1998 the City Assessor’s office has been performing annual updates to assessments as the market changed. During 2001 through 2006 the market escalated substantially and assessments were modified each year accordingly. October 2008 through September 2009, the real estate market began to reverse course with moderate declines in the residential market. Currently (referencing sales from October 2010 through September 2011) the decline has slowed down for most residential property types, and in some areas there is evidence of stability, with no change in market value.
For this year, in order to maintain proportionality amongst all property classes, we performed updates to assessments in some areas where the decline was still evident. The market has been particularly strong for multi-family properties (4 units and more) in Dover and other sectors of the State. Thus, some moderate increases to assessments were applied in 2011 for these property types.
Q - Do you use Bank Sales or ‘Short Sales’ in your analysis when determining assessments?
A - No, the City does not consider bank liquidations or ‘short sales’ transactions when determining market value. The circumstances surrounding such ‘sales’ are not typical. Also, all matters being equal, the ‘sales’ prices are typically 25% to 40% below the selling prices for normally marketed properties in the City.
That said, these bank-owned or foreclosed properties are impacting value for normally marketed properties for these properties must compete along side bank-owned properties on the market. In the opinion of the staff appraisers, once these properties are absorbed, the market may them begin to experience normal or typical market behavior.