D.C.'s finance chief seeks revamp of real estate tax board

By Ann E. Marimow
Sunday, April 18, 2010; C01

The District's finance chief is urging elected officials to abolish an obscure but powerful tax board that he says is overwhelmed by appeals from residential and commercial property owners. The panel's tax-bill trimming decisions, according to Chief Financial Officer Natwar M. Gandhi, are eating away at the city's largest source of revenue when the government is scrambling for dollars to close a projected $523 million budget shortfall.

"The amount of money we are losing is of great concern," Gandhi said. "When dollars are scarce, you're looking for leakages in the system, and this is a major leakage."

The District and other governments in the region are caught in a perfect storm: a continuing reduction of property values in a down economy and aggressive challenges to assessments that, in some cases, are sapping municipal coffers. In the past three years, the number of tax protest cases reaching the District's Board of Real Property Assessments and Appeals has risen 85 percent to 5,969 in Tax Year 2010, resulting in a loss of at least $51 million, according to the board. In Alexandria, city officials said they are also experiencing a rise in appeals that coincides with the declining economy.

At Gandhi's request, D.C. Council Chairman Vincent C. Gray (D) and Finance and Revenue Committee Chairman Jack Evans (D-Ward 2) have introduced legislation that would replace the part-time, 18-member board of real estate professionals with a commission of a dozen full-time employees who would be required to have greater expertise in valuing complex properties.

Gandhi said the current board of political appointees is often too lenient in siding with taxpayers and outmatched by a "battery of high-priced lawyers, who do nothing but appeal."

The board's administrative officer provided statistics about the number of appeals but did not respond to questions about the legislation. In written testimony to the council, chairwoman Towanda Paul-Bryant noted that many of the city's assessors do not have the credentials that the pending legislation would require of commission members.

Paul-Bryant, who was appointed by Mayor Adrian M. Fenty (D), questioned the cost and the wisdom of remaking the board with full-time employees for what she said is the equivalent of five months' work and "unnecessarily paying this specialized group to handle residential appeals, which is the board's heaviest workload."

Both the appeals board and the Real Property Tax Administration, which conducts assessments and reports to Gandhi, acknowledge that the city has been inundated with protest cases because property owners believe their values are inflated in the declining market.

They differ, however, in how they calculate the impact on the city. The tax administration includes the entire appeals process in its figures and estimates a loss of almost $69 million for Tax Year 2010, compared with the board's claim of $51 million.

Former appeals board member Lawrence Smith, who quit in protest last year over what he said was Paul-Bryant's lack of experience, said the city's tax assessors "do not have the ammunition or the resources to match" the attorneys and consultants who line up before the board on behalf of property owners. Smith, a lawyer, suggested a hybrid commission, with professionals assigned to evaluate cases involving the most complex, high-end properties.

Lawyers and tax consultants who represent the owners of the District's hotels, apartments and office buildings say the problem is not the board but flawed assessments that do not accurately reflect the battered commercial market, in addition to a government office stripped of experienced employees after a tax-refund scandal.

"If you got it right to start with, you wouldn't have so many reductions," said Michael Allen, a principal with Ryan, a tax consulting firm, who regularly represents clients before the board.

Allen, who conducts an annual analysis of D.C. hotel values, said preliminary assessments for hotels should have dropped 20 to 40 percent from last year but instead declined 10 percent on average. He noted, for instance, that the Best Western Capitol Skyline, an older hotel in Southwest, has a higher per-room assessment than the JW Marriott Hotel, which has a prime location across from the John A. Wilson Building on Pennsylvania Avenue.

However, Richie McKeithen, director of tax administration, said the per-room comparison does not take into consideration such factors as location and prestige. The value of the Best Western, McKeithen said, is its proximity to Nationals Park and potential to redevelop its land.

Two years ago, top city tax officials were forced to resign after federal agents uncovered a far-reaching refund scheme. The current leaders of the real property office -- McKeithen and chief assessor David Fitzgibbon -- were recruited from Virginia and Georgia, respectively, and joined the office in 2008.

Fitzgibbon acknowledged the need for more training and credentials on his team, but he and McKeithen defended the assessments and expressed disbelief about the volume of appeals and the apparent sway of lawyers and consultants who appear before the board.

"We're still getting used to the way things are done here," Fitzgibbon said. "These folks would not get in the door in other places to say what they say."

Cindy Smith-Page, Alexandria's director of real estate assessments, said the problem is that assessments rely on sales and income information from the previous year, which often lag in comparison with the current market.

"That's why you have to have a board that is really knowledgeable," she said.

To keep up with the appeals, Alexandria is seeking permission from the General Assembly to expand the size of the local Board of Equalization and Assessment Review, which is made up of both court-appointed and council-appointed members who are paid per session.

Appeals are also on the rise in Maryland, increasing to 19,520 from an annual average of 9,000, according to Julie M. Green, executive associate for the Maryland Property Tax Assessment Appeal Board, who called the difference "astronomical."

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