California Taxpayers's Assoc. - Guest Commentary - Old Technology Threatens Fairness & Accuracy of California's $2.1 Trillion Property Tax Syst

By Larry Gerard Herrera

If we are to make property taxes more fair and less burdensome on the taxpayers of our State, the State of California must order California's 58 county assessors to standardize their computer systems throught which $2.1 trillon in homeowner and business owner property assessments are tracked. An on-line version of this position paper is available at: http://www.caltax.org/member/digest/mar2001/mar01-06.htm

In California, proposals have been made to spend from $230 million to $400 million to improve voting systems. If in place for the 2004 Presidential Election, the new systems will count about 12 million California votes.

But California leaders should not only focus on "old technology icebergs" that can affect "democracy" via our voting systems. They should also consider an "old technology iceberg" that threatens the "accuracy and fairness" of California's $2.1 trillion property tax system.

While California voting information systems must be state-certified prior to sale or operation in any our 58 counties, there are no information system technology standards for development, sale or operation of property assessment and tax information systems used by California's 58 elected county assessors. Just as the lack of standards almost sank elections results in Florida, the lack of property assessment information system standards may some day sink the perception of "accuracy and fairness" in California's property tax system.

Besides a lack of information systems technology standards, 23 of 42 counties surveyed reported that they are operating their assessment information systems with 1980-vintage technology that is inherently inflexible in meeting today's demand for accurate, timely and consistent assessment and economic data.

State leaders must consider the creation of statewide technology standards for the annual processing of 12 million parcels with an assessed value of $2.1 trillion and the collection of $20 billion in taxes. There are several reasons:

UNIFORMITY According to Holly Ulbrich, an economics professor at Clemson University, the key to the property tax is that "it possesses a strong image of fairness."

Despite the fact that 58 county property assessment systems account for $2.1 trillion in assessed value and track more than 12 million parcels, the lack of uniformity among information systems makes it difficult to ensure or even begin to prove the "accuracy and fairness" of our state's property tax system.

By creating information technology system standards for county assessors, the State Board of Equalization could measure, based on fact, the "fairness and accuracy" of county assessment practices and the information systems by which assessments are processed and billed.

With information technology system standards, counties could provide "real time data" for the consideration of meaningful property tax reform by our state Legislature.

More importantly for the benefit of our taxpayers, technology standards could lead to proving property tax equity and efficiency in 58 counties by showing that similar assessment conclusions in different parts of the state are processed the same way (in accordance with the Revenue and Taxation Code.) Uniformity of "value reason codes" could be one of many topics that could be built into an assessment system based on new technology.

While I believe that every county employee in every California assessor's office (all 5,299 of us) does the best they can to provide uniformity, we can do better with technology standards for assessment systems.

It can be done.

TAXPAYER SAVIINGS Two California counties recently invested significant resources and energy to purchase and install new property assessment systems. What happened? The selected vendor went bankrupt trying to complete what was proposed. California property tax laws are complicated, and without statewide information system standards, the creation of a modern assessment system by the private sector could be too expensive, not only for county government, but also ultimately for the taxpayer.

Several Southern California counties are studying the creation of a consortium to develop a system that could be used by as many as seven counties. While they may have a better chance of creating a modern system than did the failed private-sector vendor, how can we ensure that their system is compatible with those of their neighboring counties that are not a part of their endeavor? Imagine a statewide standard requiring the on-line submittal of the "business property statements" that could not only save taxpayer dollars for the administration of the process, but also reduce compliance costs for the business community.

For those "mom and pop" businesses without Internet access, public library Internet computers could be used to access a central web site where they could enter the purchase price of the restaurant refrigerator or juke box.

It can be done.

ACCURACY A statewide rounding error of 1 percent in assessed value would be worth $20 billion. In terms of tax revenue, such an error would equal $200 million. With statewide standards designed to promote system accuracy, county assessors could prove that all 58 counties calculate supplemental assessments accurately. With standards we could make sure that county assessment information systems round up or down as may be appropriate. Imagine how much tax relief could be provided or how many schools or day care centers could be built with correction of a possible $200 million rounding error.

Even further, imagine a standard that would require all county assessment information systems to electronically accept recorder data and document images on-line as they are recorded. Such a standard would avoid the high error rates and labor costs associated with "redundant data entry."

It can be done.

INFORMATION SHARING County assessment information systems contain a wealth of data that could be used by state and local government in planning and administering public programs. Property ownership, geographic, and economic data are all at the county level.

With the Governor's Office of Information Technology seeking to create a State Geographic Information System (GIS), state and local leaders should work together to create "technology pipelines" between state, county and city governments so that information can be effectively and efficiently shared. The creation of local assessment information system technology standards is key to the success of a statewide GIS.

Development of technology standards requiring the integration of county assessment information systems with a statewide GIS will lead to improved administration and coordination of state-county programs. Imagine how sharing of data between state and county agencies could work to improve the operations of state and county programs related to public safety, health, elections administration, welfare, social services, economic development, transportation, disaster response, environmental impact monitoring, public education, energy conservation and utility company regulation.

It can be done.

TIMING Since 1995, the State-County Property Tax Administration Program (also known as AB 818) has made available $420 million to county government to reduce assessment backlog and enhance assessment systems. Under the program, most of the funding has been used to hire bodies to reduce backlog and the remainder has been used to maintain or modernize local assessment systems.

In April 2000, a State Auditor's report concluded, "continuing the program makes good business sense." As a result of this report, the program was extended for a seventh and possibly final year. In the year ahead the state Legislature will wrestle with issues of property tax allocation and funding of property tax administration. For this reason, I suggest that whatever distribution or funding mechanism is ultimately adopted, it must be tied to agreement on assessment information system standards. And finally, whatever the decision on support of local funding, the state should address how counties will use AB 818 monies that were sent to the local level but remain unspent.

As noted by the State Auditor, the "carryovers are reason for concern because the [State Finance] Department does not require counties to detail how they expect to use the carried-over funds ." I believe that because AB 818 monies were originally intended to "ensure the integrity of the property tax administration system," it makes good sense that carryover funds be directed towards the establishment of systems that meet statewide system standards. Such a direction would permit county assessors to show, in measurable terms, how local assessment systems are indeed uniform, cost-effective, and accurate.

Parallel to the issue of state funding of local assessor operations is survey evidence showing that 30 of 42 counties surveyed are in the process of building, transitioning, or searching for more flexible, reliable, and cost-effective assessment information system technology.

The time is ripe for the state to assist in this transition by mandating the creation of assessment technology standards and providing fiscal support to those counties that will accept the challenge to take California's property tax system to a higher and more effective level.

It can be done.

LAST THOUGHTS I submit that state funding of assessment functions at the local level should continue; however, incentives should be created that would encourage the installation of uniform assessment information systems that meet the statewide interest in a "fair and accurate" system of property taxation.

State and county assessor-level leadership is needed now so that in a few years we can look back and say the year 2001 was the year we dealt with the "old technology iceberg" that threatened the fairness and accuracy of our state's property tax system.

It can be done!

It must be done!