Faulty tax system has resisted fixes

AJC investigation: Failure to set 'fair market value' angers homeowners

Georgia’s public schools and public libraries, its local cops and firefighters, its teachers and dogcatchers and more are all paid for, in part or in sum, by property taxes.

Until 2008, it was a nearly perfect system for financing local government, at least from the government’s point of view: Property values always went up, so property taxes either remained steady or went up, too. That stability vanished a year ago when values crashed, exposing a system of taxation that is broken at the most fundamental level: It is supposed to set the “fair market value” on individual properties, and it doesn’t.

That failure has angered property owners for decades and will make many of them apoplectic this year because the gap between appraised value and market value — a number that normally benefits homeowners — now routinely falls in the county’s favor as values drop.

State leaders and lawmakers have sought for decades to fix the system, and powerful legislators are promising a concerted push in the coming legislative session, which begins next month. A Senate study committee has scheduled a meeting Dec. 15 at the state Capitol.

“The property tax system is based on the assessed values being reasonably close to the market,” said Sen. Chip Rogers (R-Woodstock), the Senate majority leader and chair of a committee reviewing property tax policy.

“If they are not, then we have problems, and we have to correct it. We will be taking action this year. . . . The system is unfair. My intention is to get major reform.”

Rogers is the latest to take on property taxes. The system has survived repeated attempts to transform it in the past 15 years:

● In the early 1990s, a sweeping new law required every county to perform a countywide revaluation and directed counties to update every property at least every three years. Before then, assessors typically would change an entire category of a county tax digest by “factoring,” or applying a percentage increase to all properties. The forced reevaluations meant homeowners paid more in property taxes as the assessed values of their homes rose, even if tax rates held steady. As a result, an entire generation of city, county and local school officials enjoyed collecting more tax dollars while crowing that they had not raised tax rates — and, in some cases, even lowered them.

As governor, Roy Barnes, a Democrat, pushed through the taxpayer bill of rights, which took aim at rising assessments by requiring local governments to advertise any windfall income from revaluations as a property tax increase.

● Several years ago, lawmakers began proposing restrictions for local governments with a “floating” homestead exemption. That exemption, which increases or decreases with property valuations, was designed to limit how much new revenue could be captured by rising assessments. Several local counties, including Cobb, Fulton, Gwinnett and DeKalb, adopted such a system.

● In 2004, House Majority Leader Jerry Keen (R-St. Simons) proposed eliminating the property tax for schools — more than half of property tax collected in most counties — and replacing it with a sales tax.

● In 2007, House Speaker Glenn Richardson (R-Hiram), who last week announced plans to leave office, proposed eliminating property taxes and replacing them with an expanded sales tax system. The speaker’s GREAT Plan — for Georgians for the Repeal of Every Ad Valorem Tax — failed to get out of the House.

● Earlier this year, lawmakers reformed the appeals process, banned any assessment increase for three years unless the property was changed and required assessors to take foreclosures into account when setting values.

● Rep. Edward Lindsey (R-Atlanta) has proposed for two years to eliminate assessments and base values strictly on sales. In the absence of a sale, tax values would increase based on inflation. “We need to move to a system that’s based on the investment in the property, not the perceived value,” Lindsey said.

Systemic flaws

The current collapse highlights two major issues with the property tax system: It’s slow to react to dramatic changes in value, and mass assessing doesn’t accurately value individual properties.

John Scott, executive director of the Georgia Association of Assessing Officials, said mass assessing is designed to reflect trends for areas or communities, not to nail down a value for each home or business.

When someone seeks to refinance a mortgage, for example, that homeowner typically must pay $350 to $500 for a private appraisal. By contrast, Scott said, his county, Bulloch, spends $18.33 per parcel to set values.

“They call it mass assessing for a reason,” Scott said.

Because urban counties typically have at least 250,000 parcels to value, and only a handful of appraisers, assessors have a three-year window to revisit each property. That can throw tax appraisals dramatically out of whack during a sharp uptick or downturn, experts contend.

“There’s never been as rapid a change in property values as we’ve seen the past two years, at least not in the past 70 years,” said Dan Immergluck, a Georgia Tech professor who studies property, foreclosure, taxes and related issues. “We’ve seen properties that went up three or four times in value in three or four years. Now they’ve gone back down. The tax system can’t keep up with that.”

Just one year out of kilter can mean a property owner pays much more or much less than his or her fair share. When that happens, the tax burden shifts improperly.

The current system of mass appraising builds in a lot of unfairness, Immergluck said. That’s exacerbated when values change quickly.

“The more values move, the harder it gets to value,” Immergluck said. “I don’t think you can ever get at individual-level accuracy. The market’s way too volatile for this kind of system. I understand what the law says, but someone needs to realize that’s not possible.”