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Special Bd. of Aldermen — 02/27/2017 Page 4

sure that we do that so that we can mitigate the effect of the shift that you see on page 6 of 14. | think KRT
can correct me if I’m wrong but there are kind of three different ways you can evaluate a property. There’s the
sales analysis — what does something like that sell for. There might not have been a whole lot of sales and
they might not have been recent. Again in the commercial area these sales are less frequent. Number two,
the cost approach. How much did it cost to build this building and what’s the depreciation and that kind of
thing, or third, build an income model that uses market data and some information we can gather from
taxpayers themselves to determine what is the revenue generated by a commercial property and then based
upon that revenue and the appropriate capitalization rate so-called decide how much it is worth based on the
income approach. We think that if we analyze commercial properties in that way, we can come up with more
commercial value than we would be able to simply by using this 93 percent equalization ratio and just bringing
properties up according to that number. | could cite specific properties but there are properties that seem to be
generating a lot of income that don’t have very high assessments but there haven’t been a lot of sales in those
categories so it’s hard to peg their value with a five year old sale, or a two year old sale, or something like that.
We've seen some apartment complexes sell considerable higher than their assessments or at least one big
one which was disqualified for various reasons but still tells us a lot about the market.

In any event, we think that by engaging KRT to take a very detailed approach to look at all properties including
commercial properties to develop income models with respect to each category of commercial property that we
can maximize or increase to make sure that we capture all of the commercial values that actual exist out there.
Therefore mitigate the effect of the shift that could occur from the values that we see in analyzing this data.
Before | turn it over to them, I’d be glad to take any questions if you have any from me. | don’t know if | could
answer them but | would say that what could happen here, this shift of $7 million, this could mean that
someone’s taxes could go up 10 percent. That’s not what we want to see. We haven't even factored in the
budget here. We certainly don’t want to see that. We're happy that people’s houses has gone up in value.
We're happy that a family has $50,000 or $70,000 of equity that they didn’t have before but we certainly don’t
want to promote...we want to make sure that we’re correct and fair. We don’t want to unfairly increase
residential property taxes at the expense of while benefiting commercial properties if we don’t have to. So that
gives you this wonderful picture.

Alderman Dowd

For clarification, there are some instances — probably not many — but where residential or commercial property
values have gone down since the last time we took a look at it.

Mayor Donchess

We're talking averages now. | would bet there’s not a single residential property that has gone down but
commercial definitely. One thing | did not mention, something else, the homes that have a more moderate
value like those around $200,000 have gone up more in value than those higher up on the value scale. We're
talking average figures. The equalization ratio of homes in the $200,000 to $250,000 range is lower than 80
therefore their values are going to up more. Houses at the top haven't increased in value as much. The
impact will be more on the more moderately priced homes which is another thing we'd like to avoid. Any
questions now?

Alderwoman Kelly

So on the last page it said the medium assessment ratio might be between .9 and 1.1 — the standards first
statistical re-evaluation. | guess my question is are we required to do 100 percent or is it within that .9 to 1.1?

Mayor Donchess

KRT — now you’ve gone into the KRT area of the presentation. I’ve sort of taken you to the level of my
expertise. They’re far more knowledgeable than me.

Special Bd. of Aldermen — 02/27/2017 Page 5

Attorney Bolton

These are the ranges that DRA requires you to meet when you do the process we’re discussing.

Alderwoman Kelly

So | guess my question is why not just go to 90 instead of 100? 90 is the lowest right?

Mayor Donchess

| think if you said you were doing that, you’d have DRA problems.

Attorney Bolton

You probably could do it but you’d have the same problem you have if you go to 100 percent. Everything
would be raised to 90. The residential would have to go up higher to get to 90 percent or have to go up by a
greater amount on average than the commercials. In fact, the commercials might have to go down to get to
that number.

Mayor Donchess

Yeah that’s right. If we’re at 93 to take it to 90, you take the commercial values down not up.

President McCarthy

The end result of that will be just the tax rate is higher and the tax bills are identical to what they would have
been at 100 percent.

Alderwoman Melizzi-Golja

At least twice during your presentation Mayor Donchess you referenced a sale that was disqualified. Can you
identify what that sale was just so we have a sense of what it was that is not figured in here? Was it a public
sale and it was publicly disqualified? | would assume that’s public information.

Mayor Donchess

Some of these sales — well the one | was specifically referring to are the Kessler Farm apartments. It’s
technically like five different parcels but it sold all at one and it sold for $65 million against a $36 million
assessment. Now that was disqualified because it was a multi-parcel sale. If you ask KRT about a sale such
as — and there have been no other sales recently like that in Nashua so what does that mean? If you ask KRT
which | have, the market for a property such as that, very few of those in Nashua. Only one is sold might be all
of New England or all of northern New England so that sales that take place in Maine of similar size and
configured properties might reflect market value here. The people who trade in projects such as that, they’re
investing in apartments in kind of this area of the country. They’re not saying oh well you have to buy in this
town. They’re looking to invest money in real estate — you know multi-family, large complexes regionally.

Some of the sale downtown, there’s some sales downtown that suggest that residential buildings are also
selling for considerable more than appraisal. Now we're still within the residential realm although these are
residential buildings classified within the commercial and industrial segment because they’re not obviously
single family homes or condos.

Special Bd. of Aldermen — 02/27/2017 Page 6
Alderman Tencza

Thank you. So the last time the full measure and list was done in 1991/1992 but if | remember correctly you
were Mayor at that time as well.

Mayor Donchess

It was implemented after | left office.
Alderman Tencza

Okay. So what has been the method that the city has used since then and has it had an effect on what the
assessed values are today?

Mayor Donchess

Well | haven’t been involved but | think just kind of an in house statistical update. | don’t think people were
facing this situation where we’ve seen a rapid escalation of residential values. One thing | should have
mentioned, we’re not alone here. Portsmouth has been going through the same thing. Portsmouth did a re-
evaluation in 2015. They did one in 2010. They did one in 2015 and for whatever reason, | don’t think we
would do this but residential values went up so rapidly between 2015 and 2017 even though they were still
three years away from a required re-evaluation, they did another one and two years later in 2017 because
residential values had already climbed so much in those two years they wanted to do it again which they did.
In each case, it shifted property taxes onto residential property owners. You know what the porch of the
market is like, it’s rapidly escalating. | don’t think ours have gone up quite as much as that but it’s kind of the
same. A similar situation.

Alderman Klee

Thank you. | hate to ask this question but will this have an effect on the TIFF going forward with anything like
that?

Mayor Donchess

No. | would say no but we could talk about that in the context of the TIFF. Why don’t we turn it over to KRT to
introduce themselves and talk through more of the details of what will take place.

Ken Rodgers

Good evening. My name is Ken Rodgers. I’m the President of KRT and with me tonight is Rob Tozier the
Vice-President. We're the principal owners of the company. We have a combined 45 years of appraisal
experience. We brought over 150 projects. We've done communities from 1,000 parcels up to 38,000 parcels.
What we'd like to talk about first would be the standards of a statistical revaluation. The purpose of a statistical
revaluation is to obtain assessment equity between the different classes of property. Like every other
community in the State of New Hampshire, we use an April 1° date of assessment. We're looking at an
assessment date of April 1, 2018. We'll be analyzing sales from April 1° of 2017 to March 31, 2018. We have
to have a median assessment ratio between 90 percent and 110 percent. Coefficient of dispersion must be
less than 20 which we'll talk about that in a few minutes. The price related differential must be between 98 and
103.

As the Mayor stated, we use 3 approaches to value. We use the market approach which is looking at sales.
We use the cost approach which we'll look at the cost to build, look at depreciation, and if you look at land
sales and what we call land residuals. We look at the income approach so we'll get rents back, expenses, and

Special Bd. of Aldermen — 02/27/2017 Page 7

vacancy rates. We'll analyze those to develop a net operating income and we'll capitalize that to develop a
valuation for the property. It’s typically commercial and industrial properties and apartments over five units.

The Mayor talked a little bit about the assessment ratio. It’s just the relationship between the assessed value
and the market value of a property. An example would be if you had an assessment of $200,000 and it sold for
$250,000. The assessment ratio would be 80 percent. So it would be at 80 percent of market value. The
statistic that we use most often is the median ratio which is the middle of a data set. We'll look at all the sales
and array them from lower ratio to high ratio. We're looking for where the middle ratio lies.

The coefficient of dispersion probably the easiest way to explain this is is if you have your assessment ratio or
your median at 100 percent and you think of it as a bullseye, it’s how close those other ratios are to that center.
The tighter the better appraisal model that we’ve developed it predicts value better. Your price related
differential what that does is basically test low value properties versus high value properties and is the
relationship the same or different.

On a statistical revaluation, the process would be we begin in late March with a startup meeting with the city
and the Department of Revenue Administration. We would start by measuring and listing all the residential
sales from 4/1/17 to 3/31/18. On the commercials we'll look at a two year data set. The reason is those sales
are we're going to develop our model based on those sales so we want the most accurate information. We'll
analyze all the sales through various ratio studies. We'll look at where the deficiencies are and we'll update all
the tables as are indicated from the sales analysis. We'll analyze the income and expense statements
returned by commercial, industrial, and apartment owners and create income tables. Once the initial values
are set, we'll review all properties in the city so just a parcel by parcel review of every parcel in the city. Once
we’re finished with that, we’ll publicly post the values to notify the property owners of the new assessments.
We'll conduct taxpayer hearings so they can come in and ask us questions about their property or maybe just
an overall. When we’re completed with that, we deliver a USPAP which is Uniform Standards of Professional
Appraisal Practice Manual to the city and to the Department of Revenue.

The goals of a revaluation: it corrects disproportionate taxation by valuing all property at its fair market value
as of April 1, 2018. It adjusts value from market shifts, ensures that various class of property valued at the
same level of assessment. With that, it creates uniformity and assessment equity. It would create a mass

appraisal model basically using a systematic approach which gives us consistency. With that, I'll turn it back
over to the Mayor.

Mayor Donchess

Does anybody have any questions for KRT at this point?

President McCarthy

So would you actually complete the appraisal by April 1° or what’s the timing of the project?
Ken Rodgers

No | think the end date is October 1*.

Rob Tozier

That’s with the data value so there will be a value as of April 1°.

President McCarthy

So you would get it to us when we submit the forms for the tax rate setting for Fiscal ’19.

Special Bd. of Aldermen — 02/27/2017 Page 8
Alderman Jette

So using the income approach for commercial property is that different than what we’re doing now and what
we’ve done in the past?

Ken Rodgers

Yes | don’t think they’ve ever analyzed the income. Ina city as large as Nashua if a person is going to
purchase a property, they’re going to want to look at the income stream of that property and that’s really the
driving force of why they would consider it. Right now | think the only approach that they’re using is the cost
approach.

Alderman Jette

For sales, you say you use sales that will have occurred between April 1, 2017 and March 31, 2018. Why is it
limited to just one year? Why don’t you look at sales that occurred prior to that year?

Ken Rodgers

We can look at them. The Department of Revenue pretty much has the guidelines of what sales we need to
use. We will if we don’t have sales in certain classes. We'll go back a couple of years and maybe we have to
do a time adjustment on them to bring them up to current market. For the DRA’s analysis, that’s their period of
time.

Rob Tozier

Typically in a city you'll have far more sales to use. So one year would be sufficient to get enough data points
to create a valid model for valuation. You could have 1,000 sales to analyze which is a very large sample to
use in just one year.

Alderman Jette

So if | bought my house in 2000 for a certain price and | still own it and there hasn’t been a sale, how do you
value my house if it’s beyond that one year sales period.

Ken Rodgers

You're sales period is dictated in what the market is at this point in time. So we’re going to bring your property
up or down depending on the situation to market value as of April 1°". So the 2000 sale probably doesn’t mean
very much to us.

President McCarthy
It would seem to me that if you’re looking at sales of residential houses in an area like Nashua that has a huge
stock. A sale from last year of a house with similar square footage, the same number of bedrooms, same

utilities, similar neighborhood is more of an accurate predictor of market value in 2018 than a sale from 2000 of
that exact property.

Rob Tozier

Correct. Of course, yes.

Special Bd. of Aldermen — 02/27/2017 Page 9

Ken Rodgers

If you were to get a bank appraisal to refinance, that appraiser is just going to look down a few loans. They
won't even go back a full year. So when we're building a computer model for mass appraisal, we’re going back
an entire year to get the largest samples that are possible.

Alderman Jette

So when you're looking at a house, you’re not looking at what necessarily what that house may have sold for at
any point in time. You’re looking at what similar houses sold for within the last year to determine the value.

President McCarthy

If you want to put yours on the market for what it sold for in 2000, I'll talk.

Alderman Jette

| didn’t know you were looking.

Attorney Bolton

Until he could get that price.

Alderman Dowd

Actually that’s what a realtor’s price homes for sale right now then you look at comparables that have sold in
the last short period of time. My other question is from an income perspective relative to industrial properties if
it's a very large company with multiple buildings in the city and the surrounding cities and the income that’s

generated was probably spread over several of those buildings. How would you make any kind of estimate as
to the income generated by an industrial building like that?

Ken Rodgers

Well we’re looking at if that building was to be rented out. So we’re looking at just market rents. It doesn’t
matter as far as who the tenant currently is. If | were to own that building and rent it out to somebody, what
would | rent it for?

Alderman Dowd

I’m talking about manufacturing companies, engineering companies.

President McCarthy

Do you have a specific example in mind Alderman Dowd?

Alderman Dowd

Without stating it, yes. It’s not something that too many people would be able to rent.

Ken Rodgers

It’s probably kind of a specific question that I’d have to see the property and make a determination.

Special Bd. of Aldermen — 02/27/2017 Page 10

Alderman O’Brien

Thank you Mr. President. I’m looking at page 12 and one of the things is conduct informal hearings after you
get done with your evaluation. Can you touch base and just expand on that what the average taxpayer if he’s
in conflict with what you came up with with the evaluation. Can you just go over so that the public could know
what the process is, what is the hearing type of about so that they can understand what we're trying to do here
please?

Ken Rodgers

Sure. They can come in. We'll go through their property record card to make sure that there is no
discrepancies with the data. We can explain how the values is arrived. If they have comparable sales or what
they feel are comparable, they can bring those in and show them to us or comparable assessments. If there
are neighbors that have very similar houses and their values are very different. It’s those things that we can
look at. We do put together to a taxpayer a little mini manual and explains the whole process and how we
develop the values. How the neighborhoods were delineated. It gets into pretty good detail.

Alderman Dowd

There have been instances on trying to equate home values if you’re looking at a particular type of house in a
development and they all look alike to give them all the same valuation would be wrong because some of them
may have a finished basement or other amenities that are all on the inside that make the value of the house
higher. Does that normally cause conflict or do you have ways around that?

Ken Rodgers

Well we’re using the existing city’s data as far as the interior information. So if there is a finished basement
and it’s on the property record card, it will get valued. That’s probably the biggest difference of doing a full
revaluation where we’re inspecting every property versus doing a statistical where we're really just looking at
sales and then using the existing data.

Mayor Donchess

And that’s one reason why we had requested the DRA that we be allowed to take more time and do the
physical inspection because if there is somebody who had done work without a permit or something, we don’t
know that and that’s not reflected in the property description and therefore not reflected in the value. DRA
wants us to do this now. They don’t want to wait to get a more complete job. They’re willing to go to litigation
to try to force us to do this immediately.

Alderman Jette

So if doing this complete re-evaluation — | forget what you called it...

Ken Rodgers

We're doing a statistical revaluation but there’s a full revaluation which is measuring and listing every property.
Alderman Jette

Okay so if measuring and listing every property is a better way of determining what the value of property is and

what we're really looking at is how do properties compare in value to each other so that as the money we raise
for taxes is spread among all of these properties it’s done fairly. If that’s the better way of doing it even though

Special Bd. of Aldermen — 02/27/2017 Page 11

the law requires that we complete this by 2018 and this type of study would require more time, why can’t we
meet our statutory obligation but start the process to do the complete re-evaluation if that’s what we should be
doing. Then we will have met the next five-year requirement and we will have done it property.

Mayor Donchess

Well | can let KRT answer. Well first of all, it costs a lot more money like $1.5 million instead of something like
a half a million. Let’s say we completed this now and then next year we did full measure and list, they’d still
want it to be done again. Then they’d want another one in four more years. Maybe in five years it would be
worth doing the full measure and list, prepare a couple in advance and go for it then. We tried to persuade
them to look it would be better if we took another year or two and do the full measure and list. Then we have a
complete inspection of everything but they don’t want to listen to that. We kind of suggested we’re not going to
submit a half a million this year and another million and a half next year to do it again. So | think the decision
would be the next time we’re required to do this maybe we would want to do the more expensive more time
intensive approach. Does that kind of square of what you think?

Ken Rodgers

Exactly.

President McCarthy

My experience with it over the time I’ve been on the Board is that as far as | can see our property cards are
actually fairly accurate. What we'd do is spend a large amount of money to get a new set of data most of
which we already have. What’s more important is to figure out the statistical relationships between the
property classes for which you still have to do the kind of analysis that KRT is talking about.

Mayor Donchess

Now GIS, Angelo Marino formerly the Assessor and now GIS the map function is very creative about taking
over head photographs and trying to locate property that has been expanded without knowledge of the Building
Department and as on anumber occasions located property that’s been expanded and then that assessment
has been changed. There may not be that much extra out there that we don’t know about.

Alderman Jette

But thinking especially of commercial buildings, what changes have been done inside the building? We have
no way of knowing about that unless they applied for a building permit.

Attorney Bolton

If you know of any who haven't, let me know.

Mayor Donchess

Most commercial owners | mean they do it right. If somebody owns a 100,000 square foot building is not
generally doing internal changes without building permits and inspections. It’s usually the mom and pop put in
an extra apartment kind of thing where that happens. At Gateway Hills, they’re not building without a permit.
That’s just one example. A strip mall, they’re getting permits. Most commercial owners are consistent with the
law.

Special Bd. of Aldermen — 02/27/2017 Page 12
Alderman Jette

So doing the income approach on commercial property, how do you obtain the information that you’re going to
basing this on? Are the owners compelled by law to provide that to you?

Ken Rodgers

Unfortunately they're not. We sent out income and expense requests and we do get a pretty decent return.
We're probably not going to get all of them but we can fill in the holes. | think NH is one of the only States in
New England that doesn’t require it to be sent back.

Attorney Bolton

There is data available commercially. Manuals that you can look up what things are renting for, what is the
cost of maintenance per acre and those sorts of things. What they’re doing is they’re not actually doing an
individual appraisal on every piece of commercial property. They build a model and then say okay for
manufacturing type buildings, the model is so much per square foot and that takes into consideration the
income approach that they’ve modeled based upon the sales they’ve looked at and based upon the information
they’ve gotten from those who respond to the questionnaires or from other sources. Is that correct?

Ken Rodgers
Yes.
Alderman Dowd

Reading ahead to your summary slide, | see that the cost of this project is approximately half a million dollars
and the source will be CERF. Do we have provisions in the CERF account to do it for this type of activity?

Mr. Griffin

Several years ago | believe in 1983 the Board of Aldermen approved the use CERF for this purpose. When
you ask is there any specific line item in CERF right now for this purpose — no. There is $1.7 million I’d say
unrestricted balance that we could use for this purpose.

Alderman Dowd

Just for the new members can you explain what CERF is normally used for?

Mr. Griffin

CERF is the capital equipment reserve fund. It is generally used to fund vehicles for the different departments
within the city.

Alderwoman Melizzi-Golja

Thank you. | just have a follow up question to Alderman O’Brien’s earlier question regarding information
taxpayers can get. Mr. Rodgers you indicated that there will be like a taxpayer mini manual that will be
developed. | guess to Mayor Donchess and Mr. Griffin will that then be made available electronically on line?
If people don’t have access electronically how will that be made available? Have we thought that far out or any
thoughts of that?

Special Bd. of Aldermen — 02/27/2017 Page 13
Mr. Griffin

We haven't thought that far out but we do know that the more and better information that we can get out to the
public the better we’re going to be.

Alderwoman Melizzi-Golja

Okay so | would anticipate like copies of it would be at the library, the senior center, other places, the bus
stations, other places people might go looking for information here at City Hall.

Mr. Griffin

| arrived in 2010 just to put this whole thing in perspective. We lost a billion dollars in value as a city in 2008.
We lost another half a billion in 2013. The results of 08 were that 75 percent of the residential taxpayers got a
tax bill reduction the following year and then 66 percent got a reduction in’13. So this is certainly a market
correction but it’s going the other way as Mayor Donchess has indicated. The more information we get the
better. | think the good news here is that the property values are real. The sales are taking place and there’s
very little vacancy in the apartments. The vacancy in the apartments being low coupled with the rent increases
give us optimism that that strata that includes the five plus apartments we could probably capture value there.
That’s very important to know that folks who owned their home back like Alderman Jette, he saw a reduction or
maybe a modest increase and now the likelihood is an increase. It’s a balancing act and within the strata
within the single family residential which we have 15,600, they’re categorized ranch, gambrel, colonial by
neighborhood. There is all kinds of | think they call “tables”. In here there’s all kinds of tables that’s what
creates the value at the end.

Alderwoman Melizzi-Golja

| just think it’s important that if we’re putting information out there to educate taxpayers we remember that not
everyone is going to access it on line and we think about where else we have that information available so
people know and understand what we’re doing. Thank you.

Alderman Klee

Follow up to the Alderman’s question, when you said you were going to be mailing out the new assessment or
the information to them and they could set up a hearing and so on. At that time how large is this taxpayer
manual going to be? Would it be better to send it with it so that they can see?

Bob Tozier

A few dozen pages if not larger. It would be tricky to send out 15,000 of those.

Alderman Dowd

Sort of an unrelated. We're getting towards the budget season again. We're going to be having a discussion
on CERF. Typically we get into the budget discussion and we talk CERF. This year especially with a lot of
new members who don’t know anything about CERF, could we have in the near term an overview of the CERF
account and how we're intending to look at it going forward. The CERF account looks at vehicles over a

number of years. That’s very difficult to look at with that one night that we have on the budget to look at that
CERF account. | think if we had a prelude to that, it would make it a lot easier for other people to understand.

Mayor Donchess

Yes definitely we can arrange that.