Ticking Tax Bomb In Your House
They say that timing is everything in comedy. The same rule apparently applies in politics, where the Mecklenburg Board of County Commissioners last night set a public hearing for Nov. 3 to discuss the looming property revaluation. For those keeping track at home, that would be one day after those same commissioners appear on the ballot. No joke.
In fact, it’s downright serious business for homeowners, with a commercial real estate market in turmoil that could lead to a hefty hike in residential property taxes. How hefty? Try upwards of 30 percent, according to Republican Commissioner Bill James’ interpretation of early concerns expressed by the Citizens’ Revaluation Advisory Committee.
From the committee’s summary report:
Our primary concern is the commercial side of reevaluation. Perhaps not as volatile as today’s securities market, in many ways real estate is behaving in a similar fashion. That is to say, badly! Values have been changing quarterly and in rare cases significantly, within a mere 90 days of the last appraisal.
While the T.B. Harris Commercial Market Data Study was provided to staff in December 2009, much has changed. Overall, the commercial real estate market appears to be caught in “A Perfect Storm” of factors that will impact it’s (sic) ability to recover for several quarters. This assessment is driven by the unemployment numbers, the anemic monthly growth numbers business is experiencing, and the lack of liquidity to small businesses. All these factors, and others like consumer confidence, will continue to hammer at real estate values.
That sent off warning bells for James.
“If commercial drops 30 percent and residential drops 10, then there is going to be a huge shift to residential property tax owners,” he said. “If we use a revenue neutral rate, most residents are going to have a tax increase. It’s important to get out in front of this, with no accounting or assessor kind of gobbledy-gook about regression analysis. We need to be able to tell people that there could be a problem and we’re going to have to address that.”
James requested preliminary numbers from the tax assessor’s office that would allow commissioners to gain a sense of how low they’d have to set the tax rate so 50 or 75 percent of property owners don’t have to pay a tax increase.
“I don’t think revenue neutral, in this environment, is rational or should be reasonably expected. I don’t know how you can have revenue neutral if you have this huge crater in the commercial real estate market,” James said. “Even in the best of times, taxes go up on residential homeowners. And in this environment, where you have a nuclear bomb in the commercial real estate market, you’re going to have to a huge cut in the rate.”
Commissioners Chairman Jennifer Roberts, a Democrat facing a tough at-large race in November, was quick to put the brakes on any talk about tax rates during Tuesday night’s meeting.
“I think you’re getting a little ahead of the process,” she scolded James. “We certainly know how you feel about revenue neutral, etc., but we’re not even at the stage where we know what the balance of the commercial real estate market looks like. And I think to use terms like bomb, etc., is a little inflammatory.”
Countered James, “If you use their (the citizens’ revaluation advisory committee’s) term, ‘a perfect storm,’ I’m OK with that.”
County Tax Assessor Garrett Alexander conceded that there would likely be a redistribution of some sorts between commercial and residential during the reval process, but cautioned against overstating its potential severity.
“You must remember that as far as we see the market today, it is greater than the market in 2003,” Alexander said, referencing the last time Mecklenburg held a reval. “The last time we looked at doing a revaluation, that difference was 20 percent; right now, based on our analysis, it’s somewhere in the neighborhood of 12 percent.”
Counties are required to revalue property at least once every eight years. Mecklenburg had planned a revaluation in 2009, but scuttled it because of the deteriorating economy and instead began a process of resetting property valuations based on new market conditions. About 70 percent of the county’s 290,000 properties up for revaluation are residential, Alexander said. Property owners will begin receiving valuation notices in January, he said, and will have the opportunity to appeal assessed values. Information on the revaluation and appeals process in available here.
The average assessed value of most homes is likely to be more than current values, which were set in 2003, Alexander said. On that note, Commissioner Harold Cogdell, a Democrat also up for at-large reelection, echoed Roberts’ concern about not jumping to alarmist conclusions before the revaluation process has run its course.
“It’s very important that we don’t let fears get out in front of reality,” Cogdell said. “We don’t know what ultimately will lie at the end of this process.”
But James had a sneaking suspicion, specifically about what might be headed homeowners’ direction.
“I know values have gone up since 2003,” he said. “The trick is, if commercial values have gone up 1 percent and residential values have gone up 30, then that’s a shift. If we set the rate at revenue neutral, what really happens is we end up raising taxes on people.”
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