Squeeze on tax rolls set 
to tighten

By D.L. Bennett

The Atlanta Journal-Constitution

Georgia tax assessors marked a historic real estate collapse this year, slashing values on 400,000 parcels in the five major metro counties by more than $13 billion.

While those reductions led to lower tax bills for many, they also contributed to sharp cuts in the services those taxes support, including unpaid furloughs for teachers, layoffs of state parks staff, fewer free meals delivered to elderly shut-ins, and curtailed hours for libraries.

2009 has been an almost endless season of cutting for local school boards, city councils, county commissions and state government. But watch out: 2010 looks worse. Maybe substantially so.

County tax assessors have a periscope view unlike any other of next year’s property taxes. And assessors don’t like what they’re seeing. First, residential values have continued to tumble throughout 2009. So, many properties not affected this year will be next. And others already lowered will fall even farther, officials said.

But commercial values have been in free fall as well this year— an entire sector of the market that assessors barely touched this year. That has government leaders, many of whom made sharp cuts this year, fearing next year will be one of the hardest in a generation for school boards, cities and counties.

“I’m concerned, no question about it,” said Rodney McDaniel, chief appraiser for Clayton County. “Until we start looking at sales, there’s no way to determine the severity of the situation. But we are hearing about commercial sales that are way less than the numbers we have on them.”

Assessors typically value strip malls, office towers, hotels, apartment complexes and other commercial real estate on the revenue properties generate. So, when revenues fall, values go with them.

Throughout 2009, commercial property owners have seen rents fall, vacancies rise, retail sales sharply decline and foreclosures increase. Experts say there are scores of properties nearing foreclosure because of the slide.

“If you didn’t like 2009, then you really won’t like 2010,“ said Steve Pruitt, chief appraiser for Gwinnett County.

He said anecdotal evidence points to commercial real estate values “spiraling downward” for 2010.

Assessors expect to begin looking at how bad it will be over the next 60 days.

They won’t formally set values until next April. The appraisal is based on the value as of Jan. 1 of that tax year. Assessors use sales throughout the prior year to reach their numbers.

In 2009, Burt Manning, chief appraiser for Fulton County, did something he’d never done before in 30 years of assessing: He lowered the taxable value of properties for three cities. He’s looking at 2010 as even worse.

“Residential values will continue to go down, but commercial is a larger area of concern,” said Manning. “It’s an area of concern, but we haven’t looked at the magnitude.”

John Speros, senior vice president of Ackerman & Co., an Atlanta-based commercial real estate firm, said value drops of 50 to 90 percent aren’t uncommon in some properties.

“You are going to see a real value drop of 15-25 percent,” Speros said. “There are going to be a lot of arguments and a lot of appeals fought. And, tax rolls are going to get beat up pretty good.”

Brian Kerr works for a Decatur company that is looking to buy distressed apartment complexes. He said the deals are getting better as the year wears on. Sellers are dropping prices to meet a declining market, he said.

“You are going to see a lot of difference between where these deals trade and their appraised value by assessors,” Kerr said. “A lot of the deals we are looking at are 50 percent (or less) of the county value. You are going to see more of that.”

More cuts in store

The declines assessors are expecting for 2010 could have devastating impact on already cash-strapped local governments and school systems. This year, taxpayers have seen governments like Atlanta and Clayton County pass hefty tax hikes. Gwinnett proposed a 3-mill tax increase and then backed off.

The county is now going through a series of cuts to balance spending with revenues. School administrators and city council members across the region have also slashed spending. Governments have laid off employees, slashed benefits, and reduced programming and services.

The choices for 2010 will be even more painful because so many governments have already cut so deeply this year.

Decatur Mayor Bill Floyd said governments all over the state fear how bad 2010 may be and the decisions ahead for city councils, school boards and county commissions.

“When you look at where we are at now, we are talking about police and fire,” Floyd said. “And nobody wants to go there. But that’s where most of our money is.”

Atlanta ran into that last year when it was forced to furlough police and firefighters to help make up for a $50-plus million shortfall. Mayor Shirley Franklin even closed city hall on Fridays.

Floyd who serves as president of the Georgia Municipal Association, the lobbying arm for more than 500 Georgia cities, said he expects many governments will be forced to consider raising taxes.

“That’s going to have to be a decision people are going to have to make, not just governments,” Floyd said. “It’s not going to be a pleasant conversation, but it’s one that’s going to have to be had.”

Schools will hurt

The situation could be even worse for local schools, which are heavily dependent on property taxes because they don’t have the licensing, permitting and taxing ability of local governments. Also, they’ve suffered several years of cuts of state support.

“It’s not a pretty picture,” said Julia Bernath, Fulton school board member and past president of the Georgia School Boards Association.

“We are getting word it’s going to get worse before it gets better,” Bernath said.

She predicted tax hikes could be commonplace next year because so many systems have already cut back. Most local systems have already imposed furloughs, increased class sizes and cut administrative costs. “We are going to be looking at anything we can to not reduce services,” Bernath said. “But that’s not going to be easy.

“When you have 85 percent of your cost wrapped up in personnel, you have to start impacting staff.”

Beyond that, local officials expect collections to be difficult next year as well.

Normally, Cobb, DeKalb, Gwinnett, Fulton and Clayton counties would produce less than 10,000 property tax returns. In 2009, anxious property owners filed a record 51,000 documents asking assessors to lower property values.

All those filings have gummed up getting tax digests ready so bills can be mailed on time. Several counties have delay collections. Fulton County, for example, won’t mail bills until the end of October.

Normally, payments are due by then.

Chief appraisers say they fear the number of returns could jump substantially in 2010 as more property owners seek to force assessors to lower values. And, there’s every reason to expect commercial property owners — with so much money at stake — will push a lot of their appeals to court.

Manning said Fulton was caught off guard by 29,000 returns this year. The county is already looking to prep staff in expectation of record return numbers for 2010.

“We are going to be better able to handle large numbers,” Manning said.

Some property owners will save money when their values fall, even if they end up getting less service. However, others will end up being forced to pick up the slack unless governments accept collecting less property taxes.

Commercial property value is important because a single class A office building dropping 30 percent or hotel losing half its worth slashes millions from tax rolls. By comparison, a 30 percent reduction on a $250,000 home cuts just $75,000. And, the state constitution requires uniformity across classes or properties. So, there’s a ripple effect with every property lowered.

There have been some high-profile sales supporting the decline in the commercial market. The Equitable Building sold for $29.5 million but was taxed at $44.8 million. And the tower at 40 Marietta Street sold for $7 million but was valued at $9.1 million by Fulton assessors.