Metro Atlanta property taxes: Three experts weigh in

Many economists favor the property tax because it aligns taxes with public expenditures: Unlike sales taxes, which spill across jurisdictions, property taxes pay for the school district or police department that serves the properties or the property owners.

After the housing-market collapse, many citizens worry that they aren’t receiving their deserved tax relief. And for disproportionately affected neighborhoods within a larger city, like Atlanta, the languid pace of adjustments may cause insufficient reduction in some people’s tax payments.

At the same time, however, slower assessment revisions may favor property that better weathered the downturn.

While a housing boom can obscure real tax increases, Georgia’s Taxpayer Bill of Rights, which passed in 2000, makes such increases fairly transparent. Thus, systemic overassessing of property shouldn’t raise taxes any more than underassessing lowers taxes in a housing boom. It simply causes jurisdictions to slow tax rate increases.

Following the recent decline in home values, some have proposed capping the growth in assessments, but such restrictions don’t address the immediate problem of insufficient downward revisions and may post new problems.

Florida’s experience with assessment caps is illustrative. In 1995 that state capped assessment growth at 3 percent or the rate of inflation, whichever is less.

During the subsequent housing boom, the cap heavily favored longtime homeowners at the expense of new buyers as homes of equal value were taxed at substantially different amounts based on when they were purchased.

The law also impeded the housing market as existing homeowners tended to stay in their houses to avoid a market rate assessment in a new home.

In 2008, in an attempt to fix some of these problems, Floridians voted to make the existing cap portable to a new home, dramatically increasing the complexity and volatility of the tax because it now hinges on the mobility and appreciation histories of home buyers.

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Dan Immergluck

Associate professor in the School of City and Regional Planning at Georgia Tech

The tax assessment challenges portrayed in the AJC this week are affecting localities across the country. The housing market boom and bust has stressed property tax assessment systems, which were not designed for dealing with such volatility.

While the AJC series focuses on recent declines in market values, most property tax systems also have not dealt well with rapid increases in value. Where values rose rapidly during the boom, tax values were often much lower than current market values. Of course this problem drew little homeowner ire and few headlines. Over time, overvaluations by assessors will, on average, be at least partly offset by undervaluations, but “on average” doesn’t help the homeowner who may not have benefitted on the upside but is paying on the downside.

Many of these sorts of problems stem from an unrealistic goal. It is generally not feasible for assessors’ appraisal systems to attain very high levels of accuracy on all properties every year. Accuracy might be improved somewhat, but a high degree of “idiosyncratic” error will persist. And this sort of error will increase with market volatility.

Policymakers should focus more on reducing systemic biases in the system that harm certain groups or neighborhoods, especially those with modest incomes. As an example, when property flipping and appraisal fraud were rampant in some low-income Atlanta neighborhoods during the 2003 to 2006 period, many homes were bought and quickly resold by investors for very large gains.

Many of these sales were inflated well beyond any reasonable value, and they fed higher assessments on neighboring properties, including many owned by modest-income owner-occupants.

Ironically, these neighborhoods are some of the same ones where foreclosures have been greatest, real values have fallen the most precipitously, and assessed values exceed current market values by the greatest amounts.

Notwithstanding some real problems in the current systems, I recommend those proposing any changes proceed cautiously. Many hasty revisions of tax structures that have been born out of supposed taxpayer “revolts” have backfired. Statewide laws that limit assessments as long as a homeowner owns a home (but that reassesses upon sale) have caused large disparities in tax bills among homeowners with similar houses and similar incomes in the same neighborhoods. Any moves to shift to other forms of taxation should recognize the volatility in those revenue streams and the potentially greater burden that they may impose on modest-income households.

More judicious proposals include state rebates or refundable income tax credits for homeowners and renters with modest incomes that at least partly compensate for property taxes that exceed a certain percentage of their income. (Renters pay property taxes as well; taxes are passed on through their monthly rent.)

As of 2007, nine states and the District of Columbia had such programs. These cushion the blow for those who need relief the most and provide an efficient, targeted approach to tax reform.

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David Sjoquist

Director of the Fiscal Research Center at Georgia State University

When you pay $24.95 for a book in Atlanta, you know that the sales tax will be 8 percent of that price. There is no government agent standing there estimating the book’s value for the sales tax.

But for the property tax, the county tax assessor determines the value. Getting that value right is a major challenge, even in normal times.

In 1853, when Georgia adopted the current property tax, owners told the government what the property was worth. Of course, everyone lied and grossly understated values. There were changes over time, but not until 1988 did the state begin to take equitable assessment seriously. In the past 20 years, the accuracy of assessments has increased remarkably.

Each year the state conducts sales ratio studies for every county in the state. The 2008 studies for Fulton and DeKalb show that appraised values for nearly all properties were below the reported sales price and most were within 15 percent of the previous years’ sales price.

So, why are appraised values of so many properties above the sales price this year? One of the main reasons is that determining fair market value, i.e., the price paid by a willing seller to a willing buyer, in this market is difficult and tax assessors have no experience in this market environment.

Consider a home listed in Sunday’s AJC. It sold for $820,000 in 2006, went into foreclosure and was sold by the bank in 2008 for $460,000. Does $460,000 reflect fair market value for that house and for homes in that neighborhood? Normally, you would say no because it is a forced sale; it is standard practice for tax assessors and commercial appraisers to exclude them in the appraisal process.

There are neighborhoods in which most of the sales were the result of a foreclosure or the threat of foreclosure. On what basis do assessors determine property values in such neighborhoods? At what point do the prices from forced sales become the market price? These are questions tax assessors were not prepared to answer since we have not experienced this phenomena in over 70 years.