Johnson: Key data missing in assessor's valuation of commercial property
One of the three approaches to value that the Pima County Assessor's Office employs in the valuation of property for tax purposes is the "cost approach." This is mostly used when there are insufficient sales or unusable sales, heavily laden with intangible value, with which to arrive at a market value. Some properties such as shopping centers, golf courses and agricultural improvements are statutorily valued this way in Arizona. It is imperative that the assessor has a competent system to perform these valuations.
The cost system that all the counties in Arizona used until four years ago was provided by the Arizona Department of Revenue. This system provided the framework for arriving at values and the underlying component costs were purchased by ADOR from Marshall & Swift, a professional services company that provides data and software to the assessment and appraisal worlds. As a result of the Great Recession and cut backs by the state, ADOR stopped providing many services, including a construction cost system, to the counties.
The cost of replacing ADOR's construction cost system was substantial. A search of Arizona's Open Books showed that ADOR was paying Marshall & Swift $100,000 per year for the data to plug into its own system and Maricopa County paid Marshall & Swift $202,867 to get the software and data. The Pima County assessor decided to have his own IT people develop a home-grown version of ADOR's construction cost system. Where the assessor obtained the underlying component cost data, however, is still not clear.
The irregularities of the assessor's valuations of commercial properties, especially the shopping centers, caused concern among some of the tax consulting firms that typically represent larger commercial property owners in property tax disputes. One company, Paradigm Tax, filed public records requests from the assessor to obtain "all the records the Assessor uses to value property" in attempt to figure out the problem. When the public records requests were denied, Paradigm DKD Group LLC, Eastpoint 22nd Marketplace LLC and Thomas Francis Naifeh filed a complaint in Pima County Superior Court (C20141150) to force the assessor to produce those records.
Over the course of the past two years as the case drags on, the assessor continues to claim that all the data used in the valuation of property is available on the assessor's public website, thereby complying with the court's conclusion that valuation data is a public record. The plaintiffs in this case, however, keep insisting that there is data missing. In June of 2015 the court appointed a special master to determine which side is correct and to produce a report by May 31, 2016.
The special master's report was not concluded on time and an extension was given but now the assessor is attempting to get the court to dismiss the report in a motion filed on July 25. The assessor is claiming that there would be no new information in the special master's report and cites in his motion, "to the testimony of the Assessor and his personnel regarding the other data sources (for example, subscriptions to third-party services such [as] Marshall and Swift for its construction costs components."
Overlooked in all of this legal wrangling is, how did the assessor obtain the component cost data from Marshall & Swift? We know from it is costly considering what ADOR was paying for the data and what it has been costing Maricopa County since ADOR stopped providing the counties with a construction cost system. There have been no budget items to pay for such services by Pima County and a search through Arizona's Open Books doesn't reveal any payments to Marshall & Swift or any other similar type service. A public records request was made on July 17 for "Invoices, contracts and payment warrants to / from Marshall & Swift, Swift Valuation Services or CoreLogic, or any other professional software or data service relating to cost data for the assessor's construction cost system for fiscal years 2011/2012, 2012/2013, 2013/2014, 2014/2015 and 2015/2016" (Public Records Request No. 2016-150) – that has yielded no results to date.
Despite the costliness of obtaining component costs from an accredited source, this is something the assessor needs to work into the budget. Otherwise, the accuracy and validity of the valuations based on the cost approach, some of which are statutory, will be questionable. It will be far costlier to have to arrive at fair valuations through litigation in tax court. It's a broken system that needs to be fixed, especially as Pima County is making strides to bring in large commercial properties as part of its economic development plan.