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A primer on revaluation: including background, history, current status

If you haven’t been following it, or you need to catch up on the latest, this story should help you understand the concept and ramifications of property revaluation

Since its implementation in January, Alamance County’s latest property tax revaluation has spawned almost as many zany conjectures as the mysterious “crash landings” in Roswell, New Mexico.

Despite the best efforts of the county’s tax office to bring matters back down to earth, the public speculation over this mass reassessment has grown as area property owners have tried to make sense of the reval’s results – both with respect to their own properties and cumulatively.

Meanwhile, budgetary preparations by local government officials seem to have only exacerbated the disconnect between what residents think has occurred and the reality according to Alamance County’s tax office.

In order to set the record straight about the revaluation, The Alamance News is attempting to address some of the more common questions and misconceptions that have proliferated since the county completed this process.

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To this end, the newspaper has gone back over the tax office’s own statements and explanation and compared them with data available from both current and past revaluations.

The newspaper has also consulted the relevant state statutes as well as the documents that the N.C. Department of Revenue has released about the county-level revaluation process.
The hope is that, by presenting accurate, credible information about revaluation (whose nickname among those in government is, simply “reval”), the newspaper can inject some clarity into this oft-misunderstood function of local government.

This revaluation primer may not dispel all the confusion, but it should give our readers a more firmly-grounded knowledge of a process that may seem entirely alien to the average taxpayer.

 

Why do counties conduct revaluations?
Before trying to explain the particulars of county’s recent revaluation, it may be worthwhile to address the revaluation process itself – and explain why counties are so determined to go through the process despite the inevitable blowback from taxpayers.

Under state law, every county must appraise the value of both the real and personal property in its jurisdiction in order to ensure that it is equitably taxed. The relevant statute further stipulates that these appraisals reflect the property’s “market value.”

Due to the fluctuations of the real estate market, the statute also requires counties periodically recalibrate their real property appraisals to keep them in line with actual sale prices of real estate. The statute goes on to require each county to conduct a mass reappraisal at least once every eight years, although some may use a shorter interval if state level officials determine that local sale prices have diverged more than 15 percent from a county’s tax values. The statute also allows counties to voluntarily accelerate their revaluation cycles if their elected leaders consider it prudent.

 

Why did Alamance County conduct a revaluation this year?
Although an eight year-cycle may be the statutory requirement, the N.C. Department of Revenue advises counties to conduct mass reappraisals at least once every four years.

“If immediate compliance to this recommendation [of four-year intervals for tax revaluations] is not possible, counties should progress towards a four-year cycle by shortening their current cycle by two years until they are in compliance.”

– N.C. Department of Revenue (2017 publication)

“If immediate compliance to this recommendation is not possible,” the state agency adds in a publication released in 2017, “counties should progress towards a four-year cycle by shortening their current cycle by two years until they are in compliance.”

Two years ago, Alamance County’s commissioners decided to follow the revenue department’s recommendation and shorten their traditional eight-year cycle to six years as a prelude to an even shorter four-year interval.

The commissioners unanimously approved a resolution to this effect in May of 2021 after the county’s tax administrator Jeremy Akins warned them of a growing gap between the local real estate market and the tax values that his office had set during the county’s previous reval in 2017.

Akins went on to inform the commissioners that the discrepancy between sale prices and tax values had grown so great that the state’s department of revenue had decided to move up the county’s next reval from its original date in 2025 to 2024. He added that, due to the disconnect with the market, the state had also docked the county’s property tax revenue from utility companies by roughly $400,000 a year.

In order to recover some of this revenue, Akins advised the commissioners to voluntarily advance the county’s next reval by one year earlier than the state’s newly mandated deadline. He added that this mass reappraisal in 2023 could serve as a convenient stepping stone to a new four-year interval that the commissioners ultimately agreed to establish.

 

Why did tax values go up so much in January?
As the tax office scrambled to meet its new revaluation deadline in 2023, Akins gave the commissioners periodic updates on the state of the local real estate market. As the reval’s implementation date approached, he acknowledged that sources like Zillow were reporting record-breaking sales figures, and he warned the commissioners about the sticker shock that many property owners would feel when they got their new tax values.

But even Akins wasn’t prepared for just how high those values would be when the moment of reckoning finally arrived in mid-January. Later that month, the tax administrator appeared before the commissioners to announce an increase of 79.4 percent in the overall value of the county’s real taxable property.

“This [revaluations of property which are cumulatively about a 79.4 percent increase]  is being driven by a very unusual market.  I’ve never seen anything like it…There’s no way to get around the situation that we have tremendous growth.”

– Alamance County tax administrator Jeremy Akins

“This is being driven by a very unusual market,” he went on to add, “I’ve never seen anything like it…There’s no way to get around the situation that we have tremendous growth.”

 

How do the results of this year’s revaluation compare with the county’s previous mass reassessment?
The county’s tax administrator didn’t have quite as much to explain when he presided over his first revaluation in 2017. That reval happened to occur just as the local real estate market was emerging from an extended slump that was precipitated by the global financial crisis in 2008. The county’s previous reval in 2009 had the bad luck of occurring in the midst of the crash, and much of the sales data that went into that mass reassessment reflected conditions immediately before the collapse.

By the time the county completed its next reval in the spring 2017, the market had more or less regained the ground it had lost eight years before. This state of affairs was apparent enough in March of 2017 when Akins appeared before the county’s governing board to announce a 2.26 percent rise in the overall worth of the tax base thanks to the revaluation that year.

What is a “revenue neutral” tax rate and why is it important in the context of a revaluation?

When Akins announced the results of this year’s revaluation, he emphasized that the unprecedented jump in the county’s tax values wouldn’t necessarily translate to a higher tax bill for the county’s typical property owner.

Alamance County tax administrator Jeremy Akins

“People want their values to go up, but not their bills, and that’s where the tax rate comes in.”

– Alamance County tax administrator Jeremy Akins

“People want their values to go up, but not their bills,” he conceded when he presented the revaulation’s results to the commissioners in January, “and that’s where the tax rate comes in.”

The role of the tax rate is also addressed in an online guide that the tax office has posted to address some of the concerns that area residents have raised in the wake of the reval.

“When tax values go up, tax rates come down. Those persons who have seen the most growth tend to pay more taxes after a revaluation, while those persons who have seen the least growth tend to pay less taxes after a revaluation.”

– Alamance County tax primer

“When tax values go up, tax rates come down,” the tax office states in this primer. “Those persons who have seen the most growth tend to pay more taxes after a revaluation, while those persons who have seen the least growth tend to pay less taxes after a revaluation.”

According to the tax office, the key to maintaining everything on an even keel is a “revenue neutral,” or status quo, tax rate, which is meant to generate the same amount of revenue, cumulatively, that the county would’ve received had the revaluation never occurred.

Under state law, counties and municipalities are obligated to state, or publish, this revenue neutral rate when they rejigger their finances after a reval. The law doesn’t obligate them to adopt this rate but, in Alamance County, the custom has often been to go revenue neutral to erase the windfall a revaluation would otherwise bring to local government coffers.

 

How is the revenue neutral tax rate calculated?
In the interest of keeping things simple, the county’s tax office has offered a deceptively straightforward explanation for how the revenue neutral rate is obtained. According to its online guide to revenue neutrality, “the tax rate that keeps the total money the same is the revenue neutral tax rate.”

In reality, local governments use a much more complex, state-mandated formula to determine their status quo tax rate after a reval. In calculating this rate, there are three factors which must be considered and which are often overlooked by taxpayers who try to crunch the numbers themselves.

One key point to remember is that a local government’s tax base comprises much more than just the taxable real property within its domain. (In the county, for instance, about 53 percent of the county’s total revenues are from the property tax on taxable real property.) It also includes personal property such as farm equipment and industrial machinery, property owned by private utility companies, and motor vehicles registered within that jurisdiction – none of which are reappraised during a revaluation.

In Alamance County, these other components of the tax base have offset much of the gains that real property realized during the reval. According to the tax office’s latest figures, the value of the tax base as a whole has risen 57.61 percent, as opposed to the nearly 80 percent that taxable real property evinced.

Two other considerations that go into the revenue neutral calculations concern predictions which are a bit more slippery than a jurisdiction’s tax values. One of these factors is the impact that post-revaluation appeals will have on the tax base. Another is the “natural growth” in the tax base due to new construction and expansion.

In order to estimate the second factor, the state requires local governments to use a formula that infers future growth in the tax base from the annual gains over the past five years. The state has no comparable standard for gauging the impact of post-revaluation appeals. As a result, this variable can be quite problematic for local officials who fail to anticipate the potential reductions due to successful appeals.

In 2009, the county plunged itself into a perennial shortfall after the board of commissioners underestimated the impact of that year’s unusually high number of post-revaluation appeals. This year, Akins has tried to avoid this predicament by adjusting his estimate of the potential decrease as appeals have come into his office. Even so, his latest estimate for the county as a whole has remained at – 2.5 percent, although he has increased the figure for municipalities like Mebane, whose anticipated reduction now stands at 4.67 percent.

 

How do this year’s revenue neutral rates compare to those from the last revaluation?
Due to a relatively large jump in property tax values, the revenue neutral rates for the county and most of its municipalities are considerably lower than their pre-reval counterparts. For Alamance County, the tax office has proffered a revenue neutral rate of 42.59 cents – in contrast to the current levy of 65 cents.

Note: the county alone revaluates property; then individual property figures and cumulative totals are provided from the county tax office to the respective municipalities, from which towns and cities then set their proposed tax rates. Both the county and each municipality are required to publish, or state, a revenue neutral figure even as they may set proposed tax rates at, above, or below their jurisdiction’s figure.

In 2017, the revenue neutral rates were much more comparable to the pre-reval figures. The county’s revenue neutral rate, for example, was estimated at 57.44 cents – as opposed to the pre-reval levy of 58 cents. Burlington nevertheless had a revenue neutral rate of 59.73 cents, which slightly exceeded the 58 cents it previously had on the rolls.

For Mebane and Graham, the tax office calculated revenue neutral rates of 47 and 45.17 cents in 2017 – as compared to their previous rates of 49 and 45.5 cents. Meanwhile, Elon and Gibsonville had revenue neutral levies of 41.48 and 50.1 cents.

In contrast to this year, which has seen local government administrators propose post reval tax rates up to 21-plus percent higher than their revenue neutral rates, city and county officials tended to stay fairly close to revenue neutrality in 2017.

In fact, that year Mebane and Burlington both adopted their revenue neutral rates as their post-reval levies. The county and the city of Graham rounded its revenue neutral rate up to 58 and 45.5 cents, respectively. Meanwhile, Elon and Gibsonville showed themselves a bit more adventurous with post-revaluation tax rates of 45 and 53 cents.


More REVALUATION news:

County manager unveils budget/tax plan with 6.7 percent tax rate hike: https://alamancenews.com/breaking-mon-night-county-mgr-proposes-budget-with-6-7-tax-hike-above-revenue-neutral-estimate/

Fire district tax rates also coming in with rates above “revenue neutral”: https://alamancenews.com/most-rural-fire-districts-seek-to-leave-revenue-neutral-tax-rates-behind/

——

Cities to consider new tax rates much higher than “revenue neutral”:

Burlington +21%: https://alamancenews.com/burlingtons-city-manager-proposes-tax-rate-almost-9-cents-above-revenue-neural/

Graham +20%: https://alamancenews.com/graham-city-managers-budget-includes-tax-rate-almost-21-percent-above-revenue-neutral/

Elon + 14%: https://alamancenews.com/elon-town-manager-proposes-budget-plan-with-tax-rate-14-percent-higher-than-revenue-neutral/

Mebane +11%: https://alamancenews.com/mebane-budget-has-11-percent-tax-increase-new-special-fund-for-long-term-capital-projects/

Commissioner Pam Thompson says her recent opposition to revaluation not influenced by politics (being on the ballot again next year): https://alamancenews.com/commissioner-pam-thompson-denies-politics-are-behind-her-criticism-of-reval/

                  —–

PLUS: Our editorial page views on tax rates in:

County manager’s budget proposal: 7% increase in spending, 6.7 percent tax hike above “revenue neutral”: https://alamancenews.com/looks-like-its-time-for-taxpayers-to-get-out-the-pitch-forks-tar-feathers-rail/

Burlington & Mebane: https://alamancenews.com/whopping-city-tax-increases-proposed-in-burlington-mebane/

Elon & Graham: https://alamancenews.com/more-huge-municipal-property-tax-increases-this-week-elon-graham/

 

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