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Government and People
Preliminary Report on
John H. Bowman, Ph.D. with input from Michael E. Bell, Ph.D. Thomas E. Heinemann
Prepared for the District of Columbia Tax Revision Commission December 1997
Table of Contents
The real property assessment system in the District of Columbia has taken its lumps in recent years. Media reports in 1996 highlighted poor assessment quality, use of improper procedures by a some assessors, large numbers of assessment appeals, and the firing of some key assessment personnel [O'Cleireacain 1997, 79-80]. Citizen groups have criticized not only the assessment system, but also the appeals mechanism [Citizens for Fair Assessment], which experienced a large increase in appeals in the early- and mid-1990s [BRPAA reports]. Concerns about the appeals process, however, placed this topic on the agenda of the Tax Revision Commission, even though new leadership and procedures put in place in the last year at the Real Property Tax Administration may reduce demands on the appeals system.
The appeals process can provide not only relief for aggrieved taxpayers, but also information on the functioning of the assessment system and pressures to improve it. Thus, it is an important part of a property tax system. For the appeals process to serve these purposes well, however, it must be easily accessible at low cost, and it must be perceived to be fair and efficient.
The primary arbiter of appeals concerning real property tax assessments is the Board of Real Property Assessments Appeals (hereafter, BRPAA or Board) [District Code, 47-825.1]. It is the successor to the previous Board of Equalization and Review [District Code, 47-825, repealed 1993]. BRPAA has the authority to review and adjust incorrect real property tax assessments, and until recent statutory changes has been the first step in the appeals process;(1) property owners not satisfied with the Board's resolution of their cases may appeal to the Superior Court.
Legislation creating BRPAA established it as an 18-member board whose members are appointed by the mayor and approved by the city council. All members must be District residents, and are to be broken down as follows:
BRPAA members' terms run for five years, and the chairman serves for two years. No member can serve more than two consecutive terms, or 12 years, whichever comes first; a person appointed to finish someone else's unexpired term may then be appointed to only one full term. Compensation is set at $25 an hour, with annual caps of $10,000 ($12,000 for the chairman). The Board is to convene in panels of three to hear appeals unless the appellant agrees to a two-member panel. The chairman has the authority to bring before the Board any assessments the chairman believes to be incorrect.
In the summer of 1997 there were only 12 members on BRPAA (with four additional inactive members) out of the required eighteen.(2) The requirements for a specified mix of backgrounds of professional expertise are a problem, but reportedly have been adhered to as much as possible. The current board includes four attorneys, two real estate brokers, one District general licensed appraiser, two District residential licensed appraisers, and two business people.
Historically, BRPAA (and the predecessor Board of Equalization and Review) has found it difficult to meet the requirement of six real estate appraisers on the board for two reasons:
As a result, BRPAA operates at less than full staffing, and the chairman divides the case loads between three panels of three and two panels of two [Murphy]. Panelists often have experience in neither direct property assessment and valuation procedures nor the specific property class upon which they are required to render judgment. The Board as a whole, however, is fairly diverse, and panel members can draw upon the expertise of others to render decisions.
For each of the five tax years preceding 1998, BRPAA adjudicated over 3,000 cases, as shown in the tabular presentation. Over this period, the number of cases generally has declined from highs earlier this decade when problems associated with computer-assisted mass appraisal (CAMA) spurred an increase. With a moratorium on assessments in 1997, adopted to permit the Real Property Tax Administration to remedy some problems with its records and procedures, the number of appeals coming to BRPAA dropped somewhat below 3,000.
No data exist on reasons for appeals to BRPAA, and such information is not required.(3) Therefore, causal relationships must be inferred. Frustration in resolving assessment issues with the Real Property Tax Administration may have been an important impetus to appeal. The new RPTA leadership has conducted an evaluation of its operations and, concluding customer service needed to be improved, identified and prioritized revisions to be made, then secured City Council adoption of some proposed changes. In the future, as these changes take effect, the BRPAA case load quite possibly will decline. The new triennial revaluation process certainly should have that result, for each property will be reassessed only once in a three-year cycle.
The Appeals Process(4)
Tax bills are mailed out twice yearly, the first for a given tax year in March and the second in September. The deadline for filing appeals to BRPAA is April 30, and BRPAA decisions are to be mailed by July 14. Appeals from BRPAA rulings are to reach the Superior Court by the following March 31. Disputed taxes must be paid before taking the matter to court; Superior Court decisions may result in credits or refunds being issued by the District government [Department of Finance and Revenue 1997, Real Property Tax Facts].
Appeals can be brought to BRPAA by petitioners - either the property owners or their legal representatives - between March 30 and April 30. A BRPAA panel (typically three members) then reviews each appeal and determines whether the assessment should be changed. BRPAA will consider cases only when the reduction sought is greater than five percent, and it has the authority to raise or lower the assessment. Petitioners are encouraged to craft their petitions carefully, and to ensure that their requested value is similar to values for surrounding, similar properties [Institute for Property Assessment Studies]. BRPAA is to hear all the cases by July 7, mail decisions by July 14, and submit to the mayor by July 21 a revised assessment roll - the preliminary assessment roll from RPTA, adjusted for BRPAA changes in value [O'Cleireacain 1997].
As noted earlier, BRPAA now is at only two-thirds strength (12 rather than 18 members), and each panel conducts a large number of hearings. The chairman divides the Board into panels of three members who stay together for the duration of the term. If the chairman has not assigned a case to a panel of three, the petitioner may request a panel of three. Hearings before BRPAA panels last, on average, about twenty minutes [Murphy; IPAS]. During tax year 1998, BRPAA:
Assessment reductions awarded by BRPAA for tax year 1998 are estimated to result in more than $21 million in tax reductions, over $18 million - about 85 percent - from reductions for commercial properties.(5) Complete tables of BRPAA actions for recent years will be in an appendix, but 1998 is fairly typical. The tabular presentation below, however, shows the estimated revenue reduction due to BRPAA decisions, and relates those figures to the property tax levy for the first four years. In the peak year, tax year 1994, the reductions were 5.1 percent of the real property tax levy.
Although appeals currently begin with BRPAA, many cases may result from technical errors that easily could be corrected by administrative review. Grass roots organizations, such as the Institute for Property Assessment Studies (IPAS), strongly recommend that taxpayers appealing their assessments first talk to their assessors. Many cases result from classification errors, or glitches within the process that can be rectified easily [IPAS, Appealing Your Property Tax Assessment]. A first-stage appeal at the Real Property Tax Administration level, recommended by the new RPTA head and adopted by Council, will be effective in the 1999 tax year, along with the triennial valuation cycle.
Once BRPAA has rendered its judgment, a property owner may appeal the decision to the Superior Court of the District of Columbia. Appeals must be made by September 30, about 2.5 months after the mailing of BRPAA's decisions and more than six months after the mailing of assessment notices [District Code, 47-825, 47-3305]. Appeals must go to BRPAA before they can go to the Superior Court and, as noted, the full amount of taxes in dispute must be paid before the matter goes to court.
In most cases the appeals are referred to mediation. The petitioner makes an offer of settlement with a form available from the Corporation Counsel, who will then seek a response from the Department of Finance and Revenue (DFR - now Office of Tax and Revenue, or OTR).
If a settlement is not then agreed to, the presiding judge may order mediation through the Multidoor Alternative Resolution Services, in which case the petitioner is required to offer a pre-mediation settlement [Pearlstein]. There are no published analyses of the results of court decisions, but the Office of Tax and Revenue periodically lists refunds made pursuant to court orders. Data for fiscal 1997, received very recently, were in a form making their use difficult.(6)
The property appeals process, and perhaps particularly BRPAA, has engendered controversy. Some feel that the chairman has too much authority in shaping panels and steering cases. The chairman creates the hearing panels and assigns cases to the panels. Criteria used in creating the panels reportedly include matching professional backgrounds and personal characteristics. Other criticisms focus on the handling of commercial cases, training procedures for Board members, and the confirmation process for Board appointees.
Commercial cases often involve potentially large tax reductions. More often than not, the commercial taxpayers have legal representation [Murphy]. The chairman has the authority to decide which panels hear what cases. In 1993 there was criticism because the chairman created one panel to hear only commercial cases. Also, the chairman had been affiliated with a law firm that handled a majority of commercial cases. Despite the appearance of conflict of interest, the then-mayor reappointed the chairman [City Paper 3/12-18/93]. That incident seems to have added to the perception that politics plays too large a role in BRPAA matters. A prominent critic and former member of the BRPAA predecessor, Board of Equalization and Review (BER), noted that while he served on the Board, one of the chairmen pursued a subcontract with the CAMA implementation process [Ormerod interview]. Current legislation prohibits BRPAA members from having had dealings with the Board for at least two years prior to service and prohibits such dealings for two years after service.
The confirmation process has been called perfunctory. Although not a BRPAA issue per se, because it suggests a political culture that may lack proper checks and balances, the process can cause credibility problems for BRPAA. One prior Board member reported that his hasty review by City Council suggested that a mayor may be able to gain rather unquestioning acceptance of appointees by making appointments toward the end of a legislative cycle, when the work load is heaviest [Ormerod interview]. This, combined with the fact that the BRPAA chairman has authority to create panels and assign cases, is seen by some as a weakness that may permit conflicts of interest. It has not been possible in the context of this study to prove or disprove such assertions. They are raised here because they surfaced as criticisms more than once. It is noted, at the same time, that the current BRPAA chairman feels that the suggested scenario never has been accurate [Murphy interview].
With regard to training for BRPAA members, there exists a training manual or, more accurately, a manual of rules and regulations. A two-day training session is held at the beginning of each term. Professionals from the Board of Real Estate Appraisers present a seminar on property valuation. The current chairman believes this is sufficient [Murphy interview].
The existing manual, used as an assessment guide to the RPTA staff, was compiled in 1984 and is in need of revision to reflect changes in legislation since that time [Real Property Assessment Manual 1984]. While it is thorough in its description of property valuation methods, it is not a standard training manual for BRPAA members. Because not all BRPAA panels have licensed appraisers on them, strong training seems necessary for them properly to carry out their responsibilities in determining the appropriateness of petitioners' requested changes in assessed values.
Finally, as noted earlier, BRPAA keeps no data on reasons for appeals; it also does not track the cases that go on to Superior Court. Legislation requires that BRPAA report problems and make recommendations for solving them. This provision does not explicitly address such matters as reasons for appeals, or whether BRPAA decisions are sustained or reversed when they go to court. Such information could be useful to both BRPAA and RPTA.
RPTA has obtained Council approval of its plan to move to triennial, rather than annual, reassessment. The district has been divided into three areas, each to be assessed in a different year of the three-year cycle. The same legislation also introduces an initial administrative review in the appeals process, at the level of the assessor. Each of these changes should reduce appeals going to BRPAA, even though property owners still may appeal their assessments in any year, whether or not they are in the current triennial assessment group.
Another change alters the appeals process and calendar. Property owners will have 30 days to appeal assessments from the time notice of final determination from the administrative review (by the assessor) has been issued. All final determinations on review are to be made by August 1. If the administrative appeal outcome is unsatisfactory to the owner, appeal may be made to BRPAA by September 30. Appeals from BRPAA to the Superior Court may be filed within six months after the September 30 deadline.
BRPAA's role and composition should be reconsidered, at least once some experience is gained under the new system.
Proposition 51, approved overwhelmingly by District voters in 1996, was an initiative sponsored by a janitors' union, and is now part of the District's Code [Act 11-458]. Under it, all property assessment hearings before BRPAA - and the supporting materials used by appellants - are to be made public. The concern of Proposition 51's backers was that properties were not being assessed at their full value, and this was seen as an equity issue. Attempting to show under-assessment of District commercial properties, they used national data on income, expenses, median rents, and median expense ratios to estimate values per square foot for District office buildings [Riley interview]. The appropriateness of the national-average data has not been established, and seems open to question.
Proposition 51 also establishes the Office of Public Advocate, charged with representing the public's interest before the boards and courts in relation to property assessments [District Code, 47-825.2]. The public advocate could challenge the assessment or classification of any property, or the appeal of a property pertaining to these issues. The public advocate would be able to hire consultants, have access to all the government records, and report findings to the mayor on a yearly basis. So far, this position has not been filled, and there is some doubt as to whether it will be, due in part to budgetary constraints. Other aspects of Proposition 51 also have not been implemented.
A major issue presented by Proposition 51 is the requirement that commercial assessment appeals be made public. Granting the public access to appellants' financial records seems to be in conflict with existing statutes protecting the confidentiality of such information [District Code, 47-820(d)]. A court test may be necessary to determine which requirement is superior. Although all information used in a case becomes public once it reaches Superior Court, most appeals do not go that far; Proposition 51 would make the information public at the BRPAA appeal stage, without judicial oversight. Objections to this disclosure are based on the fact that the information can be used for more than evaluating the property assessment and assessment- appeals processes; it also can provide critical information about a firm to its competitors. Ultimately, this could make doing business from a base in the District less attractive.
Current BRPAA chairman James Murphy has proposed repeal of the BRPAA membership qualifications requirements to allow the mayor more flexibility in filling Board positions. He also has advocated removing the pay caps so that those who are able to work more hours could be compensated for doing so and, thus, would be more likely to do so. Mr. Murphy suggested increasing the budget by 30 percent to enable BRPAA to process additional work load [Murphy testimony]. These changes are seen as making it possible to get BRPAA to its authorized strength and otherwise to enable it to deal better with its historically large number of cases. More flexible staffing of BRPAA may be warranted but, as already noted, various changes already adopted seem likely to reduce the BRPAA case load. Moreover, if credentials required of members were reduced, a solid training program for them would become essential.
The District of Columbia Register [April 19, 1997] published the proposed rule making of BRPAA. These rules are intended to bring about greater responsiveness to the concerns of the taxpayers. The changes proposed are aimed at reducing the likelihood that conflict of interest may impede a fair hearing on assessment appeals. Key elements of the proposed rules are:
The chairman of the Tax Committee of the Georgetown Citizen's Association, A. L. Wheeler, reviewed the proposed changes regarding BRPAA and provided commentary and suggestions intended to improve upon the operation of BRPAA. The proposed rule making, he contends, grants the chairman power that can easily be abused [Wheeler 1997]. Among his many detailed comments and suggestions, he would curb the power of the chairman to determine the makeup of each panel - he favors a panel to make assignments - and to "monitor and vitiate" decisions of panels. He also favors an externally-controlled training program, elimination of communications that are not part of the record, and ending the presumption that the assessor is right ; placing the burden of proof on the petitioner, he thinks, should give way to a neutral approach with the outcome based solely on the quality of the evidence each side produces.
Such proposals suggest a tradeoff between efficient administrative procedures and assuring that no one has enough power to influence unduly the appeals machinery and the outcome of an appeal.
Recommendation 1. The District should mount a major study of the property appeals process and outcomes. Ideally, this would focus on the nature of and reasons for appeals, the considerations on which decisions turn, the competence of the persons involved in the appeals process,(7) and of the accountability and credibility of the processes and institutions involved.
BRPAA has been constrained by strict statutory staffing requirements that are, at best, difficult to meet. This has resulted in its operating with far fewer than the 18 authorized members. Moreover, the staffing problems coincided with a period in which real property assessment appeals spiked upward. The combination produced hearings that run, on average, about 20 minutes -- very short, considering the nature of the issues dealt with. Another problem has been the perception that commercial properties receive assessment reductions that are too large, in part because of what some see as a system lacking appropriate checks and balances. Some have suggested that assessment reductions may be connected to political contributions, for example. Concerns may have been exacerbated by falling property values and a declining commercial property tax base. The record shows that the bulk of the tax reductions (and a smaller, though still large, share of assessed value reductions) at the BRPAA stage go to commercial properties. Moreover, the net reductions accounted for two to five percent of the real property tax levy in a recent four-year period. That seems high, but it would be interesting to know how other jurisdictions' experiences compare, and what factors might logically account for any differences. Such examination is beyond what could be mounted for this report.
The concerns are real, and may be based on more than perception. A careful reconsideration of BRPAA and other elements of the appeals process seems appropriate, given the District's recent problems and the concerns that have been raised. Now, when fundamental changes in the real property tax assessment system and the new administrative-level appeal provision are being implemented, is a logical time for such reconsideration.
Recommendation 2. Even if the fundamental review of the appeals system is undertaken soon, certain changes in the current system should be made to improve the dealings between RPTA and BRPAA, and within BRPAA. The general thrust would be to provide better information and communication. More specifically:
The appeals process is critical to a properly-functioning property tax system. The above suggestions address issues and concerns discussed in this paper.
Recommendation 3. The role of the public advocate created by Proposition 51, to monitor assessments and appeal ones thought to be inaccurate, should be implemented.
Research shows that the appeals process can improve the uniformity - and thus the fairness - of property assessments. That process as it now exists, however, is one-sided. Logically, only those who believe their assessments too high would appeal. That the overwhelming majority of BRPAA decisions result in assessment reductions should not be surprising. More surprising is that some result in increases. Assessment errors exist on the low side as well as the high side, as shown by assessment-sales ratio data. Creating an entity to appeal any assessment seems a reasonable way to get at the current bias of the system.
1. As part of the changes put in motion by the new leadership in the Real Property Tax Administration, the Council has adopted legislation providing for first-stage appeals to be handled by assessors within the Real Property Tax Administration.
3. BRPAA is required by statute to report, by property class, total assessments sustained, increased, or decreased; the percentages of increased, decreased, and sustained assessments; the gains and losses in tax revenue due to assessed value changes; and net revenue impact on the District. The legislation also requires that an analysis of the Board's operations for the year be provided, including the identification of any problems and recommendations. BRPAA also is to undergo a yearly evaluation and provide new board members with training in property valuation.
5. The reductions break down as follows: class 1, $486,037; class 2, $754,031; class 3, $573,934; class 4, $18,454,357; and class 5, $518,560. Note that because the classified tax rates are much higher for commercial properties, the commercial percentage of assessed value reduction was lower than these amounts appear.
6. The list is nearly eight pages long. Only a hard copy was received (the data would have to be entered again into a computer) and in almost all cases the last digit of the tax year was not legible (so no grouping by tax year could be accomplished).
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