Montgomery County should be more diligent in challenging commercial property assessments conducted by the state, some of which appear to be unusually low, the county’s inspector general said in a report issued Friday.
Inspector General Edward Blansitt said that a study of 20 commercial properties found that those that sold recently for more than $10 million were assessed at an average of 68 percent of sales price. Buildings that sold for less than $700,000 were assessed at 90 percent of sales price.
Maryland is unusual in that the state handles local residential and commercial assessments. Counties can, however, contest the valuations before a state appeals board, the Maryland Tax Court and Circuit Court. But Blansitt noted that Montgomery has filed significantly fewer appeals in recent years: 57 in fiscal 2011 compared with as many as 727 in fiscal 2003. Data from some years were not available.
The report said that the county’s finance department has one staff member responsible for reviewing assessments for fairness and accuracy. That official has other duties and estimated that he spent about 5 percent of his time on appeal work, the report found.
The county “devotes significantly fewer resources to challenging inaccurate property assessments than it did during the 1990s and early 2000s, and consequently it is significantly less active in carrying out its responsibilities” under state law, Blansitt said.
Property taxes are the county’s largest single source of revenue, bringing in $1.1 billion in fiscal 2011. About 20 percent comes from nonresidential properties.
The report does not specify how much additional revenue would have come to the county if valuations had been higher.
County officials said that budget pressures had eroded their ability to scrutinize assessments. Timothy Firestine, Montgomery’s chief administrative officer, said in a letter to Blansitt that the county was trying to find additional staff to help analyze commercial assessments. He added, however, that appeals can be costly, complex and time consuming, with no assurance of success.
Council member Marc Elrich (D-At Large) said Friday that he would push to bring more funding for oversight of assessments in the upcoming budget.
“I think we have to put people back on the staff to challenge the assessments,” he said. “We’re getting killed.”
Assessments have been a flashpoint in the District. The Washington Post reported in the summer that D.C. officials whittled $2.6 billion off the taxable value of commercial properties owned by some of the city’s most influential developers through a series of settlements negotiated last year by the Office of Tax and Revenue.
The study was triggered by the state’s assessment of the Parklawn Building on Fishers Lane in Rockville, which houses part of the U.S. Department of Health and Human Services. The building, part-owned by the Chevy Chase-based JBG Cos., was purchased for $130 million in 2003.
In 2009, the assessed value of the building fell to less than half of its 2007 assessment, from $121.6 million to $54.5 million — a severe drop-off even by the standards of the recession.
“It just didn’t seem to make sense,” Blansitt said in an interview Friday.
State officials said that the building was in poor condition and had lost a major tenant, the Food and Drug Administration, and was on the verge of losing the other, HHS. Because the building was configured for federal government tenants and finding replacements would be difficult, the state agreed on appeal to the lower assessment.
Ultimately, however, the government decided to keep HHS in the Parklawn. State assessors raised the value of the building, but it remains at $93.7 million, well below the 2007 level.
Robert Young, the state’s director of assessment and taxation, said Friday that the inspector general’s analysis was “woefully” simplistic.
“With all due respect, it’s obvious that they don’t have a professional appraiser on staff,” Young said.
Blansitt acknowledged that the report was based on a small sample and that he did not have access to a professional appraiser. It points up the need, he said, for more expertise at the county level.