Reassessing the reassessments

Since I reported last month that Seattle’s tax rate is going up by 13.4% this year, I’ve been asked by readers to explain why such a huge increase is necessary. With inflation running at only 2.7% last year, how does local government justify a tax hike that’s almost five times higher? Also, how exactly does the 12.3% downward assessment of residential property in our area of Seattle impact what we end up paying in taxes to the City? And since Madison Park’s property values declined less than the property values in the rest of Seattle, does this mean that we will now have to pay a greater share of the City’s total property taxes this year?

Thanks to the assistance of the King County Assessor’s Office, I have the answers to all of these questions.

But first of all, a word about the relation between property taxes and property assessments. You probably received a King County property tax assessment last year stating that the value of your residence had declined by 12.3%. I warned everyone at the time (or at least everyone who was reading this blog) that they should not expect their tax bill for 2010 to decline by the same 12.3%. The reason for this is that the total property tax obligation of the citizens of Seattle is determined by the multiple taxing districts (e.g. city, library, sewer, school, state, county, EMS, ferry, flood) that have the legal right to tax Seattle property. In other words, the annual need for property tax revenue is determined totally independently of the process by which our property values are determined. Or as the Assessor effectively puts it: don’t hold me responsible for the taxes you have to pay; I’m only responsible for figuring out how the property-tax obligation is distributed.

The following chart shows how much Seattle’s property owners are expected to pay in total taxes this year as compared to last:

That actually amounts to only a 1.6% increase in the property tax obligation for all Seattle properties, both residential and commercial in 2010. Not too bad.

And here’s how our area of the City (Madison Park/Madrona/Leschi) fared in terms of overall property value decline, year over year:

That represents a 10.6% decline in the total value of properties (residential and commercial) in our three contiguous communities. Seattle’s total property value, meanwhile, was $131.7 billion in 2009, declining by 10.3% to $118.1 billion for 2010. So what this means is that Madison Park/Madrona/Leschi actually had a greater decline in overall value than the City did (10.6% versus 10.3%).

So how is it possible for both things to be true: our total property value declined more than the City’s, while at the same time individual residential property owners here, on average, had less of a decline in value of their homes than those in all other areas of the City? The answer is that the rest of the Seattle had a lot of new construction and redevelopment, and a significant level of new property value was created in the process. Without this added property available to tax, the City would have had to tax previously-existing property at an even higher rate to make up the difference. Even so, just to stay about even with last year's tax revenues, the tax rate this year had to go up by 13.4%.

For Madison Park, then, this is the outcome of the whole process of tax setting and property reassessment for this year: we lucked out. With our below-average decline in individual property values, we could have faced paying a bigger portion of the City’s total tax obligation in 2010. Instead, because a lot of new property was created in other areas of town that can be taxed this year, we are actually paying a smaller portion of the City’s total property taxes in 2010 than we did in 2009:

And that’s the rest of the story.

["Our share" in the above chart refers to the proportion of total City taxes paid by Area 14, which consists of Madison Park, Denny-Blaine, Madrona, and Leschi (as detailed on the map above).]

The 2010 Seattle tax rate is up a whopping 13.4% (but our tax bills will be down!)

The King County Assessor’s Office this morning certified the 2010 property tax rate for Seattle, and property owners will be seeing the implications when they get their tax bills in early February. The 2010 rate is $9.04 per $1,000 of assessed value, which compares to the 2009 rate of $7.97. While this is a huge rate increase--13.4% to be precise--it doesn’t mean that Seattle property owners will be getting tax bills that show a big hike in their tax obligation this year. And depending on where they happen to live in Seattle, many homeowners will actually end up with a significantly lower tax bill.

But not those of us who live in Madison Park. Our property taxes will be down just slightly-- essentially unchanged.

This is one of those good news/bad news situations for most homeowners in Madison Park, Madrona and Leschi. Our three neighborhoods share the same tax-assessment area (see map); and as I reported in June, our section of the City had the lowest decline in property values of any area: 12.8%. This is the good news part of the story, since in the opinion of the tax assessor at least, our property values held up better than the values elsewhere in Seattle.

Now here’s the bad news: since we had the lowest decline in property values, the typical property owner here will not see the kind of decrease in absolute tax obligation that the typical property owner living anywhere else in Seattle may experience. This is the bottom line: for the vast majority of us in our area of the City, our 2010 tax bill will be about the same as last year (assuming we made no improvements to our homes). The reason is essentially this: the decline in the value of our properties was pretty much offset by the amount of the rate increase.

Homeowners in the rest of the City “lucky” enough to see bigger declines in their property values will have a lower tax burden in 2010 than they had in 2009. In this respect, some neighborhoods are really benefiting in tax terms from big declines in property values.

Seattle Neighborhoods with the Biggest Declines in Property Values

Beacon Hill (down 22.4%)
Queen Anne (down 21.3%)
Rainier Beach (down 19.1%)
E. West Seattle/Georgetown/South Park (down 19.0%)
Central Area (down 18.5%)

These neighborhoods all come out ahead for tax purposes since their property declined in value to a much greater extent than the amount of the 13.4% tax-rate increase.

Seattle Neighborhoods with the Smallest Declines in Property Values

Madison Park/Madrona/Leschi (down 12.8%)
Rainier Valley (down 12.9%)
Ravenna/University District (down 13.1%)
Mapleleaf/Wedgewood/Bryant (down 13.5%)
Capitol Hill (down 14.0%)

These neighborhoods came out the worst for tax purposes, since their property-value decreases were effectively offset by the 13.4% tax-rate increase.

Although Madison Park and our two neighboring communities had an overall decline of 12.8% in property values, that’s not the decrease in value that any of us saw reflected on the 2010 property assessments we received last year. For reasons too involved to go into, most Madison Park, Madrona, and Leschi property owners (94% of us, to be precise) received an actual downward property-value adjustment from the Assessor of 12.3% for the 2010 tax year. (If you want to know why it’s not 12.8% you can email me for an explanation).

To understand why Madison Park has not come out ahead in terms of taxes this year we can compare our situation to that of property owners on Beacon Hill, where property values (again, in the opinion of the King County Assessor) declined the most of any Seattle neighborhood. The Assessor adjusted property-tax values downward by 22.4% for about 89% of homeowners on the Hill. That’s not quite twice the level of decline experienced in Madison Park.

This is how that difference between the two Seattle neighborhoods results in a far different tax outcome in 2010 for a house valued at $500,000 in 2009 in each of the two neighborhoods. I picked the house value based on what the King County Assessor’s Office tells me was the “average” assessed value for houses in Seattle last year (give or take a couple thousand).

In 2009 the tax obligation for a $500,000 house on Beacon Hill was $3,985 ($500,000 x .00797). For 2010, the house was reduced in value by 22.4% to $388,888. The 2010 tax obligation for the Beacon Hill house is $3,507 ($388,000 x .00904). That’s a decrease of $478, or 12%.

In 2009 the tax obligation for a $500,000 house in Madison Park was also $3,985. But for 2010, the house was decreased in value by 12.3% to $438,500. The 2010 tax obligation for the Madison Park house is $3,964 ($438,500 x .00904). That’s a decrease of $21, or less than 1%.

Like I say, it’s a good news/bad news situation. At least we’re not paying a big increase in taxes as a result of our property values holding up better than those in the other parts of town. I'll have more on Madison Park's tax situation next week.

Assessed values of Madison Park houses down 12.3%

If you’ve checked your mailbox today you may have found your new property assessment in the mail. And if your property is typical, your assessment should have gone down approximately 12.3% from last year’s level.

King County Assessor Scott Noble, in what is probably one of his last acts before heading off to jail, signed off last month on the 2009 Area Property Assessment Reports, including that for Madison Park/Leschi . These area reports are used to define the percentage by which property values in each area of the County will be adjusted for 2010 property-tax purposes. The map at left (click to enlarge) shows the area covered by the Madison Park/Leschi report. There are three geographic groupings represented: green is Madison Park proper (including Washington Park and Denny-Blaine), blue is Broadmoor, and red is Leschi and Madrona. The housing markets in all three sub units were analyzed together to produce one adjustment percentage for the entire area.

Here for comparative purposes is how our assessment adjustment of -12.3% compares to other Seattle neighborhoods:

Capitol Hill - down 13.9%
Fremont - down 17.1%
Magnolia - down 17.4%
Central Area - down 18.1%
Georgetown - down 19.3%

And here’s what some neighborhoods on the Eastside experienced:

Novelty Hill - down 14.1%
Woodinville - down 14.3%
Bellevue - down 15.3%
Sammamish - down 15.9%
Duvall - down 18.4%

So, if it’s any consolation to property owners in Madison Park, it appears that in the opinion of the Assessor, our community has held up better than any other area of the County (several area reports have still to be issued publicly, however).

After noting that they have historically taken a conservative approach to computing changes in market values, the County’s Department of Assessments this year says that “in the recent declining market, this approach was not an option. Instead, sales occurring prior to January 2009 were adjusted downward for use in the analysis process. An additional downward adjustment was warranted to account for lack of sales and the influence of distressed sales on the housing market. Most homeowners will see a significant reduction in the assessed value of their home.” For Madison Park/Leschi, 94.3% of homeowners will have their property value adjusted by the “standard area adjustment” of 12.31%. Some properties, including new houses and those that have been remodeled, will be adjusted on a different basis.

A caution is in order, however, lest anyone think that a 12.3% decline in property values means a 12.3% decrease in their 2010 property tax assessments. Far from it. The amount of tax each of us will owe next year will be determined in January 2010, and we will be notified of our 2010 tax bill in mid-February next year. The new tax rate (aka millage) that will be imposed next year will be determined by the funding needs of governments within the County, some of which were imposed by the voters through tax levies. As the Assessor’s Office puts it, “Property valuations do not determine the amount of overall property tax obligations. Property tax obligations are determined by 160 taxing districts in King County as they create their respective budgets for 2010 and are not determined nor set by the Assessor. Simply put, the amount of tax obligation is determined by the taxing districts and the distribution of the obligation is determined by property values.”

So the bottom line is that since Madison Park/Leschi held up better in the market downturn, the effect of this is to shift a greater burden to our community in meeting the overall tax obligations of the County. Hurray for us!

If you have not yet received your new property assessment and want to know what it is, you may access this information at the Department of Assessments website.