November 5, 2007
Some Hidden Savings in Governor Daniels' Tax Plan
In the ten years since Indiana’s property appraisal system was ruled unconstitutional taxpayers have spent perhaps $1,000,000,000 to remedy the situation. That’s over $350 per household. It is also about what we spend on all our statewide administration annually, and more than we spend on environmental protection each year. ‘Wowser’ is the only printable exclamation I can muster.
Among other things, Governor Daniels’ tax plan proposes the elimination of the township assessors (1008 offices statewide). According to a 2004 Chamber of Commerce study this would result in a little more than $10 million savings each year by streamlining the current system. This is an excellent first step, but it still leaves our assessment costs in excess of $200 million per year. There is another way to reduce costs and provide a uniform market based estimate of property values.
Since I was in fifth grade, economists have been using pretty straightforward techniques to value homes by their individual characteristics, location and regional amenities. These techniques have been adopted by most states, and virtually all commercial enterprises. They are most commonly known as mass appraisal models (economists often refer to them as hedonic pricing models) Indeed, a number of Indiana townships have contracted for these services through commercial vendors. Sadly, the statewide cost on this service would be only fraction higher than the cost for an individual township. Statewide the cost would be a small percentage of the current appraisal expense.
Opponents of Governor Daniels’ plan will argue that such an important function of government can’t be left to the private sector or that the contractors cannot be expected to do as good a job as local appraisers. I disagree, and here’s why.
Mass appraisals of Indiana property will be based on a forty-year-old methodology that has been widely proven both in practice and in particulars. Economists have even used the technique to value park lands, good schools and to discount property based on proximity to airport noise and registered sex offenders. Fairly established criteria such as home and parcel size, construction, number of rooms and an average neighborhood effect will work. The models can be recalibrated each year based upon updated sales information of homes in the area. In the end, any mass appraisal effort will be imperfect. But, it will be far less imperfect, for a fraction of the cost, than the current system.
Most importantly, Hoosiers are used to mass appraisals. I’ve recently moved to Indiana. I bought a home that was priced by a realtor using a mass appraisal formula. I received a home mortgage from a company located in Tampa, Florida that used a mass appraisal formula to evaluate my home’s value. I then contracted for homeowners insurance, and had my rate established by a mass appraisal model of the home’s value (minus the land). The value of my automobile was established using a mass appraisal program. All of these interactions employed computer generated mass appraisal programs. Indeed, the only transaction I’ve been involved with that did not employ a mass appraisal model was in the tax valuation of my home.
It’s time to fix our appraisal system and let taxpayers spend the savings on something else.
About the Author
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