The District’s tax office needs to stop reducing tax assessments on commercial properties based mainly on factors other than market value, according to a report released Wednesday by the city’s Office of the Inspector General.
The report says the Office of Tax and Revenue is employing a shortsighted approach that relies heavily on vacancy rates, leases and potential tenant turnover to set values. The tax office developed the approach after a Superior Court decision overturned the 1992 assessment of a mixed-use building, ruling that the assessor “must consider the influence that actual leases have on value,” according to the report.
But the inspector general’s office says that a “selective reading” of the court case has reduced assessments improperly and that the beleaguered tax office often feels “outgunned” as it tries to fight the appeals of commercial property owners.
To help reverse the tide, the inspector general is recommending that the tax office hire certified real estate appraisers to go head-to-head with the experts retained by the commercial property owners.
“Attempting to reduce the volume of cases solely by mediating and settling will only result in more cases being filed,” the report says. “Tax attorneys know the District is not spending the necessary money to hire experts and litigate cases, so they can file lawsuits in Superior Court with almost no risk of losing.”
The inspector general’s audit paralleled a Washington Post investigation this year that found that reductions in the proposed assessments of hundreds of commercial properties had cut the city’s tax base by $2.6 billion. Among its findings, the 64-page audit report cites problems with the structure of the office. Assessors are assigned by geography, but the report recommends that they be assigned by property type for consistency and accuracy.
The inspector general has given Chief Financial Officer Natwar M. Gandhi, who oversees the tax office, until Feb. 7 to respond in writing to the findings and recommendations. Attorney General Irvin B. Nathan, D.C. Council Chairman Phil Mendelson (D) and Carlynn Fuller Jenkins, executive director of the Real Property Tax Appeals Commission, also have until then to respond.
Natalie Wilson, a spokeswoman for the tax office, said the report is under review.
Council member Jack Evans (D-Ward 2), who has oversight of the tax office as chairman of the Committee on Finance and Revenue, said that he is not surprised and that the issue of an outmanned tax office came up at a hearing last month.
Mendelson said that he had not yet read the report but that “there’s been a problem with the quality of assessments and the fairness of the appeals process for years.”
The inspector general’s office is also recommending that assessors be provided with more training and with higher salaries or some other additional compensation to attract more qualified applicants.
“The report speaks for itself,” Evans said. “There’s never a willingness on the council to increase the budget of the chief financial officer’s office. This report will be useful come budget time. . . . It’s something we’ve been talking about for years.”
The report, dated Nov. 16, examines the management and valuation of commercial property assessments, and was issued about a month after Tony L. George resigned as chief tax appraiser.
Evans noted that the Real Property Tax Appeals Commission is a new board intended to improve the appeals process. The Board of Real Property Assessments and Appeals was abolished in July and replaced by the commission, whose full-time members have more expertise in real estate appraisals.
“All of this is geared at getting the assessments correct the first time,” Evans said.