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HomeMy WebLinkAboutAgenda - 05-07-2013 - 7bORANGE COUNTY BOARD OF COMMISSIONERS ACTION AGENDA ITEM ABSTRACT Meeting Date: May 7, 2013 Action Agenda Item No. 7 -b SUBJECT: Information and Resolution Regarding the Next Revaluation of Real Property DEPARTMENT: Tax Administration PUBLIC HEARING: (Y /N) No ATTACHMENT(S): 1) May 15, 2012 Board - Approved Resolution 2) Draft May 7, 2013 Resolution Establishing the Year of the Next General Reappraisal 3) April 10, 2013 Memo from Tax Administrator - 2015 Property Tax Revaluation INFORMATION CONTACT: Dwane Brinson, Tax Administrator, (919) 245 -2726 1 PURPOSE: To discuss the optimal year for the next revaluation including information about current market trends and statistics, current economic indicators, potential impacts, and potential full list and measure; and to consider approval of a resolution establishing the year for the next general reappraisal of real property in Orange County. BACKGROUND: The Orange County Tax Administrator's Office conducted property tax revaluations in 2005 and 2009. Current tax assessments still reflect market value as of January 1, 2009. With a four -year revaluation cycle, the next revaluation would have occurred in 2013. However, at its May 15, 2012 regular meeting, the Board of County Commissioners (BOCC) received a presentation from the Tax Administrator recommending postponing the 2013 revaluation to 2015. The BOCC subsequently approved a resolution (Attachment 1) to accept this recommendation and delay the revaluation to 2015. Sales prices for real property are now improving. The County's sales ratio stands currently just under 1.04, which means tax assessments represent less than 104% of current market sales, generally. However, this ratio is on the decline and likely will be near 1.00 by January 1, 2015. Should that ratio be achieved, tax assessment and market value would be synonymous, from a general statistical standpoint. Based on this information, continuing with the current plan for a 2015 revaluation would result in virtually no change in value for a vast majority of properties. Delaying the scheduled January 1, 2015 revaluation until January 1, 2017 is within the legal authority of the Board. Since the Great Recession of 2008, the Orange County real estate market has been in flux. Approving a 2017 revaluation will allow the tax office ample time to complete a full list and measure revaluation, thereby improving upon current tax records and the overall revaluation experience. Delaying this action, in addition, will present the tax office will more qualified sales and better data to help ensure new tax assessment models are highly accurate. FINANCIAL IMPACT: Should the 2015 revaluation be delayed to 2017, and if a full list and measure revaluation could occur, the Tax Administrator's Office would need two additional real property appraisers with an estimated annual cost of $120,000 including salary and benefits. However, the true financial impact of adding two appraisers would be minimal as it would involve a reduction of contracted services in the revaluation budget. RECOMMENDATION(S): The Manager recommends that the Board approve and authorize the Chair to sign the resolution (Attachment 2) delaying the revaluation to January 1, 2017 and reinstating a four -year revaluation schedule thereafter. Resolution — 2012 -048 Attachment 1 ORANGE COUNTY BOARD OF COMMISSIONERS Resolution Establishing the Year of the Next General Reappraisal Whereas, Orange County conducted its most recent General Appraisal of Real Property effective January 1, 2009; and Whereas, the Orange County Board of Commissioners advanced its scheduled General Reappraisal of Real Property to January 1, 2013, pursuant to North Carolina General Statute (NCGS) 105 -286 (a) (3); and Whereas, after careful consideration, the Orange County desires to modify this schedule to postpone the effective date of the next General Reappraisal to January 1, 2015, as permitted by NCGS 105 -286 (a) (3); and Whereas, the Orange County Board of Commissioners also desires that the Orange County Tax Administrator make an annual report to the Board regarding conditions in the market for real property; Now, Therefore, Be It Resolved, that the Orange County Board of Commissioners does hereby postpone the effective date of the next General Reappraisal to January 1, 2015; Be It Further Resolved, that the Orange County Tax Administrator shall each year make at least one report to the Board of County Commissioners regarding conditions in the market for real property; and Be It Further Resolved, that the Clerk to the Board shall forward a copy of this resolution to the North Carolina Department of Revenue as required under NCGS 105 -286. Adopted, this /9 day of May, 2012. 91L�hK: Bernadette Pelissier, Chair Orange County Board of Commissioners Attest: Clerk to the Board RES- 2013 -041 Attachment 2 4 Orange County Board of Commissioners A Resolution Establishing the Year of the Next General Reappraisal WHEREAS, Orange County conducted its most recent General Appraisal of Real Property effective January 1, 2009; and WHEREAS, the Orange County Board of Commissioners advanced its scheduled General Reappraisal of Real Property to January 1, 2013, pursuant to North Carolina General Statute (NCGS) 105- 286(a)(3); and WHEREAS, after careful consideration, on May 15, 1012, the Orange County Board of Commissioners modified this schedule and postponed the effective date of the next General Reappraisal of Real Property to January 1, 2015, pursuant to North Carolina General Statute (NCGS) 105- 286(a)(3); and WHEREAS, after careful consideration, the Orange County Board of Commissioners again desires to modify this schedule to postpone the effective date of the next General Reappraisal to January 1, 2017, as permitted by NCGS 105- 286(a)(3); and WHEREAS, the Orange County Board of Commissioners also desires that the Orange County Tax Administrator continue to make an annual report to the Board regarding conditions in the market for real property; WHEREAS, the Orange County Board of Commissioners desires to return to its adopted four -year revaluation cycle after the 2017 revaluation; Now, Therefore, Be It Resolved, that the Orange County Board of Commissioners does hereby postpose the effective date of the next general reappraisal to January 1, 2017; Be It Further Resolved, that the Orange County Tax Administrator shall continue each year make at least one report to the Board of County Commissioners regarding conditions in the market for real property; and Be It Further Resolved, that the Clerk to the Board shall forward a copy of this resolution to the North Carolina Department of Revenue as required under NCGS 105 -286. Adopted, this 7t" day of May, 2013. Barry Jacobs, Chair Orange County Board of Commissioners Attachment 3 ORANGE COUNTY TAX ADMINISTRATION 228 S CHURTON STREET, SUITE 200, PO BOX 8181 HILLSBOROUGH, NORTH CAROLINA 27278 Telephone (919) 245 -2725 Fax (919) 644 -3332 T. Dwane Brinson, Director Memorandum To: Orange County Board of Commissioners Cc: Frank Clifton, County Manager From: Dwane Brinson, Tax Administrator Date: April 10, 2013 Re: 2015 Property Tax Revaluation Orange County last conducted a countywide revaluation effective for January 1, 2009. Current tax assessments reflect market value as of that appraisal date. North Carolina state law, G.S. 105- 286(a), mandates that counties conduct a countywide revaluation at least once every eight years. Therefore, Orange County is required to complete its next revaluation no later than January 1, 2017. This memorandum is an effort to explain current market conditions, potential impacts of completing a January 1, 2015 revaluation, and advantages of postponing the County's next revaluation until January 1, 2017. Current Market Conditions The economy is improving. Sales volume is increasing, sales prices are rising and properties are selling faster. As part of this report I have provided a categorized analysis of Orange County qualified sales. In this analysis we recognize that Orange County is not one market. Rather, it is a conglomerate of several markets including school districts, towns and even mailing addresses. The Board of County Commissioners has requested that the Tax Administrator provide an annual report and discuss the status of property values in the County. Preparation and discussion of this report is aimed to achieve that request. Real property tax assessments in Orange County currently reflect market value as of January 1, 2009, the County's last revaluation appraisal date. Figures, ratios and statistics provided throughout this report compare the County's current tax assessment based on January 1, 2009 market value against recent qualified market sales. This is performed annually to determine the impact of a countywide revaluation, in part. Elaboration on recent qualified market sales and statistics is provided below. Sales Analysis As mentioned previously, Orange County is composed of several submarkets. These submarkets respond differently to economic events. Below is a high -level review of the Orange County tax base and how all county sales compare to current tax assessments. A review also is provided for several submarkets within Orange County to show impacts on municipal governments. Each analysis below presents three statistical measures within each category: count, median and COD. Count simply refers to the number of qualified sales extracted within the category parameters. Median indicates the median sales ratio within the category. The median sales ratio is found by dividing the assessed value by the sales price. A number greater than 1 indicates that the tax assessment is higher than the property's recent sales price and vice versa. One simple way to describe this measure is that the ratio shows what percentage of market value is represented by current tax assessment. For example, a median sales ratio of 1.05 indicates that tax assessments in that category represent 105% of current market sales. However, this ratio is only a measure of central tendency. Ratios higher and lower than the median exist within the category, too. Coefficient of Dispersion (COD) shows the data spread. A lower COD is better, and one less than 15 is acceptable. The lower the COD, the more tightly- compacted the sales are around the median sales ratio. Based on the market sales analyzed, it appears Orange County tax assessments are still within an acceptable range across many measures. The median sales ratio is gradually falling, indicating market values and tax assessments are getting closer and closer. Most CODs within the categories are acceptable, which indicates that the market is consistent. Also, the number of sales transactions is increasing. W."1110 MINIM, Count 1,234 Median 1.04 COD 10. 57'7 Vaunt - Alll Types Miedian Count 148 Median 1.11 COD 26.415 Condos Only Median Count 139 Medlian 1.09 COD, 11.927 Commercial improved Miedian Count 53 Medlian 0.94 COD, 20.213 B'y' Sales Price Range — Counwv Data From 1/1/20112-2/25/2013 OK-250K Orainge County Count 552 Miedian 1,015 CO ID 11.429 215OK-SOOK Chapel Willi Count 4,95 Median 1.04 COD, 91.615 SOOK-750K Carrboro Count 135 Miedian I COD, 10 750K+ Hillsbiorough Count 52 Median 1 COD 11.88 B'v AvIsdictio;7 Data From I/l/2012-2/lS/2013 Orainge County Count 360 Miedlian 1.04 COD 11.5,38 Chapel Willi Count 500, Miedian 1.06 COD 10.377 Carrboro Count 225 Median 1.01 COD 7.921 Hillsbiorough Count 54 Miedlian 1.03 OD 14.5,63 Annual&les Count 20,10. 1:236,quahfied sales, 1,814 unqualified sales 20,11. 995 ,qualified sales, 431 unqualified sales 20,12. 1,306 quahfied sales, 563 unqualified sales Revaluation Process If the BOCC chooses to delay the revaluation until January 1, 2017, this would allow enough time for the tax office to perform a full list and measure revaluation. To ensure the accuracy of tax records, a full list and measure revaluation should occur every third to fourth revaluation, depending on the frequency of the county's revaluation cycle. Orange County has not had a full list and measure in recent history. In preparation for the 2015 revaluation, staff conducted a random sample of 100 properties throughout Orange County. Inaccuracies were present. Correcting inaccurate records will improve the quality of Orange County's next revaluation, and it will ensure that all taxpayers pay an equitable portion of property tax. Should inaccuracies be discovered during the process leading up to the county's proposed 2017 revaluation, those changes would take effect January 1, 2017. This is suggested to maintain equity among taxpayers, and it is standard practice. This approach works best because it takes a significant amount of time to work through the entire county and check tax records. All records would be keyed into the system in late -2016 with an effective date of January 1, 2017. Any resulting change in tax assessment would take place with the revaluation date. The North Carolina General Statutes (NCGS), specifically 105 -381, allow a refund of taxes for only three instances: 1. A tax imposed through clerical errors; 2. An illegal tax; 3. A tax levied for an illegal purpose. Much debate centers on taxpayers that may have been taxed for an area or square footage that did not exist. For example, a taxpayer may have been taxed for a finished bonus room that actually was unfinished or for a finished basement that actually was unfinished. Chris McLaughlin at the UNC School of Government opines that such situations are not legally refundable. In his opinion, these are deemed appraisal judgments and fit neither of the three refund options. Should a taxpayer be taxed on a house or structure, however, that did not exist, that would be refundable under an illegal tax. The line appears to be that a refund may be issued when a taxpayer is taxed on a structure that does not exist, but when the quality, individual features or property characteristics are inaccurate, Mr. McLaughlin holds that the taxpayer has the opportunity to appeal these each year during the appeals process. The NC Department of Revenue takes a position that the statute is unclear regarding these instances. One reason it may be impractical to refund for such occurrences is that an appraisal is one's opinion of value. Different appraisers can form different opinions of value, albeit supported by market data, and different appraisers may even measure square footage to be slightly different. Because of this, the NC Real Estate Commission considers any differences less than 5% 9 immaterial. Similarly, the International Association of Assessing Officers (IAAO) recommends the following standards of accuracy for data collection: • Continuous or area measurement data, such as living area and exterior wall height, should be accurate within one foot (rounded to the nearest foot) of the true dimensions or within 5% of the area. If areas, dimensions, or volumes must be estimated, the property records should note where quantities are estimated. • For each objective, categorical or binary data field to be collected or verified, at least 95 percent of the coded entries should be accurate. • For each subjective categorical data field collected or verified, data should be coded correctly at least 90 percent of the time. Subjective categorical data characteristics include data items such as quality grade, physical condition, and architectural style. It seems that both the NC Real Estate Commission and IAAO adhere to similar standards. Both recognize the imperfections that may occur when measuring a property, judging its quality of construction, or forming an opinion of value. In local government, the General Assembly has placed significant burden on the taxpayer to appeal any inaccuracies or valuation concerns each year during the appeals process. This process allows a local government's tax base to be finalized without jeopardizing budgeted revenue and fiscal standing. Recommendation Market statistics show Orange County real estate markets to be improving. While we notice manifestations of properties selling for more or less than tax assessment, those will occur in any market in any year. The majority of current qualified market sales hover around current tax assessments. Furthermore, the economy is improving with more market activity, shorter selling times and higher selling prices. Should Orange County move forward with a 2015 revaluation, it likely will occur at a time when tax assessments and market values are in unison already. The sales ratio has been gradually declining indicating that market values are rising. Based on this analysis, it is recommended the Orange County delay its scheduled January 1, 2015 countywide property tax revaluation until January 1, 2017. This is legally permissible as it remains within the eight -year statutory mandate. As the economy continues to improve, performing a countywide revaluation effective January 1, 2015 may result in no change in value for avast majority of properties.