Property tax reform gets closer look

JEFFERSON CITY, Mo. -- From one perspective, homeowners want to see the value of their properties rise so that when it comes time to sell they earn a profit on their investment.

But increases in value -- particularly sharp spikes -- can carry a major downside when the taxman comes calling.

Spurred by an ongoing controversy in St. Louis County over so-called "drive-by" assessments, the Missouri General Assembly is giving proposals for statewide property tax reform a close look this year.

Supporters contend homeowners need protection from out-of-control increases in assessed property values.

"If we are going to protect taxpayers in this state, we are going to have to do a better job with assessments," said state Sen. Michael Gibbons, R-Kirkwood. "The process is supposed to equalize values. What we find is homeowners are paying more taxes, sometimes 40 or 50 percent more."

However, the calls for reform are making those in the education community nervous. With local school districts the beneficiaries of the bulk of property tax collections, educators are worried even minor legislative tinkering would hit schools squarely in their bank accounts.

"The major focus of property taxes is to pay for education," said Rowena Conklin, a statehouse lobbyist whose clients include Clay and Platte counties plus a number of education groups. "We have a vested interest in making sure assessments are as current as they can be."

A Senate committee heard testimony this week on a dozen property tax reform bills, and a like number have been submitted in the House of Representatives. The bills call for a variety of changes, including banning drive-by assessment, capping the rate at which assessed values can go up, extending the frequency of reassessment cycles and exempting elderly homeowners from assessment hikes.

However, during the hearing before the Senate Ways and Means Committee, an issue not addressed by any of the bills came up that could be at the heart of the problem: The constitutional provision intended to balance assessment increases with lower tax rates -- rollbacks -- may not be working.

Odd-numbered year reviews

County assessors are required to review all property in their jurisdictions every odd-numbered year. The frequent assessments are required to ensure that assessed values are fair, equitable and up to date.

Cape Girardeau County Assessor Jerry Reynolds said the process, in general terms, works like this:

Assessors run a mass-appraisal computer program that reviews prices homes have sold for since the previous assessment cycle. Homes that haven't been recently sold are compared with those in the same neighborhood that have on a square-foot basis to determine value.

"It is not a guessing game," Reynolds said. "If we get comparable sales, we know what a house would sell for."

If anything, Reynolds said, assessed values tend to come in lower than fair market value.

If the assessed value of a property increases by more than 17 percent, assessors are required by law to do a "physical inspection" of the property. Because there are literally millions of parcels of property in the state, many assessors have taken to doing drive-by inspections.

Reynolds said a visual examination of a property without getting out of the car and walking around is sufficient to determine whether the property fits the same pattern as others in the neighborhood as revealed in the computer evaluation. Reynolds said assessors do frequently find cause to lower an assessment after an inspection.

During last year's assessment cycle, Reynolds said he received about 600 phone calls from property owners with questions. Another 100 were made to his office for informal hearings where the assigned values were explained. Reynolds said only a handful appealed to the Board of Equalization, which reviews assessments homeowners feel are too high.

However, drive-bys were not what the Legislature had in mind when members passed the physical inspection requirement in the 1980s, according to some veteran lawmakers. What constitutes a physical inspection is not defined in the law. In St. Louis County, some inspectors claimed to have conducted more than 1,000 inspections in a single day.

Several lawmakers propose that a 5-percent increase in assessed value trigger a physical inspection that includes a walk around the property and, if requested by the owner, examination of a home's interior.

Variable rates

Assessed values statewide have gone up in recent years, but how much varies from county to county. One reason for the increases could be that assessors are doing a better job at setting assessments that are closer to market values.

State Sen. Chuck Gross, R-St. Charles, said he knows that isn't a popular argument, but in his experience as a licensed appraiser, he believes it to be true. Gross is sponsoring a bill to freeze assessed values for homeowners age 65 and over.

"Big assessment increases often happen because an assessor hit too low in one cycle but got closer in the next," Gross said.

Some of the proposed bills call for extending reassessment cycles to every five years. The sponsors say this would protect taxpayers from being hit with major tax hikes every two years.

However, Conklin, the lobbyist, said that would only worsen the sticker shock, with homeowners being faced with five years worth of value increases instead of only two.

"Anytime you increase the number of years you do reassessment, the greater the cumulative effect is going to be on taxpayers," Conklin said.

Explaining the rollback

Taxing jurisdictions, such as school districts, are not supposed to profit from increased assessed values. The state Constitution requires them to roll back tax rates so that they take in the same amount of revenue, adjusted for inflation, after reassessment as they did before.

However, rollbacks are calculated in the aggregate. While taxes for some homeowners may stay the same, others will see increases or even decreases.

For example, if a home's assessed value jumped 40 percent but values overall increased only 20 percent, that homeowner would pay more taxes. In the same scenario, someone whose home increased 10 percent in value would get a tax cut.

Chris Straub, a lobbyist for the Missouri School Boards Association, said that is a limitation of the system.

"There is no way to design a rollback to guarantee that every individual property owner does not have a tax increase," Straub said. "You would have to have different tax rates for every individual property owner."

Further weakening the rollback protection for homeowners is that residential and commercial property are assessed differently but lumped together for rollback purposes.

"When you assess residential property, you do it purely on market value," said state Sen. Wayne Goode, D-Normandy. "With commercial property, you do not do that -- it's assessed on what it can earn. That's pretty flat from year to year, especially when you're in an economic downturn like we are now."

As a result, owners of commercial properties tend to avoid assessment increases yet benefit from rollbacks.

Gibbons said that could be contributing to a shift of property tax burden from commercial to residential property.

"Something is drastically wrong with the rollback or how it is functioning," Gibbons said.

Some of those who spoke at the hearing said there could be legal impediments to treating residential and commercial properties differently in regard to rollbacks.

mpowers@semissourian.com

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