Question

Park City experienced unusual volatility of taxable property values over a particular five-year period. For the first three years of this period, the “pre-recession period,” average property values in the city increased by more than 35 percent. Then, almost without warning, the nation plunged into a sudden and deep recession, driven primarily by a mortgage-backed security crisis in the investment community. Like communities in many states, Park City experienced a steep drop in property values during the recession. During the year the recession occurred and the year following, the market value of residential property in Park City decreased by an average 50 percent.
Park City has found that changes in the assessed valuation of taxable property often lags behind changes in the market value of the property. State law requires that the Park County Equalization Board reassess residential and other taxable properties located in the county only when actual sales of properties occur.
Properties that have not sold must be reassessed at least every three years. To spread its workload the equalization board reassesses approximately one-third of taxable property in the county each year. This means that during the prerecession market value growth period, many properties had assessed valuations well below market value. Even worse, during the recession period, despite the fact that the market value of some residential properties had dropped below the amount of mortgage debt owed on them (so-called “under-water properties”), many of these same properties continued to be assessed at values well above actual market values.
The Park City government is restricted by state laws that require a tax rate rollback to ensure that any revenue increase from increased assessed valuations during a year not exceed 10 percent. Moreover, state law requires that for all increases in the assessed valuation of individual properties, the amount of the increase must be spread over three years, with one-third in the current year and one-third in each of the following two years.
Property owners who believe their assessed valuations are in error or above market value can file formal appeals with the state Equalization Review Commission (hardly anyone seems to file an appeal for under-assessments). The commission maintains an office in every county, headed by an official appointed by the state governor. In judging property assessment appeals, the commission relies heavily on actual sales data, but also has broad authority under state law to exercise professional judgment in deciding whether and how much to adjust appellants’ property assessment. Over the years, many property owners, particularly those with unsuccessful appeals, have complained that the appeal process is too political.

Required
a. Read and evaluate the foregoing information about Park City’s taxable property assessments. Then, put yourself in the position of a homeowner and explain what concerns you may have and what plausible actions you might take in each of the following situations.
(1) During the first two years of the pre-recession period, your property had not yet been reassessed, but you were receiving the benefit of a property tax rollback because average assessed valuation had increased in the city.
(2) During the third year of the pre-recession period, you received notice that the assessed valuation of your property was increased by 35 percent, with the total amount of the increase being added in one-third increments over the next three years.
(3) During the year of and year following the recession, your property now has a market value less than what you owe on your mortgage, yet the assessed valuation of your property has increased each of those years. Moreover, property tax rates have increased somewhat because average assessed valuation in the city has decreased.
b. Now put yourself in the role of city manager of Park City and explain what issues you will likely face as you develop a budget and recommend a property tax rate to the city council during
(1) the pre-recession period and
(2) the recession period.



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  • CreatedJanuary 11, 2014
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