Opinion ID: 1697115
Heading Depth: 1
Heading Rank: 6

Heading: TERC's FINDINGS

Text: Douglas County argues that TERC's findings were arbitrary, unsupported by the evidence, and not in conformity with the law in several respects. Douglas County first claims that TERC acted in an arbitrary fashion by accepting a time adjustment to the residential property in Douglas County, but not to the commercial property. Our review of the record indicates that TERC accepted the median level of value for residential property in Douglas County without any type of time adjustment. In its argument, Douglas County refers to a statistical adjustment in which the PTA stated that the median ratio for residential property was 92.8 percent, which would be adjusted for time by 2 percent to 94.68 percent. However, we find that the actual statistics using the trimmed profile show that the median value was 95 percent. Thus, TERC did not accept the PTA's statistical adjustment to the residential class of property. The analysis of the statistical reports states: The calculated median ratio was rounded to and reported at 95%, indicating the level of value of the residential real property to be within the range of 92-100%.... Now referring to the Statistical Adjustment page the median level of value is at 97 indicating the level of value of residential real property to be within the range of 92-100%. Regardless of the interpretation of the statistical analysis or the statistics, we do not find that TERC's actions were arbitrary. Even without a time adjustment, the median value of real property was within the acceptable range of 92 to 100 percent, and TERC correctly concluded that it was not necessary to order a percentage adjustment to the residential property in Douglas County. Douglas County next argues that TERC lacked sufficient evidence to issue the order to show cause. Pursuant to § 77-5023, TERC is given the authority to issue an order to show cause why the value of a class of property should not be adjusted. See § 77-5026. In considering the show cause order, TERC relied upon Bredemeyer's expert testimony that the 4-percent time adjustment that the PTA applied to the median assessment-sales ratio for commercial property in Douglas County was not consistent with a professionally accepted mass appraisal standard. Without the application of the PTA's 4-percent time adjustment, the median assessment-sales ratio for commercial property was 90 percent, which was outside the statutorily acceptable range of value required by § 77-5023. Sufficient evidence was presented to support TERC's actions, and TERC did not act arbitrarily in issuing the show cause order to Douglas County. This argument is without merit. Douglas County also objects to TERC's findings in its May 10, 2000, order as arbitrary, unsupported by the evidence, and not in conformity with the law. The county claims that a number of analyses could have been used by TERC which showed that the median level of value for commercial property in Douglas County was within the statutorily acceptable range. Instead, the county argues, TERC based its findings on the unsupported theory that sales chasing had occurred prior to January 1999. Among the analyses that TERC allegedly ignored was Buckwalter's recalculation after he corrected 76 errors in the sales roster. The new median for commercial property in Douglas County was 91.81 percent, which Buckwalter stated would normally be rounded to 92 percent and would fall within the statutorily acceptable range. In addition, the PTA recertified her statistical report for commercial property in Douglas County on May 9, 2000, showing a median of 90.48 percent, which was rounded to 90 percent. The PTA then applied a 4-percent time adjustment and arrived at a median of 94 percent, which she asserted was within the statutorily acceptable range. Another analysis by the PTA, using Buckwalter's corrections and 3 years' worth of sales from July 1, 1996, to June 30, 1999, resulted in a median of 97.67 percent, which was rounded to 98 percent. No time adjustment was made to this figure because it was based on 3 years' worth of sales. According to the PTA, analyses purporting to apply a 4-percent time adjustment to individual sales of commercial property in Douglas County during the period of July 1, 1998, to June 30, 1999, resulted in a median of 93.9829 percent. A recalculation of the median based on adjusting sales by 4 percent on a monthly basis resulted in a median of 93.8763 percent. Douglas County argues that these analyses were competent to demonstrate that TERC should not adjust the commercial property values by 7 percent. The county asserts that even though TERC, the PTA, and the county's own witness all agreed that sales chasing could be evidenced, it was not conclusively shown by a comparison between the percent in sales base value to the percent change in assessed base value. TERC claims that the analyses were unreliable because the data used included sales information from periods during which the prior Douglas County assessor engaged in the unacceptable assessment practice of sales chasing. As noted earlier, sales chasing occurs when values for properties that have been sold are changed while values for unsold properties remain constant. The practice is unprofessional because it creates inequities between properties and, unless adjusted for, renders sales ratio studies invalid. This is important because [t]he objective of ratio studies is to determine appraisal performance for the population of properties, that is, both sold and unsold parcels. As long as standardized schedules and formulas are used in the valuation process, there is little reason to expect any significant difference in appraisal performance between sold and unsold parcels. If, however, sold parcels are selectively reappraised based on their sales prices or other criterion, the appraised values used in ratio studies will not be representative and ratio statistics will be distorted. International Association of Assessing Officers, Mass Appraisal of Real Property 309 (1999). In addition, [i]f sold and unsold parcels are similarly appraised, they should experience similar changes in value over time. Accordingly, it is possible to compute the average change in value over a selected period for sold and unsold parcels and, if necessary, test to determine whether observed differences are significant. If, for example, values for vacant sold parcels in an area have increased by 45 percent since the previous reappraisal, but values for vacant unsold parcels have increased only 10 percent, clearly sold and unsold parcels have not been equally appraised. Id. at 311. TERC argues that evidence of sales chasing is shown in the assessment-sales ratio data contained in the profile prepared by the PTA. This data reflected a marked decrease in the assessment-sales ratio for commercial property in Douglas County between the last two quarters of 1998 (94 and 93.18 percent) and the first two quarters of 1999 (84.12 and 80.20 percent), with a net drop in the median of 14 percent in 6 months. TERC asserts that the practice of sales chasing tainted the sales data prior to January 1, 1999. We are required to review decisions by TERC for error on the record. Therefore, our inquiry is whether the decision conforms to the law, is supported by competent evidence, and is neither arbitrary, capricious, nor unreasonable. See Pfizer v. Lancaster Cty. Bd. of Equal., 260 Neb. 265, 616 N.W.2d 326 (2000). In this review, TERC is entitled to the presumption that it faithfully performed its duties, and the burden is upon Douglas County to prove that the action of TERC was erroneous. See Hall County v. State Bd. of Equal., 250 Neb. 323, 549 N.W.2d 164 (1996). The quarterly assessment-sales ratio studies in the profile for commercial property offered by Douglas County showed that a flat real estate market existed in Douglas County for the 3 years between July 1, 1995, and June 30, 1998. However, the evidence is undisputed that the commercial real estate market in Douglas County was strong and increasing at a rate of 4 percent per year. As TERC noted, under these circumstances, the quarterly assessment-sales ratios listed in the profile should have decreased. No witness provided any explanation for the dramatic change in the median after the former assessor left office in January 1999, and Douglas County presented no evidence to explain the inconsistency. As sale prices increase in a strong market and assessment values lag behind, the assessment-sales ratio should decrease. For example, if a property is assessed at $90,000 and is sold for $100,000, the assessment-sales ratio is 90 percent. If the assessed value of this property remained at $90,000 and at a later date the property sold for $110,000, the assessment-sales ratio would decrease to 81.82 percent. The 1999 percent change report for Douglas County showed that for commercial property, the 1998 to 1999 increase in sales base value was 21.33 percent. However, the 1998 to 1999 increase in assessed base value was only 3.98 percent. Contrary to Douglas County's argument, these figures were relevant to the determination of whether sales chasing had occurred during this time period. Sales chasing was demonstrated by the 14-percent decrease in the median level of assessment between the last quarter of 1998, when the prior assessor was in office, and the first two quarters of 1999, when Morrissey took office, based on the trimmed profile for commercial property. As TERC found, this 14-percent change was not representative of changes in the commercial real estate market during this period when the real estate market was strong. If the sales utilized by Douglas County in the ratio studies were representative of the entire commercial real estate market, the market in Douglas County, after remaining stagnant for 2½ years, changed more than 14 percent in 6 months. Douglas County did not provide any evidence to explain the dramatic change in the median assessment-sales ratio after the former assessor left office in January 1999. Buckwalter, Douglas County's expert witness, testified that the assessment rolls and the property record cards showed a flat real estate market in Douglas County for 3 years, although the real estate market had been increasing 4 percent per year. This supports a finding that sales chasing had occurred in Douglas County at least until the end of 1998. TERC also found that the median assessment-sales ratio for the study period which was not tainted by sales chasing was 80.20 percent for the second quarter of 1999, or April 1 to June 30. Therefore, TERC determined that as a result of sales chasing by the previous administration in the Douglas County assessor's office, commercial property in Douglas County was and continues to be undervalued. We conclude that TERC's determination that sales chasing had occurred in Douglas County during this time period was supported by competent evidence. TERC's findings with respect to sales chasing were neither arbitrary, capricious, nor unreasonable. TERC's finding that a time adjustment was not necessary in order to equalize Douglas County with other counties is also supported by the record. According to § 007.08 of the Nebraska Administrative Code then in effect (currently at § 008.08), [TERC] will give consideration to the methodology used by the counties in determining time adjustments and to the impact time adjustments may have on the overall statistical analysis results. The PTA's determination to apply a 4-percent increase to the reported median assessment-sales ratio of 90 percent is not supported by the Nebraska Administrative Code or the evidence. Section 007.08A provides: `Time adjustments' are changes made to the sales price of real property sold during a particular time frame in order to account for inflationary or deflationary changes in market value. These changes impact the assessment/sales ratio, and also the PRD and COD. Section 007.08B requires the assessing body to justify its time adjustment practices based on evidence. The PTA adjusted the assessment-sales ratio by 4 percent with no justification. Bredemeyer, TERC's expert witness, testified that it was not appropriate to adjust the median assessment-sales ratio. Therefore, the evidence supported TERC's determination that the 4-percent time adjustment applied by the PTA was inappropriate. Douglas County also argues that it was improper for TERC to draw any conclusions that were inconsistent with its prior findings and orders regarding previous years' equalization proceedings because such determinations were res judicata. Douglas County claims that any findings made or relied upon in the 2000 order that were inconsistent with TERC's 1999 order must be stricken. According to the county, if TERC was concerned that the 1999 values reflected sales chasing, the concerns could have been addressed during the 1999 equalization proceedings. TERC argues that res judicata is not applicable in matters involving different tax years. TERC further asserts that it was required to address different issues with respect to the 2000 equalization proceedings, namely the propriety of the PTA's time adjustment, and was presented with new evidence establishing the unreliability of the sales data for the prior periods. The record shows that Douglas County did not adjust the commercial property values in 1999. TERC's 1999 order was based upon the PTA's 1999 reports for the county, which showed a median value of 94 percent for commercial property. Therefore, the values were not considered previously. In County of Douglas v. OEA Senior Citizens, Inc., 172 Neb. 696, 111 N.W.2d 719 (1961), we concluded that an adjudication that property is exempt from taxation in any 1 year is not res judicata on the question of whether the property is exempt in any succeeding year. Applying the same rationale, TERC is not barred from using past sales data found in certified PTA reports to make adjustments in a later tax year. Thus, TERC was not precluded from using such evidence to determine that the statistical analysis by Douglas County was not reliable.