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Port Orchard mulls suing county over property valuation
Port Orchard Mayor Lary Coppola said this week he has asked the city’s attorney to research the feasibility of suing Kitsap County over what he believes are inflated property valuations issued by the Assessor’s Office.
“I ... suggested the city explore the possibility of a lawsuit based upon the documented economic harm being done to the businesses of Port Orchard — therefore harming the city — because of the extraordinarily high tax assessments,” Coppola said.
“Are the unrealistic tax assessments ... a valid basis for a lawsuit aimed at reducing those tax assessments to realistic levels?” he said. “I don’t honestly know if there is such case law, but (I) have asked the city attorney to research this.”
Any such legal action would require the approval of the city council, not the mayor.
Coppola said his main concern is that Kitsap Assessor Jim Avery has re-assessed all the commercial properties in Port Orchard at values that far exceed any kind of realistic selling price.
A change in county policy has also negatively impacted residential property owners whose land has a Comprehensive Plan designation as commercial, he noted.
Those properties are now being taxed as if they were actually being used as commercial, even though they are still residential.
“In my view,” Coppola said, “this policy change is nothing more than a reprehensible sleight-of-hand scheme to increase property tax revenue for the county.”
Back in February, when property tax bills were first mailed out, Avery said it wasn’t so much that the valuations were high. Rather, he said, the problem was that people had gotten used to being taxed at an artificially low rate.
“It’s a sad fact that people were under-assessed for several years leading up to this one,” Avery said. “No one likes to admit it, but it’s statistically true.”
Avery said property taxes in Kitsap County are determined using one of three methods. They include:
• the sales-comparison approach, which uses sales records to provide estimates of value for similar properties;
• the cost approach, which considers what it would cost to replace an existing structure with a similar one that serves the same purpose; and,
• the income approach, which is used primarily to value business property where the property tends to be worth its income-producing potential.
Avery said an extensive survey was sent to business owners a year ago to determine their rental rates, expenses and vacancies in order to determine tax rates for the coming year.
More importantly, all real property in Kitsap County is visually inspected only once every six years for tax purposes.
In other years, the rate is calculated by a formula.
“The problem is, formulas are based on market performance,” Avery said. “We have a pretty good handle on home values because there’s enough volume in the home-sales market to figure out what a home is worth when it’s compared to a similar home that sold in the same community.”
Unfortunately, there’s been virtually no commercial real estate activity during the past six years.
Consequently, assessments every year since then were based on 2006 market conditions.
“We try to err on the conservative side,” Avery said. “But when we do that, we typically fall behind. That’s why commercial property tax rates have stayed relatively low for the past few years.”
“Using that very same logic,” he responded, “considering today’s values, how can a building ... that’s worth 40 percent less today than it cost to build three years ago be valued in excess of 20 percent more than it cost to build?”
Property owners who dispute their valuations have the option of appealing to the Kitsap County Board of Equalization, although only rarely are the Assessor’s rulings reversed.
“We’re just following state law,” said Board of Equalization Chair Tim Matthes. “The Assessor’s Office follows very strict guidelines when it sets those rates. They don’t just make them up out of thin air in order to raise X number of dollars.”
Informed that the city was mulling a lawsuit, Matthes — who this week announced he would run for mayor against Coppola — called it “political grandstanding.
“This has nothing to do with the city, and (Coppola) knows it,” Matthes said. “I think he’s just trying to make himself look like a champion of the people.”
“I understand the (property tax) code,” Coppola said. “and I understand what Avery did. Does the code give him the authority to do what he did? Yes, but it isn’t mandatory. It’s up to the discretion of the assessor.”
Coppola concluded, “What I suspect is both Tim and Avery’s biggest fear is that a lawsuit such as I mentioned, if successful, could possibly overturn all those outlandish assessments and open the door to anyone and everyone who ever filed a Board of Equalization appeal.
“Ask what that would do to the county’s already dismal revenue situation,” Coppola said, “and you can see why they’re both scared.”