The Virginia House of Delegates approved a bill today that would stop the controversial practice of taxing rental apartment buildings at condominium-inflated values. The measure would lower tax bills for large apartment owners in Arlington and Alexandria by 30 percent and more.
But officials in those jurisdictions say they fear the bill could lead to a precipitous drop in their tax base -- the value of property on which real estate taxes are assessed -- causing a serious loss of revenue. The decrease in the tax base was estimated at as much as $339 million in Arlington and $200 million in Alexandria. Officials could make up the loss by raising taxes, by adding several cents to the property tax rate.
Arlington and Alexandria officials are still united in wishing to preserve rental housing and prevent more major condominium conversions. "We fully support the objective" of the bill, said Arlington County Board Chairman Stephen Detwiler, "but it sounds as though there are problems with the implementation."
The bill, sponsored by Del. Warren Stambaugh (D-Arlington), could run into constitutional problems in the Senate Finance Committee, which has held up passage of a similar measure introduced by Sen. Wiley Mitchell (D-Alexandria).
The two bills were drafted in response to criticism of an assessment technique that uses the sale of apartment buildings to condominium developers as the basis for determining the "fair market value" of rental apartments.
That practice first appeared in Arlington where a number of large garden-apartment complexes have been sold in recent years to condominium developers. The result was tax increases of as much as 40 percent for apartment owners, many of whom felt they were being penalized for staying in the rental business.
The assessors argue that state law, which requires that property be assessed at its "highest and best" use, requires them to look at comparable sales in determining the value of property. "We've always used comparable sales. It's just that there never were comparable sales for these properties until last year," said David J. Chitlik, director of assessments in Alexandria.
Although the increases in tax bills have not meant significant rent increases for tenants, apartment owners claim that the higher taxes become yet another inducement for converting to condominiums.
"What I am hearing from people who own rental apartments is that this could very easily be the straw that breaks the camel's back," said Sen. Mitchell.
Both bills would prohibit assessors from considering the potential for condominium conversion in their calculations of an apartment building's worth. Provisions requiring assessors to base their appraisal on rental income were stricken from both versions.
"This bill does not specify the method of assessment," said Stambaugh. "It simply says that fair market value should not depend on something that might come down the road."
Mitchell said objections to the bills have been raised by various groups, including the Alexandria Taxpayers Association and representatives of the business community, who fear that the tax burden that was shifted onto rental apartment owners would be shifted back to other parts of the community.
"I'm not sure they are correct in their concern," he said. "If you lose low-income housing and government steps in to replace that housing, it is almost certainly going to cost more."