2019 re-appraisal: Where are we going?
February 7, 2019
Editor's note: The following is the second column in an ongoing series about the processes involved with property assessment.
For this column, I will focus primarily on the residential sector and try to help you better understand a few of the variables that will affect your future values. The variables I plan to address through the next several weeks will be particularly important this year, because I am expecting to see an increase in our residential values for this upcoming reappraisal cycle.
Let's focus in on what lies ahead in the way of future residential property values for you. As I mentioned earlier, residential property values are expected to go up this year, and there are two main factors that are going to have a direct influence on this. They are "reappraisal" and the "RAR adjustment." So, let's start with re-appraisal.
Between now and the May 1, our office will be re-appraising and setting new values for vacant land, as well as residential, commercial, industrial, and agricultural lands. With the exception of agricultural land, your new property values for 2019 are going to be based on the sales of similar types of properties from a collection period that ran Jan. 1, 2017 through June 30, 2018.
Sales of residential properties in Moffat County during this time period were very robust. In fact, the selling prices for most typical residential homes sold during this collection period were coming in significantly higher that what was seen during the last four re-appraisal cycles. We have seen many sale prices exceed the value that was established 10 years ago at the peak of the boom.
One other key element of this re-appraisal process which could affect your value is if you have made any new improvements to your property, such as a new garage, finished a basement, more square footage, or a new deck. Subsequently, both the sales during our base period and any improvements to your home will be the two main influencers for your new actual values.
Recommended Stories For You
After 2009, residential values dropped significantly and finally bottomed out during in the 2013 or the 2015 reappraisal cycle. For the 2017 re-assessment, we did see a modest increase of 3 percent, on average, for residential properties. For this next appraisal cycle, we could see double-digit (percentage) increases for some residential classifications.
Statewide, the projected increase is 15.9 percent, according to the latest Department of Property Taxation report, issued this past week. To give you an example of just how robust our market has been, we are seeing homes on 5 to 35 acres that carried values of $150,000 in 2017 selling repeatedly for $225,000 to $250,000 during our collection period. This type of an increase may not be reflective of all residential property types, but you need to be prepared that an increase in values is expected this next year.
Though we are predicting an increase in values for 2019, let's not panic quite yet. The Residential Assessment Rate, or RAR, adjustment is coming in May, too, and it alone just might soften the blow on your final taxable value. To fully understand the impact of the RAR, let's quickly review the method on how your tax bill is calculated. You're newly established "actual value" is going to be multiplied by the RAR to arrive at your "assessed value" or "taxable value." Your taxable value is then multiplied by the applicable mill levy, which will determine your actual property tax.
The X-factor to this value equation is the RAR. The RAR has been in place for a very long time, but it came to the forefront in the early 1980s with the introduction of the Gallagher Amendment in 1982 and then with the Taxpayers Bill of Rights, or TABOR, Amendment in 1992. Both have a direct impact on the RAR and the taxable value of your properties today, as well as for the future. Prior to Gallagher going into law, residential values in Colorado were growing rapidly, and the tax burden on residential taxpayers was becoming heavily one-sided, obviously not in favor of the homeowner! The intent of Gallagher was to bring a more equitable balance between residential and non-residential (primarily commercial) taxpayers and reduce the overall tax burden on the residential owner, shifting it to the non-residential sector.
To do this, one of Gallagher's key components was to set a target property value ratio of 45 percent (residential) to 55 percent (non-residential) statewide. Moffat County's residential value currently sits at only 13 percent of our total assessed value, well below the Gallagher ratio. When Gallagher went into law, the RAR was set at 30 percent; it quickly dropped to 21 percent in 1983 and has gradually dropped to its current rate of 7.2 percent.
As for the non-residential rate, it has been locked in at 29 percent for the past 38 years and is not expected to change. The general intent behind Gallagher was to have this rate shift up or down depending on current market and value conditions. When residential markets and values are robust, as they have been over the past few years, the RAR should drop so your taxable values don't skyrocket. Gallagher was designed to allow the RAR to go back up when residential values fall, as they did from 2009 to 2015.
The "Catch 22" to all of this is TABOR. The TABOR Amendment said there shall be no tax increases without a vote of the people. This, in effect, trumped Gallagher and prohibits the RAR to go back up unless approved by a vote of the people. Since TABOR went into effect, the General Assembly has been unwilling to ask the voters for an increase when, in fact, the RAR study said it should go up due to a declining residential market, as we saw from 2009 to 2014.
One other inherent problem with RAR is this is a statewide rate. So, if a real estate market is booming on the Front Range and maybe as much in other areas of the state, this rate could have a negative effect on counties that are not experiencing such a boom.
Currently the RAR sits at 7.2 percent, which is 10 percent lower than the 7.96 percent RAR we saw in the 2015\16 cycle. For this next re-appraisal cycle, the Legislative Council is projecting the rate to be at or near 6.78 percent. The most recent study by the Department of Property Taxation is saying 6.95 percent, even though earlier projections suggested the rate could go as low as 6.11 percent.
Final reports are due out by April 15, and the final rate should be approved by the Legislature soon thereafter. So, whether it is 6.95 percent or 6.11 percent — or somewhere in between — this new rate will have an effect on your new assessed value for 2019. Soon after this rate is set, our office will be sending out new Notices of Value for all property owners. Owners will then be able to review their new values and may challenge this new value during the protest period that runs from May 1 through 31.
As I mentioned before, I do expect to see residential property values increasing during this reappraisal due to the very robust sales market during our collection period. Just how much of an increase will depend a lot on the RAR adjustment.
So now that I have identified that residential value is expected to see an increase in 2019, let's take a look at the bigger picture for Moffat County. As previously stated, Moffat County's assessed value for 2018 sits at $401,529,250. This is an increase from 2017 of a little more than $14.8 million. This increase in assessed value was driven by a $22 million increase in our state assessed sector, which includes all public utilities, telephone\cell companies\towers, power plants, railroads, etc. Unfortunately, this sizable increase was offset by a combined $8.2 million dollar drop in value in the oil and gas, natural resources and commercial properties sectors. This was the first increase in value we've experienced since 2014, when it our assessed value was $470.9. Both values are still a far stretch from our county's highest assessed value of $509.9 million just 10 years ago.
When looking at where our value comes from it is important to note that 72 percent of this year's value is derived from what we call the "big three" — state assessed (53 percent), oil and gas (11 percent), and natural resources (8 percent). Even though there has been minor adjustments in these percentages over the years, not much has really changed in the past 50 years.
For nearly a half century or more, Moffat County has been extremely fortunate to have ridden on the coattails of the big three. During this time, some of those rides have been very good and some have not been so good. As we prepare for the 2020s and beyond, it's nearly impossible to predict what the next decade will bring for the big three, but one thing is for sure: It's expected to be a rather rough ride. at best.
We already know Unit 1 at the Craig Station is set to close on or before 2025, which is expected to have a negative impact on our tax base; we just don't know how much at this time. On the other hand, we are eyeing the construction of the TransWest powerline, which is targeted to be operational by 2023 and is slated to bring in more than a million new tax dollars each year. It may end up being a wash … but a good wash to have.
The coal industry seems to have stabilize a bit, and it looks favorable for at least the short term. With the anticipated opening of the Collum Pit, we expect to see additional value, as Colowyo's production moves from Rio Blanco County and back into Moffat.
Oil and Gas continues to be the wild card of the big three. This sector alone has seen a more than $53 million drop in taxable value over the past four years. This drop in value equates to millions of dollars in lost revenue during this time period. Many local and statewide indicators are suggesting that, even with significant higher commodity prices and an increase in demand for both oil and gas, we don't anticipate seeing this sector rebound to what it once was any time soon, at least here in Moffat County.
Certainly a lot of what ifs and maybes. But when you're dealing with commodities and the political\economic pressures that come with them it's nearly impossible to try to fully predict one year out, let alone multiple years.
Chuck Cobb is Moffat County assessor.