Swain property owners will soon find out where they fall on real estate roller coaster

Just after the New Year, property owners in Swain County will find out just how well — or how poorly — their property weathered the real estate downturn.

Swain County is wrapping up a countywide property revaluation, where every home, lot, business and tract of land is appraised with an up-to-date real estate value. Property values in turn dictate how much someone pays in property taxes.

Continue milking high-end homes for property taxes or realign real estate values?

Jackson County commissioners plan this week to discuss the upcoming property revaluation, though it remains unclear whether they will postpone the process as some residents are requesting.

In a revaluation, every home, lot and tract of land is assigned a new property value to reflect the going real estate market — a value that in turn dictates how much people pay in property taxes. But, the volatile real estate market has led many counties to postpone revaluations.

Jackson County has postponed its revaluation until 2013, but Tax Assessor Bobby McMahan has suggested waiting a couple more years. McMahan plans to give a report on the issue during a commissioner work session Jan. 13.

The market value of high-priced lots and homes are destined to fall in a countywide revaluation. Delaying the reval means the county can continue taxing high-end properties at inflated book value. Going ahead with the reval would shift property tax burden to median-priced properties as those are more likely to hold their value while the high-end properties fall — and that’s what Jackson County residents are protesting.

“You will be negatively impacting the lower-income families,” said Avram Friedman, an environmental advocate in Sylva.

Allen Lomax, a local real estate agent, told Jackson County commissioners a property revaluation “will definitely” have the most wallop on the wallets of the less affluent in the county.

While Macon and Swain have postponed their revaluations for a couple more years, Haywood County went ahead with its last year.

Counties must do a revaluation every eight years, which wouldn’t be until 2016 for Jackson.

Carol Odom of the Glenville community views the situation from another angle. She told commissioners that she’s neither rich nor under-taxed. Odom said she’s seen 75 percent of her income evaporate because of the dour economy. She believes homeowners shouldn’t be paying taxes based on false property values but that the whole county should “share their pain.”

“I hope you do revaluate, and that it gets shared all across the county — everyone should contribute. I’m not here to support other people financially,” Odom said.

Housing market prompts revaluation scrutiny

Macon County might postpone revaluating property — again — from 2013 to 2015, a remarkably different response to the crushingly bad housing market than Jackson County is taking.

Richard Lightner, longtime tax assessor for Macon County, said there simply hasn’t been enough property changing hands to set meaningful property values. And most importantly, he said, it would be difficult to set accurate values that Macon County could adequately defend from costly legal appeals. Property owners who disagree with a county’s revaluation have the legal right to challenge on a state level.

By waiting, more selling and buying will have taken place, though Lightner emphasized there’s no crystal ball he’s holding that allows him to read the future — and no guarantees that the market will be better then. Still, just by adding years to the process, one can safely assume some pieces of property will have sold, he said.

Macon and Jackson are similar on the tax fronts because of the communities of Highlands (in Macon) and Cashiers (in Jackson). Both communities are dominated by high-priced, multimillion-dollar homes, at least pre-recession prices. Those homeowners currently shoulder the bulk of the tax burdens in both counties. In Jackson County, by way of example, 57 percent of the tax base is located in just two townships: Cashiers and Hamburg, both in the southern end of the county.

Here is the key issue for taxpayers, the why-you-should-care, bottom-line point: Macon, by likely postponing a revaluation until 2015, would keep the tax burden predominantly on its higher-end residents in Highlands, and spare tax increases for the short term to the county at large. Jackson, by comparison, is looking still to do its revaluation in 2013, which means revaluated property, coupled with a revenue-neutral budget would, almost inevitably, shift the tax burden from the Cashiers area to the less-affluent areas of the county.

“It seemed that most of the pushback about delaying beyond 2013 came from taxpayers in the southern end of the county,” Jackson County Manager Chuck Wooten said in explanation. “Property owners in the southern end could see larger declines in tax value while those in the northern end will see smaller declines, which could result in less taxes for the citizens in the southern end versus more taxes for the northern end.”

Revaluations in North Carolina must take place at least every eight years. Jackson County has the option of pushing back until 2016. Macon County must do its revaluation by 2015.

What’s not in question is what revaluation will mean for both counties: declining values when compared to the boom housing years. Jackson County did its last revaluation in 2008, and Macon County in 2007. Both counties opted to postpone revaluation past a four-year cycle, which they’d gone to because escalating land prices were causing sticker shock to taxpayers. This means Jackson County is using property values set in about 2007, and Macon County is using property values determined in 2006.

New values would mean “the $150,000 home on one acre would probably go up; undeveloped land and more expensive home will have a decrease,” Macon County Commissioner Kevin Corbin said in a recent meeting on the revaluation.

And that would shift the tax burden.

“I don’t have a problem with that per se,” said Macon Board Chairman Brian McClellan, who lives in Highlands and works as a financial advisor there. “If a big house loses value, they should get a tax break. My issue is, if we don’t have good comps, then we don’t want to be at risk defending a lot of revaluations we might not be able to defend.”

Corbin said that he does have some questions about whether Macon County should just go forward, like Jackson for now is set on doing, “and let the chips fall where they may.”

“When is our economy going to return? Maybe we are living in the new normal,” Corbin said.

Macon Commissioner Bobby Kuppers, a U.S. Naval Academy graduate and former commander of a submarine, said the board should be clear in the message it sends to the county’s citizens.

“I think we can say, with some degree of certainty, where those chips are going to fall,” Kuppers said. “If we do the revaluation (in 2013), we owe it to the people of this county to warn them, ‘Incoming Chips.’”

Lightner added, “Those people you see at the grocery store or getting their car fixed, the burden of the chips are going to fall on their laps.”

Commissioners Ron Haven and Ronnie Beale indicated they would support postponing the revaluation.

“The people this would hit the hardest are the very people who can least afford it,” Beale said.

A vote by commissioners is expected in Macon County next month.

Sales keep pace with county’s new values

Property in Haywood County is selling 4 percent higher than the new values on the county’s tax books, refuting criticism that the county blanketly appraised property for more than it was worth.

There have been 215 property sales in the first five months of the year. Collectively, they sold for $36.392 million. Those same properties were assessed by county appraisers for a total of $34.97 million.

“The sales numbers speak for themselves,” said Commissioner Mark Swanger. “Property is selling for a higher price than the revaluation amounts. That would indicate to me the revaluation is accurate.”

The county’s team of appraisers relied on complex formulas to assign each home, lot and tract of land in the county a new value — values which in turn dictate how much people pay for property tax. Critics claim the depressed real estate market should have resulted in lower property values practically across the board compared to the last revaluation five years ago.

But in fact, the revaluation showed half the properties went up and half went down.

“Of course you can find random highs and random lows that sold for more or less. There’s going to be some that are up and some that are down,” said David Francis, head of the county tax department. “You are still going to have that fluctuation in the market. Just because the stock market is down one day doesn’t mean some stocks didn’t still go up that day.”

Francis said he has confidence the revaluation is accurate, and takes solace in the stats showing real estate sales — on the whole — are coming in slightly above the values pegged by the county.

“What we don’t want to see is that sales price below the tax value consistently,” Francis said.

Since property values determine taxes, when the values are too high, people end up paying more than their share of taxes.

 

Putting stock in comp sales

Appraisals were based on comp sales, the selling price of similar homes or lots nearby. Comp sales are epitome of market value: a cold, hard, irrefutable number of what like property actually sold for.

Critics have complained that the county’s comp sales were poorly chosen, and didn’t always compare apples to apples.

For starters, the sluggish real estate market has made for fewer comps to go by.

Horace Edwards of Cruso said appraisers lacked comp sales in his neck of the woods and so cast a wide a net looking for sales in other areas, landing on houses sold miles away for an ultimately rather subjective comparison.

“They were not at all suitable to my property,” Edwards said. “If I went out and traveled around the county in the same manner I could find houses that were the complete opposite of their revaluation.”

Meanwhile, a state of flux has kept everyone — buyers, sellers, banks, appraisers and Realtors alike — guessing what real estate might be worth one month to the next.

“They postponed it last year with the expectation it would be a stable economy this year, which was a fallacy because they didn’t get any improvement at all in the economy,” Edwards said.

Of course, comps aren’t perfect. Maybe the seller threw in the appliances or living room drapes to fetch a higher price. Or maybe they got a job somewhere else and sold for less to move in a hurry.

“That is going to happen every once in a while. We can’t do anything about that,” said Mary Ann Enloe, who sits on the board of equalization and review, her fourth time in the role.

Despite the many appeals — it will take until August to hear them all — the county’s appraised values seem mostly accurate to her.

“Of course the proof is in the pudding. Right now it is tracking really well,” Enloe said, citing the sales numbers.

How right is the reval?

There’s only one way to tell how right — or wrong — Haywood County’s recent property revaluation is. Appraisers attempt to peg the price of house or lot, predicting what a buyer would pay should a ‘for sale’ sign go up in the yard.

As hackles fly over whether the county’s assessed values are too high or low, the only way to tell for sure is delving into the world of property sales.

The Smoky Mountain News compared the selling price of 84 properties in April and May to the new values assessed by the county. Of those, 20 percent were accurate within a 10 percent margin of error.

Of the 68 whose assessed value was more than 10 percent off the actual selling price, 37 sold for less than their assessed values and 29 of them sold for more.

Property in Maggie, Crabtree, Bethel and Beaverdam were more likely to be overvalued in the county’s appraisal. Property in Waynesville was more likely to be undervalued compared to the sale prices — more likely to fetch a higher selling price than what appraisers had pegged it for.

Waynesville sales shows 17 properties outside the margin of error. The majority — 12 out of 17 — sold for more than the revaluation amount.

However, six out of nine properties in the Beaverdam community were valued higher by county appraiser than what the actually sold for. For example, a three bedroom, three bathroom house in Beaverdam valued at $262,900 was sold for $192,500.

According to the data, assessors undervalued three out of four properties in Crabtree and all properties in the Iron Duff community.

Maggie Valley properties were appraised for more than their actual selling price in seven out of 10 instances. A three bedroom, three bathroom house in Maggie Valley that was valued at $204,800 sold for $115,000.

There are few discernable trends when comparing the accuracy of appraised value by price bracket.

Of 14 properties that were appraised at $100,000 or less, 12 of them sold for more than the revaluation assessment.

Of the 42 properties appraised between $100,000-$300,000, 14 fetched a higher selling price than the county’s value and 28 sold for less than the county’s value.

Of the 7 properties appraised between $300,000 and $500,000, four sold for more and three for less.

Only two properties sold in April and May with an appraised value of more than $500,000. One home in Maggie, revalued at $520,400 sold for less at $340,000. Another in Waynesville appraised at $541,000 sold for more at $620,000.

— By DeeAnna Haney • Contributing writer

Row over property values in Haywood still raging unabated

Haywood County commissioners continue to be dogged by outcries over new property values.

Critics are openly deriding commissioners at every county meeting. They’ve circulated petitions, garnering hundreds of signatures from people who think the county has pegged their property values too high. They’ve held a few citizens meetings around the county to rant about it. Someone even took out a newspaper ad urging everyone to file an appeal over their new property values.

Critics have proffered varying conspiracy theories over revaluation, claiming that the county knowingly and artificially inflated the value of some property as a money grab to boost property tax collections.

One theory suggests the county, run by Democrats, appraised property higher in the Republican-stronghold of Bethel and Cruso to stick them with higher taxes.

The most common theory, however, is that the county is somehow in cahoots with wealthier homeowners and lowered their property values so they wouldn’t have to pay as much in taxes, while hiking the values on lower to median priced homes.

Indeed, higher-priced homes have seen their values fall. And lower- to median-priced homes held their value and went up, as a trend.

But that’s merely a reflection of sales in the market place — not a formula invented by the county’s appraisers, according to David Francis, the head of the county tax department.

“We have no control over the market,” Francis said.

No more so than the weatherman decides what the weather will be.

But, the disgruntled property owners point to the depressed economy and flagging real estate market.

SEE ALSO: How right is the reval?

“The prices are going down and down and down,” said Jonnie Cure, a watchdog for county government. “We are glutted with houses for sale. So when you have a huge supply and very low demand you obviously are going to have a reduction in the price in homes.”

But in fact, property values in Haywood County have not dropped as much as people think, according to Francis. Compared to five years ago, property on average is about the same, although some properties have gone up and others have gone down.

At stake? How much you pay in property taxes hinges on your property’s value. The county recently reassessed every home and tract of land, bringing the book value in line with actual market value. The revaluations are required periodically by the state to ensure everyone pays their fair share of property taxes.

As for the lower- to median-priced homes going up, they held their value because there was more demand for homes in that price range. Conversely, sales at the upper end stagnated, Francis said.

Francis has bowed up over the conspiracy theories that the county was sinister in giving upper-end homeowners a break.

“I was trying to do the best job I could for my fellow citizens. I grew up here, my children go to school here. It was important for me to make this right,” Francis said.

At a county commissioner meeting two weeks ago, the repeated criticism and conspiracy theories proved too much and Francis shot back after particularly insulting comments by Monroe Miller, the county’s chief critic who even has a web site dedicated to his fulltime hobby of attacking county government officials.

“Mr. Miller has insinuated I have artificially propped up the numbers on behalf of the county. That is asinine, insidious and blatantly ignorant,” Francis said. “I would never do anything like that I don’t appreciate that. I would never do anything to undermine the taxpayers of Haywood County.”

SEE ALSO: Sales keep pace with county's new values

Commissioners have grown used to the public chastising and being dogged by a dedicated group of government watchdogs. Commissioners usually keep their cool, attempting to respond to the questions and accusations from critics. But this time, Commissioner Chairman Kirk Kirkpatrick, like Francis, drew a line.

“I can assure you the five of us (commissioners) have done nothing intentional against anybody in this county. Any insinuation there is something different going on is completely wrong, and to be honest, I didn’t appreciate it either,” Kirkpatrick said.

The battle of words continued at the county commissioners meeting again this week, however.

“Other than righteous indignation I have not heard anyone attempt to defend Francis’ numbers,” Miller said.

If the revaluation was so off, Francis responded, then why didn’t Miller appeal his property values?

“I think my numbers are so good he didn’t even appeal his,” Francis said.

Horace Edwards, another critic sounding the alarm over property values, got vehement at the county commissioners meeting this week over a warning letter his daughter got after failing to pay her property taxes. The letter threatened foreclosure if she didn’t pay. Edwards grew increasingly upset as he read it aloud.

Edwards called it “the most asinine and crappy thing I have ever heard tell of” and threatened to “sue the hell” out of the county, then pounded the podium.

The letter in fact was a form letter sent to everyone who hasn’t paid their property taxes. Along with foreclosure, the letter warns of garnishing wages or directly tapping the person’s bank account. Almost always, the property owner sets up a payment plan.

“I am in charge of collecting taxes,” Francis replied. “I am not going to apologize for doing my job.”

Kirkpatrick diligently keeps notes during public comments, and afterwards addresses issues brought up by the audience.

“Sometimes I wonder if by responding I don’t bring on more encouragement,” Kirkpatrick said this week, but then dove in anyway. “As for revaluation we did the very best we could.”

 

Class warfare

Some who saw their property values increase will have a hard time — to put it mildly — paying more in taxes.

Eddie Cabe who lives in Canton says he is one of those people. His $67,000 home in Canton went up to $125,000. But it is a 90-year-old “box” house as he calls it, lacking proper floor joists, no insulation in the walls, and pull strings for light switches.

Kirkpatrick said those are things the appraisers couldn’t have known about Cabe’s house, and that’s what the appeal process is designed for.

“There are 55,000 parcels of property. We can’t come inside and evaluate each one, all they can do is take the sales that have taken place and look at the house from the outside and compare it to those in the neighborhood and put the best price they can on it. The best fair price,” Kirkpatrick said.

Cabe, who came to the county commissioners meeting to share his plight, said it wasn’t fair for his house to go up, while those with half million homes saw a drop in value.

“It seems like the folks that got money and the bigger nicer houses, theirs went down,” Cabe said. “I think this is the thing that people in the community are so upset with. We can debate all day along about whether real estate went up a little bit or down a little bit. But there are still people like me.”

Horace Edwards of Cruso questioned how his average three-bedroom home went up by more than 50 percent when mountainside mansions dropped in value.

“That’s not fair and equitable,” Edwards said. “I don’t belong to the upper end and I don’t get into the gated communities.”

Cure said the reval has created class warfare.

“These county commissioners have cut their nose off to spite their face. The median- to low-income people in the county are seeing their prices raised. They are the registered voters here. The higher priced homes are owned by people who don’t even live here and vote there,” Cure said.

Cure’s camp is calling on the county to throw out the revaluation and instead keep using the 2006 values on the books. Under 2006 values, upper prices homes would continue shouldering the same share of the property tax burden rather than seeing it shifted to lower and median priced properties.

Commissioner Bill Upton said tossing out the new values and keeping 2006 values on the books wouldn’t be fair. People who saw their property values fall compared to five years ago — roughly half the county — don’t want to keep paying taxes on values that are now too high.

“If we went back to 2006 we would have just as many people upset,” Upton said.

Cure agreed on that point. Those with high-dollar homes who saw their values come down would be up in arms if this reval was thrown out and the 2006 values carried on.

“Now you have a county divided,” Cure said.

Kirkpatrick said going forward with the revaluation seemed like the fair and right thing to do.

“If we had waited, some of these folks would be stuck with 2006 values that were by far higher than what their new values are. We weren’t trying to be fair to one class or another, but to as a whole be fair to everyone and go ahead and reval,” Kirkpatrick said.

 

Appeals

Property owners who disagree with their values can appeal — either an informal appeal with the county’s appraisal staff or a formal one before the quasi-judicial board of equalization and review.

The number of informal appeals this reval were nearly identical to the one in 2006, indicating dissatisfaction was about the same as it is every time the county tackles the mass appraisal, with 5,600 informal appeals compared to 5,500 last time.

But formal appeals are up by 20 percent over 2006.

Francis thinks the newspaper ad contributed to a rush of appeals just before the deadline. The day the newspaper ad came out, the county only had 600 formal appeals.

It grew to 1,800 just four days later.

That’s compared to about 1,500 appeals in the last revaluation in 2006, but nearly the same as the one before that in 2002.

Of course, some wait until the appeal deadline approaches, so the surge in the final appeal stage can’t all be chalked up to the ad. But he thinks a good number can.

“The appeals were extremely low until the advertisement hit the paper. A lot of people came in not knowing why they were appealing but they had the ad,” Francis said.

Merchants fear higher rent in fallout from rising commercial property values

Despite its vibrant façade, downtown Waynesville hasn’t been immune to the economic recession.

So Richard Miller was surprised, to put it mildly, when he learned his downtown building doubled in value over the past five years — at least according to the county’s appraisers. Miller disagrees with their assessment.

The book value of Miller’s building on Main Street went from $431,000 to $800,000 in the recent countywide property revaluation.

Property values determine property taxes: the higher the value the higher the tax. And that’s what concerns Miller.

If his taxes go up, he’ll have to charge more in rent to cover the cost.

“Could the businesses stay in business if they had to pay that much more in rent?” Miller said. “I’m afraid one of my tenants would leave if I said rent goes up by that much a month.”

The Kitchen Shop and the Blue Owl art gallery occupy Miller’s building at the corner of Main and Church streets.

Most commercial leases automatically go up if property taxes go up, thanks to a clause built in to the lease for just this occasion. Merchants will then have little choice: either absorb the rent hike or pass it along in the form of higher prices to customers.

“The result? Fewer customers, fewer purchases, less profit, more overhead, and more and more doors closed,” said Jonnie Cure, a free market advocate and past downtown property owner. “Too many businesses come and go on Main Street in Waynesville as it is in this horrible economy.”

The steep increase witnessed by commercial property is the exception to the rule in the property revaluation. Residential homes and land largely went down, or at best increased slightly.

Canton saw significant hikes to commercial values as well: a 13 percent increase overall for the downtown district. If higher property taxes force up rent prices, it could break small businesses, said Charles Rathbone, owner of WNC Sign World in downtown Canton.

“The business owners here could not as a rule support that kind of increase,” said Rathbone. “They are struggling every day to keep the light bill paid.”

Rent is cheap in downtown Canton compared to Waynesville, but merchants are still operating in the margins, Rathbone said.

On average, property values in downtown Waynesville went up 28 percent, with the larger jumps seen on Main Street. Miller said Main Street has been singled out.

“Why is Main Street being punished for being successful?” Miller said.

Downtown Waynesville is a selling point for the whole county, said Buffy Phillips, director of the Downtown Waynesville Association.

“We are clearly doing something right,” Phillips said. “Realtors always say if they have a buyer who is on the fence, they drive them down Main Street to close the deal.”

It doesn’t seem fair that their success resulted in such large jumps in property values, which in turn will hurt the very merchants who are the life blood of downtown’s vibrant scene, Phillips said.

Main Street storefronts remain in high demand, however. Downtown Waynesville has only a handful of vacant storefronts, with only a couple on Main Street itself.

While downtown Canton has generally been flush with storefronts for lease in recent years, several have been snatched up lately. New downtown business that have just opened or are coming soon include a computer shop, an office for an outpatient physical therapy provider, an automotive shop and a new restaurant.

“It is beginning to fill,” Rathbone said.

 

What it means for taxes

In downtown Waynesville, higher property values carry a potential triple whammy: they not only determine county and town taxes, but also a special assessment to support the Downtown Waynesville Association, a self-promotion arm for downtown merchants.

Phillips said DWA will likely lower the tax rate in the Main Street district. That means that even though property values went up, the amount paid in taxes won’t go up by the same percentage.

At the county and town level, however, commercial property owners who saw their values go up shouldn’t expect a lower tax rate to offset the increase.

On average, property values flat lined. Although some obviously went up while others went down, the total value of all the property in the county is the same after the revaluation as it was five years ago.

 

How commercial is calculated

Commercial property is valued differently than residential homes and land. The values for homes and land are based on sales of similar property. But there are usually not enough sales of commercial buildings to establish an accurate baseline.

“It is hard to find commercial properties that are truly comparable,” said Ron McCarthy with RS&M Appraisal firm.

So instead, commercial property values are derived from the prevailing rents in an area. Even if the property isn’t being leased, appraisers calculate how much rent income the building would potentially generate if it was.

While residential homes and land were appraised by an in-house team of county appraisers, the county contracted with a private firm, RS&M Appraisal, to do commercial property.

Regardless of the rent-based appraisal formulas, Miller disagrees with his assessment. Rents have not gone up 28 percent in five years, so why did property values, Miller asked.

 

On the rise

Commercial property values increased in the latest Haywood County property appraisal. Here’s the increase for certain districts compared to five years ago.

Waynesville downtown: 27.9%

Canton downtown: 14.6%

Maggie Valley downtown: 8.8%

Clyde downtown: 3.8%

Russ Avenue in Waynesville: 9.5%

South Main Street in Waynesville: 3.6%

Champion Drive in Canton: 26.7%

Property values affected election and are a looming problem

By Mark Jamison • Guest Columnist

During the recent election for county commissioner in Jackson County, both sides made reference to property taxes. The challengers — who ended up sweeping out the incumbents — claimed, to some derision, that Jackson had seen a tax increase even though the marginal rate had fallen. Supporters for the incumbents made frequent reference to the fact that the county had the third lowest marginal tax rate in the state. Both sides were correct in their assertions and both were also somewhat misleading.

The issues surrounding revaluation and marginal tax rates are somewhat confusing and easy to distort for political purposes. The fact that this area of public policy is prone to confusion and misunderstanding is unfortunate because it is an essential issue that has a direct impact on not only every property owner but virtually every resident of the county.

 

Setting values

North Carolina mandates that counties determine the value of property within their jurisdiction at least once every eight years. Beyond that, the frequency of the process, known as revaluation is up to the board of commissioners. Statute mandates that values reflect the market value of a property, i.e., the amount a property would sell for in an arm’s-length transaction.

The state allows counties to select among several methods for determining market value. The tax assessor may visit every property. This yields perhaps the most accurate valuation since it presumes that a specific visit will fully account for particular defects or attributes of the property which may affect market value.

This is also time consuming, expensive and may be subject to the art of personal judgment.

The other methods available rely on various statistical modeling techniques and may result in as few as 10 percent of the properties in a jurisdiction actually being visited. In all the methods there are choices in schedules of values that can be applied which might yield differing results. The governing body has some discretion in these choices and makes them based on technical factors which are analyzed and presented by the tax assessor.

The process is more difficult in a developing areas like Jackson and other mountain counties. It is further complicated when the area has market pressures resulting from second home or resort development. Mountain land may be even further difficult to value because the costs of development vary greatly. The presence and complexity of local land use ordinances may impact the value of land, especially steep land that costs more to develop in an environmentally responsible manner.

The process of evaluation is also complicated when large tracts of undeveloped land are part of the market, or when many lots are in the inventory of undeveloped land. One of the most compelling reasons for a subdivision ordinance is the fact that it standardizes the process for platting of lots and therefore provides some order and basis of comparison to the market.

 

Revenue neutral declaration

After a revaluation, North Carolina mandates (through GS 159 - 11(e)) that a taxing jurisdiction state a “revenue neutral” tax rate in its budget. The Local Government Commission gives a specified method for making this calculation. Essentially, one takes the total value of property within the county after the revaluation and determines what tax rate, when applied to that value, would yield the same amount of revenue as prior to the revaluation.

For example, after the 2008 revaluation it was determined that in order to raise the same amount of revenue as prior to the revaluation, Jackson County would need to charge a rate of 26 cents. The previous tax rate was 36 cents but the total value of property in the county was now valued higher, meaning that a lower rate would bring in the same revenue.

Twenty-six cents is not, however, the “revenue neutral” rate. The LGC calculations recognize that each year properties are added or improved thereby increasing the tax base. The “revenue neutral” rate therefore allows for the application of a growth-rate factor.

In the case of the 2008 revaluation that calculation yielded a “revenue neutral” rate of 27.05 cents. In other words, for every $1,000 of assessed valuation the property owner would pay 27.05 cents or $270.50 on a $100,000 property. Under the concept of revenue neutral, that means that if the value of the property had increased exactly at the same average rate as all of the property in the county that the owner would pay the same taxes as before the revaluation.

Of course, a county is made up of thousands of pieces of property. Not all can be expected to increase in value at exactly the same rate so the actual tax an owner may be assessed after revaluation depends on both the average increase in values for the entire county but also on how that particular property compares.

My friend saw her property in Frady Cove increase in value from about $300,000 to more than $900,000. Her property was valued significantly higher than the average increase, consequently she paid significantly more in taxes. My house in Webster saw an increase in value of about 30 percent, much less than the average. My taxes went down.

 

So who was right?

So, were the challengers right in claiming there had been a tax increase? Well, technically they were since the new rate set by the commissioners was 28 cents, which was higher than the revenue neutral rate of 27.05 cents. Those who argued that there was actually a decrease because the rate went from 36 cents to 28 cents were wrong — they didn’t understand the concept of revaluation and revenue neutral.

But those who argued there was a tax increase in terms that made it seem immense were perhaps stretching a point. The increase was about $9.50 per $100,000 of assessed value, or $95 on a million dollar property — not nothing, but not a political point scored either.

And what of the incumbents, who pointed with great pride to the “third lowest marginal tax rate in the state.” Well, if you’ve followed the discussion so far you may have noticed that marginal rates might not mean much in an area with a very hot real estate market. Since 2000 there have been three revaluations in Jackson County resulting in property values increasing by about 200 percent on average.

 

Mega increases avoidable

Of all the things the commissioners who lost in the last election could be criticized for, the most serious error is the one no one talks about. The 2008 revaluation came at the height of a sizzling real estate market. It was apparent that because of some of the gated developments and very high lot and land prices that the revaluation was going to reflect some astronomical increases.

Contributing to that problem was the use of a statistical method in the process that had the potential for allowing some of the prices in places like Balsam Mountain Preserve to leak out and impact other areas — something that generally should not happen if the process is to be equitable and truly reflect market value.

One didn’t have to be especially prescient or have a crystal ball to see that we were on the cusp of a real estate bubble. I wrote about that potential in 2006. By 2008, when we were on the cusp of the bubble bursting, it was evident that there were serious problems in the market.

Jackson County had done a revaluation in 2004. The increases in that cycle were alarming. Jackson County had been on an eight-year cycle prior to 2000 and had justifiably shifted to a shorter cycle to minimize the impacts of the hot market. The idea was to reduce sticker shock and made good sense. The downside was that short cycles can lock in huge increases in market values right on the edge of a slowdown. The ordinance process the county engaged in may have exacerbated this, although certainly not in the way the alarmists in the Cashiers market claimed.

It was reasonably predictable that the ordinance process would at least pause the market while developers adjusted to the new regulations. That was a good thing, but it was also something that needed to be accounted for in the revaluation process — both in the methods chosen and in the schedule of values.

By mid-2008 when the revaluation was completed it was clear that the market was seriously challenged. By accepting the 2008 revaluation, higher land values were locked in and the distribution of the increases was clearly troubling. Valuing steep land in larger tracts at $16,000 an acre or more was not sustainable.

The problems were foreseeable and predictable. Going ahead with the 2008 revaluation was a serious mistake, and we’re about to see the consequences. We are scheduled for a revaluation in 2012. The complete collapse of the real estate market will have some serious consequences for that revaluation. It will be difficult to find “comps” — comparable values — needed to establish a shape to the market. How do you determine market value when there is no market?

Currently, much of the land that was slated for development in 2008, land in the former Legasus developments for example, is now virtually worthless. Lots that may have been worth $400,000 may now be in foreclosure. Land that was slated for gated development and relied on developers for community wide infrastructure may now only be saleable as lots or tracts having substantially less value and potential.

 

Who’s going to pay?

The county may have a current dilemma collecting revenues from some of these lots. That could have an immediate impact on budgets and require tax increases, but even worse consequences occur if a revaluation shows the true current value of some of the land previously targeted for development. It is possible that a huge slice of tax base has virtually disappeared, meaning that the next revenue neutral calculation would result in the marginal rate going up significantly to 35 or 50 cents.

I want to make perfectly clear that this discussion in no way endorses development. It isn’t about how we develop or preserve land or what we may want our communities to look like. It is solely about state mandates and current processes that have tremendous impacts and consequences.

The immediate solution may be deferring the 2012 revaluation. That does nothing to remediate the values locked in from 2008, but it may allow the market to recover and mitigate some of the foreseeable problems. Over the long run though we must rationalize the property tax system in a way that accounts for these systemic problems. The state must recognize that a system that works for stable developed areas like the Triangle has hugely negative consequences on rural areas.

Some will say that given the current state budget crisis that now is not the time to address these issues. I would argue that now is the best time to address these issues. I would like to see the rural counties of the state through both boards of commissioners and the representatives in Raleigh convene a planning group and design some specific changes in state law and policy that give local jurisdictions the tools they need to raise revenues in an effective and fair manner.

(Mark Jamison lives in Webster and can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..)

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