Maricopa County rejects most tax appeals

Arizona Capitol Times
Friday, October 2, 2009
Christian Palmer

Within minutes of hearing discussions of residential private golf course memberships, hilltop views and the actual market value of luxury homes in north Scottsdale, a hearing officer with the Arizona State Board of Equalization reached a conclusion - the value of Dennis Grose’s home had been overestimated by the office of Maricopa County Assessor Keith Russell by almost $250,000 dollars.

Under normal circumstances and a healthy real estate market, an owner would be proud of escalating value of a home or business. But, when it comes to paying taxes, the lower the better. By appealing the $1.5 million value placed on his home, Grose stands to save more than $1,000 on property taxes in the coming year.

“These things (valuations) are supposed to mirror the market,” he told the board’s hearing officer. “I mean, am I wrong in this concept?” The board represents the second stage of administrative valuation appeals available to property owners. The first, which involves a direct appeal to the county assessor, has proven to be a far less accommodating for property owners in Maricopa County.

Grose likened his appeal before the Maricopa County Assessor’s Office to participating in a “kangaroo court.” That sentiment is shared by many people with experience challenging the valuations of the County Assessor’s Office.

“I think they could be doing a better job,” said Jim Abrams, president of the Arizona Association of Tax Agents. “I know they could be doing a better job.”

The valuations in question help determine property taxes, which are used to pay for the most basic government functions; providing education, delivering water, lighting streets and fighting fires. But mired in a crashed economy, many residents and property tax consultants can’t shake the feeling that overvaluations from the county assessor are all too common.

Abrams is among several tax consultants who say the Maricopa County Assessor’s Office has adopted a just-say-no attitude when it comes to evaluating appeals filed by homeowners and businesses. Figures analyzed by the Arizona Capitol Times back up those suspicions. The analysis was based on statistics provided by assessors’ offices and the State Board of Appeals that show the number of appeals, the number of successful appeals and the overall dollar amounts of valuation reductions by Maricopa County, Pima County and the State Board of Equalization going back at least five years.

As it turns out, the Maricopa County Assessor’s Office has granted reductions for a much smaller percentage of the appeals during the past three years than it had in years prior to that. And the State Board of Equalization is handling more second-step appeals than it had previously. In addition, the overall percentage of reductions is higher when residents and business owners appeal to the state board.

Last year, the Maricopa County Assessor’s Office granted relief to 20 percent of the 4,523 homeowners who filed appeals of properties valuations, compared to 41 percent in 2005.

Appeals of commercial property valuations have fared even worse since Russell, a certified appraiser, took control of the office in 2005, a year in which 28 percent of such filings resulted in some form of reduction at the county level. This year, that figure stood at 11 percent.

The low figures have helped prompt a wave of subsequent appeals to the State Board of Equalization, which this year expects to handle an unprecedented 16,000 appeals from Maricopa, Pima and a handful of the state’s rural counties.

The impact of the declining rate of successful appeals by property owners in Maricopa County has been substantial enough to create a measurable change in how and where reductions of full cash values of property are occurring. These days, it’s the State Board of Equalization, the second level in the appeals process, which is granting most of the reductions.

In 2005, the Maricopa County Assessor’s Office was responsible for a 72-percent majority of the $1.6 billion in total valuation reductions for those who had filed appeals. The State Board of Equalization lopped off the other 28 percent.

By 2008, the State Board of Equalization had become the primary supplier of valuation reductions for county residents, despite the fact that the Maricopa County Assessor’s Office received roughly two-and-a-half times more appeals. Last year, the board reduced Maricopa County property valuations by $2 billion, surpassing the county’s reduction level of $1.9 billion.

The switch has brought Maricopa County into line with Pima County, which has consistently reduced appealed property values at a lesser rate than the State Board of Equalization, according to statistics provided by the Pima County Assessor’s Office.

Tax consultants say they believe the movement toward a reduced percentage of reductions is starting to occur as well in Yavapai County.

And the trend in Maricopa County is a sign of trouble, said Kevin McCarthy, president of the Arizona Tax Research Association. “Those are not good numbers,” he said. “The system is not supposed to work this way.”

McCarthy played a key role in the 1994 reformation of state property tax laws that created the state board and greatly extended the timeframe for the administrative process to allow county assessors six months to adjudicate the vast majority of appeals.

The law change, which also guaranteed property owners the right to request in-person appeals with county assessors, followed the recommendations of a Legislature-appointed review committee of state lawmakers, county assessors and a representative of the tax consultant industry.

The hearings occurred during the course of several years, and McCarthy said the whole point was to rescue a property tax system crushed under the weight of appeals and often left incapable of performing its core functions of assessing property values and identifying new properties.

The problems were serious enough to prompt the committee to recommend including a property valuation freeze for the years 1995 and 1996 to reset a new tax calendar. That action, said McCarthy, left the state’s community of tax consultants “fit to be tied.”

“We were taking years to get property on the rolls,” he said. “The first two homes that I bought were literally not on the tax rolls for three years. They couldn’t come up and do any canvassing.”

Now, the distress is falling on the State Board of Equalization, which hears appeals from Maricopa and Pima counties, as well as several rural contracting counties. The 16,000 property tax appeals the board expects to hear this year represents a 143-percent leap compared to 2005 and almost a 25-percent increase from last year, according to board statistics. John Greene, the board’s executive director, described the workload as “four times the amount of appeals our agency is designed to handle.”

The tidal wave has already prompted Greene to contact the Arizona Attorney General’s Office to register his concern that it might be impossible to address all of the appeals by the board’s statutory deadline of Oct. 15.

Greene said he was informed the statutory deadlines could be safely interpreted as a “guideline.” But he said it’s important to make sure property owners receive fair hearings in time for any reductions to appear on next year’s tax bill.

Citing attorney-client privilege, both the Attorney General’s Office and Greene declined to share their written legal communications with the Arizona Capitol Times.

Since 2005, appeals from Maricopa County have accounted for about 65 percent of the board’s annual workload, according to statistics provided by the State Board of Equalization. This year, the County Assessor’s Office reported handling slightly fewer than 20,000 appeals and granting some level of reduction to about 3,500 property owners.

While statistics compiled by the Maricopa County Assessor’s Office indicate that successful appeals rates are slipping, typically only one-third of the property tax appeals filed in Maricopa County continue on to the State Board of Equalization. Simply put, after being rejected at the county level, most owners give up.

Both consultants and the Maricopa County Assessor’s Office willingly recognize their natural adversarial relationship, and both parties differ as to why rates of successful valuation appeal have declined considerably.

Jim Brodnax, an Arizona tax consultant, laid out his beliefs bluntly: “You don’t get a fair hearing at the assessor’s level in Maricopa. If you’re not well-represented, you’re not getting anywhere.”

Most assessments are completed without having an assessor visit a property, while the Maricopa County Assessor’s Office seems occupied with protecting the tax base, particularly the base made up of commercial properties, Brodnax said.

The higher rejection rate for commercial properties is indicative of a calculated political decision, he said. “Businesses don’t vote,” he said.

Garth Bacigalupi, a former hearing officer for the State Board of Equalization, surmised residential property owners would “turn out with burning torches and pitchforks” if faced with rejection rates similar to those seen by commercial property owners.

Bacigalupi said commercial property valuations are increasingly being set by using a cost approach, which takes costs of construction into account to set values. The problem is that market values have fallen far below estimates gleaned through the cost approach analysis.

Brodnax also said the overall appeal rejection rate is bothersome, given the fact that the office is essentially dealing with appeals of only a small percentage of assessed parcels. This year, the values of approximately 1.5 percent of the 1.5 million parcels in the county were appealed, according to the Maricopa County Assessor’s Office.

Overvaluation is common, and given the enormity of the tax base, the county could reduce property valuations by billions of dollars and still only affect tax rates by mere pennies, he said.

The problem, Brodnax said, is simple: “The government has never learned to reduce its size when the taxes fall off. Their answer is to raise taxes.”

The appeals process in Maricopa County has been inundated with policies that practically dictate the outcome of an appeal before it starts. Rarely does the county assessor cut values by more than 5 percent, while it is not uncommon for the State Board of Equalization to implement reductions of about 30 percent, said Bacigalupi.

“When you show up, it has either been reduced already or not reduced,” Bacigalupi said of the Maricopa County Assessor’s Office. “There’s no discussion when you are there. They say, ‘This is it.’”

Maricopa County Assessor’s Office spokesman Paul Petersen attributed the high number of rejections to a combination of factors, including some cited by the agency’s detractors.

Many parcels are evaluated through computer analysis, and not in- person visits. Visiting each property would be impossible, he said, adding that budget cuts have led to a shrinking work force at the office and furthered the demand for computer-assisted assessments.

Petersen disputes that using the computer model has led to inaccurate assessments. He said Russell’s examinations of existing parcels since 2005 has created more, and not less, accurate valuations in the county.

Petersen said increased filings have been prompted by a poor economy, as property owners are seeking to save money wherever possible. “When you get more appeals, you get more bad appeals,” said Petersen. “The economy is bad, and more people are throwing it out there to see what sticks.”

Petersen denied that the office maintains “hard and fast” rules dictating limits on how much value appraisers are allowed to shave off of assessments. But, he acknowledged that appraisers must seek a supervisor’s approval before reducing values of properties assessed at less than $200,000 by more than 20 percent. For properties valued at more than $200,000, appraisers must seek supervisor approval for reductions in value of 10 percent or more.

The policies, he said, serve as “checks and balances” to ensure reductions are not excessive or unwarranted, said Petersen. “I know some people may feel differently, but we do our very best to try to ensure everyone gets a fair shake by the assessments that come out of this office,” he said.

Petersen attributed the State Board of Equalization’s higher instances of granting valuation reductions by rate and in terms of full cash value to time-pressed state hearing officers giving properties owners “something for trying.”

“I don’t think that’s unreasonable,” he said.

Meanwhile, Greene, who was appointed to lead the State Board of Equalization earlier this year by Gov. Jan Brewer, said budget cuts and economic factors have left the board in a grave situation.

“We have to do something because the guess is that next year will be twice as bad,” he said.

- Reporter Sarah Macdonald contributed to this article.