Finance Committee - 3/21/2018 Page 8
This just reviews a little bit of wnat we talked about the other night. Now David Fredette, the City Treasurer,
has joined our discussion, so thank you Mr. Fredette. The first slide just discusses very briefly, in review, this
and the next slide will show you the reason we are very concerned about the State ordered revaluation and
why we want to be particularly careful about proceeding and making sure we get all evaluations correctly. This
first one on the left shows the current valuation of the City which is approximately $8.5 billion dollars, the
assessed value of all the property in the City. We are talking about the left half of the slide. The light blue
column shows you the total value of the residential assessments in the City, which is approximately in total
$5.3 billion dollars. The dark blue column shows you the commercial assessments, everything that is not
residential, single family or small residence properties and that totals $3.2 billion. So we have currently 62.4%
of the City’s valuation is residential and about 37.6% is commercial, approximately 2 to 1 but a little bit less.
The equalization ratio on the residential property as you see below is .8 which means that on average
residential properties are assessed at 80% of their true value based upon the fact that residential home values
have increased very significantly over the last five years. The last time, we had to undergo a State ordered re-
evaluation.
On the right, you see that some sales imply that the commercial equalization ratio might be .93, meaning that
commercial properties, based upon a limited number of sales, are valued at 93% of real value. In other words,
residential homes have gone up more quickly during the last five years than commercial values have. The
good news of course is that people’s homes are worth a lot more than they used to be. On the other hand, it
has an implication in a state-ordered re-evaluation that could have some unfortunate consequences.
If you look to the right of this slide, that once the values we showed on the left are adjusted to 100%, in other
words, residential goes from 80% assessment to 100% and commercial, based on this limited number of sales
goes from 93% to 100%, we now move up to about a $10 billion dollar evaluation. Except that now $6.6 billion
dollars or 66% is residential and commercial is now $3.4 billion dollars or 34%. So you see the share of
residential has climbed from 62.4% to 66% and the share of the total represented by commercial has fallen
from 37.6% to 34%.
The next slide shows you what the consequences of that could be. On the left, again, we have current
valuations and based upon the idea that we are collecting about $200 million dollars in taxes, which is
approximately the number — ballpark, we are now collecting 62.4% of the total from residential or $124 million
dollars. We are collecting 37.6% from commercial or about $75 million dollars from commercial and industrial.
If we adjust the appraisals, using those equalization ratios of 80% for residential and 93% for commercial, we
see that the relative tax burden would shift to wnat you see on the right. 66% of the collections of $200 million
dollars would now be paid by residential property tax payers and 34% of the total of $200 million dollars would
be paid by commercial so that the share of the pie paid by residential could climb from $125 million dollars to
$132 million dollars, whereas the share of the pie based on $200 million dollars paid by commercial and
industrial could fall from $75 million dollars to $68 million dollars, meaning a shift of $7 million dollars from
commercial and industrial on to residential. This would result in property tax increase to virtually all residential
property owners which is of course something we would prefer not to see.
We know that this commercial equalization ratio of 93% is based upon a limited number of sales and we know
that the income approach towards commercial property which values commercial properties based upon the
income which is being generated as opposed to a very limited number of sales or as opposed to a cost
approach, may result in a fair apportionment between residential and commercial. This may result in closer to
real fair market values for commercial, which could bring that 93% equalization down meaning commercial
properties would increase potentially more if we really assess their real values based on the income approach.
That is why we are proposing that we get KRT, they are experts, and you met them the other night, to help us
work through this entire process. Send out the new assessments to all property owners to conduct meetings
with anybody who disagrees with their property owners, that we have independent experts who are telling us
what these properties are worth based upon the most advanced expertise in the field. That is the contract we
are proposing.
Where we have gotten to now is that you’ve got the contract as part of the agenda but we are proposing that
the funds be taken from the CERF or the Capital Equipment Reserve Fund. John Griffin, CFO will talk you
