Not quite a true assessment of local properties

May 3, 2010
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Editor's note: This is the final installment in a series of stories examining downward trends in the value of property in Kent County.

When Kent County Equalization Director Matt Woolford recently revealed that the total equalized value for all real and personal property in the county fell in 2010, his report marked the third consecutive year the value dropped. As things currently stand, Woolford sees that dismal trend reaching four in a row by the time he gives his 2011 report a year from now.

"I think, in particular, we have yet to see the bottom in commercial and industrial classes. There is a lot of commercial paper resetting there, as well. The first six months do indicate another down year in 2011," he said.

The equalized value for commercial properties countywide rose by 2.8 percent, or $128.5 million, to $4.74 billion over the past year. Of the county's largest cities, Wyoming recorded the biggest gain in commercial value: 16.9 percent or $93 million. The city's dollar amount represented 72 percent of the countywide gain in commercial value.

The equalized value for industrial properties countywide fell by 21.5 percent, or $422.5 million, to $1.54 billion over the past year. Of the county's largest cities, Wyoming recorded the biggest loss in industrial value last year of 44.8 percent or $138.2 million. The city's dollar amount represented nearly 90 percent of the countywide loss in industrial value.

But Woolford said the contrary shifts in value for commercial and industrial properties over the last year weren't necessarily a true assessment, as dollars weren't the only items involved. An order from the Michigan Tax Commission to reclassify industrial properties to be in compliance with the Michigan Business Tax also played a role in the final figures.

Here is how a reclassification can work. Let's say there are two buildings located next to each other in an industrial park. "One makes widgets and one has trucks and is a distribution warehouse. If it's a distribution warehouse, the state is saying it has to fall in the commercial class of property. If they're making widgets to use for a manufacturing purpose, that falls within the definition of the industrial class," said Woolford.

"Now that matters a lot. Let's say you have the same owner owning both of those buildings and previously the assessor had both classed as industrial. Well, now the assessor has to change the one to a distribution warehouse, which is commercial, and has to take it out of the industrial classification, even though it's very similar in almost every regard to the property next door," he added.

The state tax commission requires assessors to consider a building's use for its property classification. If that use is to distribute industrial parts that are made next door, then its use is commercial because the widgets aren't produced in it. And if the owner of both buildings has an industrial tax exemption, say a PA 198, then the building where parts aren't made gets reclassified as commercial.

"We believe and the assessment community believes that is in direct response to the tax breaks that accrue to the industrial property over the commercial. That's why they've ordered a lot of the industrial into the commercial class based on that clarification of the definition for assessing purposes," said Woolford.

"Historically, the highest and best use has driven the classification of property in Kent County. Now, on top of that, we also have to consider the actual use in the manufacturing-distribution process for classification. That's why we had over 10,000 properties the STC ordered class changes for going into the 2010 year statewide."

Woolford said the tax commission initiated 10,000 appeals against local assessors throughout the state last year and instructed them to make reclassification a priority for this year. So a portion of the loss in industrial value countywide is due to reclassifying some of those properties to commercial, and some of the gain in countywide commercial value is a result of industrial properties coming into that class. That explains, for example, part of the change in the commercial and industrial values Wyoming had.

"Well, what it does is it screws-up an equalization study because we used to be able to track the growth of these things, and these remained fairly stable over time. Just because that property in that industrial park has been changed to a commercial class, it still is in an industrial park. And its most probable use was going to be for some sort of an industrial enterprise," said Woolford.

"So it's going to complicate our equalization studies, but we'll study it wherever it's at. That's not a problem with value. It's just what bucket does it go into now. … And that's really always been the case: The definition has always been there. But the application of it now is tied to the Michigan Business Tax, and that's why the STC felt it could no longer let assessors do that because now there is an exemption to it. To me, it's kind of the tail wagging the dog."

He said personal property is also undergoing reclassification and is tied to that portion of the MBT. Now assessors have to determine whether a piece of personal property is directly used in the manufacturing process.

"Essentially, all the state is doing is they're combing through the classification of property and they're narrowing the definition of industrial class to that specifically involved in a manufacturing process. It's been broader than that in the past statewide, and that's why we're going through this."

The 2010 report showed that the equalized value of all property in the county plunged the last year by $1.23 billion to $22.57 billion. The taxable value of that property fell by $820 million over the past year to $21 billion. A loss in residential value led the decline, as it dropped by $900 million.

Commercial values rise, industrial drops

Five cities in Kent County account for two-thirds of the total State Equalized Value of commercial and industrial properties countywide. Here is a comparison of those values and the percentage change for each city, the five cities as a whole and the entire county over the past two years.


City
Grand Rapids
Grandville
Kentwood
Walker
Wyoming
5 Cities' Total
Countywide Total
  

2009
Commercial
$1,419,756,900
$272,405,326
$625,178,900
$253,666,700
$551,049,600
$3,122,057,426
$4,620,558,426

  

2010
Commercial
$1,385,088,800
$268,144,100
$633,929,300
$245,280,000
$644,114,100
$3,176,556,300
$4,749,084,700

  

Change From
2009 to 2010
-2.4%
-1.6%
+1.4%
-3.3%
+16.9%
+1.7%
+2.8%


City
Grand Rapids
Grandville
Kentwood
Walker
Wyoming
5 Cities Total
Countywide Total

  

2009
 Industrial

$316,534,700
$59,740,000
$365,674,500
$209,759,500
$308,156,800
$1,259,865,500
$1,967,772,900

  

   2010
Industrial

$319,819,300
$51,238,500
$284,065,200
$206,939,500
$169,933,900
$1,031,996,400
$1,545,245,000

  

   Change From
2009 to 2010

+1.0%
-14.2%
-22.3%
-1.3%
-44.8%
-18.1%
-21.5%

Source: Kent County Equalization Reports, 2009 & 2010

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