Property value recovery has minimal impact on city coffers
Property tax caps take the wind out of potential windfall.
While Grand Rapids property values are continuing to recover, the increases won’t produce a groundswell in property taxes for the city.
That’s because taxable values are capped at 1.6 percent this year.
This year the State Equalized Value, which represents an estimate of 50 percent of the fair market value of the properties assessed on the roll, averaged a 7.7 percent increase for the city of Grand Rapids. In comparison, last year the city saw a 4.6 percent increase.
“We’ve hit bottom — probably in about 2013 and 2012 — and now there is this steady climb back, and we are starting to see residential property values recover,” said Scott Engerson, city of Grand Rapids assessor.
Residential assessments are determined by comparing the sales of homes within a certain geographic boundary.
“It’s a very simple mathematical calculation that we do,” Engerson said. “We look at all the homes that have sold over a two-year period, we look at the total assessment, we compare it to the total sale price, and that is how we determine how much those assessments in that area need to be adjusted, whether it goes up or down.
“The changes vary from market area to market area, even if they are right next to each other. That is because we use a very prescriptive method that is recommended by the state in comparing those assessments of actual sold properties.”
Engerson called this year’s final tallies “expected.”
“Real estate markets aren’t static — they go up and down, and we expect to see that in residential,” he said. “We really peaked around 2007, and then we went into a very rapid decline, and now we are seeing a rebound.”
The city won’t see a substantial increase in revenue from property taxes as a result of the increasing assessments, however, because of Proposal A, passed in 1994, which puts a cap on the increase in taxable values.
“A lot of people think, ‘Wow, 7.7 percent, the city is going to see this very nice growth in property tax revenues,’ but unfortunately that is not the case anymore because of Proposal A and the capping provisions,” he said.
“The only thing the city would get above that 1.6 percent would be on properties that have sold. If a property sold, then the year after the transfer, the assessed value and taxable value becomes equal. But if a property hasn’t sold, Proposal A puts a cap on the growth and taxable value at the consumer price index, and this year it was 1.6 percent.”
Engerson said the cap last year was also 1.6 percent.
This year’s growth and revenue will be very similar to last year.
New construction also will have an impact on the tax base for the city. Engerson said those numbers aren’t currently available.
The situation is similar for commercial and industrial properties within the city.
“For industrial and commercial, the same rules apply as far as taxable value, which is our tax base, so again those assessments are capped at 1.6 percent this year,” Engerson said.
This year commercial assessments increased on average by 5.2 percent, which follows a zero percent average increase from last year.
Industrial was also limited, with properties on average remaining the same as last year. In 2014, industrial average increases were less than 1 percent.
“Industrial is just holding steady, which is good,” Engerson said. “At least it’s not going down. It’s stabilized.”
Engerson noted Proposal A has been very good for property owners, but it creates a situation where if the assessed value decreases drastically, it can take several years to recover those loses because of the cap.
“For property owners it’s a very good thing in that they now don’t have to be concerned with what might be a double-digit increase in a property tax bill,” he explained. “That was the way it was before Proposal A passed. If your assessed value went up 10 percent, it was likely your tax bill went up 10 percent also.”
He noted before Proposal A, there was another amendment that kept property taxes in check.
“Before Proposal A, there was the Headlee Amendment, which in a different way limited the amount of growth in the property tax base,” he said. “So the mechanisms to limit the amount of revenue from property taxes have been in place for many years.”
Engerson said in this way property tax provides a stable source of revenue for the city, while limiting any sticker shock for property owners.
“That is the best thing about the property tax: You aren’t going to see really big spikes in property tax base anymore now that Proposal A has passed,” he said.
City’s 10 highest taxpayers
Consumers Energy, $68,815,983
Spectrum Health Hospitals, $43,265,821
Amway Hotel Corp., $37,162,299
HP3 LLC, $23,961,500
Centerpointe Partners, $23,094,512
DTE Energy, $20,100,490
Fifth Third Bank, $19,579,436
Steelcase Inc., $18,300,259
Meijer Inc., $16,852,792
Autodie LLC, $15,334,955
Source: City of Grand Rapids assessor’s office, 2014 figures.