City Auditor Urged Close Look at Property Tax Funds in '04

John M. Clifford, the attorney for Branham, said his client had not wanted to take the management position, agreeing in July to serve on an interim basis after being pressured by superiors. Branham had spent six years as chief assessor.

Wall Street analysts said this week they are not considering downgrading the District's bond ratings. But even some of Gandhi's closest allies said the scandal could erase much of the District's improved image.

"No one believes in him more than I do," said Williams, who appointed Gandhi to fiscal chief in 2000. "But do not underestimate the blow this is to the District. From an accounting point of view, it's immaterial. But one of the things we did, Nat and I, was restore the faith of people in the District. This really fundamentally undermines that."

Some have suggested that Gandhi can move forward only with increased oversight. The Office of the Chief Financial Officer was established by Congress in 1996 as an independent agency. Appointed by the mayor, the chief financial officer can be fired only for cause through a mayoral resolution approved by two-thirds of the council.

"I don't know how aggressive the oversight of the council has been on him, because he's like an extension of Congress," said the council's chairman, Vincent C. Gray (D). "We've all operated in this post-control board dynamic, and maybe that needs to be changed."

Nichols, the city auditor, who works for the council, examined the tax office's revenue collections and refunds in 2004 in the middle of a real estate boom. From 2001 through this year, real property tax revenue soared from $635 million to $1.45 billion. That has helped the city's bond ratings, which had hit junk status, rise to A-plus, an improvement for which Gandhi has been largely credited.

In two reports in 2004, Nichols raised questions about dramatic increases in property tax refunds. In a July 30 report, Nichols wrote that the amount of property tax revenue was lower than expected, in part because of an increase in refunds. Instead of returning a projected $7.3 million to property owners who had overpaid in the first two fiscal quarters, the tax office had refunded $11.9 million.

In a second report, dated Sept. 7, Nichols noted that by the third quarter, the real property tax refunds for fiscal 2004 had reached $21.3 million, $10.9 million more than projected. She wrote that the 2004 refunds were 149.8 percent higher than the refunds for the same period in fiscal 2003.

The city had recently switched from assessing properties on a three-year cycle to annually, which had generated a large increase in appeals. Nichols took note of that in her report. But, she concluded, "District officials should closely monitor this revenue source."

During fiscal 2004, the city refunded $26.4 million in real property taxes, a huge increase over the $12.5 million refunded in 2003. The Post analysis of real property tax records showed that a pattern of suspicious refunds dates to at least 2001 but ramped up in 2003.

Gandhi was asked yesterday whether the city was so flush with cash that the tax office might not have been worried about the refunds. "That impression can be made," he said.

In an interview last week, Gandhi said he relies on his deputies to be vigilant.