More than Their Share
Property Taxes in Atlanta Neighborhoods Hardest Hit by Foreclosures
As the foreclosure crisis continues to decimate neighborhoods across the country, it leaves in its wake displaced families, vacant homes and the potential for inflated property taxes.
Property taxes that fail to reflect sinking market values create an unfair burden on residents of high-foreclosure neighborhoods. Atlanta Neighborhood Development Partnership (ANDP), a housing nonprofit that for 18 years has focused on development, lending and public policy to support mixed-income communities, has identified the need to address property tax disparities as a critical part of a comprehensive regional foreclosure response strategy.
"Distressed neighborhoods will not begin to stabilize and come out of this crisis until vacant homes are occupied again," said John O'Callaghan, president and CEO of ANDP. "When property taxes are out of line with true market values, it not only hurts families struggling to keep their homes, it deters future buyers from moving into the neighborhood—leaving homes empty and values depressed. This is both an equity issue, ensuring that impacted homeowners do not pay more than their share, and a neighborhood recovery issue."
What accounts for inflated property taxes in high-foreclosure communities? Until very recently, tax assessors in Georgia and many other states did not consider foreclosed and bank-owned home sales in their property valuation assessment formulas, which include a review of recent comparable sales. As a matter of standard practice, foreclosed and bank-owned sales were considered "invalid" or outlying sales and not representative of the market as a whole.
However, the real estate market in Georgia and metro Atlanta has changed dramatically over the last two years. Georgia ranked eighth in the nation in foreclosure filings in 2008. Last year, there were more than 85,000 foreclosure filings in the state—44 percent more than in 2007 and a 117 percent more than in 2006. Metro Atlanta accounts for 81 percent of Georgia's foreclosures. In fact, Atlanta ranks third nationally (behind only Las Vegas and Detroit) in the number of vacant rental units and single family homes, according to U.S. Census Bureau statistics.
ANDP first developed experience in the impact of property tax issues on lower-income families in 2008, when the organization led a successful effort to double the Homestead Exemption for the City of Atlanta and Fulton County. Through its "Keep Atlantans Home" campaign, ANDP found legislative sponsors in the Georgia General Assembly; researched best practices on Homestead Exemptions; built a broad network of support within and beyond the affordable housing community; and generated hundreds of calls and emails to legislators.
At the close of the 2008 General Assembly session, legislators voted to increase the Atlanta-Fulton Homestead Exemption from $15,000 to $30,000 over three years. (It had not been updated since 1993.) Voters overwhelmingly approved the measure on the November ballot, resulting in an estimated $23 million annually in property tax savings for low- and moderate-income homeowners.
"We knew from our Homestead efforts and experience in development that higher property taxes were a serious obstacle for lower-income neighborhoods," said Sharon Gay, ANDP's Board Chair. "As we retooled ANDP to focus all of our attention and resources on foreclosure response, we directed our policy efforts to address the impact of the crisis on property taxes."
Research shows highest-foreclosure areas run greatest overpayment risk
The initial report from RCLCO, which included home sales from the first six months of 2008, found that the 15 highest-foreclosure ZIP codes would account for an estimated $71.5 million in property tax overpayment if dramatic reassessments were not made in 2009. The risk for overpayment in Clayton, DeKalb and Fulton Counties was significantly higher than in suburban Cobb and Gwinnett Counties, where foreclosure filings were less prevalent. In Fulton County's 30310 ZIP code, comprised of largely minority, urban neighborhoods located southwest of downtown Atlanta, the median sales price was $38,500, but the median appraised value was over $120,000. Without downward value adjustments, 30310 homeowners would overpay their taxes by an estimated average of $1,464 annually or $122 per month, resulting in a total ZIP code overpayment of $10.4 million.
"We expected to see some overpayment risk metro-wide due to the overall decline in home sales prices in Atlanta, but we were surprised to find that these 15 ZIP codes alone accounted for more than 80 percent of the total metro-wide overpayment," said Dave Pierce, who managed the analysis for RCLCO. RCLCO's research also revealed that the highest-foreclosure ZIP codes had a greater percentage of lower-income, minority and unemployed residents.
In April 2009, RCLCO updated its initial analysis with home sales data from the second half of 2008. The tax disparities expanded significantly in late 2008 as sale prices continued to plummet in the high-foreclosure ZIP codes. The overpayment risk for the same 15 ZIP codes jumped 66 percent to $118 million. In the low-income neighborÂhoods surrounding Atlanta's Turner Field Stadium, the report found that homeowners would pay $1,904 annually in excess property taxes without an appropriate adjustment in value. While Clayton, Fulton and DeKalb continued to show the biggest gap between current market value and tax appraised value, the suburban counties—Cobb and Gwinnett—also saw their overpayment risk climb as foreclosures in the second half of 2008 began to depress home prices.
"Our updated report showed that homes in the 15 highest-foreclosure ZIP codes were overvalued by 43 percent relative to current market value, while metro homes outside those ZIP codes were overvalued by 12 percent," said RCLCO's Pierce.
"It's important to note that our research did not include distressed sales on the courthouse steps," Pierce added. "We pulled our sales data exclusively from a multiple listing service, which reflects only arm's-length real estate transactions between a willing seller and a willing buyer."
Outreach to tax assessors, elected officials and homeowners
ANDP met with metro chief appraisers collectively and individually and provided them with RCLCO's analysis in advance of the public release of the data. They presented the findings to the county Boards of Assessors, regularly attended public Board meetings, and encouraged an open and ongoing dialogue with Board members and staff.
Knowing that local governments would be concerned about the fiscal impact of declining property tax revenue, ANDP also worked to educate elected officials about the tax inequities in high-foreclosure communities. Tax assessors, county commissioners and other elected officials were invited to participate in a media event to release the RCLCO findings. Atlanta City Council Member Joyce Sheperd, whose district includes one of the City's highest foreclosure ZIP codes, was among those attending.
"Local governments are facing extremely tight budgets," said Sheperd. "But we cannot stand by while homeowners in our most vulnerable neighborhoods are shouldering more than their fair share of the tax burden. Tax officers are legally bound to get this right by issuing fair and accurate assessments."
Sheperd introduced a resolution, passed unanimously by the Atlanta City Council, urging Fulton County tax officials to "take direct action to update tax appraised values." And shortly thereafter, the Fulton County Commission approved a similar measure, introduced by Commissioner Emma Darnell, encouraging the County Board of Assessors to "use innovative methods to assess property values for the 2009 digest, particularly in neighborhoods with high rates of foreclosure."
While ANDP's primary focus was addressing the tax issue at the digest level, the organization also reached out directly to homeowners in affected communities to educate them about the tax disparities and advise them on their rights to file a tax payer assessment (TPA). When a homeowner files a TPA they have the opportunity to tell the county what they think the fair market value of their home should be. The county is then required to review the property's value and make adjustments if it deems changes appropriate. Filing a TPA is considered a "first-step" toward appealing property taxes.
ANDP made presentations at neighborhood association and community meetings in the areas at greatest risk for overpayment. They also posted step-by-step instructions, along with deadline alerts, for filing TPA forms on the ANDP website.
Media focus raises awareness and inspires legislation
Leading local coverage of the issue was the Atlanta Journal-Constitution's (AJC's) senior local government reporter, D.L. Bennett, who wrote numerous articles on the property tax gap.
"The paper's role as public policy watchdog required consistent and vigilant attention to an issue that's critical to virtually everyone in the state," Bennett added. "Even if you don't own property, taxes are passed on to tenants and collected in rents. Also, local governments rely heavily on property taxes to fund their operations."
Informed by the property tax research and media coverage, Georgia State Senator Chip Pearson introduced a bill mandating tax assessors to include foreclosed and bank-owned sales in the property valuation process. The bill was passed in the final days of the 2009 General Assembly session and signed into law—effective immediately—by Governor Sonny Perdue on April 14.
ANDP is preparing to repeat the RCLCO analysis with sales data from 2009 to review how well tax assessors did in reducing property values, specifically within the 15-ZIP-code study area. That report is scheduled for release in October.
"The tax inequity faced by high-foreclosure neighborhoods is not unique to Atlanta, but we were hard-pressed to find other regions nationally that were proactively addressing the issue," said ANDP's O'Callaghan. "We hope that this research model and the action by county assessors will serve as a model for metro areas across the country."
This article was written by Susan Adams, director of research, policy and information for the Mixed Income Communities Initiative (MICI) at the Atlanta Neighborhood Development Partnership, or www.andpi.org.