County Assessor Larry Stone visited the San Jose City Council study session last week and gave an extensive lecture on the role of the County Assessor and a critique of Spectrum Economics. His comments were blunt, sparing only profanity about the economist hired by the RDA for $15,000. I wrote about this topic three weeks ago.
This is the only time that another elected official has spoken to the City Council at length during my tenure. Mr. Stone explained how property values rise and fall. Property values change for a variety of reasons: when property is sold, new construction, Prop 13 adjustments, Prop 8 appeals, business property (servers, factory equipment) and assessment appeals. Revenues from property tax will not increase for local governments this year and may even fall further.
Those that are hopeful of more property tax revenue have stated that if a global corporation stock price rises then so should their property value. Assessor Stone stated that there is no correlation between the stock price of a single company and how much their commercial property is worth. His example was that if you got a raise or bonus that your own home would not increase in value.
I think next year we may want to forgo an economist and instead pick up the phone and call Larry Stone. To be fair, the assessor only looks back and does not offer projections; however he has a more informed view then most and the only cost may be lunch.
Click this link to view the Spectrum Economics Report.
Click this link to view the informative presentation of Larry Stone.
Click this link for the the play by play speaking notes that went with the presentation slides.
This Wednesday night at City Hall, 6:30PM our City Auditor will present the findings of the pension audit to the public.
“Those that are hopeful of more property tax revenue have stated that if a global corporation stock price rises then so should their property value.”
That view is absolutely hilarious! Thanks for a good laugh.
> “Those that are hopeful of more property tax revenue have stated that if a global corporation stock price rises then so should their property value.”
One of the problems with politics is that intellectually disabled morons who are able to wear a dark suit and a sincere tie can often be taken seriously by intellectually disabled voters.
The link to the Spectrum Economics Report does not work. It goes to Google, which is asking for the user to login to Google. Not everybody has a Google account. Please post the docs in a public location.
All three links work for me on Microsoft browser.
I say this is all the fault of city employees.
I think this is all the fault of people named Frank. One stupid comment deserves another.
Oh also thanks SJI for censoring my other post. A free speech blog I see.
Chill out, Manny. It was sarcasm lest it hits you square in the face.
Manny, I agree with you. Pier et al has demonized and demoralized city workers, who for the vast part are very decent and hard working people.
Frank, after I sent the comment I thought maybe it was sarcasm. I guess it didn’t get me quite square in the face. It wouldn’t be the first time. I suppose I am a bit frustrated about the public’s attitude (as well as the city’s) toward public employees.
I’ll try to chill out but no guarantees on how long that will last.
Response from Richard Carlson:
Councilman Oliverio,
Here is my response to Assessor Stone:
RESPONSE TO ASSESSOR STONE
Assessor Stone and I disagree about how to value commercial buildings during a severe recession. I believe that the Assessor improperly used foreclosure and forced sales data to sharply cut the valuation (and resulting taxes) of a fortunate few properties. He states, somewhat confusingly, that A.) He is required to use forced sales data and B.) He really doesn’t use forced sales and uses income and construction cost data instead.
At issue are the reassessments of 43 large properties where the reductions totaled over $900 million – about ½ the total assessment loss to the San Jose Redevelopment Agency (SJRDA). (Table attached). In total the assessed values of these properties dropped by nearly 40%. This huge drop in value bears no relationship to any known source of data on construction cost or commercial rents. According to McGraw-Hill, construction costs actually rose about 3.8% over the last year. According to Collier’s International, San Jose area rental rates declined 6 to 9% this last year. If Assessor Stone has found sources for 30% to 60% reductions in rent or construction costs in 2009, that would be of great interest to the economic and appraisal community. Assuming no such data exists we can only conclude that the only possible source of data for the Assessor’s dramatic reductions in market value was comparable sales.
The classic definition of market value is the price that is paid in an arm’s length transaction between a willing buyer and a willing seller. A forced sale or foreclosure is not a transaction with a willing seller and is therefore not a proper source for data on market values. Most commercial forced sales and foreclosures are caused by the lack of refinancing, not a major change in property value. There is a huge difference between prices in forced and non-forced sales. For SJRDA industrial properties, values dropped only 1% in normal sales but for forced sales the drop was 39%. Since Assessor Stone reduced values on these selected large properties by 40%, we can only conclude that he mainly used the forced sales data to justify these large reductions.
Assessor Stone not only improperly relied on forced sales data, he was surprisingly selective in its application. If values really dropped by 40% on a property built or last sold in 2000, for example, then valuations should have dropped for all buildings built or last sold in that year in the same area. This did not happen: of the over 1000 industrial buildings in the SJRDA, over 900 changed in value by 1% or less. Since the reductions were not applied more broadly, we can only conclude that threats of appeals or some other non-economic factor played a role in the reassessments.
As an alternative to relying on misleading forced sales data, I suggested the Assessor look at the market valuations of equity Real Estate Investment Trusts (REIT’s). Assessor Stone not only cursorily dismissed this suggestion, he went on to accuse me of suggesting he use the market value of industrial corporations, such as Oracle, to estimate the values of their buildings. I have never made such a silly suggestion. The source of the Assessor’s hallucination on this subject is unknown to me.
For some unknown reason Assessor Stone has turned this professional disagreement into a personal attack. I can only comment that in my decades of experience as an expert witness in civil litigation, I have observed that when opposing attorneys chose to personally attack me that was an excellent indicator of the weakness of their case.
Richard Carlson
Chairman, Spectrum Economics
Link to excel file from Richard Carlson:
https://spreadsheets.google.com/ccc?key=0Am4E3Fugofp_dG9PeTdkal8wX1BSVXlNUHlETTFWOGc&hl=en
Both Assessor Stone and Pierluigi should read the “Uniform Standards for Professional Appraisal Practice” which were authorized by the U.S. Congress.
Richard Carlson is exactly right in his comments. Assessor Stone should be required to pass a course in Real Estate Appraisal.
Whew, that was a snoozer!
Brilliant analysis. Would pictures make it easier for you?
Yes, Mr. O. Really, perhaps I could borrow yours. I probably know ten times more about the subject than you ever will.
Nonetheless, I find this story to be boring. Maybe it stems from my complete lack of faith in government, especially in the sense that no matter how much money they have, all of it will get spent and little of it wisely.
Thanks for the laugh though, I needed one today!