Javier Hyland was furious when he got his latest property tax bill from Miami-Dade County.
First, the county put the value of his ocean-view apartment at $417,000. He can’t see any way the place is worth more than $400,000 after a meltdown in the South Florida real estate market. Worse, the county assessed his neighbor’s bigger, nicer, newer flat at only $407,000: “Is that fair?” asks Hyland, a pricing manager for a shipping company.
The property taxes in dispute amount to just $360. But Hyland, 37, is appealing his assessment anyway, even though it will mean trudging into city offices to make his case.
He’ll probably have to stand in line: 143,000 Miami-Dade property owners appealed their property tax bills last year. And Harvey Ruvin, the county’s clerk of courts, expects a similar deluge in 2010. Property tax appeals in the county hit 104,000 in 2008 compared with an average 40,000 in normal years.
From Florida beachfronts to Nevada deserts, fed-up homeowners are challenging property tax bills that have stayed high despite the housing crisis. Retiree Carol Schneider, 63, of Ferguson, Mo., never saw herself as a tax rebel: “In the past, I just paid my taxes whether I agreed with them or not,” she says. “But the last tax bill increased so much … I decided to fight it.” She prevailed, persuading St. Louis County to cut her tax bill in half.
Angry homeowners like Schneider and Hyland say their tax assessments and tax bills haven’t come down as fast as real estate prices in the worst housing collapse since the 1930s.
They’re right: Despite a real estate implosion, property tax revenue collected by states and localities actually rose 2.7% last year to $421.8 billion, according to the U.S. Bureau of Economic Analysis.
Property taxes have been a lifeline for flailing local governments, which collect more than 96% of property taxes. Toss them out, and the remaining sources of state and local tax revenue—including sales and income tax receipts—sank more than 9% last year from 2008.
“If you lose your job, (income tax) withholding stops. You stop buying cars and going out to restaurants,” which erodes sales tax receipts, says Donald Boyd, senior fellow at the Rockefeller Institute of Government in Albany, N.Y. “It doesn’t work that way with property taxes.”
What makes property taxes so different? Property taxes are often based on outdated market prices.
A lot can happen to housing prices between the time properties are assessed and the time the homeowners get their property tax bills. Some governments reassess property only every three or four years. Others wait even longer: “Utah once went 20 years without conducting meaningful reappraisals,” Federal Reserve economist Byron Lutz noted in a 2008 paper.
Overall, Lutz found that it takes three years for changes in housing prices to have an impact on property tax revenue. “The 2009 numbers reflect what was happening in city housing markets in 2007, maybe even 2006,” says Christopher Hoene, director of the National League of Cities’ Center for Research & Innovation. “They were still picking up some of the growth at the end of the boom.”
Some local governments have raised property tax rates, offsetting falling home prices.
Some places automatically adjust tax rates to keep property tax revenue stable no matter what happens to real estate prices. Others have imposed tax increases to deal with budget shortfalls.
After years of rapid population growth, for instance, suburban Gwinnett County, Ga., raised its 2009 property tax rate by 21%. So, many Gwinnett County homeowners are seeing bigger tax bills, even though their home values have fallen.
Gwinnett County homeowner Scott Johnson, an executive at an Atlanta technology firm, says his home’s tax bill went up 15% last year, and its market value fell. “Is it any wonder that people are getting mad?” he asks. “I am going to try to appeal but don’t expect much luck.”
Gwinnett County is expecting 10,000 appeals this year, vs. 7,500 in 2009 and 5,000 in ordinary times, says county assessor Steve Pruitt.
Most states limit how much property taxes can rise in a booming market.
That keeps a house’s taxable value below its market value. In some cases, the gap remains even after housing prices have fallen. Which means some homeowners are seeing bigger tax bills for homes that are worth less than they were the last time their property taxes came due.
In 1995, for instance, Florida instituted a constitutional amendment limiting increases in the tax assessments on owner-occupied homes to no more than the consumer price inflation rate or 3% (whichever was lower).
After an exhilarating run-up and a gut-wrenching decline in housing prices, some homes’ taxable values are still below their market values, leaving room for higher tax bills. In Palm Beach County, for instance, 25% of properties will see an increase this year in their assessed values.
This at a time when existing homes in the county’s West Palm Beach and Boca Raton were selling for 4% less in February than they were a year earlier and 44% less than they were in February 2006, according to the Florida Realtors trade group.
Unsurprisingly, Palm Beach County government has been hit with a surge in property tax appeals—from 5,477 in 2006 to 14,578 last year.
“It’s very hard to explain to the average Joe,” says Tom Barnhart, Palm Beach County’s director of appraisal services.
True, property taxes are bewildering to many homeowners. There’s confusion about where the taxes are coming from: Some areas pay special property taxes for schools or other government services. There’s confusion about the dates of the assessments and the way taxes are calculated through a maze of exemptions.
“We’re still in the dark about much of this,” says Kelly Alexander, a Princeton, N.J., homeowner who is contesting her tax bill after seeing her home assessed at $1.48 million, up from $1.1 million in 2001.
There’s also confusion—and anger—over what’s needed to contest a property tax bill. In determining a home’s value, local governments often want to see what comparable homes sold for—but only from the same time period when the tax assessments were calculated. If your home was assessed in January 2009, for instance, the local tax authorities don’t care that your neighbor’s home sold for a huge discount last week. And many local governments throw out distressed sales such as foreclosure auctions.
Pete Giancola, who owns an insurance agency in Deephaven, Minn., is poised to challenge his tax assessment this year. Scott County, where he lives, has warned that property assessments and taxes are headed up. “They’re saying my property went up 6%.”
So Giancola has been collecting sale prices for homes near his. Unfortunately, “50% of the data I’m gathering is for foreclosures or short sales”—in which the proceeds fall short of what the home seller owes the bank, he says. The county won’t consider distressed sales when it weighs the appeal, he says, exasperated: “We’re in a full-blown recession, for God’s sake.”
Pete Sepp, vice president for policy and communications at the National Taxpayers Union, estimates that 2% to 3% of homeowners appeal their property taxes and that 20% to 40% of them win. “The odds of winning some kind of reduction are better than most people perceive,” Sepp says. “If they knew that the appeal process was reasonably straightforward and that they had a fighting chance of obtaining a reduction, I imagine that many more folks would investigate further.”
Specialty firms and law offices are lining up to help them.
Madison, Wis., tax attorney Don Millis says property taxes now account for “70% of what I do,” up from less than half three years ago. His clients are mostly businesses fighting taxes on commercial properties, but increasingly he represents upscale homeowners, too. He sometimes finds ways to persuade tax authorities to be more flexible in accepting sales in weak real estate markets. “Like beauty,” he says, “distressed sales are in the eye of the beholder.”
Seattle entrepreneur Charlie Walsh last year started ValueAppeal, a service that lets you go online for free to see whether your local government is overtaxing your home, based on whatever criteria are used in local property tax appeals. “The rules do vary from county to county,” Walsh says. “We spend a lot of time doing the research so the customer doesn’t have to.”
The firm has so far rolled out its services in nine counties in six states, looking for those that are overtaxing their residents. It plans to cover 50 more counties by the end of the year. If you have a case, ValueAppeal charges $99 for a report you can use to contest the tax bill. You get your money back if the appeal fails.
The tax appeals are putting strains on local governments already coping with a weak economy, dwindling overall tax revenue and budget cuts. Clark County, Nev., which includes Las Vegas, expects property tax appeals to reduce revenue by about $150 million in the next fiscal year, which starts July 1.
“There’s a disconnect between values and taxes at this point,” says Rocky Steele, assistant director of assessment services in Clark County. “Values went off the planet” a few years ago. “You’d see signs advertising houses ‘from the $150s,’ and they’d paint that out and say, ‘the $250s,’ and then paint that out and say, ‘from the $350s.’ “
In 2005, the Nevada Legislature imposed limits protecting property owners from big tax increases, creating a gap between taxable and market values. Then Las Vegas housing prices went into a free fall—but some still haven’t fallen enough to close the gap and cut homeowners’ tax bills.
Overall, the gap between assessed and real values is now closing. And soon state governments will likely see property tax revenue begin to shrink. Fitch Ratings, which analyzes government debt, predicts “weakness in property tax revenues for at least the next two years.”
But for now, property taxes seem to defy gravity. And taxpayers across the country are hopping mad about it.
Minneapolis last year received an especially unusual appeal: one filed by the city assessor himself, Patrick Todd.
Todd decided to challenge his own office after it assessed an investment property he owned at $166,500. He’d bought it in 2008 for only $90,000. The assessors, he said, hadn’t realized it was a fixer-upper, not comparable to nearby homes in better condition.
Todd decided to drop the case when the publicity got too embarrassing. After all, only a few hundred dollars were at stake. “It was getting so much notoriety,” he says. “It was such a silly thing.”
He says the experience was educational. “I had never appealed. I actually learned how to do it. I went down. I filed my fee. I got the paperwork. It was relatively painless.”
Paul Wiseman USA Today March 30, 2010