When is a CLA not a CLA?
Edgar Clodfelter, VMPA
NEMRC Sr. Appraiser
Those of us in the Lister/Assessor world understand that CLA stands for Common Level of Appraisal. In the perfect world we would be assessing all our properties at market value (a CLA of 100). We also understand that the CLA is used to equalize the grand list (GL) for education tax purposes since we have a statewide education tax rate. The equalization is done because all towns assess property at different levels of assessment.
Each summer we receive a list of sales to vet for validity. We may need to input some values, or update some values. We may try to get some of the sales “thrown out” because we do not consider them “arm’s length” (willing buyer and seller, without duress). Once we have reviewed and established a list of sales, that data is used to generate a new CLA. This is done every year; however, this calculation is different during a reappraisal year.
Let’s start by understanding that the 2016 equalization published in January uses values from the 2015 grand list. The sales used in that study cover the period from April 1, 2012 through March 31, 2015. When that report was published in January 2016 the equalized GL was calculated using the certified CLA covering that period.
Now let’s jump ahead to the completion of a reappraisal as of April 1, 2016. You do the good work, and you calculate an assessment ratio of 100 percent based on the sales used for your reappraisal. These sales probably cover the period from April 1, 2013 to March 31, 2016. Everybody is relieved to be done and the Selectboard and clerk are ready to set the tax rates and run the bills to get some money coming in. The State determines the education rates and sends you the estimated CLA. However, it is something different than what you and the Selectboard expected. Now you have to explain it. What you can say is that this CLA is not a true CLA in the year the reappraisal is completed. The equalization completed after the lodging of the reappraisal grand is a true measure of the reappraisal.
The CLA during a reappraisal year is not calculated the same as a non-reappraisal GL year. The new reappraisal values have yet to be input into the equalization sales file; that is a process you go over with your District Advisor during the summer. Thus, the new assessed values are not compared with the recent sales data when the tax rate is calculated in the reappraisal year because that data is not available at that time.
So what number is used? Your new GL value is used from the reappraisal, except that this GL is compared with last years Equalized GL. The CLA determined in this manner is not a “true” estimate of market value because it is missing a whole year of sales (from April 1, 2015 to March 31, 2016). This process makes that equalization number the year before the completion of a reappraisal a very important number. If it is wrong, then the determination of the CLA used to set the current tax rate will be wrong. Also, this new CLA will probably not match the sales ratios calculated for the reappraisal.
The applicable statute for this process is:
- 5406. Notice of fair market value and coefficient of dispersion
(c) If the Director of Property Valuation and Review certifies that a municipality has completed a town wide reappraisal, the common level of appraisal for that municipality shall be equal to its new grand list value divided by its most recent equalized grand list value, for purposes of determining education property tax rates.
A true story helps explain this. Once upon a time, Some Town completed a reappraisal as of April 1, 2015. The published CLA for 2014 was about 92%. The published CLA for 2015 dropped to 86% (sales from April 1, 2011 to March 31, 2014). This should have caught attention; there were properties with changes that were never picked up due to a changing board of Listers. The true assessment ratio for this period was about 93%. The reappraisal brought the values up to market value while correcting some of the bad data. The following table illustrates what the GL should have been, and the equalized and education GL values for the two time periods.
Correcting the sales prior to completion of the reappraisal would have resulted in a total GL of $1,973,690. Since the sales were not corrected until afterwards, the resulting equalized GL was $2,126,840 (adjusting by a CLA of .86 instead of .93). The new GL value from the reappraisal was $1,965,759.
To calculate the “CLA” for the reappraisal the new 2015 Education GL was divided by the 2014 Equalized GL (1,965,759 / 2,126,840) which gives a value of 92.4. The Selectboard was very “surprised” (shocked, upset, concerned) when the new CLA was not near 100%. After all, they had just spent thousands of dollars to fix the CLA problem.
If the correct GL data had been used, the ratio would have been 99.5 (1,965,759 / 1,973,690). The lack of proper vetting of the sales led to an unexpected and erroneous result.
There is a moral to this story. Now that many towns are contemplating the start of reappraisal projects (after all many have gone 10 or more years), it is imperative that the data used in determining the CLA in the year PRIOR to the reappraisal completion year be accurate. That equalized GL value will be used to determine the “CLA” used to calculate your tax rate from your reappraisal.
Secondly, be prepared to explain why the new CLA is not what was expected. It will not match your sales ratio study completed to substantiate the new values for the reappraisal. The CLA published the following January will include the new values and the recent sales from the reappraisal.
Now that we understand the implications of poor listing practices, and the importance of properly vetting our sales, we can devote the time necessary to develop the perfect grand list. Of course the Selectboard and the town’s people will all appreciate our efforts and reward us appropriately. Life is good.
Doug Lay, PVR District Advisor Supervisor, provided editorial assistance for this article.