REVALUATION REPORT

Table of Contents

Page

Purpose of Report

Revaluation – An Overview

History of Recent Changes to Connecticut’s Revaluation Statute

Revaluation Deferral

Requirement to View Property

Property Data Collection and Verification

Measuring and Listing

Other Data Verification Methods

Property Questionnaires

Field Reviews

Connecticut’s Statutory Valuation Requirements

Computer-Assisted Mass Appraisal

Property Valuation Appeals

Measuring Assessment Levels

The Recent Residential Real Estate Market

Property Tax Burden Shifts

Mitigating the Impact of Revaluation

Property Tax Cap and Surcharge Program

Revaluation Testing Standards

Ratio Testing Standards

Procedural Testing Standards

Certified Revaluation Companies

Table of Contents, Cont.

Page

Revaluation Costs

Joint Contracts for Revaluation Services

In-House Revaluation

Summary of Findings

Conclusions

Statutory Recommendations

CGS §12-62

CGS §12-2b

CGS §12-62a(e) and CGS §12-62c

CGS §12-63b

CGS §12-62i

CGS §12-62(k) and CGS §12-62k

Regulatory Recommendations

A Final Note of Caution

An Act Concerning Real Property Revaluation

Assessors’ Suggestions Regarding Statutory or Regulatory Improvements

Revaluation Schedule Reflecting Deferrals and Delays as of December 2004

End Notes

Revaluation – An Overview

The State of Connecticut has long required towns to revalue all real estate on a periodic basis – a policy embraced not only by our state, but by nearly every taxing jurisdiction in the nation.

According to the Dictionary of Real Estate Appraisal (Third Edition) published by the Appraisal Institute, revaluation is the “mass appraisal of all property within an assessment jurisdiction to equalize assessed values.” The objective of a mass appraisal process is to estimate the fair market value of all real estate (a term that is synonymous with the term real property) as of a common date.

Under Connecticut law, the assessment of each parcel of real property represents 70% of its fair market value as of the date of a revaluation. Unless there is physical change to a property (e.g., the construction of an improvement or a structure’s demolition), its assessment remains unchanged until the next revaluation, when the property’s fair market value is determined again.

Black’s Law Dictionary (Fifth Edition) defines fair market value as:

“The amount at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of the relevant facts. By fair market value is meant the price in cash, or its equivalent, that the property would have brought at the time of taking, considering its highest and most profitable use, if then offered for sale in the open market, in competition with other similar properties at or near the location of the property taken, with reasonable time allowed to find a purchaser.”

Demand for property and the available supply are arguably the primary factors influencing the real estate market. Reaction to supply and demand considerations and to other economic, social and legal factors determines the prices that people pay for real estate.

Potential purchasers of different types of real property (e.g., residential, commercial or industrial) react to different market influences. For example, the reputation of a local school system could play a more important part in determining the choice of a community in which a family with young children chooses to reside than it would for a manufacturer, to whom the availability of skilled labor and access to transportation may be more important.

As a result, changes in the fair market values of real estate of different property classes do not occur at the same rate and inequities in assessment levels develop over time. Additionally, fair market values of real estate in the same property class may change at a different rate than other property in that class (e.g., residential waterfront property and residential property not located on the waterfront).

A revaluation eliminates these inequities in assessment levels and equalizes the tax burden among property owners.

History of Recent Changes to

Connecticut’s Revaluation Statute

Section 12-62 of the Connecticut General Statutes (CGS) embodies the state’s revaluation law. For most of the last century, Connecticut assessors had to revalue real property once every ten years.

As early as 1930, Connecticut law required assessors to “view all of the real estate in their respective municipalities…” when they conducted a revaluation. This wording remained unchanged for almost six decades.

Public Act 89-251 amended CGS §12-62 by adding the words “by physical observation” after the word “view”, and Public Act 97-254 changed the word “observation” to “inspection” in this statute. There is little in the legislative record concerning these changes in terminology. Additionally, there is little in recent case law that addresses “view” or “view by physical inspection.”[1]

Black’s Law Dictionary (Fifth Edition) defines inspection as follows:

“To examine; scrutinize; investigate; look into; check over; or view for the purpose of ascertaining the quality, authenticity or conditions of an item, product, document, residence, business, etc.”

The word “statistical” first appeared in CGS §12-62 by virtue of the amendment contained in Public Act 89-251, the provisions of which allowed assessors to conduct a revaluation by use of a statistical method of adjusting values within five years of a revaluation that included viewing real estate by physical observation. Additionally, this legislation created a program of property tax credits and surcharges that a town with a residential property effective tax rate of 1.5% or more following revaluation, could choose to implement. A town that does so has to revalue all real estate by use of a statistical adjustment of assessed values, not later than five years after the program’s implementation. (See page 24 for information concerning this program.)

The amendment in Public Act 89-251 also required the Office of Policy and Management to adopt regulations concerning methods of performing such statistical value adjustments. Acceptable Methods for Conducting a Statistical Revaluation became effective June 21, 1990 (i.e., §12-62-1 to 12-62-4, inclusive, of the Regulations of Connecticut State Agencies) in compliance with this requirement.[2]

Members of the assessment community and others began to characterize revaluations as “statistical” or “physical”, even though no statutory definition of these terms exists. Also, as the Handbook for Connecticut Assessors published by the Connecticut Association of Assessing Officers (the educational and professional organization for the state’s assessors) states:

“It should be noted that while assessors and others continue to refer to revaluations as 'physical' or 'statistical' in nature, neither term is completely accurate. If real property is viewed by physical observation in conjunction with a revaluation, the assessor still uses statistical data in finalizing value estimates. Likewise, certain properties may be viewed in conjunction with a revaluation that primarily entails the use of statistical analyses and modeling.”

Public Act 94-4 created a Property Tax Reform Commission in order to study a broad spectrum of property assessment and taxation issues. Its findings were included in the 1995 Report of the Property Tax Reform Commission.

One such finding is discussed in a July 3, 1998 report entitled Property Revaluation Mandate, written by Kevin E. McCarthy, Principal Analyst with the Office of Legislative Research:

“The commission found that the ten-year cycle was slow to recognize shifts in the tax burden between and among classes of property (e.g., residential, commercial and industrial) based on market changes. For example, the value of nonresidential property fell more in the early 1990s than residential property, shifting the tax burden to commercial and industrial property. The commission noted that the law attempted to address this situation by allowing towns to phase-in the tax increases resulting from revaluation over a five-year period or providing tax credits over the five years following revaluation, but it concluded that the system still resulted in property taxes that did not reflect market values.

The subcommittee of the commission addressing administrative issues recommended that revaluations be conducted more frequently. It recommended that physical inspections be conducted every 9 to 12 years, with statistical revaluations permitted as an alternative methodology during the intervening years. (The law at that time allowed, but did not require, use of statistical methods such as multiple regression analysis to estimate property values in the years between physical inspections.) Several members favored requiring physical inspections every ten years, with statistical revaluations conducted in the fifth year following. Other members favored statistical revaluations on a three-year cycle. The subcommittee did not choose between these options, but the entire commission adopted the former proposal.”

The 1995 Report of the Property Tax Reform Commission was the impetus for Public Act 95-283, which abolished Connecticut’s ten-year revaluation cycle.

Public Act 95-283 amended CGS §12-62 by requiring each town to implement a revaluation that included the physical observation of real property not later than 12 years following the implementation date of the town’s last revaluation. It also required assessors to update values statistically in the fourth and eighth years following the first “physical” revaluation implemented under the amended statute.

There were, however, a number of towns that had last revalued all real property more than 12 years before the October 1, 1996 commencement date specified in Public Act 95-283. Some had put off revaluation in accordance with the two-year deferral provisions of CGS §12-62h. Others had delayed revaluation because of special acts or amendments to CGS §12-62 that had previously affected revaluation commencement dates.

In an attempt to address this issue, Public Act 96-218 amended CGS §12-62 by establishing time frames for revaluations based on physical observations of real property and statistical updates of property values.

Objections to Public Act 96-218 centered on the fact that it required assessors to implement “statistical” revaluations earlier than they would have had to under Public Act 95-283 and prior to implementing their next “physical” revaluations.

In 1997, the General Assembly enacted an amendment to CGS §12-62 that seemed to satisfy all the concerns that had been raised.

Public Act 97-254 amended CGS §12-62 by instituting a schedule that listed the Year of Next Revaluation and the Year of Subsequent Revaluation for each town. The schedule balanced the 1.42 million real estate parcels throughout the state, so that a fairly equal number were subject to revaluation in each year. (See table entitled Four-Year Revaluation Schedule on page 6.)

The real property parcel-balanced schedule and four-year revaluation cycle remained in effect until the passage of Public Act 04-2 of the May 11 Special Session (hereinafter referred to as the “Act”).

The Act made major changes to Connecticut’s revaluation law:

1. Section 32 of the Act allows towns scheduled to implement a 2003, 2004 or 2005 revaluation, to defer that revaluation until no later than 2006; and

2. Section 33 of the Act amended CGS §12-62 by eliminating the schedule of revaluation dates for towns and extending, by one year, the time period between revaluations. Additionally, it requires a town that last “effected revaluation by statistical means” to “effect its next revaluation by physical inspection.”

Since revaluations would occur less frequently (i.e., every five years, rather than every four years), legislators may have thought that the Act would serve to reduce revaluation costs. However, as this report shows, such costs will actually increase as a result of the revaluation deferral provision and the revised physical inspection requirement.

In the 39 years between 1950 and 1989, the General Assembly enacted three amendments to Connecticut’s revaluation statute. In the past 15 years, however, 16 public acts amending CGS §12-62 have been enacted. The sheer number of these recent amendments to CGS §12-62 is evidence of the Connecticut General Assembly’s struggle with the issue of real property revaluation.

To minimize both the impact and volume of any unintended consequences arising from future legislative changes to CGS §12-62, it is time to take a comprehensive and thoughtful approach with respect to the issue of real property revaluation.

Revaluation Deferral

On May 24, 2004, Office of Policy and Management Undersecretary W. David LeVasseur issued a Memorandum to town officials regarding the Act, from which the following is excerpted:

“Pursuant to Section 32 of this legislation, revaluations required for October 1, 2003, October 1, 2004 or October 1, 2005 do not have to be implemented prior to October 1, 2006...Our records indicate that 77% of Connecticut’s towns are eligible to defer revaluation implementation based on this legislation…

When §12-62 of the Connecticut General Statutes was amended in the late 1990s, consideration was given to balancing the real property parcel count when the four-year revaluation schedule was enacted. If a significant number of eligible towns choose this deferral option, this balance will no longer exist. The result could be a greater demand for the services of revaluation companies in some years in the future, which could serve to increase the price they charge towns for these services.”

Shown below is the real estate parcel-balanced revaluation schedule that existed prior to the Act’s passage. This table was updated to reflect date changes for towns that implemented a revaluation earlier than the four-year schedule required and for those that that did so later than mandated, in accordance with the provisions of CGS §12-62(d)(3).

Even with delays and early implementations, there were still a fairly equal number of towns and real estate parcels that were subject to revaluation each year:

Four-Year Revaluation Schedule
Revaluation Year	No. of Towns	Percent of State	No. of Real Estate Parcels	Percent of Total Parcels
2003	48	28.40%	346,829	24.37%
2004	41	24.26%	417,220	29.32%
2005	39	23.08%	316,325	22.23%
2006	41	24.26%	342,855	24.08%
Total	169	100.00%	1,423,229	100.00%

There is no deadline in the Act by which a town’s legislative body must decide on the revaluation deferral provision. As a result, information concerning the number of deferred revaluations is currently incomplete.

To date, however, the Office of Policy and Management is aware of 35 towns (or 27% of the 130 towns that are eligible) that have chosen to defer their revaluations.[3] Six towns scheduled to revalue real property in 2005 are considering whether or not to defer that revaluation until 2006. Additionally, three towns are delaying a 2004 revaluation for one year, in accordance with CGS §12-62(d)(3).

Of the towns known to have deferred revaluation pursuant to the Act to date:

18	chose to defer a 2004 revaluation until 2005;
4	chose to defer a 2003 revaluation until 2006;
3	chose to defer a 2004 revaluation until 2006; and
10	chose to defer a 2005 revaluation until 2006.

The following table reflects the effect of these revaluation deferrals and delays, as well as the Act’s revision to the revaluation cycle from four years to five years. (Town-specific revaluation years and parcel counts appear beginning on page 60.[4])

Five-Year Revaluation Schedule Reflecting Deferrals Known To Date
Revaluation Year	No. of Towns	Percent of State	No. of Real Estate Parcels	Percent of Total Parcels
2004	17	10.06%	146,365	10.28%
2005	46	27.22%	466,468	32.78%
2006	17	10.06%	179,193	12.59%
2007	42	24.85%	344,176	24.18%
2008	47	27.81%	287,027	20.17%
Total	169	100.00%	1,423,229	100.00%

It is already apparent that the balance of real estate parcels subject to revaluation in a given year no longer exists.