Changes to Property Assessment System Would Improve Fairness

Like a more frequent, less welcome, and much more expensive Halley’s Comet, property reassessment returned to Missouri this year. As the suburbs have expanded, complaints formerly confined to Saint Louis and Jackson counties have moved into adjoining counties, giving the reassessment issue more focus for many legislators. The Speaker of the House has appointed a task force on the issue, scheduled to issue a report later this year. What should Missouri do, if anything, about its assessment system?

The problem is not with the use of property taxes to fund local governments. The problem lies in the seemingly arbitrary way in which assessments are set, which leads to a lack of public faith in the property tax system’s fairness in Missouri’s larger and faster-growing counties.

Until recently, this problem has been confined to Missouri’s two largest counties, with their appointed, professional assessors and computer-based systems. Because of the obvious factors of human nature and political survival, elected assessors in rural Missouri have not increased their appraisals as rapidly — or as accurately. This is a serious issue in cases where taxing districts cross county lines. For years, the underassessed residents of Saint Louis city paid less than they should have to the taxing districts they shared with Saint Louis County, such as the Zoo-Museum District.

For better or worse, depending on your perspective, the assessments in Saint Louis city have become more accurate, and consequently higher, during the past few cycles. These problems have now moved to the extended suburbs, with dramatic assessment differences between older homes and brand-new developments.

Missouri should eliminate the practice of sending hundreds of assessors out into our neighborhoods every other year to assess property. In the current system, each county assessor uses the comparative sales method to assess every home in the county. The county’s average rate of increase is realized only after all the homes are reassessed. I believe the process should be reversed.

Jordan Rappaport, an economist with the Federal Reserve Bank of Kansas City, wrote an article, “A Guide to Aggregate House Price Measures,” for his institution’s second-quarter 2007 Economic Review, which reviewed the various nationwide housing price indices. This article could serve as a starting point for the Missouri State Tax Commission, working with county assessors and local realtors, to determine average county increases (or decreases) in valuation for each reassessment cycle.

Each residential, commercial, or agricultural property in a county could then be adjusted based on the county’s average for that particular class of property. This would eliminate wide discrepancies from house to house that undermine faith in the current system. These individual discrepancies are common even in places where the aggregate accuracy of the assessments is high, such as Saint Louis County. Furthermore, the savings from no longer paying so many assessors would be substantial.

The appeal process should be maintained, to allow property owners who believe the real value of their property is less than the average increase to have an opportunity to reduce their assessment. For the commercial property classification, which is more complicated than the residential classification to assess, counties could be allowed to continue their current systems.

When a house is sold or refinanced, the assessment should continue to be set at the exact sales price. This would safeguard against incorrectly undervaluing properties — particularly expensive ones — which might be underassessed over time by the use of an average-based system.

Missouri is one of a handful of states that does not require certificates of value to be filed with a county recorder upon sale of real estate. Currently, these certificates are only required, by local ordinance, in four of Missouri’s larger counties. Certificates of value should be required with the sale of all property statewide, because only they guarantee that the most accurate information market forces provide are entered into the assessment system throughout Missouri.

If we are going to have a system of taxes based upon property assessments, we must give local officials the ability to accurately assess property. In order to address the privacy concerns of those opposed to mandatory certificates of value, the information need not be made available to the general public — but it must be available to the local assessor.

These changes would dramatically alter the assessment system in Missouri. I believe they would improve the fairness — both perceived and applied — of the overall system, while maintaining, and in many places improving, its accuracy.

David Stokes is a policy analyst at the Show-Me Institute, a Missouri-based think tank.