BusinessReport.com

When the latest round assessments arrived in the mailboxes of St. Tammany Parish homeowners several months ago, so many people protested that the Louisiana Tax Commission swooped in to investigate and several government bodies proved too fearful to roll forward their millages.

In Ascension Parish, two-dozen angry Pelican Point residents appealed the mass assessment of homes in The Greens—a section of the upscale golf-course development reserved for those over the age of 55—at $140 per square foot.

And in Livingston Parish, Assessor Jeff Taylor urged taxing entities to roll back their millages after the taxable value of property went up by one-third.

Property assessments along the Interstate 10/Interstate 12 corridor—once a point of pride among homeowners able to turn a tidy selling profit—are spinning a whirlwind of controversy this year. They’ve risen by double-digit percentages in several parishes.

It happened when swelling post-Katrina values collided with a sudden recession and downturn in the market, slapping property owners with requisite higher taxes at a time when many people insist they can least afford it. Government entities compounded the pain when they seized the opportunity to reap new revenues rather than roll back millages.

Fueling the furor is that other parishes along the corridor—most notably East Baton Rouge—somehow managed smaller, single-digit increases in assessments, prompting an assortment of conspiracy theories to emerge.

Complaints are prompting the tax commission to take another look at assessments statewide, with an eye on comparing sales prices in the last half of 2007 with the same period in 2008. If the market has changed significantly, the commission could order assessors to lower values.

Until then, Henry Billiot, a councilman in St. Tammany Parish, is troubled with thoughts of the potential fallout—namely a flood of homes on an already sluggish housing market.

“What concerns me is, if in fact all of these assessments are correct, that there are people out there who can’t afford this,” Billiot says. “If they can’t afford this, they’re not going to be able to afford their house. If they can’t afford their house, they’re going to glut the market again with more homes for sale.”

Eye of the storm

At the crux of the problem is the timing of the assessments. By law, property is reassessed every four years. This time around, most assessors set values for property in 2007, months before the market began to slow along the corridor. It wasn’t until 2008 that sales and selling prices began to drop drastically. In October, for example, sales in the region dropped 27% and sales volume was down 25% from the previous year. Housing inventory stood at 9.1 months.

That leaves people like Herbert Forester, a 25-year resident of St. Tammany Parish, with a phenomenon now being referred to as “sticker shock.” He discovered the assessment of his home in Pinewood subdivision went up 55.2%, and the value of his house appreciated 32%.

“My house couldn’t have appreciated that much in four years,” Forester told a St. Tammany Parish Council Board of Review. “Maybe 3% or 4%, but not 32%. There is no formula of consequence used on this.”

In Old Mandeville, Pamela Cryer discovered taxes on her property on Villere Street suddenly went up more than 700%, from $453 to $3,500, although she has since appealed and won.

Even Mary Johnson of Lacombe was hit by a higher assessment—on a home that was destroyed by Hurricane Katrina.

In late October, thousands of property owners lined up outside the St. Tammany Parish Assessor Patricia Schwartz Core’s office for days, many of them insisting that their property taxes are becoming downright unaffordable. Some 15,000 of them asked Core to reconsider her assessments.

But after a record 2,000 homeowners and business owners filed formal appeals with the St. Tammany Parish Council, the Louisiana Tax Commission sent a dozen of its own assessors—five times what it typically dispatches—to investigate.

In one week, they double-checked the reassessments on nearly 300 homes in 30 subdivisions and found that most of them were actually underassessed at an average of 83% of fair-market value.

Even so, in early November, the St. Tammany Parish Council voted to decrease its property tax rates—and called on other public entities to do the same. The parish itself collects 170 mills, putting it among one of the highest-taxed parishes in the state. Those who live inside city limits generally pay additional taxes. The tax cut will save the owner of a $300,000 home about $60 or $70, depending on where they live.

And when a standing-room-only crowd descended upon the usually sleepy Fire District 1 Board of Commissioners meeting, commissioners still increased the millage—but not the full 31% hike originally planned. Board Chairman Calvin Kline later blamed Core for putting the district in the predicament of having to choose.

The Fire District 8 Board of Commissioners, meanwhile, voted to raise property taxes 43%. One couple who relocated to St. Tammany after Katrina commented at the meeting that property tax in St. Tammany was higher than their flood insurance in Plaquemines Parish.

“Now they have to pay both high property tax as well as flood insurance,” says Rep. Tim Burns, a Mandeville Republican. “If we’re not careful, they are going to decide to evacuate from St. Tammany.”

Core has insisted she aimed for the lowest possible assessments on properties within the legal range. Louisiana law requires that property be valued between 90% and 110% of fair-market value. “I’m not here to gain friends politically,” she says. “I’m here to do a job that the people elected me to do. And that’s exactly what I’m doing.”

Pelican Point revolts

For obvious reasons, parish assessors can’t inspect every home to determine its value. So common practice is to use a technique called uniform mass evaluation. It’s about determining a fair-market value for homes in a particular area, then applying it to square footage to extract an assessment.

Those who live in one section of Pelican Point, a subdivision known as The Greens, took issue with that when all of their homes—whether they overlook a ditch or a lake—were assessed at the same rate.

At an Ascension Parish Council Board of Review meeting, former Parish President Ronnie Hughes, who lives in The Greens, went so far as to compare such uniformity to Adolf Hitler.

Ascension Parish Assessor Rene Mire Michel is no stranger to controversy. Her office was ordered to reassess property in 2006 after her initial one failed a review.

In 30 years, no more than one or two property owners have appealed their assessments. This year, 24 of them did—all of them Pelican Point residents. She says the subdivision wrongly experienced no hike in property values in 2006 when it should have. Says Michel: “It’s all about sharing the tax burden.”

Like many assessors, she blames higher property values on post-Katrina demand. In the year after the hurricane, Ascension—along with Livingston—was named one of the fastest-growing counties in the country. The assessed value of property in Ascension is up $96 million this year alone. Residential values climbed an average of 15%.

Assessors are required by state law to reassess all properties in each parish every four years to reflect changes in the fair-market value of homes and businesses. The last required assessment was 2004—the year before Katrina drove up property values along the 10/12 corridor.

Many of the new assessments are based on market conditions in late 2007. Since then, the national economy has taken a turn for the worse, and credit has become more difficult to attain. Housing prices in many parishes have dropped, and sales are beginning to slow, in many cases by double-digit percentages.

“The law says that’s when I have to look at sales,” Michel says. “This is really hard for people to swallow, given how things look today with the national market falling apart, but the law is the law.”

When the property tax base increases, local taxing authorities are required by law to reduce, or “roll back,” millages to levels that would generate the same tax revenue as the previous year. But those entities, by two-thirds vote, can impose the same millage rate as the previous year to reap even more revenue.

Many have chosen to do so—even though they are likely to bring in more revenue because of the growth of new homes and businesses in their parishes without rolling millages forward.

Says Michel: “Just about everyone here rolled forward. It’s a double whammy for taxpayers.”

It’s not about Katrina

Lafayette Parish Assessor Conrad Comeaux says while his colleagues along the 10/12 corridor might be blaming Hurricane Katrina for rising home values, that explanation is a myth.

Residential assessments in his parish went up an average of 40% to 45%; commercial increased 20% to 25%. The average hike was 29.6%.

“People want to claim that, but that phenomenon occurred in only a few parishes, and it’s long since done with,” Comeaux says. “The big growth spurt was concentrated in the year after the storm.”

He cites three other reasons property values are so dramatically on the rise: The cost of materials, like concrete; the cost of labor; and, in his case, that Lafayette—with its 3% unemployment rate—is a desirable place to live.

Nearly 4,300 Lafayette Parish property owners questioned their assessments either in person or by phone. In the end, only six formally appealed.

Most Lafayette Parish governmental entities rolled millages forward, but Comeaux doesn’t fault them for doing so. “Those taxing bodies have the same issues with the cost of goods,” he says. “When they go to repair roads, the cost of asphalt has increased dramatically. They have to compete with private industry over what’s going on in the labor market. While it seems like a big increase, when you break it down on a mill-by-mill basis, it’s not really that big.”

The problem with inequity

What is a serious problem, Comeaux says, is a lack of equity from parish to parish. He points the finger right at Baton Rouge.

“I’m appalled that Baton Rouge can claim their assessments went up only 7%,” he says. “There is definitely not equity across borders of parishes. I’ve heard that in other parishes, people claim property values went up 10%, and I have a hard time believing that, too. The cost of construction alone has gone up more than 10%.

“I don’t know if it’s politics, or sheer incompetence, or if we’re lacking a good system, or what reason. I don’t know.” He says it is incumbent upon the Louisiana Tax Commission to ensure equity and fairness across parish lines.

East Baton Rouge Parish Assessor Brian Wilson says the 7% figure can be misleading. Overall taxable value in the parish increased $320 million. Baton Rouge’s total taxable value is now more than $3 billion.

“The fact that our total taxable value increased $320 million is huge,” he says. “If you look in other parishes, you’re not going to see $320 million. Our tax base is so large, you just don’t see the same percentage that you might see in other parishes.” Not a single East Baton Rouge Parish property owner has appealed an assessment.

However, the problem with that argument is that in Lafayette Parish, total taxable value increased $343 million, of which $290 million was solely residential property.

In Tangipahoa Parish, assessments went up 14% this year, which is in line with previous reassessments. Not a single property owner appealed or protested.

Assessor Joaquin Matheu says that’s likely because he took the post-Katrina buying frenzy into account when assessing homes.

“After the hurricane, we had a lot of distressed buyers,” he says. “People needed a house, and they were more than willing to pay 20% to 30% more. But we took that data into consideration and disregarded it. If someone bought their house right after the storm, we left that alone.”

The office began its reassessment in June, when the housing market started its downward turn. Now that homes are remaining on the block much longer and prices are going down, “it looks like we’re pretty much on the money,” Matheu says.

Matheu thinks the inequity has more to do with the economic dynamics of each parish. Property values in St. Tammany and Livingston parishes are heavily influenced, he contends, by their close proximity to larger urban areas. That’s not the case, he says, in Tangipahoa.

Louisiana Tax Commission Administrator Charles Abels says assessments in all 64 parishes will be reviewed—as they are every four years—through ratio and sales studies to confirm that they reflect fair-market value. It’s a way, he says, of checking for uniformity. Last time around, seven parishes failed the ratio study and three failed the sales study.

The commission also is reviewing some 84 appeals from New Orleans and expects to look over about 300 cases from St. Tammany.

Individual property owners can ask for a reassessment any time, but be prepared to bring some proof, like the selling price of similar homes in the area.

Should the housing market take a serious dive, the tax commission could order a statewide reassessment sooner than four years from now, as they did in the 1980s during the oil bust.

But no one looks for that to happen anytime soon.

“That would happen only if the bottom falls out in the real-estate market, and I don’t see that happening,” Comeaux says. “The prices of homes might drop a little bit, but is it enough to substantiate a reassessment? I doubt it. As long as the economy remains good and the housing market is strong, I don’t see that happening.”

HOW IS YOUR PROPERTY ASSESSED?

To find the value of any piece of property, the assessor must first know:

• The selling price of similar properties.

• The cost to replace it today.

• How much it takes to operate and keep it in repair.

• What rent it could earn.

• Other economic factors affecting its value, such as the current rate of interest charged for borrowing the money to buy or build similar properties.

SOURCE: Louisiana Tax Commission

WHAT IS A MILLAGE RATE?

Millage is the percentage of value that is used in calculating taxes. A mill is defined as 1/10 of 1%, and is multiplied by the assessed value after any exemptions have been subtracted to calculate the taxes. For example: If the tax rate is 150 mills and total assessed value is $10,000 with no exemptions, the taxes would be calculated as $10,000 x .150 = $1,500. If for the same house you had a homestead exemption, the taxes would be calculated as $10,000 -$7,500 [homestead exemption] = $2,500 x .150 = $375. This demonstrates the importance of filing a homestead exemption.

SOURCE: Louisiana Tax Commission

WHAT CAUSES ADJUSTMENTS TO MILLAGE RATES?

Changes in millage rates occur under four circumstances:

1. If the voters approve a millage increase.

2. If the Legislature approves the creation of a special district and grants authority to levy a millage.

3. If the Board of Liquidation/City Debt adjusts the millage rate needed to collect the amount required to service its general obligation bonds. When new bonds are issued, this millage increases and as older bonds mature this millage rate decreases.

4. Every four years, assessors must reassess real property. State law provides that the tax collected in the year following a reassessment is adjusted so that it is equal to the tax collected the previous year on the same property tax base. The amount of millage is then adjusted up or down to satisfy this requirement. If the millage is lowered because of an increase in property values, it may be “rolled up” to the prior year’s millage after a public hearing and approval by a two-thirds vote of the taxing authority. The assessors must reassess personal property every year, and the Louisiana Tax Commission reappraises public service property every year.

SOURCE: Louisiana Tax Commission