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Tax assessment appeals persist in Baltimore

Why do far more Baltimore homeowners routinely appeal assessments than others?

As the state deadline to file appeals of property assessments looms, officials are preparing for a flood of petitions — particularly in Baltimore, where property owners routinely appeal their tax assessments at rates double or triple the statewide average.

Baltimore property owners filed about 6,000 appeals of new assessments in the fiscal year that ended last June — about one in 12 new notices sent in the city, according to estimates by the state Department of Assessments and Taxation. The city's appeal rate routinely is well above the roughly 3 percent state average in recent years.

The high appeal rate has left Baltimore's property tax assessment appeals board with a backlog so bad it is bringing on a new clerk to help, said Kent Finkelsen, state administrator of the boards.

"I've never seen anything like it," said Finkelsen, who has worked on assessments for more than 20 years. "We were shocked."

There are many factors that drive up the rate of appeals in the city — not least its high tax rate and numerous rental properties, whose owners are not shielded from assessment increases and are more inclined to seek relief, said Charles Cluster, supervisor of real property assessments for the Department of Assessments and Taxation.

But critics say Baltimore's elevated appeal numbers also point to the weakness of the state's statistics-based assessment process when faced with the complexity of the city's housing market, which has homes and neighborhoods that can vary widely block by block.

"It's a little easier to do mass appraising in the county and get it right," said John Hentschel, president of Hentschel Real Estate Services, a consulting and advisory firm that also performs appraisals. "It's a lot harder to do it in the city because of the nonhomogeneity."

With distressed sales having surged in the past few years, critics say assessment values are muddled further by the state department's emphasis on what Cluster described as "good sales" — those with a willing buyer and seller. Distressed sales represented nearly one-third of the transactions in the city in 2015.

"They get it right in the aggregate, but it's not fair to the individual homeowner who wants to be confident that the assessment of their house is accurate," said Larry Giammo, a former mayor of Rockville who now works in real estate and issued a report several years ago that questioned the accuracy of Baltimore assessments.

Cluster said the high appeal rate in Baltimore is "obviously a concern in terms of our office and just trying to make sure we're doing the right thing in the city." But he said Baltimore appeals have fallen since a statewide spike amid the housing crash, even if not as fast as it has in other jurisdictions.

Assessors evaluate properties once every three years on a rotating basis, updating more than 700,000 accounts each year. To reach a valuation, SDAT staff divide the city into neighborhoods, grouping homes in each area by housing type and then looking at sales in those groups to determine what a property is worth for tax purposes.

"Could any system be improved? I believe so," Cluster said. "But I do think that Maryland's system of the triennial assessments using sales and fair-market value is a good system."

Figuring out neighborhood boundaries and how to classify homes is complicated, making the assessment process opaque, said Rory Coakley, president of Coakley Realty, a Rockville-based real estate firm that also handles appeals cases. And as parts of Baltimore improve and others lag, he said, assessors "may be getting ahead of themselves," especially since they often do not visit properties or do in-depth reviews.

While the state department is technically required to physically inspect properties, in practice it has enough staff to visit only a fraction — sometimes just a quarter of residential accounts, according to state reviews of the agency.

That is unlikely to change. This year, the Department of Assessments and Taxation has asked the legislature to formally repeal that requirement and allow staff to use aerial photography as a substitute, inspecting properties only under certain conditions.

The request runs counter to the conclusion of the 2014 Maryland Assessment Work Group, which found that for assessments to be accurate, in-person inspections "are necessary on some periodic basis."

Cluster declined to comment on the bill.

State Sen. Bill Ferguson, a Baltimore Democrat on the Budget and Taxation Committee, said the agency should not do away with physical inspections, but he supports targeting visits by using data — such as whether there are a high number of appeals.

Other significant changes, such as moving the department away from its once-every-three-years evaluation schedule, also might be in order, he said. The 2014 work group was created after a series of audits identified weaknesses in the department's practices.

"I am very supportive of a comprehensive review of our assessment process overall," Ferguson said. "I don't believe that there is a fundamental problem in the system, but I do think we can always make it more accurate and allocate resources more efficiently to improve that accuracy."

Assessment appeals, which are due for the most recent round of notices by Feb. 11, typically increase during tough economic times as property owners seek relief on tax bills.

During the housing crash and recession, first-level appeals of new assessments soared to nearly 50,000 statewide in fiscal year 2008 before subsiding to more traditional levels of 20,000 to 30,000 a year.

The first hearing occurs at a local assessment office. Between 30 percent and 35 percent of cases typically win relief at the first level, according to Cluster.

If property owners are unsatisfied, they can take the case to local property tax assessment appeals boards, which are staffed by outside gubernatorial appointees, and ultimately to the Maryland Tax Court.

In Baltimore, the number of first-level appeals in Baltimore peaked in 2012, with more than 8,000 cases. Their numbers have since fallen, but remain well above the low of about 3,520 in 2005, the only year since at least 2003 when Baltimore's rate of appeals was in line with the state average, according to department documents.

The Baltimore property tax assessment appeals board faces a record backlog of more than 6,000 cases — about two thirds of the 9,136 cases pending before appeals boards statewide, Finkelsen said.

Even when the assessment office acknowledges an error, it can be hard to get the correction to stick, said Brian O'Reilly, 39, a federal worker who owns several rental properties in Baltimore.

O'Reilly purchased a vacant Reservoir Hill home — valued by the state at $151,000 — through a 2013 foreclosure sale for $49,000. He appealed the assessment, winning a reduction to $60,000. But three weeks later, during the new round of assessments, he received a notice that the property was now worth $214,000 — an increase, albeit one phased in over three years, that was more than $60,000 above the first assessment.

"It was like, 'This can't be happening,'" said O'Reilly, who has appealed assessments on other properties as well. "It isn't the worst example, but it's the most ridiculous."

O'Reilly said he does not buy the argument that an unevenly improving housing market accounts for the variation, since valuations ultimately lead to how much revenue municipalities and the state can collect without changing tax rates.

"This is clearly a concerted, willful effort," he said. "They're systematically, unfairly assessing the values to be much higher than they should be."

Cluster said the state assessments department is set up to work independently from local jurisdictions — although those jurisdictions help fund the agency — and he has never felt pressure to meet certain figures.

The department is working to improve accuracy and incorporating new technology into its procedures, he said. The Department of Assessments and Taxation also is linked into permitting systems in eight jurisdictions, including Baltimore, so it is informed automatically when new permits are filed.

As information available to property owners through online databases becomes more widespread, appeals are likely to rise, said Cluster, adding that his office is open to calls from property owners.

"People have the right to appeal," he said. "We would just like to make sure that we're educating them and they're also educating us on their neighborhoods."

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