Declines in District property tax assessments are likely to be greater in lower-priced homes, not in higher-priced homes, as one city official was quoted as saying in an article yesterday, according to the D.C. Assessor's Office.
Property tax assessments for most homeowners in the District will decline next year for the first time since the city began compiling such records, according to preliminary estimates obtained from the city.
The average assessment for the next tax year will drop by about 4 percent from $91,095 to about $87,450 for single-family, owner-occupied homes, according to preliminary estimates. If the current tax rate is maintained, the average property tax would decline from $1,001 this year to about $957 for the next tax year, which starts in July 1983.
The lower assessments could cause a serious financial problem for the District, which relies on real property taxes for nearly a fifth of its revenues. A spokeswoman for Mayor Marion Barry said yesterday that no decision has been made on whether to propose a property tax rate increase to make up for the revenue loss from the lower assessments in the new budget he will submit in January.
Contrasting to the drop in single-family home assessments, city officials said condominium assessments are likely to stay virtually unchanged, while commercial property assessments are expected to rise a scant 1 percent.
Robert L. King, acting associate director for real property taxes for the Department of Finance and Revenue, attributed the decline in residential assessments to the current economic situation. "It's part of a recession and high interest rates," he said. Soaring interest rates in recent years have led to a huge drop in residential sales and in the price sellers can get for homes. The new assessments will reflect sales prices for 1981 and 1982.
The problem of declining property values is not unique to the District. Other local governments in the area are struggling with the same issue, and assessors from Northern Virginia jurisdictions plan to meet next month to discuss how to deal with it. Property owners throughout the area, meanwhile, have complained increasingly that their assessments do not reflect the current market, according to property tax experts.
The drop in the District is in sharp contrast to previous years when rising real estate values led to large annual increases in property assessments. Assessment increases averaged 21 percent a year between tax years 1977-78 and 1982-83 for single-family homes. The rate of increase moderated to 9.4 percent for the 1982-83 tax year, but an actual decline in assessed values has not occurred since the beginning of the city's assessment records that date back to the early 1960s, D.C. assessor George A. Altoft said.
City officials stressed that some homeowners still will see increases in their assessments. The changes next year probably will range from a decline of 15 percent in some neighborhoods to increases of as much as 20 percent in others, according to one city government source. Average assessments are calculated for 56 city neighborhoods. Last year the increases for each neighborhood ranged from 3 percent to 24 percent. There were no decreases.
The largest drops are likely to occur in higher-priced homes, because their values are more vulnerable to fluctuations in mortgage interest rates, one source said. He added, however, that the declines are likely to occur in neighborhoods throughout the city, and not concentrated in one area or another.
District officials also stressed that the recently compiled valuation figures are preliminary. Final figures will not be ready until the end of the year, and individual homeowners will not receive their new tax assessments until next spring. The new assessments would be effective for the 1983-84 tax year, which begins next July 1.
This provides city officials with a serious dilemma: whether to increase the property tax rate--currently $1.22 per $100 of assessed value for single-family, owner-occupied homes -- or look to some other revenue source to make up for the shortfall. In previous years, the city government has been able to rely on an automatic increase in revenues from property taxes without having to increase the tax rate, because of the rising assessments.
For the fiscal 1983 year, Mayor Marion Barry proposed a budget that assumed a 12 percent rise in real estate assessments as part of a $1.9 billion budget. The D.C. auditor estimates the city ended the 1982 fiscal year either breaking even or with a slight surplus, but the city still has an accumulated debt of about $300 million. Barry will have to propose a fiscal 1984 budget in January to which the new assessments would apply.
John A. Wilson (D-Ward 2), chairman of the city's Finance and Revenue Committee, said the revenue loss "will be a disaster for the city" financially. Wilson said he was aware that the assessments were going to level off but he had not been told they would decline.
Wilson said an assessment decrease is appropriate because real property values have declined and if the city does not do it officially homeowners can challenge increases and win. "People are prepared to challenge assessments in more numbers than ever before," he said.
Wilson said he would not favor a property tax rate increase to make up for the lost revenue. He said the city should look at spending cuts first to solve its budget problems.
Complicating the assessment problem throughout the area is the "creative financing," which has become an important part of the real estate market. When a seller agrees to accept below-market financing from a buyer, this in essence reduces his sales price and therefore the value of the property, but so far most local governments have not found a scientific way to take creative financing into account in assessment formulas.
Arlington County is an exception. There, assessments probably will be discounted by about 4 percent from the recorded sales price in the coming year because of creative financing, according to James Vinson, the county's chief assessor.
The District will start requiring specific financing information soon to include this factor, the revenue department's King said.