WaterfordTaxation Committee

Final Report / June 7, 2007

Introduction:

The Taxation Committee is an ad hoc committee created by the Board of Selectmen.The sole purpose of the committee was to investigate assessment and taxation options for the town of Waterfordand to advise the Board of Selectmen with regards to these options.The committee had no authority vested upon them to determine tax policyas that authority rests exclusively with the Board of Selectmen.

The committee was formed during the Selectmen’s second meeting in March.The Selectmen appointed to the committee all members of the community who had expressed an interest in working on the property tax issues facing the town.There were no pre-qualifying requirements for appointment to the committee other thantown residency.

The following residents were appointed by the Board:Less Gammon, Rickie Hall, Paul Hersey, Bill Jennings, Randy Lessard, John Martin, Cindy Mitchell, Samantha Murch, Tim Sawyer, and Chuck Truman.At their first meeting the committee members elected John Martinas Chairman and Rickie Hall as Secretary.Chuck Truman also withdrew from the committee after the first meeting due to health concerns.

Important Nomenclature:

In this report the phrase “the committee” refers to formal actions taken by the committee as a “whole” or “common” body.Generally this refers to actions or activities that occurred during the committee’s weekly meetings.It is not meant to infer that all committee members were in attendance or in agreement.

In this report the phrase “committee members” is meant to refer to smaller groups of individuals (one or more).It was common for action items to be assigned to smaller groups of people.A simple example would be individuals visiting neighboring towns to collect tax schedule information.

With the exception of the committee’s final vote, no attempt is made in this report to refer to individual committee members by name.This is being done for several reasons:

  1. Some discussions were so involved and so fluid that it was nearly impossible for the person recording the meeting minutes to keep up or do so accurately.Therefore much of the minutes were recreated from memory a day or two after the meetings were held.
  1. It is generally considered good practice in private business to conduct brainstorming secessions where ideas are freely offered without fear of condemnation or reprisal (from inside or outside the meeting).Once recorded, the pros and cons of each idea are individually discussed.Names are rarely assigned to ideas, only to action items.
  1. The committee functioned as a team from beginning to end.Good ideas and evaluations were offered by all the participating members.

Committee Goals:

The taxation committee’s goals, as indicated by the Board of Selectmen, where:

  1. To determine one or more methods for assessing and taxation.Additional requirements included that:
  1. All options must conform to the State’s tax assessment laws.
  2. The recommended methods must be as fair and equitable to all property owners.
  3. Be as close to fair market value, or a percentage thereof, as possible without the benefit of a licensed appraiser.
  1. To report these findings, including a final recommendation, to the Board of Selectmen no later then May 21, 2007.
  1. Determine if the town would be best served by having a total revaluation performed by an outside assessor.If this was found to be true the committee was asked to also determine the expected cost and the lead-time required before the assessment could be performed.

Taxation Issues:

Some of the taxation issues facing the town include:

  1. The total assessed value of the town falls short of the State’s calculations.For 2006 the total assessed value of Waterford, as recorded in TRIO, and determined by our Selectmen, was $170,606,150.This is more than 42 million dollars lower than the State’s calculated value of $212,750,000.
  1. For 2006, the State’s Sales Value Ratio (SV) for the town was 70%.This is the minimum recommended value by the State.For each 1% the SV value drops below 70%, the State withholds 10% of the town’s tree growth reimbursement.All tree growth reimbursement would stop if the town reached an SV value of 60%.

Note:The committee did not have time to investigate the monetary value of the tree growth reimbursement from the State.Some committee members did hear from a former Selectman that the value of the reimbursement is not very large.This is an open question that should be addressed by the Board of Selectmen.

It should also be noted that the town did not receive any tree growth reimbursement for 2006; however the loss of this money was not related to our SV ratio.Instead, the State determined that they had overpaid us in years past and in order to correct their error they were withholding our reimbursement for a period of time (length of time unknown to the committee).

  1. For 2006, the State’s quality rating (QR) for Waterford was 23.The QR is the State’s method of determining if a town’s assessment values are “fair” and “equitable”.

The word fair is generally understood to mean that the assessed values reflect fair market value.The primary indicator for the word “fair” is the SV ratio.

The word “equitable” is generally understood to mean that all members of the town are being taxed equally.For example, if the SV ratio for one property is 98%, and another piece is 40%, there would not be an equitable contribution by these residents.The person with the 40% SV would be considered to be paying less then their fair share of the taxes, while the person with the 98% SV would be paying more then their fair share.Ideally, both residents would have a SV value that matched the overall value for the town.Waterford currently has a SV ratio of 70%.

The State provides the following guidelines with regards to the QR rating:

  • 0 to 10% = Excellent
  • 11 – 15% = Good
  • 16 to 20% = Fair
  • >20% = Poor

It should be noted that there is still some confusion regarding the methods used by the State to calculate the QR rating.Committee members were able to create a spreadsheet which generated nearly identical values to the numbers published by the State for the 2007 evaluation period.

The question that remains has to do with how many properties should be included in the State’s QR rating.We were told by two professional assessors that the State only includes transactions which are considered to be at “arms length”, meaning that no special considerations where involved in the transaction (family members, etc.).Our review of the State’s data seems to support this.However, it is important to note that the town should monitor the State’s calculations to be sure that they to not inadvertently include data that should be excluded.

We were also told by the professional assessors that the State throws out the top and bottom 15% of the sales data.Our review of the State’s data for 2006 indicates that the State should have excluded 9 of the 34 recorded transactions.This number (24) even appears on the State’s record.However, the QR calculations appear to be based on all 34 properties.Our calculations indicate that if the State’s adjusted their numbers to include only the middle 70% of properties that our QR rating would improve to 13.

This is a significant discrepancy.The committee strongly recommends that either members of this committee, members of the Board of Selectmen, or members of a future committee discuss the calculation methods with the State.It seems clear that either our understanding is in error or the State’s calculations are in error.

  1. A number of abatement requests have been filed with the Board of Selectmen with regards to the quality of some shorefront properties.Some members of the community had expressed their concerns that the value of their property is being over-assessed in comparison to their neighbors as their shorefront is swampy and weedy while others enjoy sandy beaches.
  1. A number of waterfront residents were also concerned with the apparent inequity in the base value for the ponds.Between 1992 and 2004 the base assessed values for the ponds were as follows:

Pond Name / 0’& <= 200’ / >200’ & <=600’ / > 600’
Bear, Keoka, McWain / $400/foot / $310/foot / $155/foot
Papoose, Little Moose, Island and 5 Kezars / $240/foot / $186/foot / $93/foot
Duck and Mud / $40/foot / $31/foot / $15.5/foot

The base pond values for 2005 and 2006 were as follows:

Pond Name / >0’ & <= 200’ / >200’ & <=600’ / > 600’
Bear, Keoka, McWain / $900/foot / $700/foot / $350/foot
Papoose / $500/foot / $400/foot / $200/foot
Little Moose, Island and 5 Kezars / $240/foot / $186/foot / $93/foot
Duck and Mud / $40/foot / $31/foot / $15.5/foot

Several observations were offered to the committee, including:

  • Simply raising the assessed value of the top four ponds (as they appear on this list) didn’t just raise the assessed values on thoseponds; it actually increased the amount of taxes being paid by those individuals.This occurred because the increase in the shorefront values raised the total valuation of the town, driving the mill rate down.The net effect was a tax increase for properties which had their assessed values go up, and a tax decrease for those ponds that had their assessed values stay the same.
  • It did not seem logical to these residents that the assessed value of some ponds had remained static since the early 90’s.Given recent real-estate trends it seems logical that the value on all the ponds must have increased.

Committee Process – Meeting Minutes:

The Appendix of this report contains the meeting minutes.They have proven to be a valuable record of the committee’s activities and is recommended reading for anyone wishing to gain a better understanding of the committee’s activities.

Committee Process – Review Tax Schedulesof Neighboring Towns:

The early weeks of the committee were spent visiting neighboring towns in order to gain a better understanding of their assessment practices.Whenever possible the committee members tried to get copies of their tax schedules.Tax schedules are the documents that let the residents of the town know how the assessors determine the value of their real-estate.The Appendix contains a summary of the data collected for neighboring towns.

For reference,Waterford’s 2005 and 2006 tax schedule was as follows:

Land Assessments for 2005 & 2006:

Unimproved Sub-Division Lot(<= 10 Acres):

First Acre = $15,000

Additional Acre = $6,000/acre

Unimproved Sub-Division Lot (> 10 Acres):

First Acre = $15,000

Additional Acres = $3000/acre

Completed Home Lot (Includes Both Septic and Well):

First Acre = $30,000

Additional Acres = $600/acre

Incomplete Home / Commerical Lot:

First Acre = $15,000

Additional Acres = $600/acre

Building Assessments for 2005 & 2006:

Full assessment conducted in 2001 by a professional assessor (Robert Stevens).The assessment of new buildings and renovations is done by Board of Selectmen in conjunction with Robert Stevens.

Waterfront Assessments for 2005 & 2006:

Pond Name / >0’ & <= 200’ / >200’ & <=600’ / > 600’
Bear, Keoka, McWain / $900/foot / $700/foot / $350/foot
Papoose / $500/foot / $400/foot / $200/foot
Little Moose, Island and 5 Kezars / $240/foot / $186/foot / $93/foot
Duck and Mud / $40/foot / $31/foot / $15.5/foot

Unbuildable Shorefront Lots:

Developed Ponds = 0.5 x Assessed Value

Lesser Developed Ponds = 0.3 x Assessed Value

Less Desirable Shorefront Lots:

Note:The items which appear in pink do not appear on the town’s Tax Schedule.This information only became apparent to the committee after a review of the tax cards was undertaken.This information was certainly common knowledge to the prior assessors but it is recommended that in the future that the Tax Schedule contain a complete accounting of all of this information so it is common knowledge to all residents of the town.

Committee Process – Spoke with Professional Assessors and State Assessing Officers:

Committee members also spoke individually with professional assessing firms and with officers of the State’s Assessing Office in order to gain a better understanding of what is considered good assessing practices.Some of the information that was gathered included:

  1. Legally the town is not requiredto have an assessment system.It can choose to hire it out if it wishes.
  1. The town’s assessing system must be both fair and equitable.
  1. It is unethical, and possibly illegal, to control the value of raw land, shorefront, etc. by manipulating the tax schedule.
  1. A good target number for the town’s SV ratio is about 85%.
  1. The deviation between the town’s SV ratio and that for individual properties that have sold should be within a reasonable amount of spread (+/- 15%).
  1. Too much deviation indicates that the system is not equitable to all tax payers.People with higher SVs are paying more then their fair share, while people with lower SVs are paying less then their fair share.
  1. The town’s quality rating is calculated as follows:
  1. The State does not evaluate raw land sales.
  1. There should be a well documented and accurate record keeping system.
  1. The town must have a tax commitment book.

Committee members also invited John O’Donnell (professional assessor) from O’Donnell and Associates to visit with us during one of our committee meetings.John accepted and spent approximately four hours with us one Wednesday evening.It was a very lengthy meeting and packed with information.Much of what he said is summarized in the preceding section.The meeting minutes of April 18th contained a much more detailed account of his visit.

John did provided us with a rough estimate of what it would cost to conduct a professional assessment of Waterford.

  1. $80/parcel x 1848 parcels = $147,840
  2. Yearly fee for support with assessment process and maintenance = $10k to $15k
  3. Yearly town allocation to special account to allow 4 year update cycle to the assessment.The amount to be set aside each year = 10% of $147,840 = $14,784.
  1. Total cost to town for a complete reevaluation and yearly maintenance would be:
  2. Upfront = $147,840
  3. Yearly = $24,784 to $29,784
  4. Lead-Time = O’Donnell not available until 2009

Committee Process – Developed a Computer Model for Evaluating the Effects on Proposed Changes to the Town’s Tax Schedule:

The committee recognized very early in the process that any proposed changes to the tax schedule should be thoroughly scrutinized and tested so that the effect of these changes could be fully understood.It was felt that the best way of doing this would be to develop a simple spreadsheet that would allow us to quantify the effects of the proposed changes.

The meeting minutes from May 9th and May 16th contain a detailed account of the development of the spreadsheet.Although the creation of the spreadsheet proved to be anything but simple, it did prove to be a valuable tool in helping the committee choose the final tax schedule recommendation.

The Appendix contains a detailed description of some key features of the program as well as data showing how well the model predicted the 2006 taxes.

Observations:

The committee offers the following observations.

  1. We noted that many of the neighboring towns were using one of two professional assessment firms, O’Donnell and Associates and Parker Associates.We found a high level of similarity among the tax schedules developed by the firms.Many of the town’s which used Parker Associates had very similar land and waterfront schedules.This immediately caused some committee members to question the value of hiring a professional assessor, especially if the final output would be a tax schedule that was very close to our neighboring towns.Many favored avoiding the expense.If was felt that the money could be put to better use in the residents pockets or on increasing the equity of the town (road upgrades / repairs, fire trucks, playgrounds, etc).
  1. Most towns assessed the first several acres of their land at a much higher rate than Waterford.While Waterford currently assesses all undeveloped acreage at $600 an acre, most towns assess the first acre at, or very close to, the same value that they assess their developed lots.Lovell uses $20,000 for the first acre.This observation was echoed by both professional assessors.John O’Donnell clearly stated that he “felt” it was unfair for us to charge two neighboring pieces of property different rates for the base acre.He indicated that he thought the first acre for both the raw and developed lots should be the same.In our case this would be $30,000.
  1. Most towns had the base values of their lakes much higher than Waterford’s lower level ponds (as they appear on our Tax Schedule).
  1. Most towns have some method of varying the base shorefront rate on each pond.Some have a lower rate on sections of the ponds that are close to roads.
  1. A review of the property transaction data (sales) for the town revealed that very few properties were assessed at a value above their sale price.This observation remained true even when these sales were compared against the proposed tax changes.This is an important observation as both the State and the Board of Selectmen recommended that any proposed changes come as close to, our some percentage thereof, the fair market value for the properties without going over.
  1. The shorefront calculations contained a feature that the committee referred to as a “saw tooth”.This feature can cause two property owners on the same pond with nearly identical amounts of shorefront to be assessed very different property values.For example, someone on Keoka with a 200 foot lot would be assessed a value of 200’ x $900/foot = $180,000.Another individual with a 201 foot lot would be assessed a value of 201’ x $700/foot = $140,700.It was not clear to the committee members if this was an intended consequence of the Tax Schedule, or merely a calculation error on the tax cards.A review of the surrounding towns, and discussions with two professional appraisers, did not reveal any other examples of this type of assessing practice.
  1. A review of the town’s tax cards revealed several assessment issues.650, of the town’s 1848, tax cards were pulled for review.172 of these were found to calculation errors of varying degrees.Some errors were as simple as inconsistently calculating the raw land values of fractional acreage lots (some were assessed at a full $600, while others were assessed at the fractional acreage x $600).Other cards had errors where the land that the buildings sit on was taxed twice ($30k for the developed lot and $600 for the same acre).There were also a smaller number of cards that contained more significant errors.These included:
  1. At least one large shorefront property was not assessed for its shore frontage.
  1. Several properties on Mud Pond (Deer Hill Road) were taxed at $400/foot, not the $40/foot listed on the town’s tax schedule.
  1. A review of the town’s assessing system (paperwork side) revealed a strong need for computerization.The current method requires:
  1. The selectmen to manually calculate the assessed value for each piece of property and write it on each tax card.This has already been shown to be a prolific source of error due to simple calculation errors and inconsistent practices.
  2. The Tax Collector (elected position) then pulls each card and types the summary information (Land and Building Value) into TRIO.The good news here is we did not discover any data entry errors for the building, land, and combined assessed values.There were a small number of data entry errors with regards to acreage and frontage.
  1. The Tax Collector then prints out the Tax Commitment book from TRIO.The Tax Commitment Book is a State requirement.The information contained in this book is used to type up each property owner’s tax bill.It is also used to track when each bill is paid.

Computerization should have two benefits.It should increase the accuracy / quality of the calculations and it should reduce the elapsed time for completing the tasks described above (current state estimate = 2 months; future state estimate = 2 weeks).