Waterford Taxation Committee
Final Report
 May 10, 2008

Introduction:
The Taxation Committee is an ad hoc committee created by the Board of Selectmen that is comprised of members of the community who have expressed an interest in working on reviewing and improving the property tax assessment methods currently in use. The committee is intended to advise the Board of Assessors regarding assessment/taxation options and has no authority vested or implied to determine tax policy as that authority rests exclusively with the Board of Assessors.

The committee was approved by the board of Selectman/Assessors at the Jan. 7, 2008 meeting. Selectmen put an ad in the paper for any interested Waterford Residents to volunteer to serve on the tax committee. There were no requirements other than residency and no specific knowledge or expertise was required.
 
The following residents were appointed by the Board of Selectman/Assessors: Les Gammon, Rickie Hall, Randy Lessard, Samantha Murch, Rockie Graham, and Mary DeLorenzo.  At the first meeting, the committee elected Randy Lessard as chairman and Rickie Hall as secretary. 

Committee Goals from the Assessors:
The Taxation Committee’s goals, as indicated by the Board of Selectmen:

1.  Determine if current property assessments are close enough to Fair Market Value. Is FMV equitable to all taxpayers as a result of the 2007 changes? Review the following with reference to FMVs:

a. Base acre values and land schedules used for excess acreage.
         
b. Shorefront values, the shorefront schedules for excess frontage, the number of desirability reduction factors.
         
c. Building Values

d. Review the 2007 tax abatements, both approved and denied. This should provide the committee with insight into the problems that arose as a result of the 2007 changes, and may also be an indicator of inequities.

e. Evaluate the sales data from 2007 and incorporate it into our database to update our FMVs

2. If the committee determines that a change in methods for assessing buildings is in order, review ways they might be improved.  Consider a part time assessor, building assessment software, or a town-wide revaluation.

3. Estimate whether or not our values are high enough to be in line with the State’s assessment (or a reasonable percentage thereof) in 2009, when 2007 changes are taken into account.

4. Consider additional assessment reduction factors for undesirable land. Currently the only reduction (on record) for land is 50% reduction for land determined to be unbuildable. Some parcels are too wet or too small to be of any use.

5. Consider means of improving our assessment methods to make them less time consuming and have improved accuracy.

a. Should the town have a total revaluation done by a profession assessing firm? And if so, should the firm handle the annual updates?

b. Is there a way to use a part time assessor to have more accurate assessments without the expense and loss of control involved with a total revaluation?

c. Should we expand our use of the TRIO software or consider the use of other software?

Taxation Issues:
Some of the taxation issues facing the town include:

• The total assessed value of the town falls short of the state’s calculations. For 2006, the total assessed value of Waterford, was $162,258,190. This is more than $50 million lower than the state’s calculated value of $212,750,000.  In 2007, the municipal evaluation was $185,065,926 and the state valuation was $239,500,000. The town is now over $54 million below the States calculated value.

• For 2006, the state’s Combined Sales Value Ratio (SV) for the town was 70%.  In 2007, the Combined Sales Value Ration SV is now 66%. The Combined SV ratio along with the quality rating is how the state sets a value for the towns properties:

  The SV rating is the State’s method of determining if a town’s assessment values are “fair market value.” The word fair is generally understood to mean that the assessed values reflect fair market value when sold. 

  A combined SV rating of 66% is below the state’s minimum recommended value.  For each 1% the SV value drops below 70%, the state withholds 10% of the town’s tree growth reimbursement.  The town is now in jeopardy of losing money. All tree growth reimbursement would stop if the SV value dropped to 60%. 

  Note:  The Committee did not have time to determine just how large the town’s tree growth reimbursement is. Committee thinks that the value of the reimbursement is relatively small. This is an open question that should be addressed by the Board of Selectmen.

• The Quality Rating is the state’s method of determining if a town’s assessment methods are “equitable”. The word “equitable” is generally understood to mean that all members of the town are paying their fair share of the taxes.  For example, if the SV ratio for one property is 98%, and another piece is 40%, there would not be an equitable distribution of the taxes among these individuals.  The person with the 40% SV would be considered to be paying less than their fair share, while the person with the 98% SV would be considered to be paying more than their fair share.  Ideally, both residents would have a SV value that matched the overall value for the town.

The State provides the following guidelines with regards to the Quality Rating:

• 0 to 10% = Excellent
• 11 to 15% = Good
• 16 to 20% = Fair
• 20% and above = Poor

The question that remains has to do with how many properties should be included in the state’s QR rating.  We were told by two professional assessors that the State only includes transactions which are considered to be at “arms length”, meaning that no special considerations were involved in the transaction (family members, etc.).  Our review of the state’s data seems to support this.  However, it is important to note that the town should monitor the state’s calculations to be sure that they do not inadvertently include data that should be excluded. Such as extremely inflated sales, or sales that are not arms length.

• A number of abatement requests have been filed and many granted with the Board of Assessors with regards to the changes in land and shore values in 2007 and quality issues with some shorefront properties.  Some taxpayers have expressed concerns that the land or shorefront being unbuildable or undesirable because certain existing conditions.  Cited examples included swampy shorefront vs. sandy beaches.

• The tax committee will study the effects of the changes from 2005 through 2007 and how they impacted the shorefront values:

2005-2006 Shorefront Schedules

2007 Shorefront Schedules

NOTE: Non- Highlighted figures were recommended by 2007 tax committee. Highlighted figures were actual methods used for 2007 shorefront tax schedules.

Some Committee members felt the assessors should review the 201 – 600 and 601 & up schedules with the newer charts and information the committee has provided in this report because the schedules may be too low.

Committee Process – Meeting Minutes:
The Appendix of this report contains the meeting minutes.  They have proven to be a valuable record of the Committee’s activities and is recommended reading for anyone wishing to gain a better understanding of the Committee’s activities.

Committee Process – Review Abatement Request for 2007:
The abatements consisted of many legitimate claims such as errors in assessment, unbuildable lots, undesirable shore frontage, over assessments, missed Tree Growth. Although many taxpayers came into the office with questions about their tax bill….after a detailed explanation of the tax methodology taxpayers were satisfied that their tax bill was appropriate to their property value. There were concerns and questions over the $10,000 base acre for unbuildable raw land and undesirable shore frontage. Overall the assessors and Tax Committee agree that the abatement process was working to find errors or undiscovered over assessing that had occurred.

The Tax Committee recommends that the assessors continue the same process of reviewing abatements and explaining tax policy to taxpayers as needed. The process seems to have worked well last year and there was not an overabundance of abatements given.

Committee Process–Examine Current Sales Data & Determining Arms Length Transactions:
The Committee compared the last three years (2004-2007) of Waterford Property Sales and compared the selling prices (arms length transactions) to the latest 2007 Assessed Value. We highlighted all properties that were assessed lower than selling prices (66 properties) and all properties that were assessed higher than selling price (16 properties). Committee found that many of the properties were sold to family members, sold at auction or only a small portion of a bigger parcel was sold.  These properties should not be included on the States Valuation Form. This could be affecting our State Valuation. Committee Members talked to Brenda to find out how the state knows what sales in Waterford are arms-length transactions. Brenda gives the state information such as assessed values of land and buildings and anything that she knows about whether the sale is arms-length but admitted that there are no checks on which properties the state uses for its valuation.  The question that remains has to do with how many properties should be included in the State’s sales data that affects our State Valuation and Quality Rating.  The State should only include transactions which are considered to be at “arms length”, meaning that no special considerations where involved in the transaction (family members, etc.) Also anything added into the sale such as easements, land use restrictions, equipment or recreational items should be extracted from all real estate sales.  Les said that the selectman used to meet with a state representative to explain which sales were not arms length transactions so they were not counted as valid sales and were not included in the states ratio’s and quality rating. Care also must be made that the occasional overpriced sales (outliers) are thrown out of the calculation, as well as abnormally low sales.
                                               
 
Our review has shown that the assessors may not have a complete understanding of all sales transactions in Waterford and do not review these sales before the state uses them for valuation purposes.  The Assessor’s should monitor the State’s calculations to be sure that they to not inadvertently include data that should be excluded.

The Tax Committee recommends that the assessors should become familiar with each property sold, to understand the details of the sale, and determine if it is an arm’s length transaction, or an outlier.  The assessors should thoroughly examine the sale for any indication that is not a fair market value sale, and determine if anything is included in the sale other than real estate. The Committee also recommends that the Assessors have yearly meetings with State Officials to review the Sales in the town to make sure that all sales in the States Valuation are legitimate arms length transaction sales.

Committee Process – Compare 2007 Tax Schedules with Properties Sold to see if new methods improve SV Ratio or Quality Rating:
The Committee reviewed the new 2007 Assessed values with the 2005-2006 sales from Waterford to determine if the changes made with last year’s tax methods created a better ratio and quality rating. The report showed that the changes made in 2007 brought the Ratio up from 66% to 72% and the quality rating from 29 to 26. These results show there are still inequities in the assessed values of properties after the implementations of new 2007 methods. Please review the chart below that compares how the most current sales data from the state would be rated with the 2007 tax methods in place.

Committee Process – Compare SV Ratio and Quality Ratings for last 20 years:
The Committee agreed that the best test of an equitable assessment was the quality Rating. Chart below lists the SV Ratios and quality ratings in Waterford for past 17 years. (From 1990 to 2007)

Committee Process – Tax Assessing Software TRIO:
The Committee received a Packet of Information for Tax Assessing from TRIO regarding the Real Estate Assessment Module. The software cost is $4,500 and to get the annual updates and maintenance add $900. We discussed the PDF information that was sent by Bob Penley. The town auditor is suggesting that since the town is purchasing the accounting TRIO software that the completed taxation software would fit in well with all the towns’ software. The selectmen and Brenda will continue to research the Trio software.

The Tax Committee recommends that the Assessors Purchase some Taxation Software so taxpayers’ files could be kept electronically with backup files in the safe. Updating taxpayers’ files and bills could be on a computerized update as tax schedule change from year to year. Paper Cards (similar to folders) could be printed with ease to keep in the paper folder files or for portable cards.

Discussion with Professional Assessor – Assessor Dennis Berube:

Committee Members also invited Dennis Berube (professional assessor) from O’Donnell & Associates to visit with us during one of our meetings.  Dennis accepted and spent approximately four hours with us one Monday evening.  It was a very lengthy meeting and packed with information.  Parts of his discussion are summarized below. A separate document of March 24 contained a much more detailed account of his visit. 

• Background: Dennis has worked for O’Donnell & Associates since 1993. O’Donnell and Associates subcontract to towns on an as needed basis and does tax mapping and assessing, town revaluations, and tax maps both digital and manual. Dennis has been involved with over 50 town’s revaluations.

• Methods used for Revaluation: O’Donnell uses a system that is similar to the cost approach that the State of Maine uses, with modifications. They calibrate their schedules from sales that occur and then express them with a cost approach to evaluation.  They calibrate their schedules with variables that we have reviewed from the markets sales studies and graphs. Mass appraisal technique requests that you consider every sale in your community…that is every sale that is an arm’s length transaction. We spend a great deal of time interviewing parties in the sale to get an idea of what the sale consists of so that we can understand the value of the property.

• Assessors Responsibility to Town: An assessor wears 2 hats. They are asked to establish just value for each individual property but also have to honor and respect the statutes of the state of Maine which is to value each property with just and fair value which is market value. Assessors are asked to interpret trends but not develop trends.

• Sales Data: O’Donnell has the ability to look at other town’s data in the same locale and region. This gives O’Donnell the ability to read what is happening in the area for each revaluation. Because the market is set by sales that are occurring…not sales that are not occurring….we look at what houses are selling for. Many people suggest that their values are too high but when asked if they would sell for that price they say they think they could get more for their properties. Look at sales and try to understand them….but only Arms length transactions. In good market times, waterfront was increasing at 25% annually and residential at 10%. The market has remained steady since 2005.  Look at the sales with an analytical eye: These factors should be considered.

• Arms length transaction are the only sales data to study
• Break the Sales Down and create graphs
• Any Improvements to the Property should be analyzed
• Establish a relationship between the building and the land component
• Building should reflect contributory value of decks, garages, or other improvements to the sales.

• Land Values: O’Donnell uses a base plus additional land. Most people buy land with the idea to build on it and this is what motivates most people. As assessors we are obligated to assess on highest and best use. Phantom House Lots are required to be valued and assessed like all other classes of property at the same percentage of value. If you are going to be fair with your valuation, assume that a vacant parcel has the opportunity to be developed. We understand that there are extenuating circumstances where there are properties that cannot be developed because of things like no road frontage or deeded restrictions. We do recognize those and treat those appropriately within the system. Assume that it is buildable until you have the evidence that it is unbuildable.

• Adjustments for Land Value: Many times there are elements to a property that will restrict value and there are circumstances that a property can have that can affect the value. Like being on a main road versus being on a back lot and having to plow your own road. The market has ways of measuring the differential in the values of each of those properties. I will suggest that in certain towns the off the road house with the long driveway is more private and a buyer is willing to pay more. This proves that you cannot always jump to conclusions that X factor exists and will cause Y value to occur..Look at it with scrutiny. We do adjust property for things like:
• No Power or Utilities
• Frontage Quality of Shore: Steep, Rocky, Shallow with Weeds
• Excess Frontage: Element where it is cheaper by the dozen and diminishing returns
• Location: House surrounded by big commercial development
• Shape of the Lot: Does not meet setbacks and depth for building
• Market Adjustments

• Shorefront Assessing: Property owners are looking for waterfront properties that they can build on. Each waterfront lot is assigned to a base table. The crucial factors are size of lot and amount of frontage. The frontage is considered a contributory value to the property. Everybody’s shorefront is a little bit different but generally for a 200 ft lot it is a 2/3 to 1/3 relationship. 2/3 of the value is attributed to the frontage and 1/3 of the value is contributed by the lot size. We assign a base lot for the primary acre and then we assign a shorefront tables that are similar to the additional land tables. We use frontage tables that start at 50 ft increments and then increase to 100 ft increments. The reason we use intervals of 50 ft is because we realize there is a premium to owning any waterfront regardless of how small it is. People are willing to pay for a smaller lot. We realize that there is a premium for any frontage so we put the highest number on the first 50 feet.

• State’s Valuation: When the state does your ratio study, they breakdown sales into Shorefront and Rural Residential. The ratio is not supposed to drop below 70% and quality rating no higher than 20. Between Sales Ratio and Quality Rating the more important of the two is the quality rating because you could have half of your property at 150% and the other half at 50% and have a 100% ratio. But the quality rating measures how tight the grouping or how close the ratio on the typical property is.

Committee Process – Part-Time Assessor verses Professional Assessment Firm:
Committee expressed concern over whether one person (part-time or full-time) would be able to revalue the whole town in one year. Most of the committee agreed that they felt that a professional assessment firm could create a more equitable assessment than is currently in place because of their training and their experience in revaluing many towns in Western Maine. The cost of a professional assessment from O’Donnell would be:

1. $80/parcel x 1848 parcels = $147,840
2. Yearly fee for support with assessment process and maintenance = $10k to $15k
3. Yearly town allocation to special account to allow 4 year update cycle to the assessment.  The amount to be set aside each year = 10% of $147,840 = $14,784.
4. Total cost to town for a complete revaluation and yearly maintenance would be:

1. Upfront = $147,840
2. Yearly = $24,784 to $29,784
3. Lead-Time = O’Donnell not available until 2009

The Committee came up with four possibilities for the town’s Assessment. The committee members saw pros and cons in all the following possibilities and could not unanimously agree with a recommendation to the assessors.

Possibilities for Assessment Methods in Waterford

1.  The Selectmen/Assessors would remain the Assessors and continue assessing as they have been in the past.

2.  The town would hire a part-time or full-time assessor as agents of the assessors. The selectman/assessors would still have the final word on all assessments in town and sign the tax commitment.

3.  The town would hire a Professional Assessment Company and the company would act as assessors.

4. The town would hire a professional assessment company and the company would act as agents of the Selectman/Assessors. The Selectman/Assessors would oversee the assessing and sign the tax commitment.

Committee Process – Study of Lakefront Assessment Methods:
The goal of the committee was to study the shorefront tax methods in Waterford and compare these methods against professional assessments in neighboring towns and current sales data to ensure the fairest Shorefront tax methodology is recommended to the selectman. The committee did a complete study of lakefront properties which included the following:

• Pond Comparisons in other Towns: Smaller Ponds such as in Waterford
• Last professional assessment done in each town and by whom?
• Maps of Ponds compared: Size, Quality, and Depth.
• Various Shorefront Methods analyzed by committee to ensure fair assessing practices.
  

The Committee started our shorefront review by comparing how shorefront methods affected shorefront values from 1994 to 2007.  2007 Values varied because of three different factors: Saw Tooth was removed, 200 ft and over values dropped on all ponds to the pre-2005 values, and the ponds that had not been raised in 2005 saw an increase in their first 200 ft. We decided not to compare the values to the 2005-2006 methods because of saw tooth, but rather to compare to the methods used in 2004.  We used 100 ft increments to study the values.

Committee Compared Shorefront Values to other towns with similar size Ponds.
Yellow Ponds are Waterford’s Shorefront Assessments

The Comparison Chart shows the following:   

• Mud and Duck Pond are valued lower than ponds of the same size in other towns
• Papoose and Middle Pond(Kezars) are higher than other Ponds of the same size in other towns but only  after 200 feet shorefront is owned
• Island and Little Moose are valued lower than ponds of the same size in other towns
• Bear Pond is higher than other ponds of the same size in other towns but only  after 200 - 300 feet shorefront is owned
• McWain and Keoka are higher than ponds of the same size in Fryeburg but Lower than similar size ponds in Bridgton
• The committee agreed that this data will be useful to the assessors for future value changes.
• The committee agreed that it would be difficult for the committee to make a recommendation to values based solely on comparisons to other towns without a professional analysis of current shorefront sales on each body of water.

The Tax Committee recommends that the Assessors review the data that has been provided in this report for future changes in tax policy in Shorefront Schedules. The committee feels that without actually viewing the shorefront properties and/or compiling statistics or charts to track sales data over the last several years it would be unreasonable for this committee to make any conclusive recommendations. However the committee would recommend that assessor review changes made last year to the 201ft – 600ft and 601 ft & up schedules with the newer charts and data that the committee included in this recommendation.

Committee Process – Assessment Reduction Factors for Undesirable Land:

Land Desirability Reduction Factors

The Tax Committee recommends one factor for Land Reductions .5 or 50%. After lengthy discussion about the many reasons why land is unbuildable all the conditions lead to the same result…… land is unbuildable. We also do not want to value land below the state’s land programs such as tree growth, farmland and open space programs.

 Respectfully Submitted on May 6, 2008

Tax Committee Members
Mary DeLorenzo
Les Gammon
Rockie Graham
Rickie Hall
Samantha Murch