Notes from the MCTL meeting of Oct. 26, 2016
opic: “Are Slow Reassessments Hurting Property Tax Revenues?“
Speakers: Mike Coveyou (substituting for Alexandre Espinosa)
Department of Finance, Montgomery County
Director, Department of Permitting Services, Montgomery County
Questions sent to speaker in advance (below) are followed by an overview of the discussions at the meeting:
1. What were some of the causes leading to this loss of property tax revenue? Were there gaps in accountability?
2. What is the annual budget for the Department of Permitting Services (DPS)? How many inspectors are authorized in the DPS budget? Have they increased or declined over the past 5 years? How are workloads projected for DPS inspectors? Are there trade-offs between new vs improvements to properties?
3. How are inspector backlogs managed to ensure timely and accurate assessments? What incentives do inspectors have to reduce backlogs?
4. How are expired permits tracked and follow-up inspections performed?
5. Why are the processes for controlling inspections and the interface with the State Department of Assessments and Taxation (SDAT) not automated?
6. How do inspection backlog standards compare with those in Fairfax and Howard counties?
7. How does the Department of Finance project revenues for new and improved properties? How much revenue was not collected in FY 2016 and 2017 due to procedural weaknesses at DPS? at SDAT?
8. As a result of the Inspector General’s report, when will corrective actions be implemented and how much will they cost? How much in additional property taxes will the county regain in FY 2018, 2019 and 2020 as a result of corrective actions? What role will SDAT need to play to make DPS changes implementable?
9. It is estimated that the county has lost $52 million a year in revenue through granting of Income Tax Offset Credits (ITOC) for non-owner occupied homes. The county claims that it lacks the requisite State authority to remove these credits on failure to submit the form. But the county uses exactly the same qualifications to grant Homestead Credits. State law that authorizes ITOC directly references State law that authorizes homestead credits. Why has the county not sought authority from the state to remove the ITOC from every property whose owner has not submitted a homestead credit verification form? Can you justify this loss of revenue?
The meeting was called to order at 7:03 pm by President Joan Fidler. Attendance was 16 including the two speakers.
It was an informative discussion. Here is an overview:
Ms Schwartz-Jones stated that the IG report on slow reassessments was misleading and that her office did not agree with the appropriateness and cost-effectiveness of some of the IG’s recommendations.
The annual budget of the DPS is $37.7 million with a total staffing of 236 positions. Of these, 85 are inspectors. However, the DPS is an “enterprise fund” and is self-funded through the fees it collects. It receives no direct taxpayer funding.
Most important, the DPS performs next day inspections, i.e., inspections are performed no later than the day after the request is received. Hence there are no inspection backlogs. In FY16, DPS received applications for over 60,000 permits and licenses (commercial, residential, trades, signs, zoning, etc.). Over 110,000 people were served at the DPS walk-in counters. In FY15 DPS performed over 157,000 inspections and reviewed over 92,000 plans.
DPS has a far-reaching mission and not only includes permitting services but allocates its revenues between competing public safety and economic development objectives. Thus it has inspectors for commercial building, fire prevention and code compliance, residential construction, land development and zoning and site plan enforcement.
Property assessments are performed by the Maryland State Department of Assessments and Taxation, but the local jurisdictions in Maryland pay half the cost of MSDAT’s expenses. In addition, DPS has supplemented MSDAT resources with the provision of technology and technical assistance. , There are differences in the terms”cost estimate”, “fair market value” and “assessed value”, mostly due to timing
A trigger for reassessment would be a substantially completed improvement that adds at least $100,000 in value to the property. This generally translates to an increase in 694 – 887 square footage for an addition. The DPS issued 762 permits between January 2014 and April 2016 for additions over 800 sf and 1,868 permits for additions under 800 sf..
Every property is reassessed every three years, so those properties which have large changes in assessed value between assessments are eventually assessed appropriately. However, if substantially completed improvements to a property add at least $300,000 in value, an assessment can be done between scheduled assessment cycles. While there is a loss of tax revenue due to the lag in reassessing improved properties, that loss is relatively minor, per DPS. Furthermore, to devote more DPS resources to faster reassessment would mean that resources would need to be diverted from other DPS areas.