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Monday, July 28, 2014

How are property values determined at Charlestown’s “fake” Fire Districts?

Why they taxed so much lower than you
A conversation with Charlestown Tax Assessor Ken Swain
By Will Collette
Building Photo
Tennis courts owned by the Quonochontaug Central Fire District.
A total of 12.72 prime acres assessed at only $89,800

Now that we’ve all gotten our new Charlestown property tax bills and now must figure out how to pay them, it’s time to revisit some baffling questions about how the property assessments that drive your tax bills get formulated. 

By the way, even though you just got your tax bill and it says it is due on August 1 - this Friday - note that you are not delinquent until September 1. You've got 30 days grace to make the payment.

A few weeks ago, I reported on the local phenomenon of fake Fire Districts. These are shoreline neighborhoods that have managed to get chartered as fire districts even though they have no fire houses, fire equipment or fire fighters. Two of them are in Charlestown - the Quonochontaug Central Fire District and the Shady Harbor Fire District.

Instead of fire services, these two Fire Districts have accumulated a lot of prime shore property that now contain a couple of well-heads so they can supply their neighborhoods with public drinking water, beaches, docks and moorings, tennis courts and recreational areas. The Fire Districts also contract with Dunn’s Corner Fire District to actually provide fire protection. They also collect trash, maintain and plow roads and would probably walk your dog or give you a mani-pedi if you asked them. They roll all of these services and amenities up into the Fire District Tax they charge residents.

That makes those fire district taxes higher than, for example, those households covered by the Charlestown Fire District. But those fire district fees - and all they include - are treated like property tax and are deductible from state and federal income tax – other Charlestown citizens can’t deduct their trash fees, snow-plowing, costs of maintaining their wells, road maintenance, club memberships, mooring fees, etc. from their income taxes.

Adding to the deal, the properties owned by Shady Harbor and Quonochontaug Central are barely being taxed at all by the town of Charlestown. All of Shady Harbor’s holdings are exempt from Charlestown property tax. While Quonochontaug Central does pay some Charlestown property taxes, the assessments on its prime properties is, at least to me, shocking.



Building Photo
Shady Harbor Fire District's boat launch and parking - all tax exempt
So shocking that I asked Charlestown Tax Assessor Ken Swain to explain why the 2.5 acres of undeveloped land Cathy and I own next to our home is assessed at $142,200more than six times the amount, only  $23,200 that a similar 2.5 acre parcel owned by the  Quonochontaug Central Fire District is assessed.

Ken and I had a long – and for me, complicated – phone conversation. We agreed that I would follow-up with some detailed questions and then Ken would respond on the record and in writing, which he has done.

What follows is the result of that exchange. Click here to read the response Ken Swain sent back to me in its entirety. 

NOTE: this is hardly the end of the story. We’ll be looking at this issue through the coming months.

COLLETTE - Overall, you told me there were several factors that led to what seemed to me to be very low assessments on the properties owned by the Quonochontaug Central Fire District. 

These factors included property use, buildability, constraints to sale (such as the need to get a vote of the members), the value added by the FD’s amenities to other properties owned by FD members. 

Could you describe these factors, how they are calculated and how they apply specifically to such properties as those containing such things as the tennis courts, docks and other amenities?

According to Swain, the value of all those Fire District amenities
boosts the property values of the homes of Fire District members
SWAIN: When valuing all property, there are many assessment principles that must be reviewed, specifically in the instance of these Fire District properties:  the Principle of Highest and Best Use; the Principle of Contribution; along with the normal considerations such as Location, Size/Shape, and approval of Onsite Wastewater Treatment Systems and the Ease of the Transaction, as described as follows.

Principle of Highest and Best Use – Demand for a property could depend on potential utility rather than the utility in use. The analysis of highest and best includes:
  • the nature of the surrounding neighborhood;
  • the zoning ordinance which applies to that property;
  • the current use of the property;
  • the current use of the surrounding properties
Principle of Contribution - Also known as the principle of marginal contribution, the value of (in this case) an associated parcel and what it adds to the market value of all the other properties within this fire district.

Location – Property values for otherwise similar properties can vary substantially due to location. However, along with location the principles mentioned above must be analyzed.

Size and Shape - The size and shape of a property can influence the value of that property. Zoning regulations allow and limit the use of all property with the prescribed property line set-backs delineating the useable/buildable envelope.

Onsite Wastewater Treatment Systems (OWTS) – When calculating an assessment, there is consideration given for a property to support an OWTS. Size, shape and zoning allowances along with water-table and proximity to other systems or wells may constrict the building envelope or even extinguish all construction. 

Ease of the Transaction - The market value assessment of real estate is also based on the ease of its transaction. The purchase or sale of Fire District real estate is complicated by the need for a district vote to allow for acquisition or sale.

COLLETTE - The “value added” concept – that a property might receive a low assessment if it adds to the value of surrounding properties – is an interesting one. Is it applied elsewhere in Charlestown and, if so, could you give some examples?

SWAIN: Once again, the Principle of Contribution is also applied to open space common land associated with cluster subdivisions. The following is a list of those properties:

Map
Lot
Lot Cut
Location
Acres
4
69
5
WEST BEACH ROAD-COMMON LAND
21.90
7
6
6
OLD POST ROAD-COMMON LAND
0.22
13
34
A
JOSEPHINE DRIVE-COMMON LAND
12.06
13
34
B
KENDALL COURT-COMMON LAND
0.35
14
96
SEA VIEW DRIVE -COMMON LAND
190.00
16
214
HEALEY BROOK DRIVE-COMMON LAND
33.99
20
204
5
OAK HOLLOW LANE-COMMON LAND
9.94
21
26
2
BURLINGAME DR -COMMON LAND
31.95
21
26
27
BURLINGAME ESTATES-COMMON LAND
7.75
23
1
4
HONEY LOCUST DR-COMMON LAND
7.24
23
16
1
AUBURN DRIVE - COMMON LAND
23.54
23
16
2
AUBURN DRIVE - COMMON LAND
46.11
23
29
BLACK POND ROAD-COMMON SPA
60.49
23
30
ACORN VALLEY WAY-COMMON LAND
11.40
23
98
CRESTWOOD LANE - COMMON LA
25.16
25
32
TIMBER RIDGE - COMMON LAND
16.40
25
51
TIMBER RIDGE - COMMON LAND
11.65
28
22
8
EDWARDS LANE-COMMON LAND
2.92
29
1
10
CEDAR MEADOWS ROAD-COMMON LAND
29.00

There is a zero dollar assessment applied to these open space common land parcels. However, the assessments applied to the “new” subdivision lots associated with each of these recorded cluster subdivisions are derived by the mass appraisal process for establishing fair market value assessments. The values set within these neighborhoods have a consideration for this open space as an amenity.

This same concept is used when valuing condominium land. The land itself has no value as it is either common land or limited common land that is directly associated with each unit owner’s use and established in the actual sale prices, and then corresponding assessments.

If you live near a quarry with renewed activity, like Copar-
Armetta, youmight catch a break on taxes.
COLLETTE - The converse of value added would be value subtracted. I know that during the Whalerock hearings there was some mention of factors that sometimes cause a temporary drop in property values such as churches, schools, etc. although the testimony was that, except for schools, the decline in sales prices tends to diminish over time. 

How about other features, such as proximity to one of Charlestown’s quarries? 

Or the Charlestown folks living across from the Copar Quarry in Bradford? Do these properties have lower assessments due to the quarries and are the quarries accordingly given higher assessments?

SWAIN: LOCATION of any property is the primary basis of land value. All of the factors you listed above could create a market perception of desirability or un-desirability. These factors may be considered an amenity to one buyer or a detriment to another, (i.e. a school, playground or shopping center).

BUT if you live near a pit that's been active a while, like this one Swain
refers to, there has been a "stabilization effect on surrounding property
values," according to Swain. This is the 2nd largest quarry in Charlestown
on Route One owned by South County Sand & Gravel
As it relates to a quarry, or any intensely used property, surrounding property sales will define market value for that location. As with the quarry located on Ross Hill Road, the closest housing neighborhood in Charlestown is along a dirt roadway named Niantic Highway. The assessments of these properties are affected by “location”, of proximity to the quarry and also the roadway accessing these properties. 

There is an active gravel bank located along the south side of US Route 1 which is within a mix of small commercial properties and residential properties. This gravel bank has operated for many years, creating a stabilization effect on surrounding property values.

So, once again, the sales within the real estate market define assessment values wherever their location may be.

COLLETTE - I know that surrounding sales prices are an important factor in the assessments. Does the presence of distressed properties also impact assessments? 

For example, former State Rep candidate Tina Jackson has a house on Skaggerak that seems to have a very high assessment [$274,100] for what it is (0.45 acres way north of One), plus there is at least one other home on the street in foreclosure proceedings. 

It seems to me that Jackson has at least as many constraints to sale (given multiple foreclosure and tax lien problems) as does Quonochontaug FD. How do you compare these factors, let’s say using Jackson’s house versus one of the Quonochontaug FD properties as an example?

SWAIN: As previously mentioned, location has an extreme effect on market values. In the case of foreclosures it is necessary to determine the commonality or frequency of these sales.  Charlestown has some foreclosed property sales but they are not common, and the real estate sales within these neighborhoods have not shown a measurable affect caused by the foreclosure.
As to the property located at 75 Skagerrak Road, the current owner is Fremont Home Loan Trust and the Town’s real estate taxes appear to be current.

COLLETTE - When we spoke, I noted the comparison between the 2.5 acre vacant R3A lot my wife and I own compared to the 2.5 acre vacant R3A lot owned by Quonochontaug Central. I asked you how my lot, north of one, could be assessed at more than 6 times as much as the comparable  Quonochontaug Central lot. [Our vacant R3A 2.5 acre lot on the moraine north of One is assessed at $142,200 while the Quonnie Fire District R3A 2.5 acre lot is assessed at only $23,200]. Could you please elaborate for the record?

SWAIN: In the revaluation process, estimating land value is a separate step accomplished by applying the sales comparison technique, adjusting for size, utility, zoning and location. When few sales are available or when the value indications produced through sales comparison require substantiation, other procedures may be used to value land. The following are examples of these procedures:
  • Sales comparison — Sales of similar, vacant parcels are analyzed, compared, and adjusted to provide a value indication for the land being assessed.
  • Proportional Relationship — Relating a site to a known standard site. The difference can be expressed as a percentage, price per square foot or price per acreage.
  • Land Residual TechniqueThe land residual approach is used when the value of the building(s) is known or can be readily determined and determination of land value is needed... A common example of this would be in the case of a new building where it could be assumed that the cost of construction equals the value of the building. Synonymous with this is the technique of Extraction – where the land value is estimated by subtracting the estimated value of the depreciated improvements from the known sale price of the property.
For a new building, the appraiser could use the land residual approach to find the value of the site, for income tax purposes or otherwise.

In the assessment realm, as shown by my response to your first question and the information supplied above, there is no direct comparison between your vacant buildable lot and the parcel owned by Quonochontaug Central Beach Fire District due to ownership rights and utility of each property. 

COLLETTE - Throughout our conversation, it seemed to me that you have quite a lot of discretion over how much properties are actually assessed. Could you describe how much discretion you do have and how much of the assessment has some fixed formula?

SWAIN: Conversely, I believe I have very little “discretion”. The real estate sales that occur during intervening years of each revaluation process establish general values throughout the community. As the Assessor, I must use accepted assessment valuation modeling techniques to establish a value for all properties, based on the finite number of sales.    

Fortunately, Charlestown is a community that does not lack real estate sales. Some revaluation periods offer a vast number of sales throughout the community and other periods, based on economics, have fewer sales but neither situation has negatively affected any revaluation process in Charlestown as there have always been an adequate number of sales for the necessary assessment modeling studies.

To further your review of assessment principles and practices I would refer you to the following publications:
                                 
Gloudemans, Robert J.
Mass Appraisal of Real Property
Chicago:
International Association of Assessing Officers,  1999
Gloudemans, Robert J.
Almy, Richard
Fundamentals of Mass Appraisal
Kansas City:
International Association of Assessing Officers,  2011
Eckert, Joseph K., Ph.D.
Gloudemans, Robert J.
Almy, Richard
Property Appraisal and Assessment Administration
Chicago:
International Association of Assessing Officers,  1990
Ange, Diane M., CAE
Gilliam, Roger L., CAE
Hobart, Lisa A., CAE
Linne, Mark R., CAE
Tegarden, Thomas K, CAE
Thimgan, Garth E., CAE
Thimgan, James R.
Property Assessment Valuation
Kansas City:
International Association of Assessing Officers,  2010