A recent reassessment of commercial property in the City and Borough of Juneau has left some people crying foul.
After a decade of relatively flat assessments, commercial property owners received an unwelcome surprise this spring — news from the assessor that their property’s assessed valuation has increased for tax purposes.
This week, a group of local commercial property owners claimed that the city’s reassessment is unfair, lacks transparency and that the city refuses to communicate with them.
In a statement emailed to the Empire local realtor, PeggyAnn McConnochie said that the city “undertook a mass assessment of commercial land values resulting in an increase of assessed values of 150%. Despite repeated requests from various taxpayers, the city has failed to provide the data and a concise explanation of how the assessments were determined.”
Jeff Rogers, CBJ finance director, disagrees on all counts, though he said he understands why commercial property owners may find the process frustrating.
Finding the value
In a phone interview this week, Rogers said the city uses a mass appraisal model to determine the right assessment level. The model looks at available selling prices and compares them to assessed value.
“In the aggregate, we know that commercial properties sell for more than we have assessed them,’ he said. “I think everyone has recognized that commercial property is worth more now than it was 10 years ago.”
Rogers acknowledges that the assessor works with “very limited data” because, until November of 2020, property sales information disclosure was voluntary. But, he said, the addition of experienced appraisers with expertise in statistical analysis gave the assessor the confidence to review commercial real estate values after about a decade of flat assessments.
“We see clearly that commercial properties are selling higher,” he said. “Now, we have a new crop of appraisers who can apply that increase to other properties.”
Rogers said that Michael Dahle, deputy assessor, is the primary city employee involved with the commercial property assessments and that he holds the highest level of credential available to government assessors.
“We finally had the confidence in the statistical analysis to correct a decade of no change in assessment,” Rogers said.
Rogers said that the property assessment process is far from secret and has been explained in several public meetings, including a Greater Juneau Chamber of Commerce lunch meeting. Rogers said he attended a small group meeting at a local restaurant along with McConnochie earlier this year.
Not so fast
McConnochie said she rejects the validity of the mass assessment approach for several reasons, but chiefly because it does not consider the way different sections of town are valued.
“You need to do an assessment based on each location. When you compare equally something that’s on the waterfront vs. something on the dump, it’s not fair. They’ve got the smoke and mirrors thing going and it’s just not right,” she said. “Historically, the mass assessment process was not done on one community mass. It was done in different areas.”
She described the areas of Juneau as “strings on a pearl” and said that each pearl requires independent valuation because conditions have changed over time. She noted this is an important step in residential property appraisal.
“Some property is less valuable than it was five years ago,” she said. “Some of the buildings around there have to deal with a new negative. There are different things in different neighborhoods. You need to go pearl by pearl and say what’s happening in this neighborhood. Is it getting better or worse? How is traffic, etc.? You have to look at all those things.”
In addition, McConnochie said that the dearth of sales data stems from a lack of sales, not a lack of price disclosure from former and new property owners.
“I’m sorry but there aren’t any sales. There’s no proof that the market has increased,” she said.
McConnochie said that some of the sales that did take place, such as the waterfront purchase from Norweigan Cruise Line, were “anomalies’’ and should not be counted as sales for assessment purposes.
McConnochie said that commercial property owners are reeling from the magnitude of the assessment increase. She thinks properties were previously overassessed, rendering the decade without assessment increases irrelevant.
“I will admit that the assessed value of my building has not increased for several years. But when I started to look at this and ask questions of others for all types of properties, everyone was doing a headshake. We need transparency. We need to find out how they are increasing our value by 150%. It’s a question and a general point of protection,” she said, describing how she came to lead the charge to learn more about the assessment process.
“There’s one year from 2020 to 2021, they increased the value of my lot by 150%,” she added.
Rogers said that math is inaccurate.
He said that as part of this year’s assessment, the city increased the base land value throughout the borough by 50%, making the value of each property 150% of its previous assessment.
“If you had a million dollar piece of land, we increased the assessment by 50% to $1.5 million. We moved the value by 50%.” he said.
In a presentation to the Chamber of Commerce earlier this year, Rogers explained that historically, the city generally assessed property values at 72.86% of the amount that the property might sell for given typical selling conditions. Based on the 2021 assessment, valuations have moved closer to 88.53% of expected value, closing in on the city’s goal of assessing property at 98% of its fair market value.
McConnochie acknowledged that Rogers’ explanation of a 50% change in value is another way to view the increase.
She said last year’s assessment likely captured the property’s worth because the value had finally caught up after years of overassessment. In light of that, in her view, the 2021 increase was too high.
“We were overassessed before that but I never fought it. I should have,” she said. “We aren’t sure that there is a need to catch up because it was overvalued before. They overshot it.”
It’s the economy, maybe
McConnochie said the assessor should consider current economic conditions when assessing property.
“There are things going on in the economy that are kind of weird,” she said, citing COVID and declining oil prices as reasons the economy is sputtering. She noted that Juneau and Alaska have taken “massive economic hits,” which needs to be accounted for when assessing property values.
As an example, she said that fewer state and federal jobs mean less need for office space.
“Because Juneau is a capital city we are losing leases. Now, we have space in the building without state office workers. Who is going to take over rental space,” she said, adding that an empty office building is less valuable than one occupied by people.
Rogers sees the situation differently.
“I spend a lot of time thinking about the health of the economy. Almost none of our local economy is tied to oil. We do rely on state expenditure of funds. There are ways in which state troubles can influence Juneau’s economy,” he said.
But, overall, he sees a bright future for Juneau.
“Growth in mining and tourism has offset a lot of state job losses. We see that in the success of the mines, sales tax, and a fairly strong economy.”
Rogers acknowledged that for some business owners, it doesn’t feel like a great economy.
“We are not assessing businesses. We assess real property. The question is how much is that real property worth,” he said, adding that the city expects a robust return to tourism next year.
Rogers said property buyers are generally looking at a longer time horizon.
“You are not going to buy a piece of property for income today. You are buying it because it will have returns in 20 or 30 years. The fact that you aren’t producing the income today is not relevant,” he said.
Rogers said that the city is currently processing 205 commercial appeals, which is more than usual. During the process, the city works with property owners to determine if an error has been made.
“When we find an error, we fix it,” Rogers said.
Those appeals that can’t be resolved are referred to the Board of Equalization, made of local residents. During the hearing, the property owner bears the burden of proof that the assessment is wrong.
Rogers acknowledged that he understands the frustration people feel with the assessment process and the ways in which commercial assessments differ from residential assessments.
“We get used to seeing a fee appraisal that’s customized. We think that’s what the assessor does. But they look at thousands of properties at once and look at sales activity. It’s very different than an individual property.”
• Contact reporter Dana Zigmund at email@example.com or 907-308-4891.