D.C. tax assessments have underestimated the value of vacant and underdeveloped downtown real estate in recent years by a third or more, according to studies by the D.C. government.

The findings raise new questions about the District's assessment process, which has been criticized in the past by homeowners groups and others arguing that commercial property owners have borne less than their fair share of the tax burden. Now, criticism is coming from within the D.C. government itself.

Assessments, the government's estimate of real estate values, are used to compute property tax bills. The District is required by law to assess property at its full market value.

The recent studies imply that the District may not have collected all the taxes it should have on vacant and underdeveloped downtown property, at a time when it is facing a massive projected budget deficit.

The assessments issue also figures importantly in the largest and most complicated policy debate to come before the D.C. Zoning Commission in 30 years: a proposed rezoning of downtown's east end, Chinatown and the Mount Vernon Square area.

The D.C. Zoning Commission is considering proposals to create a "living downtown" by requiring that developers provide housing along with future office projects in those areas. One option would allow developers to give money to a housing construction fund instead of building the housing themselves. Under that option, which developers favor, the District would use assessments to determine how much money developers would give to the fund.

If the District underestimates assessments in this case, it would mean a windfall for developers and less money for housing development.

A report by the D.C. Office of Business and Economic Development (OBED), based on a sample of downtown properties, said assessments were "significantly lower" than the prices actually paid for prospective downtown development sites, and it urged D.C. officials not to rely on assessments as they craft the housing policy.

A second report, by the Department of Finance and Revenue (DFR), the agency that prepares the assessments, said the most recent assessments of vacant land in the central business district, the heart of downtown, were typically a third lower than 1989 sales prices.

The OBED report looked only at prospective downtown development sites. The DFR report said that assessments of other D.C. property were more in line with sales prices.

Eleven of the 1987 sales in the OBED study were part of a land assembly by Gerald D. Hines Interests, a giant national developer. Hines has built a major office building on the site at 1300 I Street NW, overlooking Franklin Square.

Hines paid $37.5 million for the real estate, which was assessed at $12.3 million at the time, according to data compiled by Rufus S. Lusk & Son Inc., a real estate information service. A year later, the District said the property was worth $30.8 million.

One of the sellers, D.C. real estate investor B.J. Crivella, said he never questioned the District's appraisal of his property. "Whatever they assess, we pay," Crivella said.

Several underdeveloped sites that changed hands in 1988 were sold to the Sigal/Zuckerman Co., which was gearing up to develop an office building at 1200 K Street NW. The property was assessed at $8.5 million when the developer purchased it for $12.7 million, according to Lusk. A year later, the assessment was increased to $10.7 million.

"The assessment does tend to be somewhat of a lagging indicator," said Ellen V. Sigal, a principal of the company. "But the market changes so rapidly, it's very hard to keep current." Some property may be over-assessed now because of a downturn in the real estate market, Sigal said.

D.C. officials and critics of the assessment process said there are several reasons why assessments may be lower than sale prices.

Former D.C. auditor Matthew S. Watson said property may be under-assessed because assessors know that developers can marshal vast resources to challenge assessments, and the knowledge has made them conservative. "The assessors know full well that if they go out on a limb and assess the property probably closer to market value, there's a very good chance that developers would go out and hire a battery of people" to appeal, Watson said.

Assessments are virtually guaranteed to lag months behind changes in real estate sale prices because of delays in the annual assessment cycle, officials said. Property tax bills due to be paid in September, for example, theoretically reflect property values as of Jan. 1, 1990. However, those assessments are based on sales that took place many months ago, during the second half of 1988 and the first half of 1989, according to Thomas W. Branham, acting chief of the DFR assessment division.

The time lag has especially pronounced effects on tax revenue when prices are rising rapidly, as they were during much of the 1980s.

Branham said his staff needs a more advanced computer system, more people and more professional training. Within two years, improved automation could shorten the time lag in the assessment process by almost six months, he said.

"There are obviously enhancements and improvements to our program that we need to make," Branham said. "Without the proper level of staff or quality of staff, there are going to be problems in the system. Up to this point, we've not made any vast improvements in those {areas}, and obviously we need to."

Entry-level D.C. assessors need "introductory courses" to help them "work their way up through the ranks," and intermediate-level assessors "need more advanced training in order to grow in the assessment field," Branham said.

The department has been planning to buy a sophisticated computer system that could analyze property records now kept on paper, but no particular system has been chosen and no money has been specifically reserved for one, department spokeswoman Linda Grant said.

Assessors look at more than just sale prices and can consider a range of factors in making their judgments. In the interest of fairness, they try to value each property on a par with comparable properties.

Assessors also consider the cost of constructing a building and the income a property is producing for the owner. For parking lots or under-developed sites like those cited in the government reports, the income can amount to only a small fraction of the prices builders and speculators are willing to pay knowing that the sites can be turned into more valuable development.

Too Much Leeway? Luis Zapata, co-chairman of the group Citizens for Fair Assessment, which has published reports criticizing D.C. assessments, said the government gives individual assessors too much leeway and should tighten its standards. "It's just not a good way to run a government agency, to give that much discretion and fail to give guidance that would ensure that graft is not possible," Zapata said. He said his group has no evidence of corruption influencing assessments, but that the system is vulnerable.

OBED said the assessments it reviewed averaged only 48 percent of the actual value of the property. However, an analysis by The Washington Post of the OBED study found that the agency had interpreted its own data inconsistently and, in some cases, erroneously. The data supported OBED's general contention that the assessments in question were significantly lower than sale prices, but the data did not seem to support the exact numerical difference that OBED cited.

The Post analyzed the property sales cited in the OBED study using data from Lusk. The Lusk data showed that 15 of the properties were sold during 1987 for a total of $43.1 million. At the time of the sales, the real estate was assessed at about $16.5 million. The following year, the assessments increased to $39.6 million, 91.9 percent of the total sale prices.

In 1988, 11 properties in the OBED sample were sold for a total of $54.8 million. At the time of sale, they were assessed at $45.6 million. It was not clear from the Lusk data how the property was assessed the next year.

Through a spokesman, OBED executive director Raymond A. Skinner, who was responsible for the report to the zoning commission, declined to comment. Wylie L. Williams Jr., the deputy mayor for economic development, referred questions about the study to OBED. Other OBED officials did not respond to inquiries.

In a later memo to the commission "clarifying our comments," Skinner said, "... it should not be inferred that the sample we took ... reflects a comprehensive undervaluation of property by the District's Department of Finance and Revenue."

Department of Finance and Revenue officials said they had not studied the OBED report and declined to comment on it.

The DFR, which found that assessments of vacant downtown land were a third lower than sale prices, focused on assessments that were issued after sales, unlike the OBED report, which focused on assessments that preceded sales. The Finance and Revenue study compared last year's sale prices to the preliminary assessments issued this year.

The DFR report said that the preliminary new assessments of vacant land throughout the District typically valued such property at 79.4 percent of last year's sale prices. Developed commercial properties typically were assessed at 92 percent of sale prices, and single-family residential properties were assessed at 94.6 percent of sale prices, the report said.