Farley Votes No to Legislation That Could Save Taxpayers $77K Annually

Newport City Council voted last week to support a senate bill (S-0031) that would increase the interval of time within which a city or town must conduct an update of its last real property revaluation. The current cycle is every nine years and the law requires two statistical updates during that period, one every three and six years. The cost of statistical updates is shared between cities and towns with the state assuming 60 percent of the cost. There is an estimated cost savings to Newport taxpayers of $77,344 in 2015.

Council voted 6-1, with Councilor Michael Farley opposed. He made the presentation below to his fellow council members to explain his reasoning:

I am opposed to pushing back the revaluation period.  And I’d like to take the time to explain my reasoning.  

The legislation changes the revaluation period from every three years to every five years.  This is not the best practice.  In 1996, The RI Department of Administration commissioned a study of assessment practices and determined that the Best Practice to equalize the tax burden among property holders is to ensure that the revaluation intervals are three years for a statistical revaluation, and six years for a full revaluation.  

Newport currently uses this best practice. This proposed legislation will eliminate our use of the best practice.  The best example of why we use a three three year interval is the city’s gross undervaluation of the 12/31/2011 “fair market value” of Festival Field.

For the last six months, I have questioned our ability to re-assess the Festival Field property based upon the November 2012 sale price of $31 million.  Just several months earlier, the property owner had contested a $12million assessment, and got it reduced to $11.8 million. This is a big deal, because that difference in assessed value means $300,000 in revenue to the city – each year.  Now, those of you who are worried about that lost revenue – don’t be.  The city got it – every penny.  

The problem is – we didn’t get it from the California company which owns Festival Field. No, we gave them an exemption from taxation worth $19.2 million dollars. And we pay for that exemption each year, by raising every Newporter’s property taxes (commercial or residential) until we’ve collected that $300,000 which should have come from the California owner of Festival Field.

We didn’t do this intentionally.  It is just a quirk of our tax levy procedure which guarantees that every under-assessed property is subsidized raising the tax rate on every other property.  That is not a big deal, if we are talking about a $245,000 assessment coming in at $243,000.  That type of error is so minor and subjective that it would mean less than a cent’s worth of difference in a tax bill.

But in this case, Festival Field appears under-assessed by approximately $19 million on 12/31/2011.  Which means that every one of you who pays a property tax bill had to pay for that mistake in tax year 2012-13.  You will pay for that mistake again in 2013-14.  And you will pay for that mistake again in 2014-15.  In those three years, that is $900,000 in taxes that should have been paid by Festival Field.  Instead, they were paid by you; and unless we can fix this problem, those taxes will continue to be paid, by you.  

If this resolution passes, you will also pay for that mistake in 2015-16, and you will also pay for that mistake in 2016-17.  In that five year period, we, the regular Newport taxpayers will be forced to pay $1.5 million in taxes that should have been paid by the Festival Field owners in California.

The facts are quite simple.  Festival Field was assessed at $12 million by Northeast Appraisal Company in spring of 2012.  They appealed that assessment and had it reduced by the fall to $11.8 million.  While they were appealing the assessment, they were in negotiations to sell the property.  In November, they sold the property for $31 million.  Note that the actual sale price of a property is the absolute best indicator of “fair market value” of that property.    

It is also important to note that this was not the mistake of city staff.  In part, we hire experts to set the assessments because properties such as Festival Field are hard to assess, usually because of a lack of actual or comparable sales.

I have discussed this issue with city staff, my fellow councilors and the assessor’s office.  At the beginning of April, I drafted and circulated a resolution directing the city staff to look for a solution.  I could not get the necessary 4 votes, and was asked to pull the doomed resolution.  I did so, but I am waiting for the city report on three things: 1) the basis for the disparity, 2) whether any other properties are similarly situated, and 3) whether there is any way in which we can address this inequity.  Hopefully, we can get those answers shortly.

I am hopeful that the city’s report is substantive enough that the council will have the courage to recoup from the property owner all of the under-assessed taxes from the property under Rhode Island General Laws §44-5-23.  But I am not optimistic that will happen. For that reason, I would rather chase three years of underpaid property taxes than the five year period introduced by this legislation.

My research indicates that we cannot “spot assess” any property, including Festival Field.  Our only option is, in the case of an error, to correct the error.  I am told that we can go back five (5) years to correct erroneous assessments.  But based on my experience with the council and the administration, that will not happen.   My experience in asking the administration to examine the Festival Field issue, or gather facts about the sale, or provide a report, or request guidance, or take some corrective action has been, like most things involving the city and its 18% subsidized housing stock, an exercise in maintaining the status quo, and running out the clock until the issue goes away.

For these reasons, I took heart from Plan B -  In 18 months, we could have corrected Festival Field’s assessment which forces commercial taxpayers to subsidize their $19.2 million exemption.  This was a decent backup plan; and it’s the reason for a 3-year assessment cycle.  But now, this legislation eliminates our ability to correct an underassessment until tax year 2017-2018; and so, for five (5) tax years, Newporters must pay $1.5 million in property taxes which should have been paid by a California company.

The sponsors of this legislation are trying to do two things: 1) protect high-value homeowners whose property value has increased, and 2) save the taxpayers about $20,000 per year by skipping a reval period, but the fact is that the city council will absolutely spend that money on some other project, so it really won’t mean anything to you – except that moving the reval period from 2014 to 2016 will mean that Newport taxpayers will be forced to pay an extra $600,000 to cover Festival Field’s tax exemption for the extended time period.

I will vote no.