Evidence of sharply declining property values in the Western San Juans turned up in mailboxes earlier this month, as county assessors in Colorado sent out notices of property valuations. From a taxpayer’s point of view, lower values mean lower property taxes and may be welcome news. But for local county and municipal governments, and for school, library and fire districts, the decline will mean less revenue and more belt tightening as they continue to provide their respective services.
The impact is strongly felt this year because every other year in Colorado is a reappraisal year, meaning that in 2009, which was not a reappraisal year, values for taxing purposes were close to 2008 valuations. For the tax year 2011, county assessors reappraised all real property to reflect market values as of June 30, 2010.
In Ouray County, according to County Assessor Susie Mayfield, the overall assessed value of property in the county is down 12 percent with the 24-month median sale price of a single-family home in Ouray County having decreased by six percent from the last revaluation period. Vacant land in Ouray County decreased only slightly. In Montrose County, all classes of real property in the preliminary assessment, with the exception of agricultural land, experienced a decrease in value between June 30, 2008 and June 30, 2010. Vacant land experienced the greatest decrease in value, dropping by about 20 percent. Montrose County assessor Brad Hughes said the large decrease in vacant land valuations can be attributed to an oversupply of subdivided lots accompanied by lack of demand for new residences.
Residential property values decreased by nine percent in Montrose County. Sales occurring after foreclosure and short sales “undoubtedly” impacted existing home values, Hughes said, as one in every five residential sales used for revaluation analysis involved a financial institution.
In the two years since the last revaluation, commercial property in Montrose County declined an average of ten percent as well.
Much the same can be said for San Miguel County, according to County Assessor Peggy Kanter, where countywide, valuations are down about 13.5 percent.
“All classes of property have gone down from two years ago on average about 13 to 15 percent with the exception of agriculture, and that’s because of commodity prices,” Kanter said.
While the statewide average drop in property values was 9.6 percent, Kanter said San Miguel County is doing better than some counties that are seeing assessed value declines in the area of 16 percent.
Residential property values are derived strictly from the market approach to valuation (qualified sales of similar properties during the 24-month period prior to June 30, 2010). For the region, the number of residential sales have dropped significantly, meaning assessors have less data to use in their comparisons. In Ouray County, for instance the number of qualified home sales that the assessor’s office had to work with from the 24-month data gathering period plummeted from the previous 24-month period of 140 sales down to approximately 65 sales. Vacant land sales varied by location in Ouray County, but overall this revaluation period there were only 45 qualified sales during the 24-month study period, down drastically from the 203 qualified sales used in the 2009 revaluation. And for commercial properties Mayfield’s office had to utilize the statutory limit of five years of sales, and still only had 25 qualified commercial sales that they could consider.
According to Hughes, over the past several years in Montrose County, the decrease in the number of transactions has not been matched by an equivalent drop in sales prices.
While this assessment period is the first major wave of decline in property valuations since the national economic slump took hold in 2008, Mayfield believes values may even drop further as this assessment period does not include many recent foreclosures and short sales.
“I think for the next revaluation we will be seeing more bank-owned sales than what we are seeing now, and that will make it very interesting,” Mayfield said.
Pulling the Belt Even Tighter
For most taxing entities in the region, the decline in property value assessments means a decline in revenues, and it will make budgets even tighter than they already are.
Under Colorado’s TABOR law, mil levies cannot be increased without a vote of the people. When property values decline, mil levies remain at the same level and revenues decrease. (Mil levies that back bonds are adjusted upward, however, when property values drop, in order to keep debt payments on pace.)
Mitigating the impact, San Miguel County administrator Lynn Black said that the county has been systematically planning for next year’s decrease in tax revenues. The county budget projects about $5.4 million in revenues, a decrease from the $5.9 million the county received in 2010. A preliminary look at this year’s assessment suggests that the $5.4 million number may be about right.
“Our projections were pretty darn close,” Black said. “How we handle the next assessment, I don’t know.”
Like Mayfield in Ouray County, Black said that a high number of foreclosure sales could mean that values will drop even more by the next assessment. Of bigger concern to San Miguel County is a potential drop in the federal government Payments in Lieu of Taxes, from which San Miguel County receives nearly $700,000 a year.
“We don’t know what the feds are going to do about PILT, but we are estimating that number is going to drop to $100,000,” Black said. “So far, it looks like 2013 is going to be a tough year.”
Ouray County administrator Connie Hunt says the county’s general fund stands to drop about 12.5 percent based on the preliminary valuations and the county has also been planning for this decrease.
“We have collectively been planning for this kind of reduction since 2008,” Hunt said. “Our operating budget is already pretty slim; there’s not a lot of fluff in it.”
Hunt said the county will be holding a work session on May 25 when she will present budget-reducing scenarios to begin the conversation on how best to lower expenditures even more.
“I don’t know yet what it will look like,” she said. “It could be reduced work weeks, maybe a slight reduction in work hours, I am not sure yet. I am going to work out a bunch of different scenarios and then reach out and ask for new ideas and make this a team effort to make it work.”
Schools In a Different Pickle
Telluride School District Superintendent Mary Rubideau explained that the schools face a related but different funding challenge. “The drop in assessed valuation shouldn’t affect our budget,” she said. “When the A.V. drops, the community will pay less, but the state will pay more.”
It’s known as backfill, Rubideau said. There is a base funding rate for every child in public school, somewhere in the neighborhood of $5,800 per pupil per year. When a community raises less in mil levy tax dollars for its schools, the state of Colorado is required to make up the difference.
The catch in the current economic downturn is that the state can’t afford to backfill as it once did. Facing big budget deficits of its own, Colorado has had to trim its spending on education. State cuts ultimately resulted in a $650,000 budget slashing by the Telluride School District last year, and a further $350,000 in cuts this year.
But, said Rubideau, “We’ve been hearing the state economy is starting to rebound. Next year we’re hoping we’re not going to see these reductions.” Local tax revenue will still be lower, thanks to the revaluation, but state funding could bounce back. “That’s the optimistic viewpoint,” she concluded.
Property owners should have received a Notice of Valuation in the mail after May 1. The value listed on the notice reflects your property’s actual value as of June 30, 2010, and will form the basis of your 2011 property bill, payable in January of 2012. All county assessors offices offer several options should an owner choose to protest the property’s valuation and must be filed between May 1 and June 1, 2011.