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1 Kenai Assessment Task Force To date we have explored different methods of assessing property for tax purposes It has been assumed that the primary reason.

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Presentation on theme: "1 Kenai Assessment Task Force To date we have explored different methods of assessing property for tax purposes It has been assumed that the primary reason."— Presentation transcript:

1 1 Kenai Assessment Task Force To date we have explored different methods of assessing property for tax purposes It has been assumed that the primary reason for wanting this exploration is due to rising taxes, not values It may be that we are looking in the wrong direction (assessments) We should discuss this at the end of discussing the assessment methodologies

2 2 Kenai Assessment Task Force We previously proposed a methodology we called the AAM, Alternate Assessment Methodology Improvements were calculated using the cost approach rather than the market approach Land value was calculated as a percentage of the improvement value This methodology contained flaws due primarily to the large degree of land size variance

3 3 Kenai Assessment Task Force The Task Force was not enamored with the AAM primarily due to the lack of equality when compared to market value Lots along the Kenai River were very similar in value to lots elsewhere in the borough, therefore, were not considered to be equitable with lesser value lots BUT, we were attempting to exclude market value from the formula It was determined that by excluding market value, we tended to lose equitability in the taxation system Therefore, we present the following methodology:

4 4 Kenai Assessment Task Force AAM2 still uses cost as a basis for the improvement valuation This methodology is currently in use across the state, including Kenai The primary difference in the proposed cost approach and the current utilized cost approach is the lack of attempting to trend to market value from the cost This methodology will not require any determination of external or economic obsolescence, since we are not attempting to estimate market value

5 5 Kenai Assessment Task Force Land value will be determined using market value estimates as the first step in the process The second step in the land assessment process is to multiply the estimated market value by a fraction, 50% This results in the assessed value of the land Land value is essentially reduced by 50% This was deemed necessary due to the fact that land values are the primary cause for value increases

6 6 Kenai Assessment Task Force Lowering land value by 50% could cause land speculators to hold on to vacant land longer without developing due to lower holding costs Conceivably, this could cause an increase in land costs (values) First year of assessments would drastically reduce any land value increases Following years would still see same percentage of increases but at a lower value (50%)

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9 9 Using the Fractional Assessment method there would be a 9.3% reduction in Commercial Property Using the Fractional Assessment method there would be a 28.8% reduction in Residential Property Using the Fractional Assessment method there would be an overall 24.6% reduction in the Total Real Property Valuation for the KPB

10 10 Kenai Assessment Task Force Assuming personal property and oil and gas values remain the same The KPB mill rate would need to increase from 5.5 mills to about 6.98 mills to raise the same revenues, about 17% Improved values would carry the greater burden as taxes have been shifted away from land to improvements

11 11 Kenai Assessment Task Force Conclusions –Each methodology offered does nothing more than shift the tax burden from one property to another –There will be winners and losers –The losers will be the most vocal –Both methods attempt to get away from market value –Market value is something the public understands –The primary problem with the existing method appears to be spotty assessments and lack of reliable information

12 12 Kenai Assessment Task Force Before we decide our course, there are some questions that must be asked: What is it we are trying to accomplish? Are we on the right track? Are assessments just too high? Are taxes too high? Are individual property values out of equity? Or is the perceived problem simply the increase in value?

13 13 Kenai Assessment Task Force Heres what is has happened to taxpayers for the past five years The following graphs indicate what the taxpayers are actually seeing in their assessment notices and their tax bills

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17 17 Kenai Assessment Task Force What do we do? –There is only one method that provides both equity and public understanding, the existing method, the Market Value Approach –The problem with this approach is three-fold: –First, true equity is difficult to obtain due to the lack of good market data with which the assessor can work –Perhaps it is time to look for disclosure –Second, spotty assessments create major increases in value on an irregular basis- A good CAMA system should help with this, but all properties must be included in the system –Third, each time a reappraisal is completed and values increase, taxes also increase creating sticker-shock to the re- assessment process – This should NOT be the case, a reappraisal should do nothing but redistribute the tax, it should not increase taxes

18 18 Kenai Assessment Task Force So, what is the answer? Here are a few things to which we need to give serious consideration: First, there should be no reason why the public is so fearful of a reassessment The reassessment process does nothing more than maintain equity based upon market values But in order to do that, the assessor must have the proper tools to complete his/her job That means mandatory sales disclosure This is the only way that true equity can be maintained

19 19 Kenai Assessment Task Force Second, many property owners feel that the reassessment process creates windfall profits for municipalities This should not be the case, if assessments increase 15%, the tax rate should fall 15% thus creating a revenue neutral situation for reassessments Reassessments should not be spotty, the assessor should have the tools and personnel necessary to maintain annual market value equity That should help assure that no areas are surprised by 30%, 40% or even 50% increase in values while other areas of the borough see only a 10% to 15% increase

20 20 Kenai Assessment Task Force Or, we can try and gerry-rig another system together which resembles a market value based system but, it is not one This may do nothing but confuse the property owners Property owners want a tax system that is easy to understand and which is fair and equitable and above all, is predictable If we can give them that, we have done what is expected We currently have the makings of a good system, we just dont have all the tools we need to complete it In order to assist homeowners, the homestead ($20K) exemption may need to be increased Perhaps some type of circuit breaker programs should be introduced in our system also

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