RD1 - Report of the House Finance Subcommittee Studying Real Estate Tax Assessments (Draft)

  • Published: 1990
  • Author: House Finance Subcommittee
  • Enabling Authority: House of Delegates Rules

Executive Summary:
BACKGROUND

The Subcommittee was formed by the Chairman of the House Finance Committee, Delegate C. Richard Cranwell, to examine the dramatic increases in real estate tax assessments in many parts of the Commonwealth, especially in Northern Virginia and the Hampton Roads areas.

The Chairman appointed the following individuals to study the assessment situation, with Delegate David G. Brickley (Woodbridge) being appointed Chairman: J.W. O'Brien, Jr. (Virginia Beach), Leslie L. Byrne (Fairfax County), George W. Grayson (James City County), and Harry J. Parrish (Manassas).

The Subcommittee held four meetings and three public hearings during the course of its study and has prepared this report listing its findings and recommendations.

The Subcommittee has found real property values, and as a result, assessments, are increasing dramatically in many parts of the Commonwealth. Although most of the attention has focused on single-family residential assessments, commercial and industrial property is also increasing rapidly in the growth areas. Although many areas of the Commonwealth are experiencing this phenomenon, the Northern Virginia localities have been particularly impacted, as the following shows:

Locality and Average Single-Family Residential Assessment Increase for 1989

Arlington County: 29.2%
Alexandria County: 24.4%
Fairfax County: 18.0%
Loudoun County: 14.7%
Prince William County: 17.0%

FINDINGS

1. The subcommittee has examined Virginia's current property tax relief program for taxpayers age 65 or over and handicapped. As authorized by the Constitution, the General Assembly has allowed local governments to provide an exemption or deferral program on owner-occupied residences for those taxpayers within certain income and net worth constraints. The current income limitation throughout most of the Commonwealth is $22,000 (or the income limits based upon family size for the respective metropolitan statistical area, published by the Department of Housing and Urban Development for qualifying for federal housing assistance) and $40,000 in Northern Virginia. The current net worth limitation is $75,000 throughout most of the Commonwealth and $150,000 in Northern Virginia. The net worth limitation excludes the value of the house and one acre of land. Localities may adopt lower income and net worth limitations.

Localities are authorized to exempt (or defer) all or any part of the property tax of these taxpayers. The Subcommittee believes this is an important program to reduce the real estate tax burden on these taxpayers. The program works well and is popular throughout the Commonwealth.

2. Assessments are increasing dramatically, especially in the high-growth areas of the Commonwealth. Many areas of the Commonwealth are experiencing dramatic increases in individual assessments. The Subcommittee has heard and verified numerous cases where individual assessments have increased hundreds or, in fact, a thousand percent in one single year. Although the average increases (as the above table shows) are significant, averages often hide the tremendous increases borne by individual taxpayers. These dramatic individual increases have been brought to the Subcommittee's attention by numerous individuals during the Subcommittee's public hearings.

3. These dramatic assessment increases are forcing some people to sell their homes and move.

4. The problem is most serious in the fringes of high-growth areas where property has been owned and occupied by a taxpayer for years. However, a larger population and population density drives up the value of existing property. Moreover, as commercial/industrial development and other development occurs, property which is being used as a residence, where the owner has no intention to sell or change its use, is being valued at a higher, hypothetical use.

5. Although in many areas single-family residential property assessments are increasing dramatically, there are also areas where the commercial and industrial property assessments are also increasing dramatically and, in fact, faster than the single-family residential assessment increases.

6. The Subcommittee believes that, generally, the assessors are valuing property fairly, and attempt to approximate 100% of fair market value. The Subcommittee, however, is concerned with the proper valuation of property where only one or two sales are used to indicate the approximate value of hundreds of other properties which are not for sale. The Subcommittee is also concerned with the practice of valuing property based on some other hypothetical use.

7. The Subcommittee has determined that, overall, the Commonwealth has a good property tax system which is fair, has good administration, and has an excellent reputation among the states.

8. During the course of its hearings, the Subcommittee heard a great deal of public testimony regarding large assessment increases; however, at least part of the real issue appeared to be with the public perception of excessive local spending and using the dramatic increases in assessments to raise tax revenue while at the same time exhibiting a lack of discipline in spending and not having a priority for government spending.

9. The public hearings indicated that a number of speakers felt there was a lack of accountability in members of local governing bodies to keep real estate taxes down.

10. The Subcommittee heard a great deal of taxpayer support for annual limitations on assessment increases on specific individuals or limitations on the total amount of tax increases which a locality could adopt.

11. The Subcommittee has found that Virginia localities place a very heavy reliance on the property tax in comparison to other states. Clearly, limitations imposed on certain other local taxes (i.e., BPOL, transient occupancy, utility and meals taxes) have caused Virginia localities to become reliant on the property tax, at least relative to other states.

Virginia has the greatest reliance on the property tax to generate local revenue than any other state in the Southeast.

12. According to the National Conference of State Legislatures (NCSL), 41 states have some type of limitation on the local property tax. Virginia is one of the few states which does not have some type of limitation. The Subcommittee has found a great deal of variation in limitations in other states. However, Virginia does have a truth in taxation statute which provides information to taxpayers on the proposed increases in real property taxes which the local governing body is considering.