List manager reported:
New numbers for the Minneapolis City Assessor’s Office show increasing office values among downtown office towers. Among some of the larger towers in downtown, assessed values have gone up 15 to 20 percent since 2004.
I think it is important that folks understand that there is a business cycle and it does affect downtown property valuations and thus property tax collections.
From a property tax standpoint, the value of an office building downtown is(often) determined by the sum of the rents that you can get from it. (ie how much money you can make from it) Over the last thirty-some years there has an economic boom, followed by a bust and then a recovery. What this means for the downtown is that in the boom period, the downtown builds new office space. Then, when the economic downturn comes and employment drops, there is more rental space then demand for it both because of the business downturn and because of the overbuilding. To entice people to rent (remember microeconomics class) building owners drop rents. Because the value of the building is based on the sum of the rents that you can generate from it, downtown property values decline. It takes a couple of years for the economy to recover and absorb that excess space in downtown. Then rents start to climb and property taxes with them as supply and demand come back into balance. Among many other factors, this has been part of the problem with property tax collections over the past several years.
This cycle has happened in 1981-1982, 1991-1992, and then again in 2001-2002. It wouldn't surprise me that property values are climbing again as this is what has happened in the past. But I would also caution that if the economic recovery falters, that this trend could be slowed or even reversed.
As to the question of "billing errors" or whether the City has discretion in setting estimated market values: Although there is some "art" in setting estimated market values, there is an awful lot of science to it as well as a hammer if overall estimated market values are not close to actual property sales. As Mr. Brandt noted, if a property owner does not feel market values are correct, they can challenge their assessment and ultimately take the City to court. On the other hand, if the City does not keep up with the estimated market values and keep them close to what the actual market is reflecting, the state will take away local government aid. So there really is not tinkering with valuations to adjust for revenue needs on the part of the Assessor because of these two forces.
I would also say that the Assessor has had a very difficult time lately keeping up with changes in values recently. Many homes are seeing double digit increases in valuations and have for several years now. If you as a homeowner feel your estimated market value is to high (there were notices sent out a month or so ago) you can also challenge it. 85% of people who do challenge it win so if you do think that it is high, it is worth your while to pursue it with the Assessor's Office.
Carol Becker Longfellow Candidate for the Board of Estimate and Taxation Public Policy Geek
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