HomeMy WebLinkAbout2012-COH-A Technical Assistance Report Evaluating Property Tax Policies and Administrative Practices in Hawaii CountyCounty of Hawaii seal
Colleen M.Schrandt
Legislative Auditor
Mailing address
Hawaii County Building
25 Aupuni Street
Hilo, Hawaii 96720
Business Address
1266 Kamehameha Avenue
Ironworks Building, Room A-1
Hilo, Hawaii 96720
OFFICE OF THE LEGISLATIVE AUDITOR
Telephone (808) 961-8386 Facsimile (808) 961-8905
Date.: March 12, 2012
To: Dominic Yagong, Chairman
And Members of the County Council
From: Colleen Schrandt
Legislative Auditor
Re: A Technical Assistance Report Evaluating Property Tax Policies and Administrative Practices in Hawaii County dated March 5, 2012
This letter transmits for your review, deliberation, and acceptance, A Technical Assistance
Report Evaluating Property Tax Policies and Administrative Practices in Hawaii County dated
March 5, 2012 as prepared by the International Association of Assessing Officers (IAAO)
This study was performed between November, 2011 and December, 2011.
We would like to request time for an IAAO representative to present the report and to answer
any questions you may have at the Finance Committee meeting scheduled on April 3, 2012.
Appropriate department head(s) or their representative(s) will also be asked to attend the
meeting.
In the meantime, please feel free to contact me should you require further information.
Enclosures
CS/map
(Note: The attached report, due to its size is not made
a part of the duplicate copies, but is on file in the
Office of the County Clerk.)
Comm. No. 641
Ref. To: FC
Ref. Date: March 16, 2012
Serving the Interest of the People of our Island
Hawaii County is an Equal Opportunity Provider and Employer
IAAO
International Association of Assessing Officers
Promoting Innovation and Excellence in Property Appraisal and Tax Policy
Research and Technical Assistance
A TECHNICAL ASSISTANCE REPORT EVALUATING PROPERTY TAX POLICIES AND ADMINISTRATIVE PRACTICES IN HAWAII COUNTY
March 5, 2012
314 W 10th St., Kansas City, Missouri 64105-1616 USA
(816) 701-8100 Fax (816)701-8149, (800) 616-4226, www.iaao.org
.
IAAO
International Association of Assessing Officers
314 W 10th St., Kansas City, Missouri 64105-1616 USA
(816) 701-8100, (800) 616-4226 Fax (816)701-8149, www.iaao.org
CAE AAS CMS RES PPS Professional Designations
March 5, 2012
Colleen Schrandt, Legislative Auditor
Office of the Legislative Auditor
County of Hawai`i
1266 Kamehameha Avenue
Ironworks Building, Suite A-1
Hilo, Hawaii 96720
Re: Evaluation of Property Tax Policies and Administrative Practices
Dear Ms Schrandt:
As you requested through the contract between the County of
Hawaii and the International Association of Assessing Officers (IAAO) we
have completed our study of certain policies and administrative practices
of the County of Hawaii. The study was performed between November,
2011, and December, 2011. Our findings, conclusions and recommendations
can be found in the attached report.
During the study we reviewed documents, manuals, records, electronic
files, procedures, and studies. Statistical and other analyses were
performed on data gathered electronically and in person. We greatly appreciate
the assistance provided to us by the County especially the Finance
Department, the Real Property Tax Division, and your office.
This report includes recommendations for consideration by the
County in improving its property tax policies and in improving the operation
of its real property tax system. Alan Dornfest, AAS, and Richard Almy
were our consultants on this assignment. If you have any questions about
this report please feel free to contact Mr. Dornfet or Mr. Almy directly or
call me. We appreciate the opportunity to work with you and look forward
to assisting you in the future. Please let us know if we can be of any additional
assistance.
Sincerely,
Lisa Daniels
Executive Director
Certification and Limiting Conditions
We certify that, except as otherwise noted in this report:
All work performed in conjunction with this report was conducted in compliance with the
International Association of Assessing Officers' Code of Ethics and Standards of Professional
Conduct. The findings and recommendations were benchmarked against the
Standards of the International Association of Assessing Officers.
The participants in this consulting assignment are all members in good standing of the
International Association of Assessing Officers (IAAO) and have no personal interest or
bias with respect to the subject matter of this evaluation report or the parties involved.
Employment or compensation of any of the consultants is not dependant on the reporting
of a predetermined conclusion or the attainment of a stipulated result from the contents or
conclusions of this report.
To the best of our knowledge and belief, the statements of fact contained in this report,
upon which the analysis, conclusions, and opinions expressed herein are based, are true
and correct. We assume no responsibility for invalid data or misinformation provided to
US.
The consultants are not attorneys and any references made to legal issues are for guidance
and not intended as legal research of the issues or existing case law or code requirements.
Use or dissemination of the contents of this report for other than the purpose and function
intended could lead to improper use or misinterpretation of its contents and should not be
done without the express consent of the International Association of Assessing Officers.
The consultants conducted interviews, obtained information, prepared the analysis, conclusions
and opinions concerning the assessing practices and policies of the jurisdiction
that are set forth in this report. All opinions and conclusions expressed in this report are
the sole responsibility of the consultants on behalf of the International Association of Assessing Officers.
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Table of Contents
Certification and Limiting Conditions...........................................................................iii
Listof Figures...................................................................................................................vi
Listof Tables...................................................................................................................vii
Executive Summary
List of Recommendations..............................................................................................xxi
1. The Technical Assistance Project................................................................................ 1
1.1 Background and Introduction ................................................................................... 1
1.2 Scope of the Technical Assistance Project............................................................... 2
1.3 Limitations................................................................................................................ 3
1.4 Methodology of the Project ...................................................................................... 3
1.5 Report Format........................................................................................................... 4
2. Economic, Fiscal, and Institutional Setting................................................................5
2.1 Background............................................................................................................... 5
2.2 Workload................................................................................................................... 7
3. Fiscal Analysis...............................................................................................................9
3.1 The County's Approach to Fiscal Analysis.............................................................. 9
3.2 Additional Dimensions of Tax Analysis................................................................... 9
3.3 Analysis of Exemptions and Tax Relief Measures................................................. 11
4. Legal Framework........................................................................................................ 16
4.1 Main Features of the County's Real Property Tax System..................................... 16
4.2 Organization and Clarity of the Code..................................................................... 18
4.3 Calendar.................................................................................................................. 19
5. Management of the Real Property Division .............................................................21
5.1 Introduction............................................................................................................. 21
5.2 Planning, Budgeting, and.Resource Requirements................................................. 22
5.3 Organization of the Division and External Organizational Relationships.............. 26
5.3.1 Organization..................................................................................................... 26
5.3.2 External Relationships.....................................................................................27
5.4 Work Management.................................................................................................. 27
5.5 Technical Competence............................................................................................ 28
5.6 Use of Technology.................................................................................................. 29
5.7 Quality Assurance Practices ................................................................................... 31
5.7.1 Ratio Studies.................................................................................................... 31
5.7.2 Standards of Performance................................................................................ 32
5.7.3 Limitations of Ratio Studies ............................................................................ 33
5.7.4 Observations on the County's Ratio Study Process and Results..................... 34
5.7.5 Documentation and Staff Involvement............................................................ 37
5.7.6 Supervisory Review of Appraisals................................................................... 37
5.7.7 Oversight.......................................................................................................... 38
5.7.8 Internal Controls, Security Procedures, and Data Edits............................... 40
6. Cadastral Data Collection and Management Procedures.......................................43
6.1 Maintenance of Ownership and Sales Data............................................................ 43
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6.1.1 Initial Processing ofConveyance Information ................................................ 43
6.1.2 Sales Data Processing ---------------------------- 44
6.2 Cadostrol Maps and Parcel Numbering System......................................................44
6.3 Maintenance of Property Records...........................................................................45
6.3.1 Building Permit Processing..............................................................................46
6.3.2 Other Inspections-------------------------------46
6.4 Contents of Property Records................................................................................. 46
7. Real Property Valuation.............................................................................................48
7.1 Appraisal Cycle and Frequency..............................................................................48
7.2 Valuation Methods.................................................................................................. 50
7.2.1 Land ------------------------------------- 51
7.7.2 Single-family Reaidental Buildings--------------------- 51
7.2.3 Multi-family Properties---------------------------- 53
7-2.4 Commercial and Industrial Property................................................................ 54
8. Administration of Exemptions and Relief Mechanisms..........................................55
8.1 Classification System................................................................. ............................ 56
8.2 Specific Exemptions------------------------------- 56
8.2.1 Agricultural Use Value---------------------------- 57
8.2.2 Homeowners Exemption-------------------------- 54
8.2.3 Other Relief Measures—The 3% Assessment Increase Cap--------- 60
8.2.4 Alternative Relief Mechanisms........................................................................ 63
9. Determination of Levies and Tax Rates....................................................................64
10. Assessment Appeal....................................................................................................65
10.1 Current System...................................................................................................... 65
10.2 Evaluation ............................................................................................................. 67
11. Tax Billing, Collection, and Enforcement...............................................................69
12. Public Information and Taxpayer Assistance........................................................ 71
12.1 General Information and Outreach ....................................................................... 71
12.2 Assistance with Exemption Application-------------------- 72
12.3 Programs for Responding to Complaints and Inquiries........................................ 72
12.4 Conclusions and Recomendations..................................................................... 73
13. Summary....................................................................................................................74
Appendix A: Working Interview Document...............................................................79
Appendix B: Frequency of Various State Property Tax Assistance Activities........83
Appendix C: References................................................................................................84
Appendix D: Benchmarked Assessment Districts.......................................................86
Appendix E: County Ratio Study ..............89
Appendix F : Examples Illustrating Level and Uniformity Statistics Based on Ratio Studies.......................................94
Appendix G: A Distribution-free Method for Locating Outliers and Extreme Outliers.........................96
Appendix H: Common Reappraisal Cycles and Property Inspection Practices......98
Appendix I: Elements that Contribute to Valuation Equity......................................99
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List of Figures
Figure 1: Selected Trends in Hawaii County.................................................................... 6
Figure 2: State of Hawaii Local Government Revenue Sources.................................... 10
Figure 3: Use-value Assessment Programs, 1944............................................................ 12
Figure 4: Residential Property Tax Relief....................................................................... 12
Figure 5: Examples of Tax Expenditures------------------------ 14
Figure 6: Example ofTax Shifting ---------------------- 15
Figure 7: Ratio Study Standards ...................................................................................... 33
Figure 8: Holdout Samples ------------------------------- 41
Figure 9: Excerpt from Standard Tax Policy............................................... 61
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List of Tables
Table 1: Parcel Breakdown of Hawaii County 2011 - 2012.............................................. 8
Table 2: Property Tax Calendar....................................................................................... 20
Table 3: Funding and Staffing Benchmarks .................................................................... 23
Table 4: Pro Forma Staffing Analysis ............................................................................. 25
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Executive Summary
This report is a review of property tax policies of the County of Hawaii and the administative
and assessment practices used to implement these policies. The purpose of this
review is to draw conclusions regarding whether the property tax system used in Hawaii
County comports with IAAO standards, and standards and best practices elsewhere in the
U.S. In cases where the authors believe this not to be true, recommendations are made for
achieving such standards and practices.
Although this report comments on strengths of the current system as well as weaknesses,
recommendations designed to identify and correct weaknesses represent the bulk of the
report. This should not be taken to imply overall weakness in the current system, but is
intended to focus attention on areas that should be considered for change, given the stated
goals of the project.
The Hawaii County real property taxation system has the essential underlying features in
terms of the Code and general administration that are expected in U.S. county property
tax systems. Processes are in place to find and value real property, to update values, to
provide for exemptions, to administer appeals, and to collect property taxes. Although
final, taxable values may be subject to constraint, for the most part the goal of the valuation
system is market value, a desirable feature. Certain quality control procedures, such
as ratio studies and internal data queries, are used to check the accuracy of the valuation
system and real property transfers are subject to a conveyance tax and disclosure of sales
prices—a very positive and important feature. Many of the elements expected to contribute
to valuation equity are found in the County assessment system. Further description of
these elements is outlined in the table in Appendix I.
Another overarching impression is the comparatively low level of real property taxation.
As measured by effective property tax rates (property tax obligations as a percentage of
property values), residential property taxes in Hawaii County are low from a national
perspective. Whereas property taxes on owner-occupied residences typically are about
1.3 percent of property value, property taxes in Hawaii County generally are less than
0.2 percent of property value.
The low effective property tax rates for residential properties are the result of several policy
measures designed to favor owners of agricultural land, principal residences, and low-rent
housing. Under the County's property tax rate classification system, properties in the
homeowner class have a nominal (officially adopted) property tax rate of 0.555 percent
of net taxable value (estimated market value minus exemptions, etc.), whereas the highest
nominal rate is 0.985. Moreover, owner-occupied principal residences are eligible for a
home exemption that completely exempts properties valued at $40,000 or less and exempts
20 percent of the value above that threshold to a maximum of $80,000. Taxpayers
over sixty years of age are eligible for additional amounts depending on their age bracket.
Certain other taxpayers (victims of Hansen's Disease; blind, deaf, or totally disabled persons;
and totally disabled veterans, their spouses, and unmarried widows) are eligible for
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further exemptions, some of which may be applied to properties other than their principal
residence. In 1990, a "non-speculative residential use dedication" program was created
under which an owner could petition to have the land on which his principal residence
was located dedicated to residential use for ten (later five) years, in return for which the
assessment would be frozen. New applicants are no longer permitted to participate in this
program, but current properties with this dedication retain frozen taxable values. A replacement
program, instituted in 2004, provides limits under which assessment increases
cannot exceed 3 percent in any year. The complexity of eligibility criteria can make enforcement expensive.
As is typical nationally, agricultural and forest land is valued on a current-use basis instead
of a highest and best use-basis, which is the basis used in the estimation of market
values. Use values are lower than market values when there is a potential to use land
more intensively. Although the nominal property tax rate for agricultural property is
comparatively high (at 0.835 percent), "dedicated" agricultural land is assessed at 50 percent
of use value, while non-dedicated agricultural land is assessed at its use value. Other
properties, such as golf courses, are to be valued in their current use, not highest and best
use.
The uniformity in effective tax rates potentially afforded by annually valuing property at
its market value is undercut by the effects of the relief measures on net taxable values.
Based on the limited information available to us, there is remarkable variation in effective
property tax rates among similarly situated properties. The average variation in average
effective property tax rates among census designated places is more than 300 percent.
This project was undertaken in response to concerns expressed by Council members that
the underlying policies found in the Code or the implementation of these policies by the
Department of Finance Real Property Division have led to confusion, over-complexity,
especially with regard to exemptions, and unequal treatment of similarly situated properties.
Much of the public's concerns about the fairness of the property tax system can be
attributed to a shortage of accessible information about why neighboring taxable values
vary so greatly and about the rationale for and tax allocation effects of the various features
of the system. Although taxpayers credit the staff of the Real Property Tax Division
with providing helpful explanations to questions, there is little evidence of anticipating
questions about appraisal procedures or about all the various relief mechanisms. The required
quired annual report to the mayor is not very informative. The property record search
function on the website is cumbersome to use. Difficulties in getting information can naturally
lead to suspicions of misconduct.
After reviewing both the policies and the administration and implementation of these policies,
the authors of this report find the following major areas for concern:
• No regular "cyclic" reappraisal, including physical inspection, of all real
property. This is a concern because records of physical characteristics that
contribute to market value become increasingly out of date over time. This in
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turn can contribute to the allegations of unequal valuation of similar properities.
• Lack of use of regional building cost modifiers. While land is valued based on
sales and the values therefore reflect location influences, this is less true with
regard to building values. Especially for residential property, it is very unlikely
that similar buildings in the resort and non-resort areas of the County would
either cost or sell for the same amount. Merely adjusting the land values does
not produce equitable building values, even if the overall property values are
equitable. This is especially problematic since either of the values (land or
improvement) is subject to appeal.
• Lack of ability to use the income approach to value. There are three recognized
approaches to valuing property--cost, sales comparison, and income.
All three are important and, for income producing property, such as commercial
enterprises, the income approach, in which net operating income is capitalized
into value, is considered the approach most likely to reflect the market
value of the property. While staff recognizes this, and even prepares valuations
based on this method in appeals, the County Code does not allow the
method to be used in the initial valuation process. This is a significant impediment.
• Limited review of agricultural and other exemptions. While the Code and
forms provide for taxpayers who no longer qualify for agricultural land valuation
and various exemptions to report such changes, there is no automatic or
periodic review of properties granted agricultural use value or homeowner's
and other exemptions. The Code also calls for income based qualification requirements
with respect to agricultural land, but these, apparently, have not
been regularly implemented. While we know of no specific abuses, the underlying
system is rife for such and added controls and implementation of requirements
already found in the Code are important.
• Limited grounds for appeals on equity grounds. Valuation related appeals are
based on the taxpayer's interpretation of whether or not the property value reflects
market value. While this is intrinsic within any appeals system, there is
limited provision for appeals based on inequitable treatment between similarly
situated properties. According to the Code, if the subject property were valued
at market value, but all the surrounding properties were below market value,
the subject property would have no appeal rights. This is not an administrative
issue, but should be addressed by revising the Code to bring it into line with
decisions by the United States Supreme Court.
• Overly complex exemption system making it difficult to understand who benefits
and how much they benefit. With minimum taxes and multiple tiers of
agricultural and residential valuation and taxation, combining different tax
rates with capped values and various exemption criteria, it is at best difficult
x
to ascertain whether benefits received from these programs apply as intended
by the Council. Furthermore, although the value of the exemptions is reported,
there is no attempt to convert this value into an overall analysis of how much
tax benefit (incorporating rate differentials as well as exemption type) accrues
to any particular type of property or ownership situation. This is a serious gap
that could be addressed by Code changes to require extensive analysis of these
tax effects.
• Lack of ongoing, regular analysis of effects of exemptions. Regardless of the
outcome of the analysis indicated in the preceding bullet, ongoing, annual
analysis of exemption effects, expressed in overall and individual (say, per
$100,000 of market value) properties should be undertaken. This too requires
direction from the Council in the form of Code changes.
• Complex multi-tiered tax rates. Similar to the complex exemption system, use
of multi-tiered tax rates, with different rates applying to different types of
property, leads to questions about how much benefit is accruing to particular
low rate types and how much added cost is being shifted to high rate types.
We found no evidence of any analysis of the effects of these multiple tax
rates.
• Lack of formal complaint investigation and reporting system. Part of the reason
for undertaking this report was the appearance that complaints are not
thoroughly reviewed and resolved. Since there is no higher (i.e. State) investigative
authority, it is important to have an effective internal control system
under which complaints are not only investigated and issues resolved, but these
processes are adequately tracked and documented.
• Limited documentation about sales validation and ratio studies. While staff
appear to understand sales validation and ratio study principles, there is little
documentation and this could lead to inconsistencies as various staff analyze
sales.
• Limited opportunities for consistent ongoing communication between staff.
Although managers have periodic meetings to review activities, it appears that
staff are not directly involved and do not meet regularly. Such contacts and
communications can promote cohesiveness and encourage effective problem
solving, as well as common understanding and consistent application of policies
and procedures.
• Limited training opportunities for staff. Currently, there are no requirements
for ongoing, continuing appraisal related education for staff. This is a serious
gap and makes it more difficult to improve appraisal techniques or implement
new, technologically advanced, mass appraisal processes.
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• Vague property class definitions and an over-reliance on zoned use rather than
actual use in determining property class. How a property is classified can affect
its tax class and its valuation. Yet neither the Code nor the Appraisal
Manual provides a clear definition of the tax classes in Section 19-53(e)(1),
and the Manual does not reconcile those nine classes with the nine main
"PITT" code classes. Some areas of the County have long been urbanized, yet
the land is zoned agricultural, which can lead to seemingly inconsistent land
values.
• Limited use of digital maps and photographic images. Digital vertical photographic
images are helpful in understanding land use and spatial relationships,
and they, together with oblique, and street-level photographic images are helpful
in determining whether improvements are correctly described. We were informed
that the County has a geographic information system (GIS) and has
acquired oblique imagery of buildings. Yet we were informed that the Division
does not routinely use these technologies and has no plan to implement
them.
• Lack of analysis of workloads, productivity, and standards against which to
evaluate performance. Current budgeting and management practices do little
to ensure that the County is receiving value for money for the funds and staff
resources that are allocated to property tax administration.
The County should consider our specific recommendations in the above areas. It also
could make a self-assessment of the strengths of its administration of the real property tax
and of opportunities for improving the accuracy of valuations, the fairness of assessments,
efficiency in operations, and greater public understanding and acceptance of the
real property tax. The IAAO's Assessment Practices: Self-Evaluation Guide could be
used in this evaluation.1
We believe that many of the issues that we have identified can be rectified, wholly or partially,
without major budget or resource implications (apart from upgrading the CAMA
system). For example, efforts to better train staff and better communicate with them
could serve the secondary goal of empowering staff. This could lead to more uniform appraisals
and, in conjunction with a cyclic property and exemption inspection program,
could lessen complaints and build or strengthen the positive image of the Division. We
hope that this analysis and report will provide impetus toward promoting and reinforcing
positive goals that will lead to greater equity for all the taxpayers in Hawaii County.
Our specific recommendations, which are discussed in detail in the body of the report, are
listed below. It is not our expectation that the County implement these recommendations
immediately or even, in some cases, in short order. Rather the recommendations are in-
tended to provide a roadmap for changes that ultimately will facilitate the overriding goal
of increasing fairness and equity in property tax policies and assessment administration.
1 When the County is satisfied with its assessment operations, it could consider applying for lAAO's Certificate
of Excellence in Asscssrnent Administration.
xii
With this in mind, these recommendations should be considered, addressed deliberatively,
and, to the extent possible and practical, implemented over time, involving stakeholders
in the entire process.
In reviewing the recommendations, note that those referring to policy or Code changes
require action of the Council, while those referring to administration can be undertaken
by the Finance Department without Code changes, although sometimes additional resources
may be needed. The Recommendation Action Summary Table is intended as a
guide to help administrators and policy makers understand whether any given recommendation
can be initiated by the Finance Department, acting independently, or whether
Council action is required before the Finance Department will be able to consider implementation.
Recommendation Number Council Action Needed to Initiate Finance Department Action Needed to Initiate
Recommendation Number 1 Council Action Needed to Initiate
Recommendation Number 2 Council Action Needed to Initiate
Recommendation Number 3 Finance Department Action Needed to Initiate
Recommendation Number 4 Council Action Needed to Initiate
Recommendation Number 5 Finance Department Action Needed to Initiate
Recommendation Number 6 Finance Department Action Needed to Initiate
Recommendation Number 7 Finance Department Action Needed to Initiate
Recommendation Number 8 Finance Department Action Needed to Initiate
Recommendation Number 9 Finance Department Action Needed to Initiate
Recommendation Number 10 Finance Department Action Needed to Initiate
Recommendation Number 11 Council Action Needed to Initiate
Recommendation Number 12 Finance Department Action Needed to Initiate
Recommendation Number 13 Finance Department Action Needed to Initiate
Recommendation Number 14 Finance Department Action Needed to Initiate
Recommendation Number 15 Finance Department Action Needed to Initiate
Recommendation Number 16 Finance Department Action Needed to Initiate
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Recommendation Number Council Action Needed to Initiate Finance Department Action Needed to Initiate
Recommendation Number 17 Finance Department Action Needed to Initiate
Recommendation Number 18 Finance Department Action Needed to Initiate
Recommendation Number 19 Council Action Needed to Initiate
Recommendation Number 20 Finance Department Action Needed to Initiate
Recommendation Number 21 Finance Department Action Needed to Initiate
Recommendation Number 22 Council Action Needed to Initiate
Recommendation Number 23 Finance Department Action Needed to Initiate
Recommendation Number 24 Finance Department Action Needed to Initiate
Recommendation Number 25 Council Action Needed to Initiate
Recommendation Number 26 Council Action Needed to Initiate
Recommendation Number 27 Council Action Needed to Initiate
Recommendation Number 28 Finance Department Action Needed to Initiate
Recommendation Number 29 Council Action Needed to Initiate
Recommendation Number 30 Council Action Needed to Initiate
Recommendation Number 31 Council Action Needed to Initiate
Recommendation Number 32 Council Action Needed to Initiate
Recommendation Number 33 Council Action Needed to Initiate
Recommendation Number 34 Council Action Needed to Initiate
Recommendation Number 35 Council Action Needed to Initiate
Recommendation Number 36 Council Action Needed to Initiate
Recommendation Number 37 Council Action Needed to Initiate
Recommendation Number 39 Council Action Needed to Initiate
xiv
Recommendation Number 40 Council Action Needed to Initiate X Finance Department Action Needed to Initiate
When the above table denotes action needing to be initiated by the Council, once such
action is initiated, the expectation implicit in the recommendation is that the Finance Department
will be involved in implementation and administration.
Recommendation 1: The Council should require the Finance Department to conduct
annual analysis of the tax shifting and allocation effects of multiple tax rates in
comparison to a single rate system to determine if the intent of the policies underlying
the multiple rate system is being realized.
Recommendation 2: The Council should implement Code changes to require the
Finance Department to analyze tax loss, shifting, and other effects of property tax
exemptions, including the cap on assessed value increases for certain residential
property. Such analysis should be conducted on an annual basis with the results, including
a review of the intent of each exemption or limitation policy, reported to the
Council and made available to the public.
Recommendation 3: The Finance Department and Corporation Counsel should review
Chapter 19 of the Code for the reasons given in report Section 4.2 (i.e. improve
clarity and eliminate unused provisions) and to implement our other recommendations
that would need or benefit from a legal authorization.
Recommendation 4: The Council should consider Code amendments implementing
requirements for annual ratio studies, periodic review of properties granted full or
partial exemptions, physical inspection of property on a regular basis, and acceptability
of the income approach to value. Training and certification requirements
should also be addressed.
Recommendation 5: The Department of Finance and the Real Property Tax Division
should consider a strategic planning exercise as a way of formally addressing
opportunities for improvement, setting priorities for their achievement, and committing
the necessary resources. In addition, management should look for ways to
increase staff involvement with planning.
xv
Recommendation 6: The Real Property Tax Division should consider justifying its
funding requests on a program or activity basis to better enable expenditures to be
related to results. 2
Recommendation 7: The Real Property Tax Division should prepare an estimate of
the number and allocation of the staff it needs. 3
Recommendation 8: The Real Property Tax Division should deploy its appraisers
on a task, property type, and a market area basis, rather than the current geographically
based zone basis.
Recommendation 9: The Real Property Tax Division should state performance expectations
clearly and institute the necessary internal controls to provide assurance
that performance is in line with standards.
Recommendation 10: The Real Property Tax Division should assess the interest and
needs of appraisers in further education in mass appraisal and property tax administration
and develop a program to offer courses designed to meet those needs. Consider
establishing continuing education programs for appraisers.
Recommendation 11: The Council should provide the Real Property Tax Division
with funds to upgrade the current version of the ias system. That the Division develop
a plan to fully incorporate spatial analyses and other GIS capabilities in its operations
and that oblique imagery be reviewed as part of the Division's property inspection program.
Recommendation 12: The Council should require the Finance Department to conduct
a review of IAAO ratio study performance standards and adopt standards for
appraisal level and both horizontal and vertical uniformity. Consider dedicating appraisal
staff resources to correcting deficiencies when they are discovered.
Recommendation 13: The Real Property Tax Division should consider and implement
a more definitive system for reviewing sales deemed invalid. This is needed to
ensure consistent decision-making regarding determination of sales validity.
2 See Assessment Practices: Self-Evaluation Guide, pp. 13-14.
3 See Assessment Practices:Self-Evaluation Guide, pp. 11-13.
xvi
Recommendation 14: Ratio studies conducted by the Real Property Tax Division
should include procedures for identifying and, possibly, trimming outlier ratios. Such
procedures may be modeled after those found in the IAAO Standard on Ratio Studies.
Recommendation 15: Except when too few sales are available, the Real Property
Tax Division should do ratio study analysis by market area and by each appraisal
area or appraiser. Results should be discussed with all appraisal staff and plans of
action developed to correct deficiencies. Ratio studies should also be considered and
attempted for commercial properties.
Recommendation 16: The Division should add missing statistical and graphical elements,
such as histograms, lists of trimmed sales, and reliability statistics to enable
proper interpretation of results.
Recommendation 17: The Real Property Tax Division should develop a ratio study
procedure and explanatory manual separately from the Appraisal Manual. Staff
should receive training in conducting and understanding ratio studies.
Recommendation 18: The Real Property Tax Division should consider formalizing
supervisory review of some or all appraisals done by staff. They should incorporate
a broader role for valuation analysts, including running queries on a regular basis
to look for sales chasing and building permit chasing. Findings should be reported
as part of an annual ratio study report.
Recommendation 19: The Council should consider ways by which a body independent
from the Real Property Tax Division could be formed to review the quality of
appraisals and the techniques, such as ratio studies, currently employed by the Division
to report on this quality. Code should be changed to reflect this new process.
xvii
Recommendation 20: The Real Property Tax Division should implement holdout
samples or use subsequent sales not part of the appraisal model to provide an independent
test of the quality of the values generated by the CAMA system.
To the extent such queries are not routine under the current system, the Division
should develop routine queries to compare market value changes on selling and
non-selling parcels by market area, neighborhood and other relevant strata.
The Division should develop a systematic approach to reviewing unusual value or
ratio issues incorporating both office review and field review procedures.
Recommendation 21: The Division should review current data entry edits and security
procedures to ensure that they meet industry standards as outlined in IAAO references
and elsewhere.
Recommendation 22: The Council should request all counties in the State of Hawaii
to approach the State Bureau of Conveyances about amending the Conveyance Tax
Certificate or attaching a supplemental declaration that attempts to elicit the information
needed to evaluate the usability of each conveyance. 4
Recommendation 23: Until the Conveyance Tax Certificate (CTC) is improved, as
recommended in Section 6.1.2 of this report, the Division should routinely send sale
confirmation letters to buyers and sellers, especially when there are few transfers in
the area or of the type of property in question and when the property that was sold
received an exemption or other form of preferential assessment.
Recommendation 24: The Division should develop and implement a plan for verifying
the accuracy of each property record at least once every six years.
Recommendation 25: The Council should require a regular property inspection cycle.
Every property should be inspected at least once every six years.
4 See Section 2.2 and Appendix A of Standard on Verification and Adjustment of Sales.
xviii
Recommendation 26: The Council should consider Code changes to permit the use
of the income approach, especially for multi-family and commercial properties, in
addition to the other recognized approaches to value,when appropriate on the basis
of data availability and type of property under consideration. The Division should
review data gathering methods to try to maximize available income and expense information.
Recommendation 27: The County should implement the updated agricultural land
values developed by the Division. If the effects of implementing the proposed values
do not comport with the County's agricultural land preservation policy, the values
should be changed appropriately or changes in Section 19-53, County Code, should
be considered. If so, the Division should provide such recommendations to the
Council.
Recommendation 28: The Division should consider developing different building
cost location modifiers to reflect differences in material and labor costs between the
east and west sides of the island.
Recommendation 29: Before moving to combined land and building valuation, the
County should review this decision with a broad array of stakeholders to eliminate
unanticipated problems.
Recommendation 30: The Council should consider Code changes to institute a review
cycle or requiring re-application for exempt property.
Recommendation 31: The Council should require the Division to conduct more frequent
inspections and inclusion of proof of eligibility and income information as
part of the application process for agricultural use value assessment.
A stakeholder committee should be established to review the intent of underlying
policies and allegations of abuse. This committee should also look into the possibility
of consolidating agricultural use eligibility options, weighing the benefits of a simpler,
more transparent system against specific tax shifts.
Recommendation 32: The Council should consider working with state legislators to
obtain residency information from income tax returns and death certificates to prevent
abuse of homeowner's exemptions. In addition, the Division should institute
procedures to verify residency using drivers' licenses and voter registration records.
xix
Recommendation 33: The Council should require the Finance Department to analyze
the effects of the 3% assessed value increase cap to determine if the underlying
policies are being fulfilled. In addition, although no new claims can be made for the
non-speculative residential use dedication, the Council should review the underlying
policies for retaining this value freeze for properties remaining under the dedication.
Both programs should be reviewed with respect to the different tax treatment
that results for similarly situated properties with and without the dedication or the
3% cap.
Recommendation 34: The Council may wish to consider incorporating sunset provisions
into exemptions to force periodic review of underlying policies.
Recommendation 35: The Council should consider establishing a stakeholder committee
to identify problems related to tax relief and review options.
Recommendation 36: The Council should consider establishing a stakeholder committee,
including taxpayers, to determine specific ways to make the relationship between
taxes and value changes more transparent.
Recommendation 37: The Council should revise Section 19-93 of the Code. Specifically,
it should reduce the 20 percent value-difference threshold to no more than 10
percent, at least for residential property. The current non-uniformity ground should
be revised to permit non-uniformity appeals based on valuation practices generally.
The filing fee requirement should be eliminated, at least on principal residences.
Appellants should not be allowed to appeal only the land value or the improvement
value without contending that the sum of the land and building values exceeds the
over-valuation threshold that is adopted.
Recommendation 38: The Council should make the first stage in the appeal process
an informal appeal to the Division.
Recommendation 39: The Council should require the Finance Department to undertake
an analysis of the cause of the increase in the gap between delinquencies and
delinquent tax collections to determine whether there is weakness in billing and collection
procedures.
xx
Recommendation 40: The Council should require the Finance Department to undertake
a review of staff public relations related training and may need to update
this training.
A public relations manual should be developed.
Outreach should be expanded to be certain that issues driving public complaints are
being addressed. Complaint handling procedures should be formalized.
Outreach should include an expansion of publicly available general information, including
documents describing valuation methods and results of tests of the quality
of appraised values, such as ratio studies.
A citizens' committee should be organized to conduct periodic review of brochures
and forms to make sure they are easily understandable.
List of Recommendations
Recommendation 1 -----------------------------------11
Recommendation 2 ........................................... 15
Recommendation 3 ............................................ 19
Recommendation 4 ............................................. 19
Recommendation 5 ..... ....................................... 22
Recommendation 6 ............................................... 22
Recommendation 7 ----------------------------------- 24
Recommendation 8 ----------------------------------- 26
Recommendation 9 ----------------------------------- 28
Recommendation 10 ----------------------------------- 29
Recommendation 11 ----------------------------------- 30
Recommendation 12 ----------------------------------- 33
Recommendation 13 ............................................. 35
Recommendation 14 ----------------------------------- 36
Recommendation 15 ----------------------------------- 37
Recommendation 16 ----------------------------------- 37
Recommendation 17 ---------------------------------- 37
Recommendation 18 ----------------------------------38
Recommendation 19 ------------------------------------39
Recommendation 20 ............................................ 42
Recommendation 21 -----------------------------------42
Recommendation 22 ............................................ 43
Recommendation 23 .............................................. 44
Recommendation 24 ----------------------------------46
Recommendation 25 ........................................... 50
Recommendation 26 ........................................... 50
Recommendation 27 ----------------------------------51
xz|
xxi
Recommendation 28 ......................................................................................................... 53
Recommendation 29 ......................................................................................................... 53
Recommendation 30 ......................................................................................................... 57
Recommendation 31 ......................................................................................................... 59
Recommendation 32 ......................................................................................................... 60
Recommendation 33 ......................................................................................................... 62
Recommendation 34 ......................................................................................................... 62
Recommendation 35 ......................................................................................................... 63
Recommendation 36 ......................................................................................................... 64
Recommendation 37 ......................................................................................................... 68
Recommendation 38 ......................................................................................................... 68
Recommendation 39 ......................................................................................................... 70
Recommendation 40 ......................................................................................................... 73
xxii
Report Evaluating Property Tax Policies and Administrative Practices in Hawaii County
1. The Technical Assistance Project
1.1 Background and Introduction
As a result of a constitutional amendment enacted through the Constitutional Convention
of 1978 and ratified by vote of the people of Hawaii, the State of Hawaii transferred the
property tax program to each of the four county governments, effective July 1,1981. 5
This change is incorporated in the Constitution of the State of Hawaii, which contains
the statement that the:
...taxing power shall be reserved to the State, except so much thereof as may be
delegated by the legislature to the political subdivisions, and except that all functions,
powers, and duties relating to the taxation of real property shall be exerercised
exclusively by the counties....6
This change and the property tax structure that has developed is significant in several
ways, most notably in that the state oversight role fulfilled to some extent by every other
state except Delaware does not exist in Hawai`i. 7 Although every state except Montana
and Maryland vests much or all of the assessment, appraisal, and tax collection aspects of
property tax administration with local governments (primarily municipalities, counties,
towns, and townships), underlying statutory guidance as well as varying degrees of oversight
are granted by or occur at the state levels In Hawaii there is far greater responsibility
for local property tax policies than is typical throughout the U.S.
State oversight can include many activities, such as:
• A framework of legislation for exemptions and favored treatment of selected
property types or uses.
• Coordination of education and certification requirements and programs.
• Quality assurance through independent ratio studies and performance audits and
standards.
• Appraisal references, publications, and guidelines or administrative rules.
• Assessment administration software or guidance and assistance in the procurement
of such software.
• Assistance or guidance with regard to assessment related mapping.
5 Ooka, Stanley,CAE. Hawaii's Decentralization of Real Property Tax Functions Assessment Digest May/June, 1982. IAAO
6 Article VIII, Section, 3. The Constitution of the State of Hawaii.
7 Dornfest, Alan S., Steve Van Sant, Rick Anderson, and Ronald Brown. State and Provincial Property Tax Policies and Adminatrative Practices (PTAPP):
Compilation and Report. Journal of Property Tax Assessment & Administration Volume 7, Number 4. 2010. p. 15.
8 Ibid.
In addition to oversight per se, states provide numerous types of assistance to local assessors.
The full array of the number of states and Canadian provinces providing various
services to local governments is found in Appendix B, which is extracted from the recently
conducted PTAPP survey.
Given the absence of a state oversight function and a desire to understand and evaluate
the quality of assessment practices in the County of Hawai'i, the county legislative auditor
contacted the International Association of Assessing Officers (IAAO) at the request of
the County Council to enlist the aid of IAAO in reviewing both the underlying property
tax polices established by the Council in the forin of County Codes and Regulations and
the consistency and effectiveness of assessment administration designed to implement
these policies.
The mission of IAAO is to promote innovation and excellence in property appraisal, assessment
administration, and property tax policy through professional development, education,
research, and technical assistance. The organization accomplishes this mission by
developing, promoting, and offering professional appraisal and assessment education
programs, publications, and technical standards, all of which are specifically tailored to
property tax and property tax assessment operations. IAAO also participates in property
tax policy debates to inform the process in an objective and professional way.
1.2 Scope of the Technical Assistance Project
This report is designed to provide an analysis of the underlying property tax policies in
Hawaii. County and the administration and implementation of these policies. Specifically,
this investigation includes the following components, addressed in the indicated report
sections:
1. review and analysis of the current assessment processes, procedures, and methodologies for the County (report Sections 2 through 12).
2. on-site situational review and interview of relevant personnel as to their processes, workloads, and conformance with local laws and office procedures
(report Section I and Appendix A).
3. a thorough review of local laws, practices, and procedures that address property tax laws and tax exemptions,
and their associated timelines (Sections 2 through 12).
4. a review of local property tax exemption laws and provisions, as well as the procedures in place to both enforce and protect said exemptions.
Compare local exemption laws and practices with those of other U.S. jurisdictions and provide the County with an objective opinion as to the practical implementation of the exemptions,
as well as the ability of current personnel to enforce the laws regarding exemptions that are in place (Section 8).
5. provide standard performance recommendations related to sound assessment practice (Sections 5 through 12).
6. compare local tax policies and procedures to similar jurisdictions and to published best practices (Sections 5 through 12).
2
7. examine local laws, procedures, and practices with regard to tax policy and administration with regard to their comparison to IAAO Standards (Sections 2
through 12). In terms of analyzing these components, findings are to:
a. Render an opinion and offer recommendations as to the local property tax assessment processes and procedures.
b. Summarize the current local situation with regard to adherence to and utilization
of exemptions and compare to other jurisdictions. Make recommendations to the
County as to whether the laws currently in place can reasonably be enforced and
how those laws compare and contrast with similar laws elsewhere. If appropriate,
suggest changes in practices, procedures, and/or legislation that might help to resolve impracticalities.
c. Report on local staffing adequacy relative to jurisdiction size and valuation complexity.
Using IAAO Standards as a guide, make recommendations regarding
whether the staff size is adequate to maintain the property tax system currently in
place.
d. Offer other information and analysis of common jurisdictional ad valorem property
tax law and the comparison of the norm to the rules and procedures in place in Hawai'i.
1.3 Limitations
The report and its findings are limited to information learned in the course of interviews,
a review of pertinent material provided by the County, and a review and comparison with
pertinent IAAO literature and contextual information based on the experience of the authors.
There was no attempt to audit assessment records for accuracy or to perform independent
ratio studies, sales verification, or other performance evaluation procedures. In
addition, the report does not attempt to critique individual staff and management performance
mance. Where we feel that current practices may have lead to less than optimal assessments
or assessment equity, observations and recommendations are provided.
1.4 Methodology of the Project
To conduct this review, the County of Hawai'i retained the International Association of
Assessing Officers (IAAO). The IAAO organized a team of experts, including Alan
Dornfest, AAS and Richard Almy, both of whom have extensive experience reviewing
property tax policies and assessment administration systems throughout the U.S. The report
was reviewed by Jeffery Spelman, CAE. Mr. Dornfest and Mr. Almy, who are the
primary authors of this report, met with the Finance Director, attorneys from the Office of
the Corporation Counsel, staff of the Department of Finance Real Property Tax Division,
the Managing Director, whose office oversees the Department of Finance, a Council
member, an aide to another Council member, and several citizen / stakeholders. Meetings
were held on site, mostly in the Hilo or Kona areas, during the week of November
14, 2011. Additional meetings were held via conference call prior to the on-site visit with
the Legislative Auditor, who facilitated scheduling all the meetings. The Legislative Auditor
3
also was in attendance at the on-site meetings. As a follow up, there was an additional
conference call meeting in December with another stakeholder.
The Real Property Tax Administrator provided a substantial amount of detailed analytical
information regarding ratio study results and the amount of property subject to various
exemptions. Appraisal manuals, tax rate information, mapping information, and brochures
and application forms or other information relating to homeowner's, agricultural,
and other exemptions and appeals processes were also provided. The County property tax
code and pertinent rules and regulations were provided as well.
All the individuals with whom we met cordially responded to our questions and assisted
Lis in understanding both the current system and their concerns. Staff also provided several
recommendations for improvements that are addressed in this report. Staff and other
stakeholders who participated in interviews appear dedicated to providing a system that
will facilitate improving taxpayer equity. Staff and stakeholders who were interviewed
were informed that their discussions with us would remain confidential, so a complete list
of interviewees and interview notes is not included in this report. As part of this review in
addition to materials provided by the County, we drew upon a number of IAAO publications
(see Appendix C and the footnotes throughout the report).
1.5 Report Format
The report has been divided into several major topic areas, as outlined in the Table of
Contents.
Additional minor topic areas will be found under some of the major headings. Although
these may not specifically match items found in the scope, this format is designed to provide
the most comprehensive analysis practical and to encompass the concepts addressed
in the scope.
Recommendations will be presented under the topic area to which they are pertinent.
Some may be found in summary sections at the end of certain major topic areas. All recommendations
are repeated in the Executive Summary, but supporting discussion is
found only in the report body.
To facilitate the review and the project, a basic framework was developed for interview
questions. This framework is found in Appendix A.
4
2. Economic, Fiscal, and Institutional Setting
The economic, fiscal, and institutional setting of a property tax system influences its development
and evolution. 9 An understanding of the background of Hawaii County's real
property tax system also is helpful in evaluating it.
2.1 Background
The current local system of real property taxation is an outgrowth of the centralized system
that existed from before statehood until the Hawaii Constitution was amended in
1978 to devolve responsibility for property tax policy and administration to the counties
in 1981. Longstanding features of the real property tax system include low levels of taxation
(partly achieved by relief measures) and considerable authority accorded to administrators.
Regarding the level of property taxation, we reviewed an analysis of data compiled by the
National Association of Home Builders on median housing prices and median real estate
taxes in Hawaii County's census designated places from the 2005-2009 American
Community Survey of the U.S. Census Bureau. The median residential effective property
tax rate (property taxes as a percent of property value) was 0.147 percent. According to
data provided by the U.S. Census Bureau and compiled by the Idaho State Tax Commission, 10
the State of Hawaii ranked 36th in property taxes per capita (at $1,016) in 2009
and 42nd in property taxes in comparison to income. In the income based comparison,
property taxes in Hawaii were 30.7 percent below the U.S. average.
There are several other distinctive features of Hawaii County and its real property tax
system. As with the systems in other Hawaii counties, there is no state oversight of
property tax administration. 11 However, the county real property tax administrators cooperate
and have brought in IAAO instructors for training. There are no overlapping local
governments. Some functions normally provided by local governments and funded from
property taxes, such as public education, remain provided by the state (perhaps this feature
best explains the low level of property taxation).
Nevertheless, real property taxes account for nearly 60 percent of the County's revenues,
according to the County's 2010 Comprehensive Annual Financial Report. The report also
succinctly describes the economic situation:
"The Big Island is the most diversified of the neighbor island economies.
As a result it is buffered to some extent when any one industry lags. Although
9 In addition to information obtained from county officials, this section draws from Advisory Commission on Intergovernmental Relations, 1963,
The Role of the States in Strengthening the Property Tax,Volume 2, pp. 34-40; Lonely Planet, 2011, Discover Hawaii, The Big Island; and Wikipedia.
10 http://tax.idaho.go v/reports/EPB00074_01-06-2012.pdf, last accessed January 21, 2012
11 This is also true of Delaware (with only three counties), the District of Columbia, Maryland and Montana (both have state-administered systems),
and Puerto Rico (which still has a territorial system). Oversight is negligible in Connecticut, Pennsylvania, and Rhode Island.
5
2009 proved to be a challenge for most of the major sectors of the
island's economy, the end of fiscal year 2010 and beginning of fiscal year
2011 showed the early signs of an impending economic recovery."
Although available statistics show that the County has not escaped from tlae Great Recession,
it benefits from its economic and ecological diversity and high levels of government
employment, as the trends in Figure 1 suggest. Although statistics on the County's fiscal
situation are not readily available, the declining trend in property tax revenues could signal
the distress that led to the Furloughs that were mentioned. Other statistics suggest that housing prices on the island are lower than in Hawai`i's other counties.
Figure 1: Selected Trends in Hawaii County graphic
Sources: County of Hawaii, City and County of Honolulu, and Zillow.
The County of Hawaii has a mayor-council form of government. For administrative purposes (including real property taxation), the County is organized into nine zones.
County employees are unionized. The Real Property Tax Division (the Division) is a unit of the Department of Finance, the director of which is officially responsible for property taxation
under the County's code. As will be discussed, the Division relies on data and services from other agencies. It receives information on property transfers from the Bureau
6
of Conveyances of the State Department of Land and Natural Resources. The Division
receives building permit data from the Public Works Department and cadastral maps
from the Planning Department. It receives support from the Corporation Counsel and the
Data Systems Department. It also has arrangements to receive Multiple Listing Service
data and data from escrow firms.
Hawaii has a dual system of land tenure. That is, there is a "regular" deed recordation
system. There also is a title registration (the Land Court). The state has a high level of
multiple ownership of property. The transfer tax has progressive rates, but the rates overall
are low (the rate is 0.1 percent on houses worth $600,000 or less if the purchaser is
eligible for a homeowner's exemption).
The interplay between land-use zoning, actual land use, the Division's determinations of
tax class and highest and best use for valuation purposes is unclear (as will be discussed
in Section 6). However, "urban" land zones (residential, commercial, resort, and industrial
constitute 1.3 percent of total land area, while urban land uses constitute 1.5 percent.
Mixed land uses constitute 22.5 percent of total area.
Insularity is unsurprising both on an island and in property taxation generally—most policymakers
and property tax administrators perforce are intimately familiar with their situation
and scarcely aware of systems elsewhere. In addition, bureaucrats can exhibit insularity
in their day-to-day activities. It seems apparent that greater openness in the operation
of the real property tax system would be desirable to address pervasive suspicions of
irregularities.
2.2 Workload
Workloads express legal requirements in numerical terms so that resource requirements
and efficiency measures can be estimated (see section 5). Of course, an assessor's work
load always is a moving target as new development occurs and property prices change.
However, snapshots of parcel counts and transaction or event statistics such as sales, new
construction, exemption applications and appeals provide an indication of workloads.
Unfortunately, the County does not produce an accessible compilation of such statistics.
Nor does it produce statistics on work accomplished or on productivity rates. However,
fragmentary statistics can be found in scanned documents in the County of Hawai'i Current
Data Book and in data compiled by the Real Property Assessment Division of the
City and County of Honolulu. 12
At the time of our review there were approximately 140,000 taxable parcels of real estate
in the County. Table I provides a breakdown. Although definitions of the County's classes
were not in the material we received, it appears that there are at least 56,000 residential
properties as they are usually defined and that there are about 14,000 commercial and
12 http://records.co.hawaii.hi.us/Weblink8/Browse.aspx?dbid=1&startid=27952 and
http://www.realpropertyhonolulu.com/portal/rpadcms/Reports;jsessionid=8D0BFB306E415 IAC990EE70BE13BAA8F?parent=REPORTS.
7
industrial properties (including apartments and hotels and resorts). In addition, there are
more than 50,000 exempt properties in thirty-five categories. It should be noted that the
County's policy for determining assessment classes (discussed below) can result in a misleading
picture of actual property use.
Table 1: Parcel Breakdown in Hawaii County: 2011-2012
Property Class Parcel Count
Residential 20,359
Homeowner 35,741
Affordable Rental 1,142
Apartment 9,832
Commercial 2,061
Industrial 1,215
Hotel/Resort 672
Agricultural/Native Forest 67,896
Conservation 1,090
Total 140,008
Source: City and County of Honolulu
In 2009, more than 3,000 building permits were monitored. In addition to inventorying
and valuing new construction, the Division staff processed more than 2,400 conveyances.
Also, a large number of exemptions and other relief program participants were monitored. 13
Because the income approach is not used, no income and expense statements
were processed. In addition, the Division dealt with more than 1,000 appeals.
As noted in the discussion of the property tax calendar, there is a time dimension to appraisal
and assessment work. The deadlines associated with finishing annual assessments
before the deadline for certifying the roll require field inspections of building permits and
construction in process. Sales analysis is concentrated in the latter part of a year. Appeals
begin to be processed in July, and they are concluded in November.
13 Not including preferentially assessed properties,there are about 51,000 exempt parcels in thirty-five categories,
according to a report issued by the City and County of Honolulu.
8
3. Fiscal Analysis
Fiscal analysis includes the numeric description of the property tax, typically including
reports of total valuation, taxable or assessed value, value of exemptions, tax rates, and
the tax consequences of exemptions.
3.1 The County's Approach to Fiscal Analysis
The County provided various reports showing:
1. Cross, net, and exempt value by land use class;
2. The number of properties subject to various exemptions,by exemption type, and
the value exempt under these provisions;
3. The number of records by land use class;
4. 2010 and 2011 property tax rates by property class and the amount of property tax
revenue to be levied within each class;
5. General statistics, including building permits, labor and tourism information, population,
overall tax collections, and the Honolulu consumer price index;
6. A comparison of property tax rates with other counties within the State of
Hawaii.
This information is useful in trying to understand the scope and breadth of property taxes
in the County. However, it stops short of providing some important elements that increase
the transparency of the property tax and associated exemptions.
3.2 Additional Dimensions of Tax Analysis
More complete tax analysis would include the following:
1. Use of the property tax. If it can be distinguished from other revenue sources, the
amount of property tax revenue used for various County purposes should be identified.
This helps fulfill the assessing officer's roll as: "...a very important inforation clearinghouse." 14
2. How much property tax is paid by each type of property relative to its share of totol
value. This addresses the otherwise complex issue of understanding the effect
of different tax rates and different exemption amounts for different property classes
or uses.
14 Dornfest, Alan S., AAS. Overcoming Property Tax Demons and Mysteries. Fair & equitable. January,
2003. Volume 1, Number 1. p. 11.
9
3. The extent of importance of the property tax in funding in the County. In this
analysis, it would be useful to compare are the relative importance of property tax as
a funding source to frees, intergovernmental revenue sharing, grants, and other sources.
4. Tax expenditures resulting from exemptions quantified to the extent possible in
terms of taxes shifted to other taxpayers or tax revenue lost.
An example demonstrating, the relative importance ofthe property tax in funding local
government would be the following, taken from the latest U.S. Census Bureau analysis of
state, and local revenue sources, See Figure 2. Although this chart reflects revenue for all.
local governments within the State of Hawai`i, it at Least demonstrates the importance of
the property tax for localgovernments in general. 15 Information more specific to the
County would be preferable.
Figure 2: State of Hawai`i Local Government Revenue Sources
Notable in analysis of previous years' versions of this table is the predominance of property tax as as a local government funding sounrce in Hawaii in comparison to other states. In
FY 2005, for example, 43.3%, of own source tax revenue came from property taxes in Hawai'i, as opposed to the U.S. average of 27.9%,
Local governments in Hawaii ranked 7th in the U.S. in this measure at that time.
15 http://www2.census.gov/govs/estimate/09sIsstab1a.xls Last accessed December 29, 2011.
16 U S. Census Bureau as cited in: Almy, Richard, Alan Dornfest, and Daphne Kenyon, PhD. Fundamentals of Tax Policy. IAAO 2008. pp.88-89.
10
Additional examples of important questions that may be able to be answered through
analysis include 17:
• How much of the tax is on business versus individuals?
• How much of the tax is on high-income versus low-income taxpayers?
• How much of the tax is on residents versus nonresidents?
• How much of the tax is home by the agricultural sector versus other sectors?
It is notable that the County uses varying nominal tax rates in addition to exemptions. In
general variable tax rates, such as are in place in Hawaii, are preferred over systems that
provide differing fractional assessment ratios based on property type or class. 18 However,
no analysis was presented demonstrating the effects of these varying rates in terms of
tax allocations among or between classes. Another interesting and useful comparison
would be to analyze the amount paid by each property class under the multiple rate system
in place and compare the results to the amounts that would be paid by each class if
there were a single rate system. This would enable policy makers and the public to understand
the true effects of the multiple rate system.
Recommendation 1
Recommendation: The Council should require the Finance Department to conduct
annual analysis of the tax shifting and allocation effects of multiple tax rates in
comparison to a single rate system to determine if the intent of policies underlying
the multiple rate system is being realized.
3.3 Analysis of Exemptions and Tax Relief Measures
In addition to understanding the tax base and the tax burden as it relates to the portion of
property or property value deemed taxable, it is important to fully understand the effects
of exemptions. First of all it is worth noting that exemptions and relief measures abound
in every property tax system in the United States. See Figures 3 and 4. Apart from the
governmental and social benefit exemptions (i.e. charitable foundations, religious corporations,
etc.), nearly every state includes overt exemptions or non-market valuation techniques
(commonly known as "use value") for agricultural land and residential property,
used as the principal residence of the owner.19
17 Almy, Richard, Alan Domfest, and Daphne Kenyon,PhD. Fundamentals of Tax Policy. IAAO. 2008. p. 143.
18 2010.Standard on property tax policy. Section 5.3.2. Kansas City,MO: IAAO.
19 Dornfest, Alan S., Steve Van Sant, Rick Anderson, and Ronald Brown. State and Provincial Property Tax policies and Administrative Practices (PTAPP):
Compilation and Report. Journal of Property Tax Assessment & Administration. Volume 7, Number 4. 2010.
Figure 3: Use-value Assessment Programs, 1999
Table 12. Use-value assessment programs, 1999
Number of Provinces/States Program Requirements
Eligible Property Withdrawal Valuation
Types Application Size Income Contract Penality Standards
Canada
Agricultural 3 3 2 21 2 1 1
Forest/timberland 3 2 2 01 2 1 2
Residential 1 0 0 0 0 0 1
Historic buildings 11 1 0 0 11 0 0
No response or N/A 8
United States
Agricultural 34 28 171 14 4 21 22
Forest/timberland 17 16 11 2 6 14 12
Residential 6 3 3 0 0 3 4
Historic buildings 6 6 3 2 1 3 3
No response or N/A 17
Figure 4: Residential Property Tax Relief
Table 11: Residential property tax relief
Use of Measure Qualification Criteria
2009 PROVINCES STATES
Prvs. Sts. Ttl. Age Inc. Occ. Value Age Inc. jocc. Value
Circuit breaker 0 33 33 0 0 0 0 20 30 33 5
Renters' credit 0 23 23 0 0 0 0 14 23 0 1
P-tax deferral 2 26 28 2 1 1 0 17 20 21 2
Indiv, tax inc. limit 2 9 11 1 0 1 0 1 0 3 1
Assess. inc. limit 2 19 21 0 0 0 0 3 1 3 1
Partial exemption 2 30 32 0 0 1 1 13 6 27 5
Partial p-tax levy 1 13 14 0 0 1 0 4 4 9 2
Other 4 24 28 1 1 4 0 0 9 8 12 5
Note: in Figure 4, the following abbreviations are used:
Prvs. —Provinces (Canadian) Sts. — States
Ttl. ---Total (of provinces and states) Inc. —Income
Occ. -- Occupancy (e.g. Owner occupancy requirements for some relief programs)
12
In addition, tangible business personal property is wholly or partially exempt in thirteen
states, as it is in the County. 20
Qualitatively, exemptions will be covered in more detail in Section 8 of this report, which
will also contain more specific references to the exemptions reviewed in the County.
With regard to tax analysis, it is important to understand the "value" of each exemption in
terms of tax expenditure. In other words, when exemptions are granted one or more of
three things can occur with regard to total tax collections and who pays the taxes.
1. If tax rates are predetermined, and an exemption then is granted, tax collections
are reduced. In this case, taxpayers receiving the exemption pay less, everyone
else pays the same, and the total amount available for government services is reduced.
2. If tax rates are based on overall revenue needs and the rates can be increased to
compensate for any exemption, tax revenue may remain the same, but tax burden
is shifted to taxpayers not enjoying the exemption in the form of higher rates.
3. Otherwise lost or shifted property tax revenue may be paid by some substitute,
such as higher fees, alternate taxes, or an increase in intergovernmental revenue
sharing.
The purpose of this report is not to advocate for or against exemptions as such or to suggest
any preference among the preceding options. It is important however to analyze the
effects of exemptions to enable policy makers to determine whether the intent of the policies
behind the exemptions is being fulfilled, at least in terms of any expectations regarding
the amount of taxes lost, shifted, or replaced. Figure 5 is an example of tax expenditure
analyses of different tax types. 21
20 Dornfest, Alan S., Steve Van Sant, Rick Anderson,and Ronald Brown. State and Provincial Property
Tax Policies and Administrative Practices (PTAPP): Compilation and Report. Journal of Property Tax
Assessment & Administration. Volume 7, Number 4. 2010.
21 Almy, Richard, Alan Dornfest,and Daphne Kenyon, PhD. Fundamentals of Tax Policy. lAA0. 2008. p.
164. Superscripts provide additional references found in the textbook, but not included in this report.
13
Figure 5: Examples of Tax Expenditures
Table 5-10. Examples of Tax Expenditures
Type of Expenditure Years $ Millions
U.S. Income Tax Expenditures a 2003-2007
Individual Retirement Account 94,200
Property tax deduction 97,800
Total charitable deduction 223,800
Employer contributions to medical insurance premiums 480,600
Capital gains on residence 107,600
Capital gains 293,900
Step-up basis of capital gains on death 155,500
Oregon Property Tax Exemptions b 1997-1999
Charitable, literary, and scientific 45.2
Religious organizations 63.0
Arizona Sales Tax Exemptions c 2000-2001
Legal services 92.7
Telemarketing bureaus 12.1
Computer system design 31.6
Temporary help 67.5
Auto repair shop 87.9
Hair, nail, skin care 13.7
Sale of stocks and bonds 92.7
Prescription drugs and eyeglasses 143.0
Food 431.1
Lottery tickets 13.6
14
Figure 6 is another example more specific to property tax and an analysis of the amount
of tax shifted between property categories as a result of a partial homeowner's exemption
follows: 22
Figure 6: Example of Tax Shifting; analysis
Comparisons like the one shown in Figure 6 could he between types of property in the
County or could demonstrate tax burden and shifting patterns between counties in the
State of Hawai`i. Because there are no overlapping taxing districts, analysis within the
County would be more meaningful, Nevertheless, external comparisons to other counties
would add a useful dimension. Some value and exemption comparisons are reported currently,
but we recommend expanding this type of study.
Recommendation 2
Recommendation: The Council should implement Cede changes to require the Finance
Department to analyze tax less, shifting; and ether effects of property tax
exemptions, including; the cap on assessed value increases for certain residential property.
Such analysis should be conducted on an annual basis with the results, including
a review of the intent of each exemption or limitation policy reported to the
Council and made available to the public.
22 Dornfest, Alan S. 2011 Market Values and Property Taxes and the Effects of the Homeowner's Exemption. Table from unpublished study found at:
http://www.tax.idaho.gov.gov/pubs/EPB00132_12-02-2011.pdf, last accessed December 29, 2011.
15
4. Legal Framework
Policies and procedures gain legitimacy through legislation. The legal framework of a
property tax system should lay out policy choices clearly, provide the environment for
their achievement, and assign responsibilities. Laws, regulations, and court decisions establish
the legal framework.
Subject to the provisions of Article VIII, Local Government, Section 3, Taxation and Finance,
of the Hawaii Constitution, the laws governing real property taxation can be
found in Chapter 1.9, Real Property Taxes, of the Hawaii County Code. We reviewed
these laws. In addition, we reviewed pertinent Rules and Regulations of the Director of
Finance as well as important decisions of the Tax Court of Hawaii that were provided by
the County's Office of the Corporation Counsel.
The aims of our review were to understand institutional arrangements better, identify legal
requirements, identify areas of conflict between laws and practice, and identify conflicts
between legislation and professional standards, particularly those of the International
Association of Assessing Officers. Section 4 addresses two closely related topics: the
main features of the County's real property tax system (Section 4.1) and the structure and
clarity of Chapter 19 itself (Section 4.2). Detailed legal requirements are discussed in later
sections. Section 4.3 outlines the current property tax calendar.
4.1 Main Features of the County's Real Property Tax System
Chapter 19 erects a legal framework that covers essential elements of any sound property
tax system. Among other things, it:
• Establishes owners as primarily liable for real property taxes (Section 19-48; other
sections deal with special situations).
• Establishes the base and the basis for the tax. Pursuant to Section 19-46, the base
of the tax is real property (as broadly defined in Section 19-2) except as exempted
or otherwise taxed. The general basis of the tax is 100 percent of market value
(Section 19-46). This basis is a hallmark of a good property tax system and tends
to, .....maximize fairness and understandability in a property tax system....23
Chapter 19 also identifies exceptions to the general basis, namely current use value
in the case of agricultural land, condominium units, and golf courses.
• Provides for annual assessment (Section 19-53)—another feature of a good system.
Section 19-53 also wisely emphasizes the use of appropriate "systematic
methods suitable for mass valuation of properties for taxation purposes, so selected
and applied to obtain, as far as possible, uniform and equalized assessments
throughout the County."
23 2010. Standard on property tax policy. Section 4.2. Kansas City, MO: IAAO
16
• Defines classes of property that must be assessed for purposes of taxation. Section
19-2 defines "real property" broadly. Section 19-53(a) defines two subclasses of
real property: (1) buildings and (2) all other real property. Section 19-53 (e) identifies
nine use classes. Thus, there are eighteen potential tax classes. As discussed
below, this and any classification system has some problems.
• Describes how tax rates are to be set (Section 19-90).
As discussed in later sections, Chapter 19 also addresses other important issues in a generally
acceptable way. It sets out the powers and duties of property tax officials and the
rights and responsibilities of taxpayers. It lays out a panoply of exemptions and other relief
measures (see Section 8, below). It addresses assessment and collection procedures,
including deadlines (as discussed in Section 11).
Although Chapter 19 has many admirable features, there are some areas of concern—
where changes would be desirable to conform the system to best practices. The system of
valuing property annually at its market value through the use of appropriate mass appraisal
methods is weakened by restricting appraisers to the sales comparison and cost
approaches. The third of the generally accepted approaches to value, the income capitalization
approach, is not endorsed. It is the preferred approach for commonly rented categories
of properties, such as apartments, offices, and retail establishments. The rationale
for this apparently is the difficulty in obtaining income and expense information. This is
not a problem unique to the County. In fact, the Director's broad authority under Section
19-3 to demand information and inspect records gives her or him ample powers to employ
ploy the approach.
The property classification scheme is problematic in a number of respects. Neither the
Code, nor the regulations, nor the Appraisal Manual produced by the Division contains
detailed definitions of the nine use classes. The way real property is defined as "buildings"
and "all other real property" in Section 19-53, coupled with the way standard mass
appraisal methods (particularly those based on the cost approach) work, can result in a
misallocation of total market value. The right of taxpayers to appeal over-valuation of
either land or buildings unnecessarily jeopardizes the total property tax base and encourages
appeals that otherwise would not be warranted. Best practices would be to restrict
appeals to the total value of property. Assessors commonly have to allocate total market
value between land and improvements. When they do, improvement value is the remainder
after appraised land value is subtracted from appraised total market value. 24
The way agricultural property categories that are eligible for use-value assessment (including
houses on plots with some agricultural activities) are defined seemingly gives
appraisers too much latitude. As an admittedly unrealistic example, any property with
"foliage" could be classified as being used for intensive agriculture. The Director's rules
and regulations seem not to be successful in clarifying eligibility for preferential assessment.
24 R. Gloudemans and R. Almy, 2011, Fundamentals of Mass Appraisal, Kansas City, MO: IAAO, p. 13.
17
A problematic aspect of the County's market value standard for assessment in practice, if
not in the law, is the weight given zoning in determining highest and best use. For example,
land plots long predominantly used as dwelling sites sometimes are valued as if they
were agriculturally used because they are in an agricultural zone. In fact, in an updated
memorandum in the Division's Appraisal Manual, condominium projects with fewer
than fifteen units are to be classified as "agricultural" if the land is zoned as agricultural.
An unusual feature of the County's real property tax system is the minimum tax of $100
(Section 19-90). Although they can make the tax system more regressive, some advocate
such payments on the grounds that they complete a "social contract." People who pay for
government have a greater stake in its policies and administration. Others advocate excusing
those whose amount due is very small (Florida authorizes counties to excuse obligations
of $30 or less) on efficiency grounds.
4.2 Organization and Clarity of the Code
Chapter 19's nine articles and more than a 100 sections are reasonably organized and
clear. Commendably, the first section (19-1) states the purpose of the Chapter, and the
second section (19-2) contains definitions (Sections 19-53.1, 19-75, and 19-90 also contain
specialized definitions).
However, as suggested above, there are opportunities for improving its clarity and for
reforming policy and administration. Several sections of Chapter 19 deal with more than
one aspect of the real property tax systems. A number of exemption and relief measures
are contained within sections nominally dealing with other subjects. For example, Section
19-53, which nominally deals with valuation, contains in subsection (f) a seven-year exemption
of property improvements under certain circumstances. Subsection (g) contains
an assessment increase limit.
The County commendably periodically reviews its laws, and Chapter 19 was comprehensively
reviewed several years ago. Our review of the law suggests that a further review
would be desirable.
The aims of the review first would be to improve the organization and clarity of the
Chapter. On important policy matters, it would be helpful to state legislative intent. Out
of this review should come recommendations for recodification that clarify intent, reduce
duplications and contradictions, eliminate obsolete sections, and provide the foundation
for implementing our specific policy and practice recommendations.
Recodification could be done in stages. The first stage could be to rewrite and reorganize
existing provisions to improve their clarity but not to change the underlying policies. Redundant
dundant language and clearly obsolete provisions (such as unused parts of the Code related
to "returns") could be deleted. 25 During this exercise, policy issues could be flagged
for consideration later. The bulk of the work could be done by a task force, perhaps drawing
on volunteers. An editor should be engaged, and the expertise of the Corporation
25 We do not recommend that the authority to require returns should be repealed. In fact, a measure requiring
the submission of income and expenses statements on request could be inserted.
18
Counsel's office should be fully utilized. The checklist on page 4 of Assessment Practices:
Self-Evaluation Guide may be of help.
Recommendation 3
Recommendation: The Finance Department and Corporation Counsel should review
Chapter 19 of the Code for the reasons given in report Section 4.2 (i.e. improve
clarity and eliminate unused provisions) and to implement our other recommendations
that would need or benefit from a legal authorization.
Recommendation 4
Recommendation: The Council should consider Code amendments implementing
requirements for annual ratio studies, periodic review of properties granted full or
partial exemptions, physical inspection of property on a regular basis, and acceptability
of the income approach to value. Training and certification requirements
should also be addressed.
4.3 Calendar
An important facet of a real property tax system is its calendar. Calendars almost always
are problematic in that processes that involve both administrators and taxpayers can be
difficult to achieve within a single calendar (tax) year. Happily, no serious calendar issues
were mentioned during our interviews (apart from a concern that some deadlines
sometimes were ignored). The Division's computer-assisted mass appraisal (CAMA) system
supports multi-year processing, so that Division staff can work on the current and
future tax years, which in Hawai'i County run from 1 July the year in question to 30 June
of the next year (Section 19-47). Table 2 contains some important dates in the County's
real property tax system.
19
Table 2: Property Tax Calendar
Date Event
1 January Appraisal date
15 January Deadline for submitting a return under Section 19-12.
20 February Deadline for second installment of tax bill
15 March Deadline for issuing notices
9 April Deadline for filing an appeal
19 April Deadline for certifying the roll
20 June Deadline for tax rate resolution
30 June Deadline for filing for an exemption before the first installment tax bill
1 July Date of classification for agricultural use value; tax lien date
20 July Tax billing date
20 August Deadline for first installment of tax bill
1 September Deadline for petitioning for residential dedication, etc.
30 September Deadline for filing for solar heating tax credit
15 December Deadline for deciding certain exemption applications
31 December Deadline for filing for an exemption before the second installment tax
bill; deadline for filing for application affordable rental housing classification, etc.
Some sections of Chapter 19 have deadlines that pertain to specific years.
20
5. Management of the Real Property Division
5.1 Introduction
Management is the art of effectively and efficiently getting work done through people. As
discussed below, managers strive to ensure that their staffs comply with laws and regulations,
follow policies, complete work on time, maintain standards, and use resources
wisely. Managers plan, budget, organize, control, and evaluate work. Communication
with taxpayers and other stakeholders also is an important management activity.
We evaluated management in terms of the components of a model property tax administration
system. 26 We reviewed planning and budgeting, staff organization, and internal
controls, focusing on quality assurance procedures designed to achieve effectiveness and
efficiency goals. We considered the effectiveness of internal communications.
As previously noted, the Finance Director has delegated management of the Real Property
Tax Division to the Administrator. The Finance Director/Real Property Tax Administrator
has unusually broad authority and discretion in the administration of the real property
tax. Understandably, there is no oversight by the state in view of the limited state interest
in how each county administers its property tax system and in view of the expense
of creating an agency to monitor four officials in four widely separated islands. This is
not to suggest, however, that the performance of the Division should not be subjected to
oversight. In fact, we believe that the following statement from Government Auditing
Standards applies:
"Government managers are accountable to legislative bodies and the public
for their activities and related results." 27
Section 19-3(10) clearly implies some oversight, and we consider local options for
stronger oversight later.
We also are cognizant that the County has had to contend with fiscal difficulties, staff
shortages, and valuation challenges. In this situation, it is understandable that the Division
has not been able to focus on management improvements. We believe, however, that
practicing good management will simultaneously improve acceptance of the real property
tax and increase satisfaction with County government.
26 See Almy, R., A. Dornfest, and D. Kenyon, 2008, Fundamentals of Tax Policy, Kansas City, MO: lAAO,
p. 199. Also see IAAO, 2009, Assessment Practices: Self-Evaluation Guide,Third edition, Kansas City,
MO: IAAO; and M.Johnson, C. Bennett,and S. Patterson,,eds.,2003, Assessment Administration,Chicago, IL: lAAO.
27 United States General Accounting Office, 2003, Government Auditing Standards,2003 Revision, Washington,
DC: United States General Accounting Office (now the U.S. Government Accountability Office), p.1.
21
5.2 Planning, Budgeting, and Resource Requirements
Planning is an important function of management. Three kinds of plans are used: strategic
planning, annual work planning, and—when necessary—project planning. Plans can, of
course, be informal as well as formal. Clearly, the Division has informal plans to make
system and procedural improvement, with the plan to rely more on market modeling
standing out. We saw no evidence of formal, written plans.
Recommendation 5
Recommendation: The Department of Finance and the Real Property Tax Division
should consider a strategic planning exercise as a way of formally addressing opportunities
for improvement, setting priorities for their achievement, and committing
the necessary resources. In addition, management should look for ways to increase
staff involvement with planning.
Provided that top management approves, we believe such an exercise is the best way to
ensure that systemic issues are eventually addressed. There are many strategic planning
models that could be used. If a formal, facilitated strategic planning exercise is not feasible,
an informal staff-wide retreat could prove useful, if only to break down walls between
different groups. Some general advice can be found in Assessment Administration,
Assessment Practices: Self-Evaluation Guide (pp. 9-11), and Fundamentals of Tax Policy.
Budget documents contain chiefly object classification ("line item") details. Apart from
lines that deal with the Board of Tax Review and tax sales, there is no programmatic information
in the budget. Thus, it is difficult to relate expenditures to results.
Recommendation 6
Recommendation: The Real Property Tax Division should consider justifying its
funding requests on a program or activity basis to better enable expenditures to be
related to results. 28
The resources devoted to property tax administration reflect the political support for accurate
and equitable assessments and for effective taxation. Resource requirements also
reflect operational efficiency. We attempted to review current resources, including funding,
staffing, computing support, office facilities (which appear sufficient), and services
provided by other agencies.
The 2011-2012 budget for the Real Property Tax Division is $3,005,779; the Division's
staff complement is forty-eight (according to the organization chart that we received),
although some positions are vacant. We compared these data with appropriate statistical
averages. Table 3 compares Hawaii County's budget and staff to three frequently used
benchmarks for a variety of U.S. local assessment districts in terms of size, valuation
complexity, and agency functions (see Appendix D).
28 See Assessment Practices: Self-Evalualion Guide, pp. 13-14.
22
Table 3: Funding and staffing Benchmarks
Benchmark Hawai`i County (2009-2010) Number of observations Low Median High
Budget as a percent of total property tax revenues
Hawai`i County (2009-2010) 1.33
Number of observations 26
Low 0.02
Median 0.89
High 2.30
Budget per parcel ($)
Hawai`i County (2009-2010) 23.50
Number of observations 47
Low 8.84
Median 22.34
High 68.09
Parcels per staff
Hawai`i County (2009-2010) 3,781
Number of observations 50
Low 1,454
Median 2,889
High 6,933
Sources: "1999 Major Assessment Jurisdiction Survey," Cook County Assessor's Office,
with subsequent updates through 2010 by authors, and Hawai`i County.
In principle, values of the first benchmark (assessment expenditures as a percentage of
property tax revenues) should be minimized so that the funds available for other government
services are maximized while at the same time providing sufficient funding for effective
assessment administration. Determining an optimal level of funding obviously
requires judgment. At typical levels of property taxation in the U.S., it is generally believed
that between 1.0 and 1.5 percent of property tax revenue is needed for effective
assessment administration. As can be seen, Hawaii County is inside that range. Moreover,
the figure for the County includes the costs of tax collection, while most of the observations
in the sample are for assessment only.
Interpretation of the second benchmark (budget per parcel) should take into account the
fact that the data for fifteen of the forty-seven districts analyzed date from 1999, and
costs of assessment administration undoubtedly have increased since the 1999 survey.
Thus, Hawaii County's level of expenditure seems reasonable.
Regarding the third benchmark (parcels per staff member), a comparatively low number
indicates (everything else being equal) a light workload, while a large number indicates a
heavy workload. In comparison to the median of 2,889 parcels per staff member in the
fifty districts analyzed, several earlier IAAO studies have suggested that 2,500 parcels
per staff member is typical overall, while larger districts typically had about 3,500 parcels
per staff member. 29 Although, Hawaii County is larger than a typical U.S. assessment
district, it is among the smaller districts (in terms of parcels) in the sample, and only sixteen
districts (all but one were larger) had higher ratios. On the basis of these overall
benchmarks, a strong case cannot be made that the Division has insufficient personnel or
inadequate funding.
29 Almy R., et al.,1978, Improving Real Property Assessment: A Reference Manual, Chicago, IL: IAAO,
p. 323, and Langhoff, G, 1988, Assessment Jurisdictions and Agency Resources in the United States: Summary
Report of the 1986 Survey, Research and Information Series No. 6, Chicago, IL: IAAO, p.43.
23
In order to evaluate resource needs further, we attempted to examine the Division's staffing
needs in more detail. Table 4 provides a pro forma estimate of staffing needs (full-time
equivalent positions or FTEs). The assumed workload statistics (column 2) are
based on estimates drawn from available statistics on Division workloads (the Division
does not ordinarily maintain workload statistics). The productivity rates (column 3) are
notional and are based on rates achieved, or believed to be achievable, in other jurisdictions.
The days of work estimates (column 4) simply arc the workload estimate divided
by the productivity rate. The indicated FTE need (column 5) is based on an assumed
work year of 220 days. Given the lack of workload data and other limitations, some individual
FTE estimates inevitably are incorrect. One hopes that there are some compensating
errors. Were they to be developed, better figures on workloads and achievable
productivity rates could be used to refine the estimates. Nevertheless, the estimates suggest
that the staff is sufficiently large to conduct comprehensive inspections over a five
year cycle. That is, the activities identified as "field data verification" are not now carried
out because the staff spends its time on other activities. The estimates also suggest that
additional resources could be allocated to non-residential properties (and fewer are needed
in residential property appraisal). Notably, the indicated staffing requirement of forty-eight
in Table 4 is consistent with the current complement and with the benchmark data
presented in Table 3. The estimates suggest that, with reorganization and training, the
staff could be used more effectively. However, the analysis in Table 4 is illustrative, not
conclusive.
Recommendation 7
Recommendation: The Real Property Tax Division should prepare an estimate of
the number and allocation of the staff it needs. 30
30 See Assessment Practices: Self-Evaluation Guide, pp. 11-13.
24
Table 4: Pro Forma Staffing Analysis
Assumed Workload Productivity rate/day Days Indicated staffing need (FTEs) Current FTE;
Position/activity
(1) (2) (3) (4) (5) (6)
Executive 3.0 3
Administrator 1.0
Assistant Administrator 1.0
Executive & technical support 1.0
Real Estate Clerical Operations 20.3 28
Conveyances 2,000 50 40 0.2
Map changes 1,000 30 33 0.2
Permits received 4,000 50 80 0.4
Homeowners 36,000 50 720 3.3
Collection operations 140,000 50 2,800 12.7
Exemptions 5,000 20 250 1.1
Customer service 20,000 80 250 1.0
Appeals logged 1,000 10 100 0.5
Notices reviewed/mailed 140,000 750 187 0.8
Non-residential property appraisal 13.4 5
Screen sales 20 20.0 1 0.0
Inspect sales 20 15.0 1 0.0
I&E questionnaires 400 15.0 27 0.1
Modeling building/QA 10 0.5 20 0.1.
New work (permits) 1,000 2.0 500 2.3
Change reviews (desk) 15,000 25.0 600 2.7
Field data verification 2,380 12.5 190 0.9
Appeal defense 800 0.5 1,600 7.3
Residential property appraisal 6.3 12
Screen sales 2,000 30.0 67 0.3
Inspect sales 2,000 15,0 133 0.6
Modeling building/QA 8 0.5 16 0.1
New work (permits) 3,000 10.0 300 1.4
Change reviews (desk) 56,100 100.0 561 2.6
Field data verification 10,220 35.0 292 1.3
Appeal defense 300 10.0 2.0 0.1
Sub-total 42.9 48
Overhead Relevant staff Hours per year
4.7
Professional development 26 20.0 520 2.6
Other 46 10.0 410 2.1
Total 47.6 48
25
5.3 Organization of the Division and External Organizational Relationships
5.3.1 Organization
According to the organization chart that we were given, the Division's organization plan
reasonably includes functional and geographic elements. Its functional elements include,
in addition to the Administrator and Assistant Administrator, staff support to the Tax Appeals
Board (one clerk), appraisal (fifteen positions), tax mapping (five positions), general
clerical operations (twelve positions), and tax collection (eleven positions). In addition,
there are two analyst positions. The geographic element of the plan that is obvious
from the chart is an east-west divide.
As noted above, we consider the total complement of forty-eight to be sufficient. Given
the island's geography, having a main office in Hilo and a satellite office in Kona makes
sense from a work and taxpayer convenience standpoint (although having two offices
may add to administrative overhead). We did not have sufficient information to opine on
the reasonableness of the allocation of appraisal and clerical positions between East
Hawaii and West Hawaii.
A strength of the current organization is the existence of the two analyst positions. Such
positions are crucial to market modeling and effective use of the CAMA system.
The necessity of dividing the staff between two offices raises issues that management
needs to address through better training, standardization of practices, and internal communications,
as discussed below. As suggested in the previous section, there may be an
imbalance between residential and non-residential appraisers. It was difficult to evaluate
this because of vacancies and the unavailability (for interviews) of appraisal specialists.
However, we believe that the organization plan currently envisages only two specialists:
a commercial appraiser and commercial/condominium appraiser (not including the appraisal
supervisor, whose actual responsibilities are unclear). In other words, the remaining
twelve appraisal positions seem dedicated to maintaining data on residential and agricultural
properties and on updating residential land values. There is another facet of the
current office that we believe needs further consideration: the assignment of appraisers to
the island's nine historical zones on a more or less exclusive basis. This organizational
design could result in uneven workloads, non-uniform work practices, and attendant morale
problems.
Recommendation 8
Recommendation: The Real Property Tax Division should deploy its appraisers on
a task, property type, and a market area basis, rather than the current geographically
based zone basis.
26
Assessment offices largely have abandoned the assignment of appraisers to districts on an
individual basis in order to improve efficiency, performance, and internal control. 31
5.3.2 External Relationships
The uncomplicated nature of government in Hawaii simplifies the Division's external
relationships. The State's Bureau of Conveyances monthly sends the County CD-ROMs
containing images of deeds and conveyance tax certificates. This seems satisfactory (although
in an ideal world, conveyance information would automatically be transmitted to
the County's CAMA system). The Division does receive building permit information automatically
from the Public Works Department. Also as noted, the Division has online
access to MLS data.
The only problem that was pointed out was the fact that the State Department of Health
has discontinued sending the counties information about deaths. Notice of deaths is important
in determining whether properties should receive exemptions based on ownership
age, etc., as discussed in Section 8.
5.4 Work Management
The Real Property Tax Division has had to confront two issues recently. One is the effect
of the global recession on the nature of valuation, assessment, and collection tasks. An
additional related effect is that of fiscal stress on staffing: Many seasoned staff members
retired recently. Replacements have had to be found, hired, and trained. Succession planning
is rare in assessment offices, and managing a series of successions during a crisis
would challenge any manager.
Nevertheless, several issues need to be addressed: Training new members of the staff
(discussed below) and deploying staff more effectively. As previously discussed, a dispassionate
analysis of the current system and the development of coherent strategies for
transcending the current crisis are needed. This will require timely information about
workloads, productivity rates, and performance.
The current posture of Division managers is that appraisers are professionals and that it
would be discourteous to question their performance. We cannot concur. Under current
professional appraisal standards, appraisers are always held to high standards of performance,
and they are expected to document the basis for their opinions.32 Moreover, good
public administration requires internal controls to ensure that resources are used wisely,
the law is followed, and real property taxation is fair. Managerial responsibility should
31 Elements of a district organizational structure may still exist in Philadelphia and New York City, two
districts plagued with accusations of corruption. New Orleans recently abandoned a district structure for the
same reason.
32 See Appraisal Standards Board, 2010, Uniform Standards of Professional Appraisal Practice, 2010-2011
edition, Washington, DC: Appraisal Foundation.
27
not be completely delegated to the individual staff member. Each member of the staff
should not have unfettered discretion. 33
Recommendation 9
Recommendation: The Real Property Tax Division should state performance expectations
clearly and institute the necessary internal controls to provide assurance that
performance is in line with standards.
Elements of this effort could include all those things discussed in Section 5.6.
5.5 Technical Competence
The knowledge, skills, and attitudes of assessment agency employees obviously are important
factors in the quality of property tax administration. Others' perceptions of those
qualities also are important. This section considers the professional development needs of
appraiser and analyst positions in the County. "Professional development" is used here to
encompass education, training, and competency testing and certification. Although there
is not a clear-cut distinction, "education" is the acquisition of general knowledge and
skills (such as, the knowledge of the economics and statistics needed in mass valuation),
usually through formal schooling, and "training" is the acquisition of the specific
knowledge and skills needed for a particular job, usually on the job or through specialized
programs. The better educated a person is, the less training he or she will need.
"Competency testing" includes the testing inherent in obtaining a diploma, degree, or
other certificate from an educational institution; civil service examinations; course examinations;
professional designations, such as the Certified Assessment Evaluator (CAE);
which is one of the designations conferred by IAAO, and professional licenses, such as
the licenses private-sector appraisers in the U.S. must now possess. Of course, experience
also will be considered.
In recognition of the importance of technical competence, the introduction to the lAAO
Standard on Professional Development states:
"Assessing officers require detailed knowledge related to their specific responsibilities
in the assessment office. In-service training and continuing
education of assessment personnel are essential parts of an effective program
of assessment administration."
Currently, Hawaii County's appraisal position descriptions require "a combination of
education and experience substantially equivalent to graduation from an accredited college
or university with major work in real estate, business or public administration, economics,
or a related field." In addition higher positions require progressively greater experience.
Statements of required skills do not specifically mention mass appraisal skills.
"For an interesting discussion of the risks of excessive discretion in property assessment, see D. Paul,
1975, The Politics of the Property Tax, Lexington, MA: Lexington Books, pp. 7-9.
28
As noted, several appraisers are newly hired, although some are licensed appraisers, and
others may have similar qualifications and experience. Nevertheless, there is a perception
that some appraisers have insufficient background and preparation for their jobs.
At present, new hires begin by working with an appraiser-mentor (another zone appraiser),
which is an acceptable way of providing on-the-job training if the mentors themselves
enthusiastically embrace their mentoring responsibilities and if they provide consistent
instruction. It would be better to have formal in-service training covering prepared
materials by appraisers with an aptitude for teaching than relying solely on mentoring.
Division top managers clearly appreciate the value of formal training. They mentioned
past inter-island programs in which an instructor was brought over to provide instruction
in market modeling (among other things). Such an approach is a more cost-effective way
of providing education than sending students to the mainland (although there would be
some benefit in learning about experiences elsewhere). We believe that such educational
opportunities would be popular with some appraisers, and the Division's training budget
seems sufficient. 34
Recommendation 10
Recommendation: The Real Property Tax Division should assess the interest and
needs of appraisers in further education in mass appraisal and property tax administration
and develop a program to offer courses designed to meet those needs. Consider
establishing continuing education programs for appraisers.
Background information on educational curricula can be found in the appendix to the
2000 IAAO Standard on Proftssional Development and in Assessment Practices: Self
Evaluation Guide (pp. 14-15). Both make distinctions between types of positions and career
stages. Consideration also should be given to rewarding achievements in professional
develop, such as obtaining a professional designation, through a salary bonus. A number
of U.S. assessment districts have taken this approach.
5.6 Use of Technology
Modem assessment agencies rely on several categories of computer technologies: a
computer-assisted mass appraisal (CAMA) system, digital maps and a geographic information
system (GIS), computerized workflow management, and a variety of document
imaging systems. Increasingly, they use oblique aerial photography. This section addresses
the Division's use of these technologies. The discussion will be general because
we were not given a detailed picture of how the Division uses its CAMA system and because
the technologies themselves are complex. 35
34 The IAAO has several programs that provide support to persons with financial needs.
35 Information on these technologies can be found in Assessment Practices: Self-Evaluation Guide and
Fundamentals of Mass Appraisal.
29
The Division has an "ias" (integrated assessment system) developed by Tyler Technologies,
Inc. (Tyler, formerly Cole Layer Trumble or CLT). Tyler is one of the leading developers
of CAMA systems in the United States. The ias system sits atop an Oracle relational
database management system. The database holds the data needed for both assessment
and taxation.
The Tyler ias system has applications for applying the three basic approaches to value.
We believe the Division uses two cost approach applications (which are discussed further,
below). One is a building costing application. The other is a "computer-assisted land
pricing" (CALP) application. Both are longstanding features of CLT/Tyler CAMA systems.
The ias system also has an income approach application and applications applying
the sales comparison approach via direct market models and via a computerized comparable
sales algorithm. It also has an analytical application that can be used to make ratio
studies. It is likely that rather than using the limited analytical capabilities of the ias, the
Division administrator and appraisers use a spreadsheet program (Excel (R) to make ratio
studies and to develop update factors for costing buildings and updating land values.
At present, the ias CAMA system does not appear to be linked to other systems, such as
the County's geographic information system (GIS) and the County's Pictometry oblique
aerial photography system (Pictometry is a leading provider of such imagery). The imagery
can be used to detect un-assessed improvements, and to verify measurements. Basically,
the software computes dimensions from a series of low-level photographs taken
at about a 45 degree angle from the vertical, which is the angle at which typical aerial
photography used in making maps is taken.
The reasons for the Division's surprising lack of interest in GIS and oblique aerial imagery
are not clear. There can be cost, licensing and database compatibility issues. (The Division.)
vision is interested in upgrading its ias system, which reportedly would cost $1.5 million
However, both systems could be used to identify potential data and valuation issues.
Happily, the Division plans to use direct market modeling in residential property
valuation, which potentially can result in more accurate values.
Recommendation 11
Recommendation: The Council should provide the Real Property Tax Division with
funds to upgrade the current version of the ias system. That the Division develop a
plan to fully incorporate spatial analyses and other GIS capabilities in its operations
and that oblique imagery be reviewed as part of the Division's property inspection
program.
Desirable investments in training and technology would facilitate discovering improvements
that were not on the roll and discovering classification anomalies. In addition to
producing more equitable assessments and to improving perceptions of fairness in property
taxation, the investments could result in increased property tax revenues.
30
5.7 Quality Assurance Practices
Quality assurance measures include data integrity review, assessment level and uniformity
analysis, and CAMA system performance testing. 36 It is beyond the scope of this project
to conduct a review of data integrity, which would include reviewing edits and cross
checking procedures used throughout the assessment administration program. However,
because a major responsibility of the assessor is to estimate market value of the taxable
properties, it is crucial to understand the underlying quality of these market value estimates
by understanding the level and uniformity of the market value appraisals.
5.7.1 Ratio Studies
The process used to determine the market value for the thousands of properties needing to
be appraised or assessed each year is known as "mass appraisal." Such a process is accomplished:
"...using standard methods, employing common data, and allowing for statistical
testing. " 37 The main tool for the statistical testing of the quality of mass appraisal
results is the ratio study. This is a mathematical study based on the comparison of market
values determined by the mass appraisal model to the sales prices of selling properties,
with such sales prices time adjusted to reflect what the selling price would have been on
the appraisal date. Mr. Sitko, the Real Property Tax Administrator, supplied us with the
ratio study description and results shown in Appendix E. In addition, supporting documentation
demonstrated development of time adjusted sales prices in accordance with the
principles found in IAAO guidelines.
The ratio study is intended to measure appraisal level and uniformity. In the context of
Hawaii County, level means how close appraisals are to 100% of market value as of the
appraisal date, irrespective of partial exemptions or assessment caps. Level is measured
by one of several statistical measures of central tendency. The ratio study provided by the
County shows computation of the median ratio, which is the most widely recommended
and appropriate for evaluating the results of the County's mass appraisal.
Uniformity refers to the degree to which properties are appraised at equal percentages of
market value. In other words, by measuring uniformity we can answer two questions:
1. Regardless of how close the overall level of appraisal is to market value, are
properties tending to all be close to that level?
2. Regardless of the overall level of appraisal, are lower and higher priced properties
appraised at the same percentage of market value?
The first of these issues is commonly known as horizontal equity and typically is measured
with the Coefficient of Dispersion (COD), while the second provides a measure of
vertical equity, typically using the Price-related Differential (PRD). The ratio study found
in Appendix E shows that the County computes both of these measures.
36 2010. Standard on ratio studies. Part 1, Section 1. Kansas City, MO: IAAO.
37 Glossary for property appraisal and assessment. 1997. Kansas City, MO: IAAO
31
Level and uniformity statistics are illustrated by examples found in Appendix F.
5.7.2 Standards of Performance
The ratio study provides information about the level of assessments, by allowing determination
of how close to or far from market value a neighborhood or county is on an
overall basis. The goal of"market value" is achieved on an overall basis when a representative
ratio study indicates a median ratio of about 100%. The IAAO Standard on Ratio
tio Studies suggests that a range of ±10% around this measure should be considered acceptable.
This is widely misunderstood as it does not mean that every individual property
ratio in a sample may differ from the median by no more than 10%. Instead, the range
given is to be applied to the statistical measures of level, such as the median. The occurrence
of a small number of ratios that differ significantly from the median is not conclusive,
unless these sales represented a particular neighborhood or other stratum under review.
In addition, ratio studies provide valuable information about taxpayer equity within a
neighborhood or Jurisdiction by providing statistical measures of uniformity or variation.
If uniformity is good, few parcels will be found to differ widely from indicated measures
of level and taxpayer equity within the tested area will be good. Depending on the homogeneity
of properties in a given neighborhood, the IAAO Standard on Ratio Studies suggests
that good unifonnity exists when there is a COD of 10% or I ess (for the most homogeneous
areas), 15% or less (less homogeneous areas), 20% or less (vacant land and
most income producing properties), and sometimes higher amounts for unusual properties
or market conditions. A further caveat in the Standard notes that CODs less than 5% indicate
implausibly good uniformity and may not be representative.
Part of measuring uniformity is determining whether high and low priced properties within
a given neighborhood or jurisdiction are being treated similarly, with respect to level
of assessment. Vertical inequity is said to exist if, for example, $200,000 homes were assessed
at $150,000 (75%), while $80,000 homes were assessed at $80,000 (100%). In this
sample case, if $2,000 in property taxes were levied, and these two properties were the
only ones subject to the tax, the more expensive home would pay $1,304 and the less expensive
would pay $696. If both had been assessed at the same ratio with respect to full
value (even if it were not 100%), the more expensive one would have paid $1,428 and the
less expensive one $571. The degree of this type of inequity is measured in ratio studies
with a statistic known as the Price Related Differential (PRD). When the PRD is between
0.98 and 1.03 vertical inequity is considered minimal.
Figure 7 is adapted from Table 2-3 found in the IAAO Standard on Ratio Studies 38
38. 2010. Standard on ratio studies. Table 2-3. Kansas City,MO: IAAO.
32
Figure 7. Ratio Study Standards
Ratio study uniformity standards indicating acceptable general quality*
General Property Class
Residential improved (single family dwellings, condominiums, manuf. housing, 2-4 family units)
Jurisdiction Size/Profile/Market Activity
Very large jurisdictions/densely populated/newerproperties/active markets COD 10.0
Large to mid-sized jurisdictions/older&newer properties/less active:markets COD 15.0
Rural or small jurisdictions/older properties/depressed market areas COD 20.0
Income; producing properties (commercial, industrial, apartments)
Very large jurisdictions/densely populated/newer properties/active,markets COD 15.0
Large to mid-sized jurisdictions/older&newer properties/less active markets COD 20.0
Rural orsmall Jurisdictions/ older properties/depressed market arenas COD 25.0
Residential vacant land
Very large jurisdictions/rapid developping/active markets COD 15.0
Large to mrd-sized jurmsdictions/slower development/less active markets COD 20.0
Ruraloesmall jurisdictions/little development/depressed markets COD 25.0
Other (non-agricultural) vacant land
Very large jurisdict,ions/rapid development/active markets COD 20.0
Large to mid-sized jurisdictions/slower development/less active markets COD 25.0
Rural or small jurisdictions/little development/depressed markets COD 30.0
Theses types of propertyare provided for general guidance onlyand may not represent jurisdictional requirements.
* The COD performance recommendations are based upon representative and adequate sample sizes, with outhers trimmed
and a 95%level of confidence.
* Appraisal level recommendation for each type of propertyshown should be between 0.90 and 1.10.
* PRD's for each type ofpropedyshould be between 0.98 and 1.03 to demonstrate vertical equity.
PRD standards are not absolute and may be less meaningful when samples are small or when wide variation
in prices exist.in such cases,statistical tests of vertical equity hypotheses should be substituted.
*CODs lower than 5.0 may indicate sales chasing or non-representative samples.
Although staff involved with ratio studies are aware: of IAAO performance standards,
there has beenno formalmove to adopt these or alternate standards. Without standards
by which to gauge mass appraisal performance consistently, it is difficult for staff and
those outside the Division to fully appreciate the quality of the appraisal work whether
adequate or inadequate and how to best use available resources to remedy areas of concern.
Recominendation 12
recommendation: The Council should require the Finance Department to conduct
a review of IAAO ratio study performance standards and adapt standards for appraisal
level and both horizontal and vertical uniforinity. Consider dedicating appraisal
staff resources to correctin deficiencies when their are discovered.
5.7.3 Limitations of patio Studies
Provided sales are properly screened to identify arm's length transactions, sale prices are
considered to: "...provide the most objective estimates of market values and under normal cirucumstances should provide good surrogates of market value." 39
Ratio studies are, statistical tests and, as such, rely on sufficient; numbers of market value
sales to produce meaningful results. "While a singles sale may provide an indication of
39. 2010. Standard on ratio studies. Part 1 Section 2.1. Kansas City, MO: IAAO.
33
the market value of the property in question, it cannot form the basis for a ratio study,
which provides information about the market values of groups of properties." 40
Finally, to be meaningful and valid, ratio study samples must be representative of the
class or property or area being analyzed. Reflecting on this issue, the IAAO. Standard on
Ratio Studies states:
"Operationally, representativeness is improved when the following occur:
1. Appraisal procedures used to value the sample parcels are
similar to procedures used to value the corresponding population,
2. Accuracy of recorded property characteristics data for sold
property does not differ substantially,from that of unsold propert,
3. Sample properties are not unduly concentrated in certain areas
or types of property whose appraisal levels differ from the general
level of appraisal in the population,
4. Sale prices provide valid indicators of market value. 41
Small sample sizes are always a concern in doing meaningful ratio studies and interpreting
the results correctly. Small samples are inherently less reliable than large samples,
meaning that sample medians and CODs and PRDs may be less likely to reflect underlying
population results, known as parameters. This problem can be overcome, to an extent,
by use of longer time periods, with proper time adjustments. In addition, each ratio study
performed at any stratification should include statistical measures of reliability. These
enable proper interpretation of the results.
5.7.4 Observations on the County's Ratio Study Process and Results
By requiring a conveyance tax certificate, which includes a statement of the price paid for
the property being transferred, sales are subject to the equivalent of mandatory disclosure.
This is a strong point enabling the County to obtain the sales data necessary to perform
quality mass appraisal and to evaluate the results using ratio studies. Seven states have
neither mandatory disclosure of sales prices nor transfer taxes to rely upon to estimate
sales prices.42 The availability of this information is an important advantage and element
of a good mass appraisal system.
Obtaining sufficient numbers of valid arm's length property transactions can be a challenge,
especially in slow markets. According to staff, this has made it nearly impossible
to consider ratio studies on commercial property, so the focus of this review is on residential
properties, including vacant land, residential condominiums, and improved residential
40. Ibid.
41. 2010.Standard on ratio studies. Part 1, Section 4.5. Kansas City, MO: I AAO.
42 IAAO Technical Standards Committee. 2009. State and provincial ratio Study practices: Results of the 2008
survey. Journal of Property Tax Assessment & Administration 6 (2): 29-82.
34
properties (see Appendix E). In this study, analysis is provided by geographic
zone, building class, and age of building. The summary sheet shows that level and horizontal
and vertical uniformity statistics have been computed for each of the major types
of property and sample sizes appear to be sufficient for these groupings. Results reported
by building class, zone, and age include medians and CODs, but not PRDs, so vertical
equity issues have not been evaluated for these strata. (Based on interview responses, this
information may be available in other reports.)
While we cannot test the representativeness of the County's ratio study, the mass appraisal
system they use and information suggesting that most properties' appraisals change to
some extent each year indicate that there is a very low likelihood of selective reappraisal
of selling parcels, which can often distort ratio study representativeness and validity. In
fact, the uniformity statistics reported by the County provide strong evidence that no such
selective reappraisal is occurring. This issue aside, we did not undertake to test the sales
verification procedures used by the County to ascertain whether the information reported
on the conveyance tax certificates is accurate. It was noted that not all selling properties
were inspected, but that Tax Map Key services were used to help validate information.
Some concerns were expressed about lack of sufficient testing for excessive invalidation.
However, if that were occurring, reported CODs and PRDs would be expected to be better,
so it is unlikely that there is much distortion due to excessive invalidation. Because
the current system does not include outside oversight or many internal controls, additional
quality assurance processes, including supervisory cross checking of properties
deemed invalid by appraisers or the mapping department, which enters the data, would be
advisable.
Recommendation 13
Recommendation: The Real Property Tax Division should consider and implement
a more definitive system for reviewing sales deemed invalid. This is needed to ensure
consistent decision-making regarding determination of sales validity.
One aspect of ratio study representativeness that was discussed was trimming. It is likely
that some otherwise valid sales have ratios that are not representative and may distort statistical
results if retained in the ratio study. The use by the County of the median to test
appraisal level lessens the need to identify such ratios as the median resists the influence
Of Outliers. However, this is not true of the COD or PRD. Currently, there is no formal
procedure to identify and trim sales that may be outliers in ratio terms. The Division indicated
use of a protocol under which ratios <50% or >200% are eliminated. Six states reported
use of similar fixed asymmetric points in 2008. 43
Although no single protocol is
prescribed, the IAAO Standard on Ratio Studies suggests that outliers should be identified,
scrutinized to validate the information, and trimmed if necessary to improve sample
representativeness.44 Although there are numerous methods of doing so in the literature,
one method is outlined in the Standard and is reproduced in Appendix G.
43 lAAO Technical Standards Committee. 2009. State and provincial ratio study practices: Results of the 2008
survey. Journal of Property Tax Assessment & Administration 6 (2): 29-82.
44 2010.Standard on ratio studies. Part 1, Section 5.2. Kansas City, MO: lAA0.
35
Recommendation 14
Recommendation: Ratio studies conducted by the Real Property Tax Division
should include procedures for identifying and, possibly, trimming outlier ratios.
Such procedures may be modeled after those found in the IAAO Standard on Ratio
Studies.
It is important to conduct ratio studies on as many strata as practical, recognizing limitations
in the number of usable sales. In this way, neighborhood and appraisal district deficiencies
can be discovered and corrected quickly. This lends additional credibility to the
entire appraisal system and to the staff and administration of the Real. Property Tax Division.
It is also important to consider ways of evaluating appraisal performance with regard
to commercial properties. While we understand that the property types may be more
diverse and few sales are available, that does not necessarily entirely preclude doing ratio
studies on this type of property. Without such studies or other performance review means
it is likely that any underassessment of commercial property could escape detection. The
IAAO Standard on Ratio Studies states that:
"In general, the period should be as short as possible and, ideally, no more than
one year. A longer period may be required to produce a representative sample for
some strata within a jurisdiction.
To develop an adequate sample size, the sales used in ratio studies can span a period
of as long as jive years provided there have been no significant economic shifts
or changes to property characteristics and sales prices have been adjusted for time
as necessary." 45
Statistical measures computed for level and uniformity generally comport with those recommended
by IAAO. However, the studies we reviewed were missing the following elements
identified in the IAAO Standard on Ratio Studies: 46
• Graphs, histograms, and similar data displays that show the distribution of the ratios;
• Reliability measures that enable population parameters to be estimated and depict
the degree of certainty in the results;
• Lists of sales trimmed based on outlier review procedures.
45 2010. Standard on ratio studies. Part 1, Section 4.4. Kansas City, MO: IAAO.
46 2010. Standard on ratio studies. Part 1, Section 5. Kansas City, MO: IAAO.
36
Recommendation 15
Recommendation: Except when too few sales are available, the Real Property Tax
Division should do ratio study analysis by market area and by each appraisal area
or appraiser. Results should be discussed with all appraisal staff and plans of action
developed to correct deficiencies. Ratio studies should also be considered and attempted
for commercial properties.
Recommendation 16
Recommendation: The Division should add missing statistical and graphical elements,
such as histograms, lists of trimmed sales, and reliability statistics to enable
proper interpretation of results.
5.7.5 Documentation and Staff Involvement
In addition to the appraisal manual, it would be useful to have a manual dedicated to ratio
studies and ratio study procedures. This could enable staff to better understand and take
more ownership over this important mass appraisal evaluation tool. Staff should also be
trained to better understand all aspects of ratio studies. IAAO has a recently revised
workshop, Fundamentals of Assessment Ratio Studies, which is tailored toward appraisers
understanding and use of the studies. This may be worth considering.
Recommendation 17
Recommendation: The Real Property Tax Division should develop a ratio study
procedure and explanatory manual separately from the Appraisal Manual. Staff
should receive training in conducting and understanding ratio studies.
5.7.6 Supervisory Review of Appraisals
Based on discussions with staff and managers, there does not seem to be a cohesive, conistent
approach to appraisal review. One common approach is for supervisors to review
properties with unusually large year-to-year changes in appraised value. In addition,
properties with no annual adjustment could be reviewed. Interviewees indicated that
managers did this type of query as well as queries to test for sales chasing. Reports we
received did not indicate the results or provide interpretation of any such tests. We understand
that the CAMA system being used re-computes market value and that appraisers'
primary emphasis is on analyzing land sales and updating appraisals on properties with
new building permits. This probably creates less opportunity for sales chasing, but too
much focus on building permits can lead to equity issues with other properties. Regardless,
an annual routine that incorporates supervisory review would add an important and
missing check and balance to the system.
An important part of supervisory review consists of ensuring that professional appraisal
practices are applied broadly to all properties and that automated models (CAMA) have
proper checks and balances. Because a major focus of reappraisal has been on properties
with building permits, concerns were expressed that appraisers may be too focused on
37
building permit values, allowing these to over-influence appraisal decisions. As there has
been no complete reappraisal (i.e. re-inspection) since 1980, this can lead to equity issues
when physical characteristics change without building permits or when building permit
values do not reflect market value. The appraisal cycle issue will be addressed in a later
section. However, there may be an opportunity for the valuation analyst position to play a
greater role in checking for inordinate appraisal adjustments made selectively to sales
(e.g. sales chasing) or properties with building permits (e.g. building permit chasing).
Recommendation 18
Recommendation: The Real Property Tax Division should consider formalizing supervisory
review of some or all appraisals done by staff. They should incorporate a
broader role for valuation analysts, including running queries on a regular basis to
look for sales chasing and building permit chasing. Findings should be reported as
part of an annual ratio study report.
5.7.7 Oversight
The most atypical aspect of the Hawaii real property tax system is the absence of an idependent
oversight body, such as the state. Even though a few other states, such as
Pennsylvania, exercise very limited independent oversight of local assessments and appraisals,
the complete absence of such oversight is found only in Hawai'i and Delaware.
In conducting oversight operations, states typically use several methods to monitor the
practices and performance of local assessors.
"These methods range from informal, unstructured contacts with local assessors, to
requirements that localities submit copies of rolls or abstracts of rolls, to ratio studies,
to detailed performance audits." 47
In addition, IAAO recommends that oversight agencies: "...maintain operating procedures
for investigating taxpayer complaints about the assessment process." 48
Perhaps the most common oversight function is the performance of ratio studies that are,
at least to some extent, independent of those done by the local assessing Jurisdiction. At
least 44 states report doing such ratio studies on an annual basis. 49
It is beyond the scope of this project to review all of the reasons the State of Hawaii and
its citizenry did not pursue this model. However, we believe the need for independent
oversight of the assessment process or at least the involvement of some independent review
body is still necessary for proper checks and balances on the appraisal system. In
47 Dornfest, Alan S., Steve Van Sant, Rick Anderson,and Ronald Brown. State and Provincial Property
Tax Policies and Administrative Practices (PTAPP): Compilation and Report. Journal of Property Tax
Assessment & Administration. Volume 7, Number 4. 2010.
48 2010. Standard on oversight agency responsibilities. Section 8. Kansas City, MO: lAAO.
49 lAAO Technical Standards Committee. 2009. State and provincial ratio study practices: Results of the 2008
survey. Journal of Property Tax Assessment & Administration 6(2): 29-92.
38
saying this, we do not mean to disparage current staff or management or their attempts to
fill this gap with ratio studies and various management processes. Nevertheless, we suggest
that the County consider additional ways to incorporate independent oversight into
the process. Three models developed by states, but potentially transportable to the local
level may be worth considering:
I. Texas and Kansas have independent technical advisory boards that periodically on
a regular basis review the ratio study practices in each state and provide the state
agency responsible for the studies with advice for changing and improving the
studies. In some cases (notably in Texas) the advice has included suggestions for
legislation. In these two states the boards include local real estate professionals,
assessors, and representatives of the academic community (usually from business
or statistical areas);
2. Texas and, at times, Florida, Missouri, and New Hampshire, have retained statisticians
to review their ratio study procedures for technical accuracy and to teach
classes to staff,
3. Local assessors in Idaho have formed a committee that meets regularly with state
ratio study staff to review standards and procedures and proposed changes. A potential
analogue of this process in Hawaii would be meetings with other counties
in the State. These meetings do occur now, but it is not clear that ratio study or
other performance evaluation issues are the main topic of the meetings.
Recommendation 19
Recommendation: The Council should consider ways by which a body independent
from the Real Property Tax Division could be formed to review the quality of appraisals
and the techniques, such as ratio studies, currently employed by the Division
to report on this quality. The Code should be changed to reflect this new process.
As discussed in Section 10, the Board of Tax Review could be given greater review powers.
An alternate model that may also be considered would be to have a separate division
within the County responsible for formally reviewing the work of the assessor's office
annually. This could be accomplished by mandating the Auditor's office, for example, to
review final ratio studies, provided following completion of the annual assessments. The
Auditor could also be provided with information on ongoing reassessments, investigations
of taxpayer complaints, review of exemptions, and other areas of potential concern.
As an example of this approach, District of Columbia law requires the Office of the Inspector
General to arrange periodically for an independent audit of the Office of Tax and
Revenue for the purposes of examining the District's management and valuation of commercial
real property assessments. 50 There is no reason to restrict a performance audit to
the assessment of commercial properties. A further modification of this approach would
be to emulate the requirements in the States of Indiana and Oregon and the Province of
Alberta, wherein assessors are required to submit auditable ratio studies annually, backed
50 Real Property Assessment Improvements Act of 2010, D.C. Code §§47-821(e) and (f).
39
up by copies of (or access to) real property data files, so that auditors can verify both the
ratio studies and test for evenhanded treatment of sold and unsold properties.
5.7.8 Internal Controls, Security Procedures, and Data Edits
Internal controls consist of reviewing estimated market values for unusual or unexpected
results, such as those that would occur if data used to develop the CAMA model was not
representative of all areas or types of property for which values were being generated.
Queries that show both dollar and percentage changes would be useful and can also detect
data entry errors. 51. A combination of such office reviews and field reviews is recommended.
In this model, office reviews:
"...check the validity of the various ratios which illustrate how various factors
have influenced value in different areas over time. " 52
Once this is done, review should focus on under-represented properties; those found in
the population, but not in sales used in the valuation model. Such properties "...become
candidates, for special review." 53 Following this review, review of properties with unusual
value changes, and review of other flagged properties, tentative value estimates can
be developed and appraisal field review undertaken. 54
In discussion with Division representatives, it appears that field reviews are limited to
properties with building permits and, perhaps, those that have sold recently. Admittedly,
only "abnormal" sales are physically inspected. Queries and edits are run by office staff
to look for large changes. However, these tend to not be routine and so have not been fully
integrated as part of standard annual practice. This suggestion of an ad hoc query system
is not optimal and will not consistently catch valuation problems.
In addition, a simple series of tests could be added to procedures used to check the results
of the CAMA system. When sales are entered into the system, some otherwise valid sales
can be randomly selected and purposely excluded from the initial analysis. After the
model computes new values and is tested with a preliminary ratio study, an additional
ratio study can be perfon-ned using the sales that were not included in the development of
the model. This additional sample is known as a "hold out sample" and is recommended
in IAAO standards and literature. The following section from the Standard on Automated
Valuation Models would apply equally to CAMA Systems. 55
51 Johnson,M.,C. Bennett, and S. Patterson,eds. 2003.Assessment administration. Chicago: IAAO. Pp. 342 -343.
52 Ibid. p. 343.
53 Ibid.
54 Ibid.
55 2003. Standard on automated valuation models (AVMs). Section 8.7. Kansas City, MO: IAAO
40
Figure 8: Holdout Samples
8.7 Holdout Samples
Holdout samples represent groups of valid sales selected in
a manner that guarantees their group characteristics match
those of the population of properties covered by the
automated valuation model. Such samples should be accumulated
at the same time sales, are collected for model
calibration, but used for testing the calibrated model.
Inerent in the definitionof holdout samples is the premise
that the sales not be used in developing the original model.
Sales that occur after model calibration can also be used in
testing and validating the model, and this method may be
preferable when few sales are available.
The Valuation Review section of the Quality Control chapter in Assessment Administration
contains an even stronger statement, indicating that the:
"...preeminent method employed to review values when sales data are adequate
is to conduct an assessment ratio study on a holdout sample of the data. Ratios of
model estimates to sales prices are computed for sales that were not part of the
model-building sample, and the results are tested for accurate levels of appraisal,
acceptable dispersion of appraisals from sales prices, and lack of biases in the
patterns of appraisal errors.... It should be noted that performing an assessment
ratio study using the same data as used in model development does nothing to
guarantee that other, unsold properties have been as accurately appraised as the
statistics would indicate. Ensuring uniformity of treatment between the sold and
unsold properties, in fact, is a major function of quality control. 56
Recognizing that some property classes may not have sufficient numbers of sales to permit
such holdout samples, an alternative is offered:
"...a second-best alternative is the use of subsequent sales in a similarly structured
assessment/ratio study. When this is done, care must be taken to factor the
subsequent sales to a prior effective date to remove the effects of inflation and
other factors that will have affected market values since the reference date assumed by the model developers." 57
56 Johnson, M.,C. Bennett, and S. Patterson, eds. 2003. Assessment administration. Chicago: IAAO. P. 343.
57 Ibid.pp. 343-344.
41
Recommendation 20
Recommendation: The Real Property Tax Division should implement holdout samples
or use subsequent sales not part of the appraisal model to provide an independent
test of the quality of the values generated by the CAMA system.
To the extent such queries are not routine under the current system, the Division
should develop routine queries to compare market value changes on selling and
non-selling parcels by market area, neighborhood and other relevant strata.
The Division should develop a systematic approach to reviewing unusual value or
ratio issues incorporating both office review and field review procedures.
It is also important to automate data entry verification and processing to the greatest extent
practical. Although we did not specifically review the data entry software, the Division
should note the following advice in the IAAO literature.
"Data entry software can incorporate edits that require the data being entered to
be consistent with allowable entries (such as requiring only specified alphabetic
or numeric characters) and entries that are consistent with the data entered in
other fields. Similar edits can be performed after data entry. Apparent problems
are noted in a report as error or warning messages." 58
We also did not specifically analyze security procedures, which can be used to restrict
access to manual and computerized records to protect various aspects of these records.
Security procedures should be clearly defined so there is an audit trail that shows all
changes made to a record and that helps to establish responsibility for work.
Recommendation 21
Recommendation: The Division should review current data entry edits and security
procedures to ensure that they meet industry standards as outlined in IAAO references
and elsewhere.
58 Almy, Richard, Alan Dornfest,and Daphne Kenyon, PhD. Fundamentals of Tax Policy. IAAO. 2008. p. 212.
42
6. Cadastral Data Collection and Management Procedures
"Cadastre" is a term for a land and building record system. Cadastral data collection and
management typically account for the bulk of expenditures for assessment administration
in the United States. In this context, four broad issues are relevant: data adequacy (that is,
whether the Division collects and maintains the data needed for modem mass appraisal
systems), accuracy, security, and accessibility. A full evaluation of these issues was outside
the scope of our review, but is important and should be considered.
6.1 Maintenance of Ownership and Sales Data
In this section, we evaluate the processing of real property conveyances, plats, and other
documents used in updating ownership records, cadastral maps, and sales files.
6.1.1 Initial Processing of Conveyance Information
Section 19-11 authorizes the County to request "abstracts of titles" for the purpose of arriving
at a correct valuation of property, and the "registrar of conveyances" is commanded
to comply with the request as often as required by the County. Happily, the State Bureau
of Conveyances monthly supplies the Division with CD-ROMs containing images of
deeds and of conveyance tax certificates (Form P-64A, or "CTC"). 59 Short of supplying
this information electronically, this arrangement is satisfactory.
The certificate form itself is not wholly satisfactory. Importantly, it identifies the parties
to the conveyance, and it identifies the property by Tax Map Key (TMK) number or other
identifier. It also requires the parties jointly to declare the full consideration, which is
crucial in ad valorem property taxation. Apart from information about any personal property
included in the sale and about assigned leases, the form does not elicit sufficient information
from the participants for analysts to decide whether the transaction meets the
criteria of an open-market, arm's-length transaction. Only Such transactions are fully usable
in appraisal and ratio studies.
Recommendation 22
Recommendation: The Council should request all counties in the State of Hawai'i
to approach the State Bureau of Conveyances about amending the Conveyance Tax
Certificate or attaching a supplemental declaration that attempts to elicit the information
needed to evaluate the usability of each conveyance. 60
Based on the brief description of the processing of conveyance information that we had,
it seems that the processing of ownership and map changes is sound. Initially, abstractors
in the Tax Mapping Section screen incoming conveyance information. They decide
which actions need to be taken, input ownership change and sale information into the
59 Information in the Appraisal Manual suggests that the CDs are supplied to the County under a contract
with Title Guaranty of Hawaii.
60 See section 2.2 and Appendix A of Standard on Verification and Adjustment of Sales.
43
CAMA system, make a cursory check of existing exemptions, and prepare map-change
orders if applicable.
6.1.2 Sales Data Processing
Complete and accurate information on sales prices, the circumstances of sales, and the
attributes of the properties that were sold are crucial to the effective use of all three approaches
to value and to using sales in ratio studies. As previously noted, the Division
automatically receives conveyance data from the State Bureau of Conveyances, and it has
access to multiple listing service (MLS) data as a supplemental data source. However, we
were unable to evaluate fully bow the Division processes and uses the sales data that it
receives.
To compensate for shortcomings in CTC data, we were told that the Division has a standard
sale confirmation letter. However, the impression was given that it is not routinely
used.
Recommendation 23
Recommendation: Until the Conveyance Tax Certificate (CTC) is improved, as recommended
in Section 6.1.1, the Division should routinely send sale confirmation letters
to buyers and sellers, especially when there are few transfers in the area or of
the type of property in question and when the property that was sold received an
exemption or other form of preferential assessment.
For sales of major tracts of land, large residential properties, and commercial and industrial
properties, it is desirable to follow-up with non-respondents. In person interviews
may be necessary with major properties.
Zone appraisers are responsible for screening the sales that they will use, chiefly in land
valuation and in market modeling. The Division's Appraisal Manual contains instructions
on sales screening. Screening seems discretionary. It is clear that there are sale usability
codes in the CAMA system, but a list of them was not made available for our review.
The manual provides guidance on identifying related-party sales, which would be
considered unusable in valuation. The manual also discusses evaluating the reasonableness
of the sale price in relation to the information about the property in property records
both in terms of correcting the descriptive data and in terms of qualifying the sale. We
think that screening procedures should be clarified, particularly with respect to using objective
criteria to identify unusable sales and with respect to sending first and second requests
to buyers or sellers.
6.2 Cadastral Maps and Parcel Numbering System
As previously noted, the County's Planning Department maintains the TMK maps that
the Division uses, and the Department assigns parcel numbers (TMKs). We did not review
their procedures. The Division regards the maps as sufficiently up-to-date, and the
task of keeping them current should not be difficult if statistics on year-to-year changes in
44
parcel counts are any gauge of workloads. Apparently, the Planning Department also is
creating a parcel layer for its GIS, but no information was provided on this project. However,
scanned images of hand-drawn maps are available over the Internet. We looked at
some of these maps. Some date from territorial times. Although technical details may not
meet current IAAO standards, they appear to be appropriately scaled. 61 Since the GIS
parcel layer was not reviewed, we refrain from making a mapping recommendation.
As previously noted, the parcel numbering system in Hawal'i is known as the "tax map
key" (TMK). It is composed of the following components:
• Division or County—one digit. Hawai'i County is division 3.
• Zone—one digit (1 through 9). The zone number designates one of the nine previously
described zones.
• Section—one digit. The section number designates a defined subarea within a
zone.
• Plat---three digits. The plat number designates a platted area within a section.
• Parcel—three------three digits. A number assigned by the Planning Department to each
mapped parcel.
• CCCC or CPR—four digits. In a condominium, this number identifies the unit.
This structure is acceptable. It appears, however, that when a parcel is divided, a part of
the parcel can retain the parent parcel's parcel number, violating the uniqueness criterion
of an acceptable parcel numbering system.62 As with the TMK maps themselves, until we
can review current practices regarding the assignment of parcel numbers, we refrain from
making a recommendation regarding parcel numbering (any recommendation would be
on a going-forward basis).
6.3 Maintenance of Property Records
It is axiomatic in assessment administration that land and buildings must be accurately
described for valuations to be accurate and for properties to be properly classified for
purposes of taxation. Generally accepted practice in the United States has been to send
inspectors to properties periodically to measure and describe them or to ensure that existing
descriptions are correct. Properties need to be inspected when there is a physical
change; they should be inspected soon after they are sold or when their assessments are
appealed. In addition, best practice is to periodically re-inspect all properties to ensure
that changes are not made without official notice (it has been estimated that a substantial
percentage of properties on Hawai'i have unpermitted construction). Fortunately, Section
19-3(8) of the Code gives the Division broad powers to inspect properties.
61 See Standard on Manual Cadastral Maps and Parcel Identifiers.
62 See Standard on Manual Cadastral Maps and Parcel Identifiers, p. 12.
45
6.3.1 Building, Permit Processing
Building permits are automatically entered into the CAMA system by the Building Division
of the Department of Public Works. Although we were not able to look into permit
processing procedures in detail, on the surface they seem acceptable. Several times a
year, an "abstract" of outstanding pert-nits is made. The clerical section "extracts" building
descriptions on hard copy to give to appraisers. Appraisers inspect properties in their
assigned areas (as discussed below, the Division's Appraisal Manual contains instructions
on inspecting properties). A "C" flag is added to the pen-nit record in the CAMA
system when the appraiser is finished. The appraisal supervisor oversees this process. As
noted, there apparently is no permit backlog, as new properties increase the tax base.
6.3.2 Other Inspections
Based on information in the Appraisal Manual, appealed properties are to be inspected if
the appeal deals with valuation (photographs also are to be taken). A recently sold property
may be inspected or MLS data may be consulted if the price seems out of line with
information in property records, but verifying the descriptions of sold properties is not
standard practice. More problematically, the Division currently does not have a program
for periodically re-inspecting all properties. This is of particular concern in light of beliefs
that much construction occurs without proper permits. The Division also does not
use the oblique aerial photography that the County has acquired; it is not clear whether
this is due to a lack of convenient access to the system.
Recommendation 24
Recommendation: The Division should develop and implement a plan for verifying
the accuracy of each property record at least once every six years.
See Standard on Mass Appraisal, Section 3.3.4. Note that Section 3.3.5 recognizes that
imagery, such as oblique aerial photography can be used. It is even possible for software
to detect changes between successive flights. Nevertheless, as previously noted, we believe
that the Division has sufficient staff to make more on-site inspections than is currently
the practice. Aside from improving the quality of property records, a properly publicized
inspection program could remove one of the incentives taxpayers have for not
complying with permitting regulations. If more people voluntarily took out permits, permit
revenues would increase, which could be used to cost justify the costs of acquiring
imagery.
6.4 Contents of Property Records
Regarding data adequacy, data are needed for basic property identification, classification,
valuation, and determining ownership and taxability. Data on use, size, location, and distinctive
features are needed for valuation and classification. For recent discussions of data
needs, see Fundamentals cif Mass Appraisal, pp. 46-49 and pp. 92-93.
46
We were not given access to representative parcel records. However, on the basis of our
familiarity with Tyler CAMA systems in other jurisdictions, the illustration of a residential
data collection sheet in the Appraisal Manual, and an online inspection of several
property records, we believe residential property records generally should contain sufficient
information for applying the cost approach to buildings using the CLT costing application.
Newer buildings also contain digital perimeter sketches. It is likely that there is
little information about land plots other than area and zoning, limiting the ability to develop
accurate land models. We can express no opinions on the adequacy of non-residential
property records.
Our review also suggests a few general areas of concern. First, qualitative variables such
as physical condition and class/grade are to be categorized relative to neighborhood rather
than island-wide norms. Several problems can be associated with this practice. In the
absence of evidence of neighborhood or land value maps, we assume "neighborhoods"
are the groupings of properties that each zone appraiser uses to update the CALP tables
used in land valuation (as discussed in Section 7). The Appraisal Manual suggests that
each subdivision should be a separate neighborhood. As a result, CALP neighborhoods
tend to be too small for there to be sufficient sales for statistically reliable analyses and
valuation models. In general, a neighborhood should be sufficiently large to have at least
fifteen and preferably more than thirty sales per year. 63 Of course, neighborhoods can be
grouped, as previously mentioned.
In terms of classifying things like construction quality and condition, a neighborhood
standard implies that physically similar buildings could have substantially different values.
That is, an average-quality house in a poorer neighborhood could be classified as
"above average," while an identical house in a better neighborhood could be classified as
"below average." In bricks and mortar terms, the house in the poorer neighborhood
would be worth more than an identical house in a better neighborhood, a dubious assumption.
In addition, without careful training and supervision, the various zone appraisers
could have different classification standards. Apparently contradicting the instruction
to rate buildings according to neighborhood standards, the Appraisal Manual contain
construction quality illustrations that apparently apply island-wide.
Another area of concern is the effect of the "PITT" coding policy on land values (see the
Appraisal Manual). By emphasizing land-use zoning over actual use, coupled with the
tendency to zone urbanized land as "agricultural," there is a danger that some land will be
undervalued.
Aside from our concerns about data accuracy in general and about how data coding policies
could bias values, we heard of no other inadequacies in the data. However, we believe
future needs related to market modeling and the income approach should be taken
into account.
63 Advice on delineating market areas (neighborhoods) for modeling purposes can be found in Fundamentals
of Mass Appraisal, pp. 140-141.
47
7. Real Property Valuation
In theory, real property valuation consists of applying economic principles of supply and
demand to the market that determines the value in exchange of such property. It is the
appraiser's job to estimate what the market value would be for properties, many of which
have not sold recently, and to do so in a uniform manner so that like properties, subject to
the same market influences, are appraised similarly. To do this, the appraiser must identify
the nature of the property being appraised, the rights being valued, the market in which
value is determined, the economic forces and principles within that market, and must represent
the market in a model that can be applied broadly. 64
From discussion with interviewees, it appears that, except for agricultural property, which
is subject to special use value considerations, the standard industry definition of market
value is used. The IAAO Glossary provides the following definition. 65
"The most probable price (in terms of money) which a property should bring in a
competitive and open market under all conditions requisite to a fair sale, the buyer
and seller each acting prudently and knowledgeably, and assuming the price is
not affected by undue stimulus. Implicit in this definition is the consummation of a
sale as of a specified date and the passing of title from seller to buyer under conditions
whereby.
The buyer and seller are typically motivated;
Both parties are well informed or well advised, and acting in what they
consider their best interests;
A reasonable time is allowed for exposure in the open market;
Payment is made in terms of in United States dollars or in terms of
financial arrangements comparable thereto;
The price represents the normal consideration for the property sold unaffected
by special or creative financing, or sales concessions granted by anyone
associated with the sale.
7.1 Appraisal Cycle and Frequency
Section 19-53, Hawaii County Code, requires the "...market value of all taxable real
property to be determined and annually assessed by the market data approaches to value
using appropriate systematic methods suitable for mass valuation of properties for taxation
purposes, so selected and applied to obtain, as far as possible, uniform and equalized
assessments throughout the County". 66
To do this, the Division probably uses the batch update procedures built into the ias
CAMA system. Because it is impractical to physically inspect each property annually,
64 Eckert, J.K., R.J. Gloudernans, and R.R. Almy, eds. 1990. Property appraisal and assessment
administration. Chicago: International Association of Assessing Officers. P. 36.
65 Glossary for property appraisal and assessment. 1997. Kansas City,MO: IAAO
66 Article 7. Section 19-53. Hawaii County Code. Supp. 5, 1/2008.
48
building permits and sales data are used to update the inputs to the valuation model. In
particular, appraisers physically inspect properties with building permits and analyze land
sales. Improved property sales are analyzed more uniformly by Hilo staff. Many sales are
not subject to physical inspection or field review.
The principle of annual assessment established by County Code is admirable and supported
by lAAO standards, which also acknowledge that current "...market value implies
annual assessment of all property. " However, this "...does not necessarily mean that
every property must be reappraised each year. In annual assessment, the assessing officer
should consciously re-evaluate the factors that affect value, express the interactions
of those factors mathematically, and use mass appraisal techniques to estimate propeproperty values.
The County's system clearly is in line with this guidance and it would be impractical to
suggest annual physical review and reappraisal (including physical inspection). However,
there is no established cycle for physically re-inspecting all property. As a result some
property has not been physically inspected since 1980 and typical properties have not
been re-inspected in about 10 years. The absence of a reappraisal cycle is very unusual,
with Hawaii and Pennsylvania the two most notable states without either statutory or
locally established regular reappraisal cycles. 68 IAAO standards recommend: "...that
assessing officers consider establishing regular reappraisal cycles or at least appraisal
level and uniformity (vertical and horizontal equity) thresholds that trigger reappraisal. 69
The Standard on Mass Appraisal elaborates further.
"Analysis of ratio study data can suggest groups or strata of properties in need of
physical review. In general, trending factors can be highly effective in maintaining
equity when appraisals are unijbrm within strata. However, such factors are
not a substitute for physical reviews and individual reappraisals, which are required
to correct lack of uniformity within strata."
This Standard goes on to recommend that:
"...properties should be physically reviewed and individually reappraised at least
every four to six years." 70
Common reappraisal cycles and property inspection practices are found in the tables in
Appendix H.
67 2010. Standard on property tax policy. Section 4.2.2. Kansas City, MO: IAAO.
68 Dornfest, Alan S., Steve Van Sant, Rick Anderson, and Ronald Brown. State and Provincial Property
Tax Policies and Administrative Practices (PTA PP): Compilation and Report. Journal of Property Tax
Assessment & Administration. Volume 7, Number 4, 2010.
69 2010. Standard on property tax policy. Section 4.2.2. Kansas City, MO: lAAO.
70 2011. Standard on mass appraisal of real property. Section 4.7. Kansas City, MO: IAAO.
49
Recommendation 25
Recommendation: The Council should require a regular property inspection cycle.
Every property should be inspected at least once every six years.
7.2 Valuation Methods
There are three recognized approaches to appraising the market value of property, provided
that is the goal of the appraisal system. Section 19-53, Hawaii County Code requires
the determination of market value, with some exception for agricultural property.
This Code, however, identifies the cost and market data (comparable sales) approaches
and is silent on the third professionally recognized approach, the income approach to determining
market value.
Traditionally, all three approaches are considered (they may not all be applicable in a
given circumstance) and the results are reconciled into one value for the property. While
it is not unusual to give added weight to one or another of the approaches, it is unusual to
systematically eliminate one of the approaches. Because the County Code does not indicate
the use of the income approach (an approach in which net income is capitalized into
value using a market determined capitalization rate), and possibly because of some court
decisions, staff does not use the income approach, except in a modified way in determining
the value of agricultural land. This means that a widely used approach in determining
the value of commercial property is not considered. The IAAO Standard on Mass Appraisal
comments:
"In, general, for income-producing properties the income approach is the preferred
valuation approach when reliable income and expense data are available,
along with well-supported income multipliers, overall rates, and required rates of
return on investment. SuccessAl application of the income approach requires the
collection, maintenance, and careful analysis of income and expense data." 71
Although these data requirements may appear daunting, they are well recognized and intrinsic
parts of appraisal and mass appraisal programs. Interviewees further indicated that,
on appeal, the income approach may be considered. If this is true, then failure to consider
the approach in the original valuation system is an even more significant gap that should
be remedied.
Recommendation 26
Recommendation: The Council should consider Code changes to permit the use of
the income approach, especially for multi-family and commercial properties, in addition
to the other recognized approaches to value, when appropriate on the basis of
data availability and type of property under consideration. The Division should review
data gathering methods to try to maximize available income and expense information.
71 Ibid. Section 4.4.
50
7.2.1 Land
Except for agricultural land, the sales comparison approach dominates the valuation of
this class of property, and this is appropriate based on IAAO standards. A modified income
approach is used for agricultural land valuation, as is typical in many states. This
"use-value" methodology incorporates information about types of crops, yields, expenses,
and capitalization rates, features that are familiar in agricultural land valuation elsewhere
in the U.S. Section 19-53 of County Code requires that agricultural land values be updated
at least once every five years. It does not appear that this is being implemented.
For non-agricultural property, local sales influences are taken into account in developing
specific land values. This means that the effect of view, for example, is entirely reflected
in the land value. Building base rates and cost trending factors are uniform regardless of
location.
The computer-assisted land pricing (CALP) application contains tables for each "neighborhood"
(usually a subdivision) or group of neighborhoods containing standard prices
per square foot, acre, or plot. The application allows these base prices to be adjusted for
such things as how the plot is serviced (paving, water, sewer, etc.), topography, and "land
type" (typical CALP land types are primary, secondary, residual, waterfront, water view,
undeveloped, and common area), but we do not know what site data have been collected
by the County. In addition, the application makes use of a neighborhood group table that
allows an overall adjustment factor to be applied to each neighborhood, whether or not it
contained sufficient sales to analyze (which generally is the case in urbanized areas).
CALP tables provide a convenient mechanism for updating land values on a mass basis.
We do not know when and how they were developed. Typically, available vacant land
sales and indicators of land values obtained from subtracting indicators of depreciated
replacement costs from improved sales prices are analyzed. We also do not know whether
appraisers maintain the base rate and adjustment factor tables. It is likely, however, that
appraisers do try to maintain the overall neighborhood adjustment factor tables (based on
the section on land valuation in the Division's Appraisal Manual).
Recommendation 27
Recommendation: The County should implement the updated agricultural land
values developed by the Division. If the effects of implementing the proposed values
do not comport with the County's agricultural land preservation policy, the values
should be changed appropriately or changes in Section 19-53, County Code, should
be considered. If so, the Division should provide such recommendations to the
Council.
7.2.2 Single-family Residential Buildings
In principle, with regard to applying the cost approach based cost model to buildings, the
essential elements are (a) tables of replacement cost rates (per square foot or other measure)
and adjustment coefficients for qualitative differences in building features and (b) an
51
algorithm (sometimes referred to as a "cost ladder"). The tables then allow the resulting
cost estimate to reflect each building's characteristics.
It appears that the County uses the costing application developed by CLT some years
ago. (Many assessment districts use data from a cost service, such as Marshall & Swift. A
few develop their own cost models by making detailed studies of local construction practices
and costs, but this approach seldom is cost-effective.) This application contains tables
of purported replacement costs that depend on such factors as the number of stories,
whether the house has a basement, physical condition, construction quality grades (low-
quality, fair, average, good, very good, excellent, superior, and luxury), and other features.
The Appraisal Manual contains specifications for the various construction quality
grades. Deductions are possible if standard features are absent. It is unclear whether the
cost tables have been updated since they were developed by CLT. However, it appears
that the Division annually develops a countywide index factor based on an analysis of
sales.
The final steps in the application of the cost approach are (1) apply depreciation to the
replacement cost estimates of buildings to bring them into line with current market values
and (2) apply any final adjustment factors to the land, building, or both estimates to bring
the total value estimate via the cost approach into line with market values. Regarding ordinary
scheduled depreciation, we assume that the Division uses the depreciation tables
that are installed in ias. The Appraisal Manual also mentions a composite CLT factor
known as "condition, desirability, and utility" (CDU), which appraisers can use to bring
the system's estimate of depreciated replacement cost into line with the value they desire.
They are supposed to rate each building in terms of CDU in relation to its age and grade
relative to its neighborhood. There are seven CDU categories, but the manual does not
provide information on the factors associated with each (which also is the case with condition
and construction quality ratings). Thus, we cannot opine about the use of CDU
other than to say that a poorly maintained property in a good neighborhood probably
would receive less depreciation than normal because it is in a good neighborhood, but
would receive increased depreciation because of its poor maintenance. In other words, the
CAMA system presumably has a set of CDU tables reflecting what is typical for the
neighborhood, each indexed by actual age and the eight individual CDU ratings. If this is
correct, it is important for appraisers to be consistent in assigning CDU ratings.
Improved sales are used to develop uniform building base rates and cost trending factors
which then are implemented county-wide. Ratio studies indicate that overall results generally
reflect good appraisal level, moderate horizontal unifon-nity as measured by the
COD, and some tendency to under-appraise higher priced properties, as indicated by the
PRD.
Although total property values are adequately reflected (i.e. good appraisal level), it is not
clear whether building components are properly valued. In recognition of this possibility,
"overrides" have been used to put additional value on some custom homes. Similarly,
although land values are adjusted locally to compensate, it is doubtful that unifonn building
values prevail across the County, given the diversity and greater recreational emphasis
52
in West Hawaii. In Idaho, for example, where the Sun Valley recreational area consists
mostly of a narrow 11 mile valley, running from North to South, residential building
costs alone have varied by as much as 100% depending on proximity to the recreational
influence (ski resorts in that case). Hence, it has been necessary to consider special building
valuation modifiers routinely, based on location. The only way to prove whether this
is an issue in Hawai'i would be to do area-by-area ratio studies on improved residential
properties where the sale consists of land and a building.
The Division indicated that it is considering models that develop one value for the property,
rather than separate values for land and buildings. This would eliminate the need to
deal with these separate land and building adjustments and may well be worth considering.
There is limited IAAO guidance on this issue, and it should be noted that each of the
45 states and the District of Columbia that responded to recent questions about this practice
indicated that land and buildings each had separate value estimates. 72 If the Division
implemented overall property valuation models and followed standard practice, it would
continue to value land separately. It would then either model total property value and
subtract land value to arrive at improvement value or it would subtract its land values
from sales prices of improved properties to arrive at an indication of building value,
which would then be modeled.
Recommendation 28
Recommendation: The Division should consider developing different building cost
location modifiers to reflect differences in material and labor costs between the east
and west sides of the island.
Recommendation 29
Recommendation: Before moving to combined land and building valuation, the
County should review this decision with a broad array of stakeholders to eliminate
unanticipated problems.
7.2.3 Multi-family Properties
These properties typically are appraised using sales and income, depending on the number
of units in each and the availability of sales and income data. Properties with larger
numbers of units more typically are appraised using the income approach. However, because
of limitations in County Code, the Division does not use the income approach. The
rationale is that necessary data are not available. The County should reconsider this approach
and review data gathering procedures to see if sufficient data could be gathered
(see Recommendation 26).
72 But see Fundamentals of Mass Appraisal, p. 13.
53
7.2.4 Commercial and Industrial Property
As has been indicated elsewhere, the County should consider Code changes to specify
that the income approach can be used to appraise these properties. IAAO and professional
appraisal guidance indicate that this approach generally is most applicable.
54
8. Administration of Exemptions and Relief Mechanisms
Every property tax system in the U.S. includes specialized measures to relieve the burden
of the tax on certain groups of taxpayers. As it pertains to this report, such measures include:
• Full and partial exemptions,
• Classification (in this case, tax rate classification),
• Caps on assessed value growth,
• Use value assessment of agricultural land, forest land, and golf courses.
Exemptions take many forms. Some, such as those provided to government property and
public schools avoid taxing tax-supported functions. Others, such as Hawai`i's homeowner's
exemption, encourage a specific use. Still others facilitate economic or public
objectives. Special appraisal treatment of agricultural land would fall into this category.
Finally, there are exemptions designed to case administrative burdens. Many states have
used this reason to eliminate property tax on all or some personal property (as is the case
in Hawai`i). As was discussed under tax expenditures, exemptions often result in increased
tax rates, through narrowing the tax base. They may also result in lower revenue. 73
In principle, exemptions should be narrowly construed and "...no exemption should be
granted unless it will be beneficial to a substantial segment of the affected population and
unless all similar properties or similarly situated taxpayers are accorded the same treatment." 74
The non-speculative residential use dedication program clearly fails these criteria. It applies
only to properties that qualified prior to 2004 and remain in the program. In addition,
given that different residential properties would be expected to experience different
changes in market value over time, properties with frozen taxable values can expect to be
treated differently in comparison to similarly situated properties without such frozen values.
To control exemptions and prevent abuses, IAAO recommendations include:
• Construe each exemption narrowly;
• Have specific criteria for eligibility;
• Place burden of proof on claimant;
• Review exempt property frequently to ensure criteria are still met;
• Incorporate sunset provisions in statutory exemptions to ensurer periodic, review
by policy makers;
• Track amount of value that is exempt under each provision and number of parcels
receiving exemption;
73 Almy, Richard, Alan Dornfest, and Daphne Kenyon, PhD. Fundamentaty of Tax Policy. lAAO. 2008.
pp. 188 - 189.
74 2010. Standard on property tax policy. Section 5.3.1. Kansas City, MO: IAAO.
55
• Determine amount of taxes shifted or lost, and track these amounts over time. 75
When exemptions are overly complex or numerous, benefits tend to be clouded and administrative
costs can be high. Especially with regard to full exemptions, the IAAO
Standard on Property Tax Policy recommends annual application when practical. When
numbers are large, as in the number claiming agricultural use value or homeowner's exemptions,
less frequent review is expected for practical reasons.
In general there are two major issues regarding the use of exemptions by the County.
First, there is a question about eligibility; whether the intended properties are getting the
benefit of the exemptions and whether formerly eligible or ineligible properties are
properly excluded. Second, there is the issue of whether there are so many options for
exemption or agricultural use valuation that stakeholders find it difficult to know whether
their choices are the most beneficial or applicable. We will further explore these issues
under the discussion of specific exemptions, at least in regard to homeowner's exemptions
and agricultural use value options. Regardless of these implementation and administration
issues, it is of paramount importance that there be annual ongoing analysis of the
tax shifting and loss implications of exemptions, especially the residential and agricultural
exemptions which are so numerous.
8.1 Classification System
Traditional classification systems provide different fractional assessment ratios (i.e. levels
of assessment) for different classes of property. These systems tend to produce hidden
benefits, not related to need or even the original purpose and tend to lend too much importance
to classification systems and assignments. Hawaii uses tax rate classification,
which has some of the same effects, but does not use the more common value classification.
Rate classification is preferred because it does not distort the underlying tax base.
Ten states and the District of Columbia indicate use of differing rates. 76
8.2 Specific Exemptions
Although there are many exemptions, including the de facto partial exemption granted by
the agricultural land use value system in place in Hawaii, this report looks mostly at the
following:
1. agricultural use value,
2. homeowner's exemption,
3. assessed value increase limitation (i.e. 3% cap).
75 Almy, Richard, Alan Donfest, and Daphne Kenyon, PhD. Fundamentals of Tax Policy. lAAO. 2008.
pp. 191.
76 Dornfest, Alan S., Steve Van Sant, Rick Anderson, and Ronald Brown. State and Provincial Property
Tax Policies and Administrative Practices (PTAPP): Compilation and Report. Journal of Property Tax
Assessment & Administration. Volume 7, Number 4. 2010.
56
We are aware of other exemptions in the County. There were discussions during some
interviews questioning the need for Credit Union exemptions, for example. There are also
partial exemptions for the disabled and disabled veterans, and exemptions for charitable
organizations. LAAO has not conducted surveys on credit union exemptions, although
these are known to be used in some other states, possibly because of non-profit organizational
status. Exemptions based on need (e.g. disabled persons) are quite common and
generally are supportable under the premise that they target relief to selected identifiable
groups. Charitable exemptions are widespread, with 44 states reporting full exemptions,
five reporting partial exemptions, and nine reporting that this exemption is a local option. 77
The County's approach to these exemptions appears reasonable, based on the application
forms, brochures, and underlying laws. County Code even includes a provision
for a "carve out" of income producing portions of property otherwise eligible for the
Charitable property exemption. This is an excellent feature found in some other states'
exemption laws (e.g. Idaho).
The major concern we would have about many of the exemptions is whether there is frequent
enough review of these properties to ensure that they still qualify. IAAO standards
stop short of suggesting a review period. Nevertheless, the general guidance that suggests
physical inspection for all properties that are taxable on a four to six-year cycle may well
be applicable to exemptions such as the Charitable exemption. In the absence of review
cycles, the County has established provisions under which owners moving or no longer
qualifying for an exemption, such as the disability exemption, must notify the County of
the change. This signified awareness of the potential for abuse and clearly is an attempt to
limit granting the exemption to ineligible property. However, awareness alone is not sufficient
to prevent abuses, without implementation of regular review cycles initiated by the
assessor's office.
Recommendation 30
Recommendation: The Council should consider Code changes to institute a review
cycle or requiring re-application for exempt property.
8.2.1 Agricultural Use Value
Nationally, agricultural partial exemptions or "use value" systems that lower assessed
value of agricultural land below market value are extremely common. It is difficult to
find a state where such favored tax treatment is not granted for this type of property. The
underlying policy is that agricultural use, while desirable in certain areas, is not economically
sustainable without some sort of assistance. In addition, politically, it is often considered
unpalatable for large tracts of land to pay what might be high overall tax amounts,
when, arguably, the land uses few of the services normally provided with the property
tax. Regardless of the commonness of favored tax treatment, the County should undertake
77 Dornfest, Alan S., Steve Van Sant, Rick Anderson, and Ronald Brown. State and Provincial Property
Tax Policies and Administrative Practices (PTAPP). Compilation and Report. Journal of Property Tax
Assessment & Administration. Volume 7, Number 4. 2010.
57
take to review the underlying policies and make sure that land currently enrolled for such
favored treatment is land for which the policies were designed.
In Hawaii County, there are various provisions under which agricultural land may be
valued at less than market value, under what is commonly termed "use value." Dedicated
agricultural land generally is committed to commercial agricultural use for 10 years.
$2,000 annual gross income per farm operation is required and there is a rollback tax
penalty imposed if use changes during the dedicated period. Non-dedicated land is assessed
at a higher value, but does not have the multi-year use requirement. Non-dedicated
land continues in agricultural use (at this higher value) until the owner notifies the County
of changes that presumably would preclude such use. There are no income requirements
to be met for non-dedicated land.
The inclusion of income requirements is important in reducing improper claims of agriculture
use. Unfortunately, no proof is required to accompany applications. Similarly
inspection of dedicated agricultural land occurs during the first year of such dedication,
but not subsequently during the dedication period.
The rollback (recapture) provision is a very good provision, recommended in the IAAO
Standard on Property Tax policy. 78 Ten states have similar provisions. 79
Many states incorporate size restrictions, with the presumption that small tracts are less
likely to be agricultural and more likely to be speculative in purpose. We explored this
with many interviewees, but, as there was no consensus, and states have mixed reissue
sponses, it would be necessary for stakeholders and County policy makers to consider
whether size plays a part in agricultural use being supported by lower assessments.
In general we are concerned with the number and complexity of options available under
the agricultural use value provisions. We would ask the County to examine whether taxpayers
clearly understand the nuances between the different options and are therefore reasonably
able to make the best decisions about what is most applicable to them. Although
some complaints were related to possible ineligible properties (see discussion below),
some appeared related to the complexity and number of choices. As part of our recommendation
to do tax expenditure analysis, the County should consider whether and how
much tax shifting would occur given a smaller number of agricultural use value options.
There were many complaints suggesting abuses of the agricultural use value provisions.
More frequent inspections and inclusion of income information as part of the application
process would be beneficial. Eligibility criteria should be reviewed to ensure that loopholes
don't allow extension of benefits beyond what is contemplated by policy makers. A
stakeholder committee could be formed to review the policy and specific instances of alleged
78 2010. Standard on property tax policy. Section 5.3.1.1. Kansas City, MO: lAAO.
79 Dornfest, Alan S., Steve Van Sant, Rick Anderson, and Ronald Brown. State and Provincial property
Tax Policies and Administrative Practices (PTAPP). Compilation and Report. Journal of Property Tax
Assessment & Administration. Volume 7, Number 4. 2010.
58
abuse. This should lead to improved policy that strengthens the use value provision
as it applies to its original purpose.
Recommendation 31
Recommendation: The Council should require the Division to conduct more frequent
inspections and inclusion of proof of eligibility and income information as
part of the application process for agricultural use value assessment.
A stakeholder committee should be established to review the intent of underlying
policies and allegations of abuse. This committee should also look into the possibility
of consolidating agricultural use eligibility options, weighing the benefits of a simpler,
more transparent system against specific tax shifts.
8.2.2 Homeowner's Exemption
Properties used as the primary residence of the owner are eligible for a basic exemption
of $40,000, with additional exemptions for older homeowners. Although amounts vary
widely, similar partial exemptions are found in at least 30 states. 80 This number would
be larger if states with favorable fractional assessment of such residential property were
included.
Nominally, the laws and application process appear in line with similar processes around
the nation. There is a provision that the assessor must be notified within thirty days after
the claimant ceases to qualify for the exemption. If this notice is late or if the assessor
determines the claimant does not qualify any longer, two years back taxes can be recaptured.
This is similar to the agricultural exemption rollback provision and strengthens the
program.
In a state like Hawaii, with significant recreational property, there are always questions
about whether a property truly is the "primary residence" of an owner. One way some
states, such as Idaho, have of helping assessors make this determination is by providing
residency information from income tax returns. Although such returns are confidential,
the state legislature in Idaho was able to pass legislation permitting the limited release of
information indicating whether a tax filer was also filing a resident or non-resident income
tax return. This information is released to the assessor on request to the state. A
similar provision could be considered in Hawaii.
Similarly, death certificates are filed with the State of Hawaii and not released to the assessor.
Death certificates should result in new applications for homeowner's exemptions,
unless (perhaps even it) there is a surviving spouse. This information would be useful in
preventing inheritors from receiving benefits for properties they do not occupy as principal
residences. It may be worth considering legislation to obtain this information as well.
Even if such information cannot be obtained, periodic, ongoing reviews of drivers' licenses
and voter registration records can be useful in helping to establish the likelihood
80 ibid.
59
that a property is the primary residence of its owner. These types of reviews should be
instituted to prevent or control abuses of homeowner's exemptions. Along these lines, it
may also be worthwhile to review properties with undeliverable mail and to institute periodic
inspection of such residential property (this may be accomplished by the general
recommendation to subject all property to periodic re-inspection—see Recommendation
25).
Recommendation 32
Recommendation: The Council should consider working with state legislators to
obtain residency information from income tax returns and death certificates to prevent
abuse of homeowner's exemptions. In addition, the Division should institute
procedures to verify residency using drivers' licenses and voter registration records.
8.2.3 Other Relief Measures — The 3% Assessment Increase Cap
Section 19-53(g) of the County Code provides a 3 percent limit or cap on the amount by
which assessed values of homeowners can increase annually. This limit appears to have
been implemented to replace the non-speculative residential use dedication that froze taxable
values, was available prior to 2004, and remains in use by properties that qualified at
that time. The amount of value or tax foregone as a result of either cap is not indicated in
the report of exemptions that we received, so it is difficult to evaluate the magnitude or
effects of these exemptions.
With respect to the 3 percent annual increase limit, approximately 19 states have similar
provisions, either statewide or in specific localities through local option provisions. One
state, Minnesota, allowed such a provision to expire as a result of a statutory "sunset"
provision and analysis indicating that it was not helping those intended to be helped.
The IAAO tax policy textbook and the Standard on Property Tax Policy take strong positions
opposing assessed value caps. It is worth reprinting the germane section from the
Standard." See Figure 9.
2010. Standard on property tax policy. Section 5.4.3. Kansas City, MO: IAAO.
60
Figure 9: Excerpt from Standard on Property Tax Policy
5.4.3 Valuation Increase Limits
Limits that constrain changes in assessed or appraised
value of property may appear to provide control but
actually distort the distribution of the property tax, destroying
property tax equity and increasing public confusion and administrative complexity. Owners whose
properties are increasing in value more rapidly than the permitted rate of increase (say, 5 percent) receive
a windfall at the expense of those whose properties are
decreasing in value or are increasing at lower rates. in addition, value increase limits typically tend to reduce
taxes the most for the small number of properties with the largest increases. As a results, some properties, which
would have increased in value more than the constraint,
are held to lower assessed values yet would pay higher taxes with the constraint.
This effect is invisible to the taxpayer and therefore especially deceptive. In effect, valuation increase limits results in lower effective property
tax rates for owners of desirable property and higher effective property tax rates for owners of less desirable
property. Similarly, when state funds are distributed to school districts or other taxing jurisdictions based on taxable property value
(indirect equalization), funding will tend to shift from poorer areas to wealthier areas with rapid appreciation - an illogical and undesirable
result. Legislators and the public should be made aware of the inequities resulting from valuatoin increase limits
and be actively discouraged from pursuing such limitations. Any other control is preferred.
Valuation increase limits create the most distortion in horizontal equity because similarly situated properties
no longer pay proportionately equal taxes. Vertical equity issues are less certain, especially if return to market
value occurs only on condition of sale and if owners of low-value properties have lower income and are less mobile.
61
The conclusions mentioned in Figure 9 were confirmed in independent analyses conducted
in Minnesota and Idaho (which does not have assessment caps, but has had nurnerous
legislative attempts to impose caps). The Idaho analysis tested hypothetical caps on more
than 120,000 residential parcels in two counties and identified many homeowners with
lower assessed values who paid higher taxes, due to tax shifting (the Idaho study assumed
the same overall tax revenue would be generated). 82
There are two types of assessed value increase caps, one that requires assessed value to
be reset to market value on sale and one that does not. Arizona, Iowa, and Oregon are the
only states with caps that remain in place, regardless of ownership changes. Although all
caps lead to distortions with similarly situated properties (i.e. similar market value and
location, and paying tax to the same governmental entities) paying different tax amounts,
systems that use more of a "base year" approach (i.e. Oregon) arguably have less distortion
(with market value as a reference point). The system in place in Hawaii County resets
assessed values to market value on sale, so has the potential for greater disparity in
taxes paid per dollar of underlying market value.
In discussions with interviewees, it was noted that the County maintains and reports both
the market and the "capped" value to taxpayers that received the benefit. This is a very
good feature and makes the effects of the cap more transparent and analysis of effects
more practical. Caps tend to be considered or implemented by states when market values
of homes are increasing rapidly. Several interviewees pointed out that when values are
declining, capped assessments do not necessarily follow downward because the diminished
market value still exceeds the capped assessment value. This adds another element
of confusion within the system.
Recommendation 33
Recommendation: The Council should require the Finance Department to analyze
the effects of the 3% assessed value increase cap to determine if the underlying policies
are being fulfilled. In addition, although no new claims can be made for the
non-speculative residential use dedication, the Council should review the underlying
policies for retaining this value freeze for properties remaining under the dedication.
Both programs should be reviewed with respect to the different tax treatment
that results for similarly situated properties with and without the dedication or the
3% cap.
Recommendation 34
Recommendation: The Council may wish to consider incorporating sunset provisions
into exemptions to force periodic review of underlying policies.
82 Dornfest, Alan S. Effect of taxable value increase limits, fables and fallacies. Journal of Property Tax
Assessment & Administration. Volume 2, Issue 4. 2005.
62
8.2.4 Alternative Relief Mechanisms
Often, caps and other similar exemptions related to homeowners are put into place because
of concerns over those on limited income not having the ability to pay property
taxes, especially if those taxes increase as a result of higher taxable values. lAAO recognizes
this very real concern and suggests two different approaches: deferrals and credits,
which will be addressed in this section, and levy or budget based determination of tax
rates, which will be discussed in Section 9.
Section 3.3 of this report includes a table that identifies the number of states with tax deferrals
and circuit breaker and other tax credit programs. Of these programs, tax deferral
is the least likely to be used by those eligible for the benefits. Often requirements for equity
interests and dislike of accruing liens are blamed. Regardless, such programs can
form a safety net and directly benefit the most needy— something that is not true of more
broad-brush caps on value increases.
Circuit breaker programs more commonly are run by states as grants that reduce local
property taxes for eligible homeowners. In Virginia, however, the program is entirely locally
cally funded, although it is run more as a local income tested tax credit. 83 One of the
interviewees indicated that two Hawal'i counties (but not the County of Hawaii) use circuit
breaker tax credit programs. Circuit breaker programs are distinguished by having
income limits, so they may be difficult to administer by a county without direct access to
income information. This could be rectified by requiring applicants to sign IRS release
forms so that income information could be verified. An advantage to circuit breaker programs
is that they can and typically do apply to renters using a percent of rent formula.
Tax credits are similar to circuit breakers.
If there are statewide concerns over lower income homeowners and renters being able to
pay their property taxes, the circuit breaker option would be worth considering. State legislation
would be necessary for consistent treatment, although programs are not necessarily
run consistently in each state (this is the typical model however in most of the 33 states
with such programs).
Recommendation 35
Recommendation: The Council should consider establishing a stakeholder committee
to identify problems related to tax relief and review options.
83 Baer, David. State handbook of economic, demographic, and fiscal indicators. AARP. 2008.
63
9. Determination of Levies and Tax Rates
Property tax systems generally can be driven by the amount to be levied (i.e. the budget
of the taxing entity) or by the tax rate, which may be fixed or relatively rigid. In levy or
budget driven systems, the dollar amount to be raised overall or by class of property is
established first; then the rate is computed. This type of system is preferred over systems
with fixed rates or rates set independently from budget needs. The main reason for the
preference is that windfalls associated with reappraisals are avoided if budgets are set
first. As a corollary, when values decline, as in many markets during the current economic
situation, rates may float upward, and tax revenue needed for government services
does not decline. Approximately 32 states report the use of either levy or rate limitations. 84
An alternate approach is to use "Truth in Taxation" systems instead of strict limits. Sixteen
states have such provisions, under which assessment notices include estimates of
property tax amounts, and taxpayers are thereby encouraged to participate in the budget
approval process of the underlying taxing districts or counties. At the very least, truth in
taxation is an attempt to make the property tax system more transparent and enable taxpayers
to better understand the effect of property value changes on their taxes.
Tax rates in Hawaii. County appear to be set as rates. Interviewees suggest that the rates
and changes in rates may reflect political rather than purely budgetary issues. This is not
meant to imply that the rates are improper;just that they are more likely to result in increased
or decreased revenue depending on taxable value changes as opposed to the
amount of revenue needed to provide services. We suspect also that the 3% cap on taxable
value increases is misinterpreted as a 3% tax cap and this may not always be true, especially
when market value declines but "capped" values do not.
Recommendation 36
Recommendation: The Council should consider establishing a stakeholder committee,
including taxpayers,to determine specific ways to make the relationship between
taxes and value changes more transparent.
84 Dornfest, Alan S, Steve Van Sant, Rick Anderson, and Ronald Brown. State and Provincial Property
Tax Policies and Administrative Practices (PTAPP): Compilation and Report. Journal of Property Tax
Assessment & Administration. Volume 7, Number 4. 2010.
64
10. Assessment Appeal
An appeal system is an integral part of a property tax system. A right of appeal allows
taxpayers to review the reasonableness of their assessments and to challenge them if they
so wish. An appeal process ideally results in more accurate valuations and in greater equity
in property taxes. The interests of taxpayers in receiving an impartial hearing and fair
(or lower) property tax obligations need to be balanced against the interests of the property
tax administration in achieving finality in each year's taxation cycle and in not bogging
administration down with unmerited appeals. From the taxpayers' perspective, initiating
an appeal should not be unduly burdensome. From the administration's perspective, taxpayers
should have grounds for appealing over and above wanting to pay less in taxes.
The features of good appeal systems are the focus of several works, including the
IAAO's Standard on Assessment Appeal and the American Bar Association's 1983 Model
State Assessment Appeal Act. The subject also is treated in Fundamentals of Tax Policy
(pp. 258-261). We use these features in Our evaluation of the system in Hawaii County.
At the outset it should be mentioned that the volume of assessment appeals is not a gauge
of the quality of assessment, nor are the percentages of appeals granted or denied a gauge
of either the quality of assessments or the performance of the appeal system. Too many
extraneous factors can come into play, particularly when comparing systems. Nevertheless,
rate of appeals is an enduring area of interest. In its 1999 survey of property tax policies
icies and administrative practices, IAAO asked state supervisory officials about appeal
in reappraisal and non-reappraisal years (every year is a reappraisal year in Hawaii
County).8" Typically in a reappraisal year, between 3 percent and 5 percent of assessments
were appealed in contrast with a rate of 2 percent or less in a non-reappraisal year.
By these benchmarks, the rate of appeals to the Tax Board of Review is comparatively
low. After spiking in 2008 and 2009 at just over I percent, the rate in more recent years
has dropped below I percent.
10.1 Current System
Hawaii County's property tax appeal system is spelled out in Chapter 19, Article 12, of
the Code. It lays out essentially a two-stage process. Initial appeals are to the Tax Board
of Review. From there, one may appeal to the State Tax Appeal Court (and conceivably
to the Supreme Court).
The law establishes a right of appeal in Section 19-91. It addresses who has standing to
appeal (in Section 19-92). Section 19-93 establishes the following grounds for appeal:
(1) assessment of the property exceeds by more than 20 percent the assessment of market value used by the director, or
See IAAO, 2000. Property Tax Policies and Administrative Practices in Canada and the United States,
Chicago, IL: lAAO, p. 16, Exhibit 6-1.
65
(2) lack of uniformity or inequality, brought about by illegality of the methods used
or error in the application of the methods to the property involved, or
(3) denial of an exemption to which the taxpayer is entitled and for which the taxpayer
has qualified, or
(4) illegality, on any ground arising under the Constitution or laws of the United
States or the laws of the State or the ordinances of the County in addition to the
ground of illegality of the methods used, mentioned in clause (2).
As previously noted, taxpayers can appeal land and building assessments separately. That
is, in the appeal of an assessment, the taxpayer can choose to challenge either the land
value or building value or they can contest both values.
Sections 19-96 and 19-97 establish the composition and powers and duties of the Board
of Tax Review. The Board is a five-member lay board appointed by the Mayor and confirmed
by the Council. Basically, the Board is an appeal board rather than a review board,
which its name implies. Although the terms "review" and "appeal" commonly arc used
interchangeably, they have different technical meanings. Appeal refers to the process
whereby taxpayers challenge their assessments. An appeal agency has the power only to
alter assessments that have been appealed. Review refers to the power another government
agency—such as an appeal or supervisory agency—may have to examine assessments
and revise them on its own initiative. However, as will be discussed below, Section
19-97(e) gives the Board a limited review authority.
Section 19-97(e) requires the Board to prepare an annual report. Among other things, the
Board is to"note instances in which, in the opinion of the board, the director, in the application
plication of the methods selected by the director, erred as to a particular property or particular
properties not brought before the board by any appeal, whether the error is deemed
to have been by way of underassessment or overassessment." Prior to this phase of its
work, the Board is to hold a "complaint hearing," at which taxpayers can complain about
assessments that were not subject to an appeal. Complaints are to be in writing and must
be with reference to a particular property, and the complainant must state the grounds for
the complaint. The Director is to give "due consideration" to the recommendations made
in the report. Some seemingly sensible and doable recommendations regarding outreach
and the Web site seem not to have been addressed.
The County's appeal system has three other notable features. First is a filing fee requirement
(Sections 19-100 and 19-101). The fee is $50, which at current residential effective
tax rates implies a valuation dispute in excess of $30,000. Few assessment districts require
the payment of a fee to lodge a first-level appeal. State-level appeal agencies and
courts often require a filing fee.
Second, when parts of a property are assigned to different tax classes (such as a property
partly classified for tax purposes as commercial and partly as agricultural) the owner
must file a separate appeal for the assessment of each part. The rationale for this is unclear,
particularly in view of the potential subjectivity in the classification process.
66
The third noteworthy feature is the provision in Section 19-91 related to condemnation
proceedings. Basically, it makes the taxpayer's claimed market value for property tax
purposes admissible in evidence in any subsequent condemnation proceedings. This
could discourage appeals from people who were ignorant of professional valuation standards,
which hold that an appraisal made at one time for a certain purpose is not necessarily
indicative of the value for another purpose and another time.
The County appears to follow many sound practices in the administration of appeals. It
requires appeals to be in writing and on a standard form (the form itself could be daunting
to the non-expert). The Division encourages appraisers to contact appellants to find out if
there are factors affecting the value of the property that are not in the Division's records
and to explore whether a "settlement" can be reached with the taxpayer, if data corrections
result in an assessment satisfactory to the taxpayer. Sometimes the communications
with the taxpayer will result in the appeal being formally withdrawn. Appraisers have
some discretion over contacting appellants and pursuing settlements. Proposed settlements
are not pre-approved by management, although they have to be approved by the
Board. Written procedures suggest that the Appraisal Supervisor manages appeals that go
to the Board.
Perhaps because members of the Board do not need to have relevant experience, the
Board holds orientation sessions, and it has administrative support from both the Division
and the Corporation Counsel's Office. The Division has established procedures for handling
appeals both by the support staff and by appraisers. We were unable to evaluate
how effectively appraisers defend assessments. The Board has recommended that appraisers
present defenses in a more standardized way. The Division has instituted an "appeal
data worksheet" as a step toward standardization. The Board still believes better
preparation and presentation of cases would improve the process.
10.2 Evaluation
Our review of the appeal system essentially was limited to the provisions of the Code,
materials provided by the Finance Department, and information obtained from the Division's
web site. We had no opportunity to observe the Board in action, although we were
provided with copies of recent annual reports. We did not see any case files or talk to appraisers
who had defended appeals. As the previous section's description of the process
suggests, the appeal system has strengths and weaknesses. Some of the "weaknesses" that
we have identified might seem esoteric. Despite general satisfaction with the status quo
and the somewhat esoteric nature of the issues, we believe that:
(1) Although the Board may entertain appeals that fail to meet this test, the 20 percent
hurdle in Section 19-93 is excessive. For a typically priced house of
$200,000, this means that the difference of opinion must exceed $40,000, which
jeopardizes only about $60 in taxes. The valuation tolerances inherent in IAAO
ratio study performance standards suggest that such hurdles should vary with
the type of property and with market conditions. The current hurdle might be
67
acceptable for vacant land and some non-residential properties, but it is excessive
for most residential properties.
(2) The second (non-uniformity) ground for appeal in Section 19-93 is contrary to a
key U.S. Supreme Court decision, which ruled that uniformity was more important
than simple deten-nination of market value. (See Sioux City Bridge Co
v. Dakota County, 260 U.S. 441 (1922).) A taxpayer should be able to challenge
discrimination in assessment practices. Although we were told that the Board
ignores the narrow grounds in the current law, we believe the second ground
should be revised.
(3) The filing fee requirement and the condemnation threat in Section 19-91 have
an unnecessary chilling effect on appeals; they should be repealed. In a multi-use
property, it should not be necessary to file a separate appeal of the assessment
of each use class.
(4) Valuation appeals should be with reference to the total market value of a property,
not the land component alone, the building component alone, or the value of
any particular use of a multi-use property. Of course, use classification should
continue to be a ground for appeal.
Recommendation 37
Recommendation: The Council should revise Section 19-93 of the Code. Specifically,
it should reduce the 20 percent value-difference threshold to no more than 10
percent, at least for residential property. The current non-uniformity ground should
be revised to permit non-uniformity appeals based on valuation practices generally.
The filing fee requirement should be eliminated, at least on principal residences.
Appellants should not be allowed to appeal only the land value or the improvement
value without contending that the sum of the land and building values exceeds the
over-valuation threshold that is adopted.
Recommendation 38
Recommendation: The Council should make the first stage in the appeal process an
informal appeal to the Division.
Making the first-level of appeal infonnal makes it more accessible. Simple misunderstanding
and data errors can be addressed. The Board can concentrate on cases in which
there is a genuine difference of opinion as to a correct and fair assessment.
We are unable to estimate the costs of making the first level of appeal informal, because
of insufficient data on how resources are spent and on the outcomes of current appeals to
the Board—no statistics seem to exist on appeals that are settled, are granted or are denied.
Not counting expenditures of time by the Division, appeals to the Board currently
cost an incredibly low $20 based on budgeted amounts for the Board.
68
11. Tax Billing, Collection, and Enforcement
One of the responsibilities of the Real Property Tax Division is billing real property taxes,
collecting payments, and taking steps to enforce payment of past due amounts. From a
systems perspective, collection is the last major phase of property tax administration. If
billing, collection, and enforcement procedures are not effective, all the work on assessment
is for naught.
It is uncommon in the United States for assessment and collection to be the responsibility
of a single agency. There is nothing intrinsically wrong with this. That assessment and
collection are commonly separated probably is more a legacy of history than a principled
decision. When the Country was settled, functions were part-time, and officials tended to
be elected. However, the separation of functions usually is Justified on the basis that the
separation constitutes a control on misfeasance or malfeasance on the part of the assessor,
but given the mechanical nature of collection, such a "control" is weak at best.
Provisions related to tax billing, collection, and enforcement can be found in several articles
of Chapter 19 of the Hawaii County Code. They provide for notice and for mailing
bills to the last known owner's address. When there are multiple owners, only one bill
needs to be sent.
The law calls for two installments, which seem adequate given low effective tax rates
(presumably many taxpayers effectively make monthly payments as part of their monthly
mortgage payments to escrow companies). Taxpayers also can pay taxes on line. The law
also allows for partial payments and specifies how they are to be credited.
When a taxpayer is late in making a payment, a penalty of 10 percent is assessed. In addition,
interest of 1 percent per month is charged. In the current economy, the interest
charge probably is a greater incentive to pay timely than the penalty.
A paramount lien for unpaid taxes attaches to a property on 1 July of the year in which
the taxes are assessed. The lien continues until the taxes are paid or foreclosure proceedings
are completed, provided that proceedings are initiated within six years of the incetion
of a lien. After three years, the Division can sell property by way of foreclosure
without Suit at public auction to the highest bidder. The law specifies how these proceedings
are to be conducted. Normally, two auctions per year are held.
All of the legal provisions seem appropriate. We are not aware of any collection issues,
and we assume that financial audits would detect any serious weaknesses. We noted that
several trays of mail (notices and bills) had been returned because the mail could not be
delivered to the addressee. We do not know whether the returned mail signifies a problem
with weaknesses in ownership records.
69
We also noted from Table 7 in the 2010 Comprehensive Annual Financial Report that
delinquencies are mounting, as might be expected in the current economy. 86 The current
collection rate recently dropped 2 percentage points from 98 percent to 96 percent. Delinquent
collections have ranged in recent years between $2,100,000 and $3,400,000.
Outstanding delinquencies climbed from under$300,000 in 2006 to more than
$3,000,000 in 2009. It is unclear whether the increase in the gap between delinquencies
and delinquent collections can be attributed to weaknesses in billing and collection procedures
or just to economic issues. We believe further review of delinquent collection
procedures is warranted to ensure that economic conditions, not procedural deficiencies,
are the cause.
Recommendation 39
Recommendation: The Council should require the Finance Department to undertake
an analysis of the cause of the increase in the gap between delinquencies and
delinquent tax collections to determine whether there is weakness in billing and collection
procedures.
86 The data in the table were substantially revised in the 2011 report, presenting a picture of better performance.
70
12. Public Information and Taxpayer Assistance
As a matter of general tax policy IAAO strongly recommends active and effective public
relations. In this way, "...the property tax becomes more visible, and misunderstandings
that may lead to unwarranted appeals and misguided complaints may be prevented The
assessing officer can build trust and confidence in both valuation and taxation systems
and can demonstrate willingness to work toward reform in areas perceived to be inequitable. 87
A public relations program should include the following core components: 88
• research to determine public perception of the assessor's office and to provide
meaningful data;
• positive, courteous, and educational communications;
• use of current and cost-effective information distribution means;
• an evaluation process to determine where improvements are needed.
Part of communicating with the public is working with and training employees so they
will understand how to answer taxpayer questions and will do so consistently and in a
positive manner. IAAO recommends developing an employee procedure manual that focuses
on effective communication measures and helps employees understand how best to
deal with taxpayer complaints.
12.1 General Information and Outreach
While we did not specifically review correspondence with taxpayers, we did access and
review information on the County's Web site. Forms for exemption application, brochures
describing exemptions and other general information were readily available and
easily downloadable. Information and forms for appeals were available as well. There
also was a good description of the role of the Division and appropriate contact information
was shown. There was a fonn to file valuation related complaints as well.
Despite the general availability and accessibility of this information, brochures tend to be
written in a fairly technical/ legal manner. The benefits of a program are not always
clearly stated. Important things like filing deadlines are not always provided. While this
probably is appropriate for application forms, brochures are intended to inform the public
and, perhaps, to provide some guidance regarding completing an application or filing an
appeal. We wonder whether there was much external input to the verbiage in the brochures.
Regardless, the County could benefit from a public relations and transparency
standpoint from opening these documents up for public review periodically.
Regarding the Web site, IAAO provides the following general guidance:
2010. Standard on property tax policy. Section 6. Kansas City, MO: IAAO.
2011. Standard on public relations. Section 2.3. Kansas City, MO:IAAO.
71
"Assessment agency Web sites should be content-driven, so information can be
quickly accessed, retrieved, and reviewed. Web site data should be accessible by
multiple search criteria. 89
The Standard further recommends a series of desirable features. Frequent review and updating
is necessary to have the most usable information and format. It is common for assessment
agencies to review Web sites maintained by other assessors around the nation to
better understand and incorporate effective design features.
The Division administrator spoke of a desire to upgrade the Web site, and we agree that
both in terms of content and ease of navigation, improvements could be made. Although
the Web site contains a lot of information, it is not easy to find without a background in
the real property tax system. One cannot search for assessment records by owner name
(for "privacy reasons"—a concern not shared by other counties). Once one locates a record,
one has to open several rather cryptic pages, whereas other counties can provide as
much information in a single page. Only the current market value is shown, making it
impossible to compare rates of change.
The County maintains offices in both Hilo and Kona. This is an important service given
the distance between these two major parts of the island. It is also important and positive
that exemption forms show contact information for both offices. However, we think it
advisable for mailed applications to be sent to one location and, if the County agrees, the
forms should be revised to so indicate.
12.2 Assistance with Exemption Applications
We did not review this area and were not able to observe taxpayers interacting with staff.
No complaints were received in this area.
12.3 Programs for Responding to Complaints and Inquiries
The concern that we heard frequently in interviews was that, apart from the appeals process,
there was no clear and consistent approach to investigating complaints regarding
unequal treatment or failure to follow up and review questionable exemptions. It is beyond
the scope of this report to investigate specific complaints. However, the apparent
lack of a cohesive and consistent approach to reviewing complaints casts a negative light
on what may be a perfectly adequate program that suffers from inadequately standardized
procedures and an appearance of limited concern about reviewing problems and reassuring
those concerned enough to complain.
89 2011. Standard on public relations. Section 12. Kansas City, MO: IAAO.
72
12.4 Conclusions and Recommendations
The County should provide Division staff with training in effective public relations.
Training and controls should be implemented to ensure consistency in appraisals, public
relations, and complaint handling. A manual should be developed informing staff how
best to deal with public and media inquiries. The manual should also address and formalize
a procedure for dealing with complaints, other than formal appeals (which have their
own procedure).
To be sure that concerns of all stakeholders are recognized, there should be an attempt to
invite stakeholders in to the process of improving this aspect of the assessor's office. This
could be done through focus groups, public forums at which staff make presentations
about appraisal activity, participation with real estate professionals, and other means of
increasing the visibility of the assessor in positive ways.
As part of these guidelines, it is important to provide as much transparency as possible.
This means publishing, whether in paper or electronically, documents that demonstrate
the quality of appraisal and assessment operations. For example, information describing
valuation methods and tests of the quality of valuation results, such as ratio studies, can
be produced and made available on the County's Web site.
Recommendation 40
Recommendation: The Council should require the Finance Department to undertake
a review of staff public relations related training and may need to update this
training.
A public relations manual should be developed.
Outreach should be expanded to be certain that issues driving public complaints are
being addressed. Complaint handling procedures should be formalized.
Outreach should include an expansion of publicly available general information, including
documents describing valuation methods and results of tests of the quality
of appraised values, such as ratio studies.
A citizens' committee should be organized to conduct periodic review of brochures
and forms to make sure they are easily understandable.
73
13. Summary
The Hawaii County real property taxation system has the essential underlying features in
terms of the Code and general administration that are expected in U.S. county property
tax systems. Processes are in place to find and value real property, to update values, to
provide for exemptions, to administer appeals, and to collect property taxes. Although
final, taxable values may be subject to constraint, for the most part the goal of the valuation
system is market value, a desirable feature. Certain quality control procedures, such
as ratio studies and internal data queries, are used to check the accuracy of the valuation
system and real property transfers are subject to a conveyance tax and disclosure of sales
prices—a very positive and important feature. Many of the elements expected to contribute
to valuation equity are found in the County assessment system. Further description of
these elements is outlined in the table in Appendix I.
Another overarching impression is the comparatively low level of real property taxation.
As ineasured by effective property tax rates (property tax obligations as a percentage of
property values), residential property taxes in Hawaii County are low from a national
perspective. Whereas property taxes on owner-occupied residences typically are about
1.3 percent of property value, property taxes in Hawai'i County generally are less than
0.2 percent of property value.
The low effective property tax rates for residential properties are the result of several policy
measures designed to favor owners of agricultural land, principal residences, and low-rent
housing. Under the County's property tax rate classification system, properties in the
homeowner class have a nominal (officially adopted) property tax rate of 0.555 percent
of net taxable value (estimated market value minus exemptions, etc.), whereas the highest
nominal rate is 0.985. Moreover, owner-occupied principal residences are eligible for a
home exemption that completely exempts properties valued at $40,000 or less and exempts
20 percent of the value above that threshold to a maximum of $80,000. Taxpayers
over sixty years of age are eligible for additional amounts depending on their age bracket.
Certain other taxpayers (victims of Hansen's Disease; blind, deaf, or totally disabled persons;
and totally disabled veterans, their spouses, and unmarried widows) are eligible for
further exemptions, some of which may be applied to properties other than their principal
residences. In 1990, a "nonspeculative residential use dedication" program was created
under which an owner could petition to have the land on which his principal residence
was located dedicated to residential use for ten (later five) years, in return for which the
assessment would be frozen. New applicants are no longer permitted to participate in this
program, but current properties with this dedication retain frozen values. A replacement
program, instituted in 2004, provides limits under which assessment increases cannot exceed
3 percent in any year. The complexity of eligibility criteria can make enforcement
expensive.
As is typical, agricultural and forest land is valued on a current-use basis instead of a
highest and best use-basis, which is the basis used in the estimation of market values. Use
values are lower than market values when there is a potential to use land more intensively.
Although the nominal property tax rate for agricultural property is comparatively high
74
(at 0.835 percent), "dedicated" agricultural land is assessed at 50 percent of use value,
while non-dedicated agricultural land is assessed at its use value. Other properties, such
as golf courses, are to be valued in their current use, not highest and best use.
The uniformity in effective tax rates potentially afforded by annually valuing property at
its market value is undercut by the effects of the relief measures on net taxable values,
Based on the limited information available to us, there is remarkable variation in effective
property tax rates among similarly situated properties. The average variation in average
effective property tax rates among census designated places is more than 300 percent.
Much of the public's concerns about the fairness of the property tax system can be attributed
to a shortage of accessible information about why neighboring taxable values
vary so greatly and about the rationale for and tax allocation effects of the various features
of the system. Although taxpayers credit the staff of the Real Property Tax Division
with providing helpful explanations to questions, there is little evidence of anticipating
questions about appraisal procedures or about all the various relief mechanisms. The required
quired annual report to the mayor is not very informative. The property record search
function on the website is cumbersome to use. Difficulties in getting information can naturally
urally lead to suspicions of misconduct.
The major concerns we have can be summarized as follows:
• No regular "cyclic" reappraisal, including physical inspection, of all real
property. This is a concern because records of physical characteristics that
contribute to market value become increasingly out of date over time. This in
turn can contribute to the allegations of unequal valuation of similar properties.
• Lack of use of regional building cost modifiers. While land is valued based on
sales and values therefore reflect location influences, this is not true with regard
to building values. Especially for residential property, it is very unlikely
that similar buildings in the resort and non-resort areas of the County would
either cost or sell for the same amount. Merely adjusting the land values does
not produce equitable building values, even if the overall property values are
equitable. This is especially problematic since either of the values (land or
improvement) is subject to appeal.
• Lack of ability to use the income approach to value. There are three recognized
approaches to valuing property—cost, sales comparison, and income.
All three are important and, for income producing property, such as commercial
enterprises, the income approach, in which net operating income is capitalized
into value, is considered the approach most likely to reflect the market
value of the property. While staff recognizes this, and even prepares valuations
based on this method in appeals, the County Code does not allow the
method to be used in the initial valuation process. This is a significant impediment.
75
Limited review of agricultural and other exemptions. While the Code and
forms provide for taxpayers who no longer qualify for agricultural land valuation
and various exemptions to report such changes, there is no automatic or
periodic review of properties granted agricultural use value or homeowner's
and other exemptions. The Code also calls for income based qualification requirements
with respect to agricultural land, but these, apparently, have not
been regularly implemented. While we know of no specific abuses, the underlying
system is rife for such and added controls and implementation of requirements
already found in the Code are important.
• Limited grounds for appeals on equity grounds. Valuation related appeals are
based on the taxpayer's interpretation of whether or not the property value reflects
market value. While this is intrinsic within any appeals system, there is
limited provision for appeals based on inequitable treatment between similarly
situated properties. According to the Code, if the subject property were valued
at market value, but all the surrounding properties were below market value,
the subject property would have no appeal rights. This is not an administrative
issue, but should be addressed by revising the Code to bring it into line with
decisions by the United States Supreme Court.
Overly complex exemption system making it difficult to understand who benefits
and how much they benefit. With minimum taxes and multiple tiers of
agricultural and residential valuation and taxation, combining different tax
rates with capped values and various exemption criteria, it is at best difficult
to ascertain whether benefits received from these programs apply as intended
by the Council. Furthermore, although the value of the exemptions is reported,
there is no attempt to convert this value into an overall analysis of how much
tax benefit (incorporating rate differentials as well as exemption type) accrues
to any particular type of property or ownership situation. This is a serious gap
that could be addressed by Code changes to require extensive analysis of these
tax effects.
• Lack of ongoing, regular analysis of effects of exemptions. Regardless of the
outcome of the analysis indicated in the preceding bullet, ongoing, annual
analysis of exemption effects, expressed in overall and individual (say, per
$100,000 of market value) properties should be undertaken. This too requires
direction from the Council in the form of Code changes.
• Complex multi-tiered tax rates. Similar to the complex exemption system, use
of multi-tiered tax rates, with different rates applying to different types of
property, leads to questions about how much benefit is accruing to particular
low rate types and how much added cost is being shifted to high rate types.
We found no evidence of any analysis of the effects of these multiple tax
rates.
76
• Lack of formal complaint investigation and reporting system. Part of the reason
for undertaking this report was the appearance that complaints are not
thoroughly reviewed and resolved. Since there is no higher (i.e. State) investigative
authority, it is important to have an effective internal control system
under which complaints are not only investigated and issues resolved, but these
processes are adequately tracked and documented.
• Limited documentation about sales validation and ratio studies. While staff
appear to understand sales validation and ratio study principles, there is little
documentation and this could lead to inconsistencies as various staff analyze
sales.
• Limited opportunities for consistent ongoing communication between staff.
Although managers have periodic meetings to review activities, it appears that
staff are not directly involved and do not meet regularly. Such contacts and
communications can promote cohesiveness and encourage effective problem
solving, as well as common understanding and consistent application of policies
and procedures.
• Limited training opportunities for staff. Currently, there are no requirements
for ongoing, continuing appraisal related education for staff. This is a serious
gap and makes it more difficult to improve appraisal techniques or implement
new, technologically advanced, mass appraisal processes.
• Vague property class definitions and an over-reliance on zoned use rather than
actual use in determining property class. How a property is classified can affect
its tax class and its valuation. Yet neither the Code nor the Appraisal
Manual provides a clear definition of the tax classes in Section 19-53(e)(1),
and the Manual does not reconcile those nine classes with the nine main
"PITT" code classes. Some areas of the County have long been urbanized, yet
the land is zone agricultural, which can lead to seemingly inconsistent land
values.
• Limited use of digital maps and photographic images. Digital vertical photographic
images are helpful in understanding land use and spatial relationships,
and they, together with oblique, and street-level photographic images are helpful
in determining whether improvements are correctly described. We were informed
that the County has a geographic information system (GIS) and has
acquired oblique imagery of buildings. Yet we were informed that the Division
does not routinely use these technologies and has no plan to implement
them.
• Lack of analysis of workloads, productivity, and standards against which to
evaluate performance. Current budgeting and management practices do little
to ensure that the County is receiving value for money for the funds and staff
resources that are allocated to property tax administration.
77
The County should consider our specific recommendations in the above areas. It also
could make a self-assessment of the strengths of its administration of the real property tax
and of opportunities for improving the accuracy of valuations, the fairness of assessments,
efficiency in operations, and greater public understanding and acceptance of the
real property tax. The IAAO's previously mentioned Assessment Practices: Self-
Evaluation Guide could be used in this evaluation. 90
We believe that many of the issues that we have identified can be rectified, wholly or partially,
without major budget or resource implications (apart from upgrading the CAMA
system). For example, efforts to better train staff and better communicate with them
could serve the secondary goal of empowering staff. This could lead to more uniform appraisals
and, in conjunction with a cyclic property and exemption inspection program,
could lessen complaints and build or strengthen the positive image of the Division. We
hope that this analysis and report will provide impetus toward promoting and reinforcing
positive goals that will lead to greater equity for all the taxpayers in liawai'i County.
90 When the County is satisfied with its assessment operations,it could consider applying for lAAO's Certificate
of Excellence in Assessment Administration.
78
Appendix A: Working Interview Document
Working Interview Document - (format and major topic areas)
Date: November 2011
Interview:
The purpose of this project is to review property tax policies, and administrative and assessment
practices to draw conclusions regarding whether the systems used in Hawai'i
County comport with IAAO standards, and standards and best practices elsewhere in the
U.S. In cases where we find this not to be true, we intend to make recommendations for
improvement. Such recommendations may be in the form of changes to underlying policy
(i.e. statutes or ordinances) or administrative practices used to implement policy.
The project and its conclusions are not intended to criticize individuals, but rather to critique
processes. Therefore, individual comments will remain anonymous and individuals
will not be quoted in the report or singled out in any rccoinmendations.
Specialized Issues (in addition to outline)
Issue or topic Question Interview notes
Statutory issues
Section 19-12 Explain returns
What are they?
When are they required?
How does rebuttable presumption work?
Section 19-18 What is considered confidential?
Income/expense?
Cost?
Sale price?
Use?
Other
What is the lien date?
Section 19-46 "MV unless otherwise noted"
Need explanation
Section 19-47 Assessed as of 1/1 of preceding tax
year—how does this work?
Section 19-53 Valuation methods (check):
Ag land updated every 5 years?
(g) 3% per year value increase limit
for homes —goes to market value
when sold (are market values kept
for each property subject to the
limitation, but not implemented
until sold?) need explanation.
In general, how often are values
updated? (specify authority)
79
Section 19-53 (cont.) What is non-speculative residential use?
How is it determined?
Section 19-53 (cont.) Does cap on increases expire?
When? Need explanation.
Section 19-53 (cont.) In 1(d), re utilities —what is the
effect of this valuation system vs.
market value?
Section 19-57 and 60 What is the difference between
dedicated and non-dedicated ag
use?
How does this difference affect:
Valuation?
Tax or tax rate?
Section 19-58.1 How are "breaches" of dedication
requirements monitored / determined?
General There appears to be annual reassessment
to market value, but how
often are property characteristics
updated?
Section 19 - 58.2 When (if true) is this section
scheduled to be repealed?
Section 19-59 Is there yearly filing?
How is this provision enforced?
Is compliance measured?
Section 19-60 How often is recapture imposed?
Is compliance measured?
Exemptions (general) Is tax expenditure analysis conducted?
Are numbers of properties granted
exemption tracked/monitored?
Is there annual application for use
based exemptions?
Is effect to shift taxes or are revenues
lost?
Do any exempt properties pay in
lieu of fees or taxes?
Exemptions (process) Does same department grant exemptions
that assesses (values)
Troperty?
Section 19-90 How are tax rates established?
Is there a mechanism for preventing
windfalls when assessed values
increase.
Section 19-91 Regarding appeals, does "any taxpayer"
include someone appealing
80
someone else's property value?
Who has standing?
Can exemptions be appealed? (either
by taxpayer wanting exemption
that is denied or by other taxpayers
believing that exempt taxpayer
was ineligible)
Section 19-97 Is there an example of "underassessment"
finding? Has this provision been used?
Quality Assurance Issues
(expanded)
Who checks assessment quality?
If checked by ratio study:
a.) Need copy of latest
b.) Is it by neighborhood?
Countywide?
c.) What categories are studied?
d.) Is it part of the appraisal
process or done as a separate
review of the results?
e.) How often done?
What happens if, after completion
of annual assessments, quality is
determined to be poor?
What if level is poor?
What if horizontal equity is poor?
What if vertical equity is poor?
Are tests for sales chasing conducted?
How often?
External to appraisal staff?
Are appraisers taught about inequities
associated with sales chasing?
Is any checking of quality done by
departments outside the assessor's
office?
Is any checking done by staff not
directly involved with appraisals?
Checks for changes in assessments
over time?
Training and Education Is certification required?
What is the certifying agency?
How many (or what proportion of)
81
staff have or are actively seeking
lAAO designations?
What IAAO courses have staff taken
(typically or required)?
How much ongoing education is
required of appraisal staff (i.e.
hours per year)?
Is staff generally aware of lAAO
products:
a. Standards?
b. Textbooks?
c. Surveys of practices'?
d. Courses?
General Strengths?
Weaknesses?
Concerns?
82
Appendix B: Frequency of Various State Property Tax Assistance Activities 91
Questions 42 and 44 - Assistance Activities
Provinces States Total
Reference works provided
Administrative rules or regulations 6 41 47
Compilation of property tax laws 4 36 40
Compilation of important court decisions 4 23 27
Administrative procedures manual 6 30 36
Appraisal procedures manual 6 27 33
Cost and other valuation schedules 6 25 31
Nationally recognized cost manuals 5 15 20
Nationally recognized personal property price goes 0 8 8
Other 2 11 13
Services Provided
Legal advice 4 25 29
Technical advice 4 39 43
Direct, on-site valuation and appraisal services 3 20 23
Computer processing 3 9 12
CAMA modeling and valuation assistance 3 20 23
Review valuation services contracts 1 12 13
Property inspections (in general) 3 11 14
Property inspections (interior) 3 9 12
Appraisal or assessment software 4 15 19
Total number of responses 7 43 50
No response count 5 8 13
91 2011 update from unpublished spreadsheet associated with PTAPP (author's note).
83
Appendix C: References
Almy, R., A. Dornfest, and D.Kenyon. 2008. Fundamentals of tax policy. Kansas City, MO:
International Association of Assessing Officers.
Almy, R.R., R.J. Gloudernans, R.C. Dennc, and S.W. Miller. 1978. Improving real property
assessment: A reference manual. Chicago: International Association or Assessing Officers.
Eckert, JX., R.J. Gloudernans, and R. R. Almy, eds. 1990. Properly appraisal and assessment
administration. Chicago: International Association of Assessing Officers.
Gloudernans, R., and R. Almy. 2011.Fundamentals of mass appraisal. Kansas City, MO:
IAAO.
Gloudemans, R.J. 1999. Mass appraisal of real property. Chicago: International Association of
Assessing Officers.
International Association of Assessing Officers (IAAO). 2004. Standard on manual cadastral
maps and parcel identifiers. Chicago: IAAO.
2009. Assessment practices: Self-evaluation guide,3rd ed. Kansas City, MO: IAAO.
2009. Standard on digital eadastral maps and parcel identifiers. Kansas City, MO: IAAO.
2000. Standard on professional development. Chicago, IL: IAAO.
2011. Standard on public relations.Kansas City,MO: IAAO.
2010. Standard on ratio studies. Kansas City,MO: IAAO.
2001. Standard on assessment appeal. Chicago, IL: IAAO.
2010. Standard on verification and adjustment of sales. Kansas City, MO: IAAO
2003. Standard on automated valuation models (AVMs). Chicago: IL: IAAO.
84
2011. Standard on mass appraisal of real property. Kansas City, MO: IAAO.
2010. Standard on property tax policy. Kansas City, MO: IAAO.
2010. Statadcird on oversight agency responsibilities. Kansas City, MO: IAAO.
Technical Standards Committee. 2009. State and provincial ratio study practices:
Results of the 2008 survey.Journal of Property Tax Assessment & Administration 6(2): 29-82.
Glossary.for property appraisal and assessment. 1997. Kansas City, MO: IAAO.
Johnson,.M.,C. Bennett,and S.Patterson,eds. 2003.Assessment administration. Chicago:
IAAO.
Dornfest, Alan S., Steve Van Sant, Rick Anderson, and Ronald Brown. State and Provintial Property Tax Policies and Administrative Practices (PTAPP):
Compilation and Report.
Journal of Property Tax Assessment&Administration. Volume 7, Number 4. 2010.
85
Appendix D: Benchmarked Assessment Districts table
Agency
State
Year
Total Property/Business Taxes Levied
Total Real Property Parcels
Personal Property Accounts
Total Budget
Total Staff
Budget as a percent of total property taxes
Budget/cost per parcel
parcels per staff
Agency Alameda County
State CA
Year 1999
Total Real Property Parcels 410,000
Total Budget 9,491,000
Total Staff 190
Budget/cost per parcel 23.15
parcels per staff 2,158
Agency Alleghency County
State PA
Year 2006
Total Real Property Parcels 550,000
Total Budget 7,000,000
Budget/cost per parcel 12.73
Agency Anchorage
State AK
Year 2010
Total Property/Business Taxes Levied 240,488,076
Total Real Property Parcels 95,903
Total Budget 4,581,882
Total Staff 42
Budget as a percent of total property taxes 0.019
Budget/cost per parcel 47.78
parcels per staff 2,283
Agency Broward County
State FL
Year 2004
Total Real Property Parcels 674,552
Total Budget 15,066,858
Total Staff 166
Budget/cost per parcel 22.34
parcels per staff 4,064
Agency Chatham County
State GA
Year 2008
Total Real Property Parcels 107,578
Total Budget 4,645,620
Total Staff 74
Budget/cost per parcel 43.18
parcels per staff 1,454
Agency Clark County
State NV
Year 1999
Total Real Property Parcels 420,000
Total Budget 10,310,000
Total Staff 178
Budget/cost per parcel 24.55
parcels per staff 2,360
Agency Contra Costa County
State GA
Year 1999
Total Property/Business Taxes Levied 900,000,000
Total Real Property Parcels 315,000
Total Budget 8,500,000
Total Staff 139
Budget as a percent of total property taxes 0.944
Budget/cost per parcel 26.98
parcels per staff 2,266
Agency Cook County
State IL
Year 2009
Total Real Property Parcels 1,830,000
Personal Property Accounts 0
Total Budget 28,395,495
Total Staff 386
Budget/cost per parcel 15.52
parcels per staff 4,741
Agency Dade County
State FL
Year 2009
Total Real Property Parcels 896,655
Personal Property Accounts 112,917
Total Budget 30,350,000
Total Staff 308
Budget/cost per parcel 33.85
parcels per staff 2,911
Agency Dallas County
State TX
Year 2010
Total Real Property Parcels 799,214
Personal Property Accounts 83,078
Total Budget 21,800,000
Total Staff 245
Budget/cost per parcel 27.28
parcels per staff 3,262
Agency Dekalb County
State GA
Year 2007
Total Property/Business Taxes Levied 958,767,289
Total Real Property Parcels 230,426
Total Budget 4,816,530
Total Staff 76
Budget as a percent of total property taxes 0.502
Budget/cost per parcel 20.90
parcels per staff 3,032
Agency Franklin County
State OH
Year 2009
Total Real Property Parcels 416,000
Total Staff 60
parcels per staff 6,933
Agency Fulton County
State GA
Year 2006
Total Property/Business Taxes Levied 1,818,000,000
Total Real Property Parcels 303745
Total Budget 12,000,000
Total Staff 153
Budget as a percent of total property taxes 0.660
Budget/cost per parcel 39.51
parcels per staff 1,985
Agency Harris County
State TX
Year 2010
Total Real Property Parcels 1,542,000
Personal Property Accounts 250,000
Total Budget 65,000,000
Total Staff 630
Budget/cost per parcel 42.15
parcels per staff 2,448
Agency Hawaii County
State HI
Year 2010
Total Property/Business Taxes Levied 217,150,000
Total Real Property Parcels 139,883
Total Budget 3,286,582
Total Staff 37
Budget as a percent of total property taxes 1,514
Budget/cost per parcel 23.50
parcels per staff 3,781
Agency Hennepin County
State MN
Year 1999
Total Property/Business Taxes Levied 1,550,000,000
Total Real Property Parcels 260,000
Total Budget 2,500,000
Total Staff 39
Budget as a percent of total property taxes 0.161
Budget/cost per parcel 9.62
parcels per staff 6,667
Agency Henrico County
State VA
Year 2009
Total Property/Business Taxes Levied 287,165,440
Total Real Property Parcels 111,113
Total Budget 3,024,991
Budget as a percent of total property taxes 1.053
Budget/cost per parcel 27.22
Agency Hillsborough County
State FL
Year 2004
Total Real Property Parcels 422,626
Total Staff 155
parcels per staff 2,727
Agency City & County of Honolulu
State HI
Year 2010
Total Property/Business Taxes Levied 849,560,000
Total Real Property Parcels 290,000
Total Budget 6,259,649
Total Staff 115
Budget as a percent of total property taxes 0.737
Budget/cost per parcel 21.58
parcels per staff 2,522
Agency Horry County
State SC
Year 2009
Total Real Property Parcels 235,450
Total Budget 3,056,981
Total Staff 62
Budget/cost per parcel 12.98
parcels per staff 3,798
Agency Jackson County
State MO
Year 1999
Total Property/Business Taxes Levied 509,000,000
Total Real Property Parcels 264,000
Total Budget 4,860,000
Total Staff 95
Budget as a percent of total property taxes 0.955
Budget/cost per parcel 18.41
parcels per staff 2,779
Agency Jefferson County
State AL
Year 1999
Total Property/Business Taxes Levied 265,000,000
Total Real Property Parcels 285,000
Total Budget 5,000,000
Total Staff 60
Budget as a percent of total property taxes 1,887
Budget/cost per parcel 17.54
parcels per staff 4,750
Agency Jefferson County
State KY
Year 1999
Total Real Property Parcels 290,000
Total Staff 73
parcels per staff 3,973
86
Appendix D: Benchmarked Assessment Districts
Agency Johnson County
State KS
Year 2007
Total Property/Business Taxes Levied 666,928,615
Total Real Property Parcels 181,000
Personal Property Accounts 40844
Total Budget 5,960,315
Total Staff 99
Budget as a percent of total property taxes 0.894
Budget/cost per parcel 32.93
parcels per staff 1,828
Agency King County
State WA
Year 2010
Total Real Property Parcels 683,192
Personal Property Accounts
Total Budget 33,190
Total Staff 224
Budget/cost per parcel 29.30
parcels per staff 3,050
Agency Lafayette Parish
State LA
Year 2006
Total Property/Business Taxes Levied 91,844,581
Total Budget 1,710,135
Budget as a percent of total property taxes 1.862
Agency Lancaster County
State PA
Year 2009
Total Real Property Parcels 187,000
Total Budget 1,900,000
Total Staff 27
Budget/cost per parcel 10.16
parcels per staff 6,926
Agency Lane County
State OR
Year 2010
Total Property/Business Taxes Levied 379,600,000
Total Real Property Parcels 172,000
Personal Property Accounts 13,000
Total Budget 6,776,547
Total Staff 60
Budget as a percent of total property taxes 1.785
Budget/cost per parcel 39.40
parcels per staff 2,867
Agency Lee County
State FL
Year 1999
Total Property/Business Taxes Levied 460,000,000
Total Real Property Parcels 441,254
Personal Property Accounts 53,144
Total Budget 3,900,000
Total Staff 77
Budget as a percent of total property taxes 0.848
Budget/cost per parcel 8.84
parcels per staff 5,731
Agency Los Angeles County
State CA
Year 2010
Total Real Property Parcels 2,352,255
Personal Property Accounts 308,329
Total Budget 160,162,000
Total Staff 1489
Budget/cost per parcel 68.09
parcels per staff 1,580
Agency Maricopa County
State AZ
Year 2010
Total Real Property Parcels 1542,155
Personal Property Accounts 136,813
Total Budget 22,816,543
Total Staff 322
Budget/cost per parcel 14.80
parcels per staff 4,789
Agency New York City
State NY
Year 1999
Total Real Property Parcels 965,000
Total Staff 250
parcels per staff 3,860
Agency City of Norfolk
State VA
Year 2008
Total Property/Business Taxes Levied 176,628,500
Total Real Propety Parcels 77,231
Total Budget 1,538,800
Total Staff 22
Budget as a percent of total property taxes 0.871
Budget/cost per parcel 19.92
parcels per staff 3,511
Agency Orange County
State CA
Year 2010
Total Real Property Parcels 897,547
Personal Property Accounts 168,208
Total Budget 33,500,000
Total Staff 377
Budget/cost per parcel 37.32
parcels per staff 2,381
Agency Orange County
State FL
Year 2004
Total Real Property Parcels 360,000
Total Staff 134
parcels per staff 2,687
Agency Orange Parish
State LA
Year 2009
Total Property/Business Taxes Levied 340,904,567
Total Real Property Parcels 165,000
Total Budget 2196904
Budget as a percent of total property taxes 0.644
Budget/cost per parcel 13.31
Agency Palm Beach County
State FL
Year 2004
Total Real Property Parcels 577,296
Total Staff 264
parcels per staff 2,187
Agency Philadelphia
State PA
Year 1999
Total Real Property Parcels 265,845
Total Budget 10,500,000
Total Staff 234
Budget/cost per parcel 18.56
parcels per staff 2,418
Agency Pierce County
State WA
Year 2007
Total Real Property Parcels 317,403
Personal Property Accounts 14,383
Total Budget 8,881,063
Total Staff 76
parcels per staff 4,176
Agency Pierce County
State WA
Year 1999
Total Real Property Parcels 280,000
Total Budget 4,955,000
Total Staff 85
Budget/cost per parcel 17.70
parcels per staff 3,294
Agency Pinellas County
State FL
Year 2007
Total Real Property Parcels 424,000
Personal Property Accounts 88,000
Total Budget 11,376,990
Total Staff 156
parcels per staff 2,718
Agency Riverside County
State CA
Year 2008
Total Property/Business Taxes Levied 2,361,476,571
Total Real Property Parcels 895,405
Personal Property Accounts 43,057
Total Budget 30,664,874
Total Staff 242
Budget as a percent of total property taxes 1.299
Budget/cost per parcel 34.25
parcels per staff 3,700
Agency Sacramento County
State CA
Year 1999
Total Real Property Parcels 437,412
Total Budget 9,272,000
Total Staff 156
Budget/cost per parcel 21.20
parcels per staff 2,804
Agency St. Louis County
State MO
Year 1999
Total Property/Business Taxes Levied 1,088,045,000
Total Real Property Parcels 382,000
Total Budget 8,751,000
Total Staff 146
Budget as a prcent of total property taxes 0.804
Budget/cost per parcel 22.91
parcels per staff 2,616
Agency Salt Lake County
State UT
Year 1999
Total Property/Business Taxes Levied 472,000,000
Total Real Property Parcels 281,114
Total Budget 9,500,000
Total Staff 109
Budget as a percent of total property taxes 2.013
Budget/cost per parcel 33.79
parcels per staff 2.579
Agency San Bernardino County
State CA
Year 1999
Total Property/Business Taxes Levied 635,122,000
Total Real Property Parcels 753,039
Total Budget 10,200,000
Total Staff 181
Budget as a percent of total property taxes 1.606
Budget/cost per parcel 13.55
parcels per staff 4,160
Agency San Diego County
State CA
Year 2010
Total Real Property Parcels 978,011
Personal Property Accounts 242,741
Total Budget 52,195,380
Total Staff 407
Budget/cost per parcel 53.37
parcels per staff 2,403
87
Appendix D: Benchmarked Assessment Districts
Agency Santa Fe County
State NM
Year 2006
Total Property/Business Taxes Levied 106,075,777
Total Real Property Parcels 82,000
Total Budget 2,436,341
Total Staff 36.5
Budget as a percent of total property taxes 2.297
Budget/cost per parcel 29.71
parcels per staff 2,247
Agency Sarasota County
State FL
Year 1999
Total Property/Business Taxes Levied 320,000,000
Total Real Property Parcels 275,000,000
Total Budget 4,100,000
Total Staff 75
Budget as a percent of total property taxes 1.281
Budget/cost per parcel 14.91
parcels per staff 3,667
Agency Sedgwick County
State KS
Year 2008
Total Property/Business Taxes Levied 475,000,000
Total Real Property Parcels 216,253
Personal Property Accounts 43,132
Total Budget 4187,077
Total Staff 73
Budget as a percent of total property taxes 0.881
Budget/cost per parcel 19.36
parcels per staff 2,962
Agency Shelby County
State TN
Year 2008
Total Real Property Parcels 349,850
Personal Property Accounts 39,637
Total Budget 10,115,532
Total Staff 157
Budget/cost per parcel 28.91
parcels per staff 2,228
Agency Spotsylvania County
State VA
Year 2009
Total Property/Business Taxes Levied 95,278,685
Total Budget 928,606
Total Staff 10
Budget as a percent of total property taxes 0.975
Budget/cost per parcel 15.79
parcels per staff 5,880
Agency Tulsa County
State OK
Year 1999
Total Property/Business Taxes Levied 317,284,000
Total Real Property Parcels 226,932
Total Budget 4,712,000
Total Staff 105
Budget as a percent of total property taxes 1,485
Budget/cost per parcel 20.76
parcels per staff 2,161
Agency City of Virginia Beach
State VA
Year 2006
Total Property/Business Taxes Levied 463,645,072
Total Real Property Parcels 148,095
Total Budget 2,688,347
Total Staff 35
Budget as a percent of total property taxes 0.580
Budget/cost per parcel 18.15
parcels per staff 4,231
Agency Washoe County
State NV
Year 2007
Total Property/Business Taxes Levied 616,095
Total Real Property Parcels 161,095
Total Budget 7,157,054
Budget/cost per parcel 44.43
Agency Wyandotte County
State KS
Total Real Property Parcels 230,000
Personal Property Accounts 50,000
Total Budget 3,380,194
Budget/cost per parcel 14.70
88
Appendix E: County Ratio Study
COUNTY OF HAWAII
FINANCE DEPARTMENT
REAL PROPERTY TAX DIVISION
SALES RATIO ANALYSIS
Tax Year 2011-12
Assessments as of January 1, 2011
Prepared by:
Stanley A. Sitko
Real Property Tax Administrator
Certified General Appraiser
89
Narrative
A sales analysis allows us to review the actual market (recorded sales) versus the current assessments
made by the Real Property Tax Division. Pursuant to Section 19-53 of the Hawaii County
Code, the director of finance shall cause the market value of all taxable real property to be
determined and annually assessed by the market data and cost approaches to value using appropriate
systematic methods suitable for mass valuation of properties to obtain, as far possible, uniform
and equalized assessments throughout the County."
The analysis was performed on three distinct types of assessments, vacant land, improved residential
property and residential condominiums. The analysis consists of valid sales occurring in
the 2010 calendar year. The appraisers use the market data, or sales comparison approach, in setting
land values. The value of residential buildings is determined using cost tables. The valuation
of condominium property is determined using only the market data approach. Because of the
limited number of sales this report does not include any commercial property.
The summary sheet for improved residential parcels shows an overall sales ratio of 0.99. This
means that overall improved residential assessments are low by approximately 1%. For vacant
parcels the ratio is 0.90, or an underassessment of approximately 2%. The overall ratio for the
condominium sales is 1.00, or at value.
The PRD (price-related differential) is a statistic for measuring assessment regressivity or progressivity.
The PRD for all ratios shows ubias in favor of higher valued properties.
Another use of the analysis is to review and verify the cost tables. As all improved properties
currently use basically the same cost tables, variations in ratio by class between zones is primarily
due toland value inequalities and not the cost tables. The zones with fewer sales may be skewed
due to a smaller sample size. This year depreciation tables were adjusted to reflect the market
data and the sales prices were adjusted to reflect a 6% drop in value over the year.
Also included in this analysis is the coefficient of dispersion. The COD is the most used
of measure of uniformity in ratio studies. It is based on the average absolute deviation
from the median sales ratio and is expressed as a percentage. Low CODs are associated
with good appraisal uniformity. Industry standards are 15% or less and 20% or less
for improved residential and vacant land, respectively. More homogenous properties
(i.e. condos, vacant lots in the same area, new homes in the same subdivision) tend to have a much lower COD.
The combined level of assessment is 99% with a median of 98% and a COD of 17.85
using 2,381 sales. In conclusion, the sales ratio analysis reflects an acceptable level of assessment in general.
90
SALES RATIO ANALYSIS
For 2011-12 Tax Year
Improved Residential Properties
Stratified by Zone
Zone 1 2 3 4 5 6 7 8 9
Ratio 1.05 0.95 1.11 0.97 0.95 1.01 0.94 0.94 0.96
Median 0.99 0.95 1.20 0.99 0.93 1.00 0.96 0.91 0.97
COD 19.22 11.81 18.08 19.41 21.27 11.41 12.30 16.83 10.41
# Sales 347 158 5 26 38 164 221 23 43
Stratified by Building Class
Class 1.2 3 4 5 6 7-9
Ratio 0.95 1.02 0.97 0.95 0.98 0.89
Median 0.93 0.98 0.98 0.97 0.98 0.87
COD 20.07 15.13 12.06 11.04 14.77 17.50
# Sales 119 535 277 46 24 24
Stratified by Age
Age Pre 1950 1950's 1960's 1970's 1980's 1990's 2000's
Ratio 0.92 0.91 0.91 0.96 1.01 1.00 1.01
Median 0.89 0.92 0.89 0.94 0.96 0.99 0.99
COD 25.61 20.61 18.69 13.87 17.75 13.94 12.42
# Sales 32 29 43 119 154 206 442
Further sales analysis by Zone and class was not done this year due to the lack of sales in
certain areas and classes.
91
Sales Analysis for 2011-12 Tax Year
Summary Sheet (cont.)
Vacant Parcels
Mean Median COD # of Sales
Countywide 0.98 0.98 23.17 980
Zone 1 0.98 0.99 24.42 636
Zone 2 0.96 0.94 19.39 50
Zone 3 0.91 0.93 9.47 5
Zone 4 1.05 1.00 17.19 15
Zone 5 0.87 0.84 29.26 33
Zone 6 1.04 1.02 11.65 44
Zone 7 1.02 1.02 17.40 74
Zone 8 0.88 0.84 29.47 19
Zone 9 0.95 0.88 29.10 104
Condo Sales
Mean Median COD # of Sales
Countywide 1.00 0.98 11.03 371
Zone 2 1.03 1.01 14.07 30
Zone 6 0.99 0.99 11.17 137
Zone 7 0.99 0.97 10.49 202
Zone 8
92
Zone 9 2
Sales Analysis for 2011-12 Tax Year
Summary Sheet
(Prior Year's Values in parentheses)
Vacant Parcels
Total sales Analyzed 980 (951)
Average Sales Ratio 0.98 (.97)
Median Sales Ratio 0.98 (.96)
Average Deviation 0.23 (.19)
Coefficient of Dispersion 23.17 (19.49)
Price-related Differential 1.28 (1.07)
Improved Residential Sales
Total Sales Analyzed 1025 (937)
Average Sales Ratio 0.99 (.98)
Median Sales Ratio 0.97 (.97)
Average Deviation 0.15 (.15)
Coefficient of Dispersion 15.03 (15.26)
Price-related Differential 1.08 (1.08)
Condominium Properties
Total Sales Analyzed 371 (310)
Average Sales Ratio 1.00 (1.01)
Median Sales Ratio 0.98 (1.02)
Average Deviation 0.11 (.12)
Coefficient of Dispersion 11.03 (11.64)
Price-related Differential 1.02 (1.08)
93
Appendix F: Examples Illustrating Level and Uniformity Statistics Based on Ratio
Studies
Table RI: Level of assessment
Sale # Assessed Value Sale Price Ratio
1. $ 20, 000 $ 50, 000 40. 00%
2 30,000 50,000 60.00%
3 40,000 50,000 80.00%
4 50,000 50,000 100.00%
5 60,000 50,000 120.00%
6 70,000 50,000 140.00%
7 80,000 50,000 160.00%
Totals : 350,000 350,000 700.00%
MEAN = 100.00%
MEDIAN 100.00%
WTD. MEAN 100.00%
In Table R1, all measures of assessment level equal 100% of market value. This does not
require each individual ratio to be 100% or even within any specified range of 100%.
Table R2: Level of assessment may be affected by asymmetrical distribution of ratios
Sale # Assessed Value Sale Price Ratio
1 $ 80, 000 $ 50, 000 160.00%
2 75, 000 60, 000 125.00%
3 70, 000 70, 000 100.00%
4 65, 000 80, 000 81.25%
5 60, 000 90, 000 66.67%
6 55, 000 100, 000 55.00%
7 50, 000 110, 000 45.45%
Totals : 455,000 560, 000 633.37%
MEAN = 90.48%
MEDIAN = 81.250
WTD. MEAN = 81.25%
Because it is common for ratio study statistics to be influenced by high ratios to a greater
extent than low ratios, the median is considered the most appropriate measure of assessment
level for general purposes.
94
Table R3 provides a ratio study that indicates good level of assessment, but poor uniformity.
Table R4 shows similar assessment level with good uniformity.
Table R3 Good level, poor uniformity
Sale # Assessed Value Sale Price Ratio
1 $ 10, 000 $ 25,000 40.00%
2 30,000 50,000 60.00%
3 22,500 30,000 75.00%
4 60,000 60,000 100.000
5 37,500 30,000 125.00%
6 70,000 50,000 140.00%
7 40,000 25,000 160.00%
Totals : 270,000 270,000 700.00%
MEAN = 100.000 MEASURES OF LEVEL
MEDIAN 100.00%
WTD. MEAN = 100.00%
(COD) COEFFICIENT OF DISPERSION = 36.71% MEASURES OF UNIFORMITY
(COV) COEFFICIENT OF VARIATION = 44.06%
Table R4: Good level, good uniformity
Sale # Assessed Value Sale Price Ratio
1 $ 21,000 $ 25,000 84.00%
2 44,000 50,000 88.00%
3 28,000 30,000 93.33%
4 60,000 60,000 100.00%
5 32,000 30,000 106.67%
6 56,000 50,000 112.00%
7 29,000 25,000 116.00%
Totals : $ 270,000 $ 270,000 700.00% 1
MEAN = 100.00% * MEASURES OF LEVEL
MEDIAN = 100.00%
WTD. MEAN = 100.00%
(COD) COEFFICIENT OF DISPERSION 9.90% MEASURES OF UNIFORMITY
(COV) COEFFICIENT OF VARIATION = 12.17%
95
Appendix G: A Distribution-free Method for Locating Outliers and Extreme Outliers 92
The following procedure will identify outlier ratios that fall more than 1.5 times beyond the range of the
middle 50 percent of the arrayed sample. Ratios that exceed 3 times this range can be labeled as extreme
outliers.
Locating trim boundaries
Data set before trimming
Rank Ratio (A/S)
1 0.611
2 0.756
3 0.762
4 0.853
5 0.867
6 0.909
7 0.925
8 0.944
9 1.014
10 1.052
11 1.178
12 1.367
13 1.850
14 2.500
Median ratio 0.935
COD 32.271
Steps to locate trim boundaries
1. Locate the first quartile paint
Formula to locate the first quartile:
(0.25 X number of ratios) + 0.25
(0.25 X 1.4 ratios) + 0.25 = 3.75
3.75 is three-quarters between the third and fourth ranked ratios.
Ratio 3 = 0.762 Ratio 4 0.853
Three-quarters between = (0.853-0.762) X 0.75 = 0.068
The first quartile point= 0.762 + 0.068 = 0.830
2. Locate the third quartile point
Formula to locate the third quartile:
(0.75 X number of ratios) + 0.75
(0.75 X 14 ratios) + 0.75 = 11.25
11.25 is one-quarter between the eleventh and twelfth ranked ratios.
Ratio 11 = 1.178
Ratio 1.2 = 1.367
One-quarter between = (1.367 1.178) X 0.25 = 0.047
The third quartile point = 1.178 + 0.047 = 1.225
3. Compute the interquartile range
The distance between the first and third quartile=interquartile range
1.225 - 0.830 = 0.395
92 2010. Standard on ratio studies. (using methodology demonstrated in Appendix B) Kansas City, MO: IAAO.
96
4. Establish the lower boundary
The lower trim point = first
quartile - (interquartile range X 1.5 or 3.0):
0.830 - (0.395 X 1.5) = 0.238 0.830 - (0.395 X 3.0) 0.355
5. Establish the upper boundary
The upper trim point
= (interquartile range X 1.5 or 3.0) 1 third quartile:
(0.395 X 1.5) + 1.225 = 1.818
(0.395 X 3.0) + 1.225 = 2.410
Outliers eliminated Extreme outliers
after 1.5 X trimming eliminated after 3.0 X trimming
Rank Ratio (A/S) Rank Ratio (AIS)
1 0.611 1 0.611
2 0.756 2 0.756
3 0.762 3 0.762
4 0.853 4 0.853
5 0.867 5 0.867
6 0.909 6 0.909
7 0.925 7 0.925
8 0.944 8 0.944
9 1.014 9 1.014
10 1.052 10 1.052
11 1.178 11 1.178
12 1.367 12 1.367
13 1.850
Median ratio 0.917 Median ratio 0.925
COD 15.649 COD 22.012
97
Appendix H: Common Reappraisal Cycles and Property Inspection Practices 93
Table 22.Legally required and commonly practiced reappraisal cycles, 2009 and 1999,
2009 1999
Provinces States Provinces States
Legal Common Legal Common Legal Common Legal Common
No specified cycle 2 1 8 0 2 7
One-year cycle 2 2 16 8 3 1 17 8
Two-year cycle 0 0 2 2 0 0 7 5
Three-year cycle 1 1 7 6 3 2 7 4
Four-year cycle 2 1 1 5 2 3 9 7
Five-year cycle 0 0 9 6 0 1 6 7
Six-year cycle 0 0 3 3 0 0 4 3
Eight-yeat cycle 0 0 0 1 0 0 1 1
Nirre-year cycle 0 0 0 0 1 0 0 0
Ten-year cycle 0 0 0 0 1 3 2 3
Table 23. Property inspection practices, 2009 and 1999
Provinces States
Yes I No Other N/R Yes No Other N/R
2009
All inspected during a reappraisal 1 6 0 5 23 20 1 7
Percentage inspected annuaffy on a cycle 3 4 0 5 28 2 7
Residential Interiors Inspected 4 0 3 5 17 4 7
inspection following a sale 5 2 0 5 10 7 6
Inspection following a building permit 5 1 1 4 13 8 7
Property data reviewed in office without Inspection 3 0 4 4 17 11
1999
All inspected during a reappraisal 5 6 0 1 35 1 15 0 1
Percentage inspected annually on a cycle 8 2 0 2 29 17 1 4
Restial interiors inspected 1 0 0 2 21 19 1 10
Inspection following a sale 5 4 0 3 8 25 0 18
Inspection following a building permit 5 4 0 3 15 19 0 17
Property data reviewed in office without Inspection 11 2 0 2 21 17 2 11
Other = the respopdert indicated that some local districts did the inspection, while other districts did not.
N/R = no response.
93 Dornfest, Alan S., Steve Van Sant, Rick Anderson, and Ronald Brown. State and Provincial
Property, Tax Policies and Administrative Practices (PTAPP): Compilation and Report. Journal of
Property Tax Assessment & Administration. Volume 7, Number 4. pp. 19-20. 2010.
98
Appendix 1: Elements that Contribute to Valuation Equity 94
Element
Annual reassessment to current market value.
Significance
Enables the property tax to be based on values that reflect the current market place and whatever changes have occurred in the last year. Provides a tie to an annually recurring tax.
Element
Periodic (frequent) reappraisals contingent on quality thresholds.
Significance
While it is important to capture the effects of physical characteristic changes frequently, the necessary frequency will vary depending on local patterns of construction, movement, remodeling,
and so forth. Quality thresholds are more efficient ways of determining the need to re-establish underlying physical characteristics of properties.
Elements
Primary assessment responsibilities operate at smallest practical level of government.
Significance
Creates a more open and transparent system, inviting public input and appropriate checks and balances.
Element
Performance analysis /quality assurance, including ratio studies, procedures reviews, and peer reviews.
Significance
Establishes quantifiable goals for reappraisal and provides objective and subjective means of testing outcomes.
Element
Commitment to professional staffand adequate ongoing training programs.
Significance
Establishes professional credentials for staff performing reappraisal, statistical, and related functions. Increases public assurance in quality of product.
Element
High quality lands records and accurate inventory of property. Up to date computer software and hardware.
Significance
Provides quality physical characteristic underpinnings for reappraisal or other assessment functions. Computer systems enhance ability to update values frequency.
Element
Public relations, including open records and active communication utilizing web technology and more traditional forms.
Significance
Alleviates taxpayer concerns regarding reappraisal and related activities. May achieve "buy in."
94 Dornfest, Alan S. In search of an optimal revaluation policy. Challenging the Conventional Wisdom on the Property.
Edited by Roy Bahl, Jorge Martinez-Vazquez, and Joan Youngman. Chapter 4. p. 102.
Lincoln Institute of Land Policy. Cambridge, MA. 2010.
99