Tuesday, October 27, 2009

Assessment Valuation Error & Explanation

I want to provide a heads-up on a recent issue that City staff are still trying to understand regarding an error in property valuation in one of the City’s TIF Districts. I will apologize from the get go, because some of this information is highly technical. But, with this posting I hope to boil some of the issues down as simply as I can.

This is an issue that City staff and our financial advisors are still getting to the bottom of and have been for a couple of months. It entirely surrounds a valuation error that occurred in how the City’s contracted assessor reported TID 8 value to the State’s Department of Revenue. This valuation process is outside the purview of City staff, and is part of the reporting that occurs between our assessor and the DOR. Long and short of it is that TID 8 was overvalued by $30+ million.

Here’s the basics… In the most recent final property value reports for TIF District #8 (which is the downtown area on the east-side of the City), the City’s contracted assessor (Accurate Appraisals) placed the base value of the district (approximately $30 million) in the wrong column. Accurate thought, based on previous conversations they had with the Wisconsin Department of Revenue (DOR), that this was the proper procedure. However, the DOR did not recognize this as “base value”; rather they considered it “newly added” value. Unfortunately, the City’s preliminary version of this report showed the values in the correct column, but the final report was adjusted by Accurate and submitted to the DOR without opportunity for City review. Therefore, we had no opportunity to catch the error. To our disappointment, neither Accurate nor the DOR caught the error as part of their own due diligence.

I may have confused some of you already. Basically, this means that the City’s overall value (including the TIF Districts) is artificially HIGHER than it should be by $30 million. However, for the other taxing jurisdictions (most notably the School District) the City’s value is artificially LOWER by that amount because new TID values are excluded.

So, what does this mean to the taxpayer in Milton? For the City share of the tax bill, the City is working to use some fiscal techniques to minimize the impact. Fortunately, the City has a healthy fund balance and we are working with our financial advisor to structure an out/in transaction with the general fund and TID to “buffer” the City taxation impact. At the same time, this will leave funds within the TID similar to the income it would have regularly generated.

Believe it or not, these valuation errors occur statewide more regularly than you might think. However, we haven’t seen this type of error in Milton’s recent history, and certainly the magnitude of this error is hard to ignore. The DOR has a process to correct overvaluation errors in which the TID is “undervalued” during the next two years. That’s fine, but it still has an impact on what taxation looks like for the next few years until we get back to “normal”.

In the end it comes out in the wash, but until we get to that point we’ll have to grapple with the confusion that comes with this error. It’s tough to understand, but let me try to explain the correction process. For the School District the City valuation will be artificially lower because they use a value with the TID excluded (called TID OUT). Next year (as part of the correction method used by the DOR) and the year after, the City valuation will be artificially higher.
So, for the School District portion of the tax bill, City of Milton property owners will be paying less this year than they would have paid in normal conditions (somewhere in the neighborhood of $20 - $30 for an average home). Non-City taxpayers to the district will be paying proportionately more. Then, in the correction years that trend switches and City of Milton taxpayers will pay more and non-City will pay less. Again, that is how correction is achieved per state statutes.

I have scheduled our financial advisor and our assessor to attend the Nov. 17th Common Council meeting to explain the circumstances, ramifications and solutions. Also, I have posted in the City’s website copies of correspondence from the City’s Assessor, City’s financial advisor, and State Department of Revenue which go further to explain what’s happening from each of their perspectives: www.ci.milton.wi.us/document_display.aspx?cat_id=385&cat_type=.

I do want to be clear on one point. This is not a problem with the TID itself. It’s an issue with the valuation reporting between the Assessor and the State. TID 8 is actually doing well, with several projects having taken place over the past couple of years (it was created in August of 2007). Several fa├žade grants have been completed. Plus, the Council has just initiated a process to seek grant funds to help with long term planning and visioning for this important downtown district in the community.

As this issue moves forward, I'll attempt to provide further explanation and clarity as best I can.