ISSUE #252: A Kick in the Assessments (6/20/23)

"Who pays property taxes? We all do, either directly in property tax bills or through higher rents 

and other costs."

-- Michelle Steel

This week's column was an attempt to explain how Pitkin County came to arrive at your recent property valuations. In short, it wasn't arbitrary ... but there is some subjectivity. If you appealed your valuation, be prepared to make your case. Read my column from Sunday's Aspen Times HERE.

THE LUMBERYARD

Thanks to all of you who responded to my recent call to action on The Lumberyard. It was your public comment and feedback that resulted in a robust council meeting and an 8-week continuance on granting development entitlements to the massive public housing project! 

You raised critical questions about the following topics and council recognized they owed you answers:

• Traffic and a new stoplight on Highway 82
• Integration of The Lumberyard with the Entrance to Aspen
• Design issues: unit size, height, on-site traffic flow, parking, materials, architecture
• And of course, FINANCES - how to pay for it!!

First up is a council work session on financing models and the flexibility of entitlements (once granted) on July 10. As a work session, there will not be public comment, but if you're like me, you don't want city staff and their self-interested consultants insisting that getting government grants and attracting development partners is EASIER with development entitlements locked in! While you can't make a public comment, you sure can send one in! HERE is that link again. Please include "Work Session July 10" on the subject line. Let me know how I can help.

Councilmen Bill Guth and Sam Rose led the charge to better define the financial options before entitling the project. Bill additionally highlighted the lack of objectivity from city staff when evaluating a project where the city is also the applicant. Heck, if financing The Lumberyard is so easy, why can't they show us specifically how they plan to do it?!

Interestingly, Ward Hauenstein and Mayor Torre both questioned how flexible the entitlements would be once locked in, concerned about tying the city's or a future development partner's hands with stringent requirements on unit number, FAR, height and a number of specific design issues. Your questions made them think! And they showed how non-committal they are to the plans currently in place.

In short, it became quite clear that this project IS NOT ready to be entitled. But it will be revisited soon and we must be ready.

As we move forward, it will be important to communicate with council using real-world examples specifically in the entitlement / public private partnership / and construction financing realms that they can easily understand. 

Do you have specific experience in any of these areas? I'd love to hear from you as I prepare to make my case. Please drop me a note by replying to this email. 

It certainly does take a village. And it will continue to. Thank you again for stepping up. We're not done yet.

***

May’s property valuation notices hit like a ton of bricks. While statewide property assessments rose 30% - 70%, Pitkin County is up 85% in cumulative market value, the highest in Colorado. The COVID-era urban exodus dramatically impacted our real estate market resulting in drastic assessment increases, some as high as 324%.

I called the county assessor’s office to learn how they specifically arrived at the new assessed values. 

Property value calculations are based on real estate sales that occurred during the 18 months between January 1, 2021 and June 30, 2022, a unique period of time when both residential and non-residential property sales prices skyrocketed. Governor Polis stepped in with temporary relief, but even at reduced assessment rates (6.76% residential, 27.9% non-residential), projections for property tax increases loom large.

In a perfect storm, in 2020 voters also repealed the Gallagher Amendment which had long benefitted homeowners with its 45%-55% tax burden, split with businesses. Under Gallagher, as residential property values increased, assessed values came down. But resultant tax collections, especially in rural areas, eventually declined so much that services were threatened without a commercial tax base to rely on. The repeal was intended to freeze assessment rates while preserving funding for public services. Then came the real estate market insanity.

For reference, the elected assessor’s role is one of department administration. Property values are determined by county appraisers who divide the county into 15 economic areas such as city of Aspen, east Aspen, Town of Snowmass Village, Brush Creek, Woody Creek, the Frying Pan, etc. They then divide each economic area into proximate neighborhoods. Real estate sales data from the designated 18-month timeframe is plotted for each neighborhood. A price/sf is assigned to each neighborhood based on these sales. 

In a mass appraisal, the neighborhood price/sf is then assigned to every property in that neighborhood. The appraisers then assign a “quality” to each individual property that incorporates information from building permits, the last inspection of the property, as well factors such as views, based on best available information.

The outcome is neighborhood assessments on a bell curve that reflect the disparity between proximate properties and take into account the “quality rating” of the individual properties. 

If you are thinking “subjective,” you wouldn’t be far off. There most certainly are outliers and cases where there aren’t proximate comps. It then falls to the appraisers to “find” comps.

I hope you appealed if you believe you have a case. The county expects it. They’ve received over xxxappeals this year. Appealing is not viewed negatively nor as confrontational, merely the property owner’s opportunity to make a case. If you have an upcoming hearing, be prepared to make one, and know that you can ask to see the comps used by the appraiser in determining your assessed value.

So, it’s not arbitrary, nor is it a computer algorithm. It’s a 17,000-property human endeavor. Just pray you don’t get Mick Ireland as your hearing officer. Yes, the old class warrior and wealth redistributor has again been contracted by the board of equalization to sit in judgment on local cases!

On the commercial front, “non-residential” properties always saw their assessed values go up, but never dramatically like this. Even held to a 27.9% rate, the new property values will make commercial taxes even more outrageous, which only portends one thing: higher prices. 

Commercial real estate in Aspen is structured on triple net (NNN) leases. No landlord pays property taxes. In addition to rent, the tenant pays the property tax, maintenance and insurance; costs that are passed onto the consumer. 

As a hypothetical example, say Paradise Bakery pays $90,000/year in taxes as part of their NNN. If the property tax increases 30%, their NNN reflects $120,000 in taxes. When those delicious cookies sell for $3.65 a piece, Paradise is on the hook to sell an additional 8,219 cookies just to stay even. Any wonder why “local shops” can’t make it in Aspen? It’s the taxes, not the landlords!

Speaking of landlords, their net operating income (NOI) is from rent received. That NOI, when divided by the current market value of the property, yields the capitalization rate, a.k.a. the rate of return. As assessed values increase, the cap rate declines. It’s pretty straightforward to see how lower cap rates are likely to drive rents upward. The consumer absorbs this in addition to inevitable increases in NNN, that is, if the businesses can survive.

There are over 50 taxing districts in Pitkin County depending on where you live.  Each was enabled by local voters to levy taxes. Colorado Mountain College recently elected to temporarily decrease its mill levy to reduce the taxpayers’ burden. This magnanimous step should be immediately emulated by all other taxing authorities either voluntarily or at the formal urging of the board of county commissioners. Garfield County set an example by reducing its mill levy and encouraging its taxing entities to follow suit.

Perhaps we need a citizens’ petition to lobby the BOCC to act. Anyone interested in leading the charge? I’ll help. 

Each tax district must come back to the voters to extend their mill levies in the future. Let’s see who steps up to help us out today. Voters have a long memory. Contact TheRedAntEM@comcast.net