T&G - Businesses shocked by tax assessments

Some increases higher than 100 percent

T&G Nick Kotsopoulos Politics and the City

Marc Tsourides’ boat dealership (USA Marine Inc.) has been on Route 20 (200 Southwest Cutoff) since 1990.

In recent years, the 2-1/2-acre property, with its 22-year-old building, has been assessed by the city in the range of $600,000 to $800,000.

But then Mr. Tsourides received a notice in the mail from the city on Wednesday — as did all 4,707 commercial, industrial and mixed-use property owners — informing him that his building and property was now being assessed at nearly $2.5 million.

He was told the new assessment for his building is $1.56 million — an increase of 130 percent over its previous valuation — while the land is now being assessed at more than $800,000.

With that, Mr. Tsourides said his business is now looking at the prospect of having to pay up to $40,000 more in property taxes which is roughly double what he pays now.

Needless to say, the new assessed valuation figure staggered Mr. Tsourides in more ways than one.

“I don’t understand how (the city) can do this,” Mr. Tsourides said in an interview last week. “There is absolutely no justification for that kind of increase. We haven’t added on to our building and no improvements have been made to it. How did they determine that our property is all of a sudden worth $2.5 million?”

“I couldn’t get $2.5 million if I put it up for sale today; I don’t think I could come close,” he added. “The way I feel right now, I have to ask myself if we want to stay in Worcester. I don’t mind paying my fair share of taxes, but this is going to make it tough for me to keep our doors open here. If I could get $2.5 million, I’d move the business to Shrewsbury and put up a new building there.”

Mr. Tsourides is not alone. He said he has been in touch with several of his business neighbors along Route 20 since the assessment notifications went out and like him, their new valuations have “gone through the roof” as well.

Business property owners are indeed perplexed about what is going on.

Unfortunately, they are now paying the price for past sins by the city in the way it assessed business properties and kept the assessed valuations for a large percentage of those properties artificially low.

While the assessed valuations for commercial and industrial properties were being updated as part of Worcester’s triennial property revaluation, it was discovered that assessors for years had been manually overriding valuations set by computer programs. As a result, when the computer-generated values were manually overridden, the new assessments often came out lower than what they were supposed to be.

Manual overrides were found on as many as 2,000, or roughly 40 percent, of the city’s commercial and industrial properties. Those overrides allowed assessors to manually enter a data element or formula into the assessment system and override the resultant valuation that should have been calculated by the system.

As a result, City Manager Michael V. O’Brien said, those property values were based on an artificial override and not on the internal calculations of the system. He said all of those manual overrides have now been completely removed because they have no relevance based on the parcel or market conditions.

The manger said another practice that was uncovered during the review was an unjustifiable “obsolescence” applied to a parcel. He said functional and economic obsolescent entries ended up reducing the value of a property because of certain existing physical characteristics or conditions beyond the property itself, such as negative economic forces.

With the removal of the manual overrides and the elimination of obsolescent entries, Mr. O’Brien said all properties are now assessed consistently, with the exact same set of stands as established by law, regulation, statute, policy and industry.

But the end result is not pretty for many businesses.

Of the city’s 2,278 commercial parcels, the assessed valuations for 317 have gone up 10 percent to 20 percent; 498 went up 20 percent to 40 percent; and 540 went up 40 percent to 100 percent, according to city officials.

Meanwhile, the valuations of 174 commercial properties have increased by more than 100 percent.

Of the 598 industrial properties in the city, the assessed valuations of 58 of those properties have increased by 10 percent to 20 percent; 98 properties went up by 20 percent to 40 percent and 101 properties shot up 40 percent to 100 percent.

In addition the assessed valuations of 60 industrial properties have more than doubled.

Mind you, residential property assessments have decreased by 3.8 percent on average compared with the previous year.

Business property owners will have an opportunity to address concerns and questions they have about their new assessments with city assessors during a public information session tomorrow in Cotsidas Auditorium at St. Spyridon Cathedral, 102 Russell St. The session will go from 3:30 p.m. to 7 p.m.

But Mr. Tsourides questions just what will be accomplished by meeting with assessors. He doesn’t believe for a second that the city will lower his property assessment.

There are going to be those who will have little sympathy for business property owners who have been whacked with much higher assessments; after all, it appears their properties were being under-assessed for some time. But to be hit with such dramatic assessment increases could be crippling for many businesses.

Why wasn’t this discovered during other triennial property revaluations, and where was the state Department of Revenue, which is supposed to review the revaluation work done by the city? Somebody dropped the ball on this, but who? Where was the oversight?

There are indeed a lot of questions; unfortunately, no one has offered any answers.

Waterfront Land Values - Part 2

Waterfront Land Values - Part 1

T&G - Ethics Commission wraps up complaint over Worcester assessor’s home. State panel ‘satisfied’ by review

By Nick Kotsopoulos TELEGRAM & GAZETTE STAFF
nkotsopoulos@telegram.com

WORCESTER —  The state Ethics Commission is taking no further action on a complaint regarding the significant drop in the assessed valuation of City Assessor William J. Ford’s home in recent years.

Mr. Ford was notified of the Ethics Commission’s action yesterday in a letter it sent him.

“As you know, we discussed with you a concern that your home’s assessed value had been significantly lowered in the past two years,” wrote Katherine E. Gallant, senior investigator for the commission. “Relying on what you told us and on any other necessary follow-up investigation and document review, we are satisfied that this matter does not require any further action on our part.”

Stephen Quist of June Street filed a complaint last month with the Ethics Commission in which he raised questions as to how Mr. Ford’s property valuation could go down by roughly $270,000 since he purchased the home in August 2010.

Mr. Quist pointed out that the valuation of Mr. Ford’s home at 360 Salisbury St. went down considerably, while the valuations for many other homeowners had at least stayed pretty much the same or had even gone up in some instances.

“It all begs the question of who’s guarding the henhouse?” Mr. Quist said when he filed his complaint.

Mr. Ford has also been the target of criticism from the citizens group, Accurate Worcester Assessments on Real Estate.

The group has pointed out that Mr. Ford’s home and property was assessed at $897,100 for fiscal 2010, the year in which he purchased it.

The assessment then dropped to $687,200 in fiscal 2011 and the new assessment is $620,000

The group pointed out that the land valuation of Mr. Ford’s 2.52 acres, which includes two half-acre buildable lots, is $66,500.

In comparison, the group said, the assessed land value of an abutting .56-acre on Surrey Lane is $100,4000, while the assessed land value for another .62-acre abutting property is $100,300.

Both those properties are within different neighborhood assessing codes than Mr. Ford’s property.

Commercial Properties, etc.

T&G - Commercial values going up in Worcester

By Nick Kotsopoulos TELEGRAM & GAZETTE STAFF

WORCESTER —  The assessed valuations for most commercial and industrial properties will be going up by at least 10 percent — and significantly more in many instances — based on the “pending preliminary certification” the city received from the state Department of Revenue yesterday for commercial, industrial and mixed-used property values.

Of the city’s 2,278 commercial parcels, the assessed valuations for 317 will go up 10 percent to 20 percent; 498 will go up 20 percent to 40 percent; and 540 will go up 40 percent to 100 percent, according to city officials.

The valuations of 174 commercial properties will increase by more than 100 percent.

Of the 598 industrial properties in the city, the assessed valuation of 58 of those properties will increase by 10 percent to 20 percent; 98 properties will increase 20 percent to 40 percent; 101 properties will go up 40 percent to 100 percent.

The assessed valuations of 60 industrial properties will more than double.

City Manager Michael V. O’Brien said one of the key reasons for the dramatic increases is the removal of “manual overrides” in place for many years for those classes of properties.

While the assessed valuations for commercial properties were being updated as part of the city’s triennial property revaluation, it was discovered that assessors for years had been manually overriding valuations set by computer programs. As a result, when the computer-generated values were manually overridden, the new assessments often came out lower.

While assessments for residential properties are largely derived on the basis of sales of comparable properties, establishing valuations for commercial and industrial properties is much different: Assessors use the industry-standard income approach to generate a fair-market value. The income approach is most applicable to real estate that is normally bought and sold on the basis of its income-producing capabilities.

In the process of modernizing the city’s property revaluation systems, city assessors uncovered the practice of manual overrides on as many as 2,000, or roughly 40 percent, of the city’s commercial and industrial properties, according to the city manager. He said those overrides allow an assessor to manually enter a data element or formula into the assessment system and override the resultant valuation that should have been calculated by the system.

As a result, commercial and industrial property values would be based on an artificial override and not on the internal calculations of the system.

Mr. O’Brien said all of those manual overrides have been completely removed because they have no relevance based on the current parcel or market conditions.

He said another practice that was uncovered during the review was an “unjustifiable obsolescence” applied to a parcel.

He said functional and economic obsolescence entries ended up reducing the value of a property because of certain existing physical characteristics or conditions beyond the property itself, such as negative economic forces.

The city received “pending preliminary certification” of its residential property values in early April; certification of commercial and industrial property values was delayed upon the discovery of manual overrides.

Neighborhood Codes and Assesed Land Values

Manual Override or Computer Glitch?

"HONEST ABE CONTEST"

T&G - Worcester could come up short from delay in tax bills

By Nick Kotsopoulos TELEGRAM & GAZETTE STAFF

WORCESTER —  The delay in issuing fourth-quarter property tax bills could leave the city with an insufficient cash flow to meet its financial obligations before fiscal 2012 ends June 30, according to the city’s chief financial officer.

Thomas F. Zidelis told the City Council Tuesday night that in the event the delay in collecting fourth-quarter property taxes adversely affects the city’s cash flow, the city might have to ask the state for an advance on its local aid payment.

Any fourth-quarter taxes not collected by June 30 would negatively impact the city’s year-end fund balance, he said, and that could end up hurting Worcester’s bond rating.

The fourth-quarter tax bills are traditionally sent out April 1 and are due by May 1. But those bills have been delayed this year because the City Council has been unable to set the fiscal 2012 tax rates.

The council traditionally sets the tax rates in November or early December.

But the city is still waiting for the state Department of Revenue to give preliminary certification to Worcester’s new property values as part of the triennial revaluation process. Until that is done, the council cannot set the tax rates, Mr. Zidelis said.

City officials had hoped to have the council set the fiscal 2012 tax rates by mid-March so the fourth-quarter tax bills could be issued by April 1. They later revised that timetable, hoping to have the bills sent out by May 1 and due by June 1.

City Manager Michael V. O’Brien recently told the City Council the fourth-quarter tax bills will be further delayed because the city did not complete its review of all 4,800 commercial properties and submit those new property values to the Department of Revenue until last week.

With the City Council not scheduled to meet again until April 24, the earliest that the tax classification hearing could be held is early May. It then usually takes a couple of weeks from when the council sets the tax rates to when the tax bills are issued.

That means the fourth-quarter bills may not be issued until late May; the bills are then due within 30 days of issuance. In that instance, they would be due just a couple of weeks before the first-quarter fiscal 2013 tax bills go out July 1.

With property owners facing a potential one-two punch of having to pay two quarterly tax bills in such a short timeframe, the City Council Tuesday night asked the city administration to outline options on how the city can soften that blow for taxpayers.

Councilor-at-Large Konstantina B. Lukes asked for the remedies because taxpayers will have to pay out large amounts of money in a short time.

“This is our fault, and we’ve got to remedy it,” Mrs. Lukes said. “I’d like to see the administration come in with some options that we can give our taxpayers.”

Mr. Zidelis said that under state law, tax bills are due 30 days from the date of issuance. He said the city would be willing to work with those taxpayers who might face a financial crunch because of the back-to-back tax bills by establishing installment plans for them.

He estimated that 60 to 70 percent of the homeowners have their tax bills paid through escrow accounts with their mortgage companies or banks. He acknowledged that those without escrow accounts would be the most dramatically affected by the back-to-back tax bills.

“There’s not a heck of a lot we can do, but to entertain installment plans,” Mr. Zidelis said.

He did say, however, that another option that might be considered would be to push back the issuance of the first-quarter fiscal 2013 tax bill, to give taxpayers a little breathing time between tax bills.

Property Record Cards Are Available At City Hall

T&G: Higher valuations loom for property. Past city practices are blamed

Source: T&G reporter Nick Kotsopoulos

To say there are concerns at Worcester City Hall about the yet-to-be released new valuations for commercial and industrial properties would be an understatement. There are big-time concerns.

Word has it the new valuations for many of those properties could be significantly higher than in the past and the increases won’t necessarily have anything to do with the state or health of the local business community.

Instead, the assessment increases that seem to be looming on the horizon for those properties are said to be the result of past city practices that kept valuations artificially lower than what they should have been for many years.

Talk about a hornet’s nest.

Last week, City Manager Michael V. O’Brien informed the City Council that there is a very good chance the fourth-quarter property tax bills, which city officials had hoped to mail out by May 1, will be further delayed.

He said the delay is likely because the city did not complete its review of all 4,800 commercial properties and submit those new property values to the state Department of Revenue for its review until early last week. City officials had hoped to have that done weeks before.

But the process to review the proposed new assessments for commercial and industrial properties did not go as smoothly as the one for residential properties, which received “pending preliminary certification” from the state Department of Revenue almost a month ago.

Mr. O’Brien said updating the assessed valuations for commercial properties proved far more complicated after it was discovered that city assessors for years had apparently been manually overriding valuations that had been set by computer programs.

Those familiar with the issue said when the computer-generated values were manually overridden, the new assessments often came out lower.

While assessments for residential properties are largely derived based on sales of comparable properties, establishing valuations for commercial and industrial properties is much different; assessors use the industry-standard income approach to generate a fair-market value for those properties. The income approach is most applicable to real estate that is normally bought and sold on the basis of its income-producing capabilities.

In the process of modernizing the city’s property revaluation systems, city assessors uncovered the previous practice of “manual overrides” on as many as 2,000 (roughly 40 percent) of the city’s commercial and industrial properties, according to the city manager.

He said those overrides allow an assessor to manually enter a data element or formula into the assessment system and override the resultant valuation that should have been calculated by the system.

As a result, Mr. O’Brien said the new property value would be based on an artificial override and not on the internal calculations of the system.

To make matters worse, no documentation could be found in files on why or when these manual overrides were put into place.

“There was no element within the old software program that highlighted that this action was taken or that prompted staff to review on a year-to-year basis,” Mr. O’Brien said. “It appears that some date as far back as 30 years as far as we can tell, with no supporting documentation as to why or when the adjustments were made.”

Mr. O’Brien said all the manual overrides have now been completely removed, because they have no standing based on the current parcel or market conditions.

That’s the good news; the bad news is that it’s not exactly known at this time what impact that will have on the new commercial and industrial property values. But one City Haller acknowledged the increases for some of those properties could be dramatic.

“The analysis of how these previous manual overrides may affect the commercial valuations of the parcels that had an override is under way,” Mr. O’Brien said. “There are many factors that will affect the revaluations this year, therefore, there is no one-size-fits-all.

“It will also depend on how many years this manual override was in effect and how dramatic the difference is between the manually entered information and current market conditions, along with all the data that the assessment system applies to derive fair and equitable valuations.”

If in fact the new assessments for commercial and industrial properties should dramatically increase, it could end up impacting homeowners as well.

In recent years, the City Council has frequently adopted the lowest possible residential tax rate as a way to buffer homeowners from significant property tax increases. When the council adopts the lowest residential tax rate, it translates into the highest possible tax rate for commercial-industrial properties.

But if there are dramatic increases in property assessments for business properties, there is no way the council would be able to vote the lowest residential tax rate this year, or anything close to it for that matter. If it did, the tax bills for some business could become overly burdensome.

So, if the council has to adopt a more favorable tax rate for businesses to buffer them from significant tax increases, guess what? It means a greater tax burden might have to be placed on homeowners even though local residential property assessments have decreased by 3.8 percent on average compared to the previous year.

Meanwhile, what does this all say about the public’s confidence in the city’s assessing practices if it is indeed true that some business property valuations were kept artificially low?

Mr. O’Brien said the fact that manual override practice has been discovered and removed is important and significant. He said the public should have the utmost confidence in the assessed valuations going forward.

“I knew and understood the potential to discover such previous practices and processes when undertaking such an intensive overhaul of these antiquated (assessment) systems,” Mr. O’Brien said. “As with all I have done as city manager, I fix what I find, fix it once and correct it with systems and processes that hold all to the highest standards of accountability from the point of correction forward, and for perpetuity.”