Evidence indicates the mistakes were inadvertent. The cost — in benefits to landowners and losses to taxpayers — is believed small because of the intricacies of property tax law.
The homes of Joe Ford, former CEO of Alltel, and Warren Stephens, head of the Stephens Inc. financial empire, have been underappraised since at least 2003 because of assessment office errors on land valuation. Both adjoin the Country Club of Little Rock in one of the city's most exclusive neighborhoods.
Ford's house at 2500 N. Jackson was purchased for $3 million in 1992. The 7,500-square-foot home, which sits on 2.38 acres, carries a current market value on assessor records of $691,270. At the 70.5 millage rate for that property, held in the name of Wooster Properties, the tax bill is about $9,685, not counting homestead exemption. At its purchase price, the bill could be as much as $42,048. But even if it had been properly appraised years ago, the bill would have been only a few hundred dollars higher because of technical aspects of the law on assessment and taxation.
Warren and Harriet Stephens have an 8,900-square-foot house on 1.52 acres at 1 Longfellow Place, just north of Ford's home. The property, bought in 1986, is appraised by the assessor at $966,455. But the assessor's office said a correct market value is probably closer to $3.1 million. The current property tax bill is about $15,464. At estimated true market value, the full bill would be about $42,000. But, again, because of the legal technicalities, Stephens might owe more, but perhaps no more than about $200, according to assessor's estimates.
In both cases, taxes will rise dramatically if either Stephens or Ford sell their homes.
Six other properties — 12 acres owned by Demp and Paula Dempsey at the end of Scenic Boulevard adjoining the Country Club of Little Rock golf course and five parcels of undeveloped land behind homes on Longfellow Lane — also were found underappraised by the assessor. Those properties belong to Robert and Kathleen Brown, John and Julie Jones, Mary Gray Millsap and Gus Blass III.
In a rough estimate, the assessor's office calculated that it could be collecting about $10,000 more per year from the eight parcels had the mistakes not been made. But the amount would almost certainly be lower on account of property tax freezes allowed for older home owners.
The Arkansas Times learned of the issue after confirming an anonymous tip concerning the appraisal of Ford's home. In checking it, Assessor Janet Troutman Ward's office (which had also received multiple anonymous mailings about the Ford home) undertook a broad review of property tax records and turned up the seven other residential properties in the vicinity of the Country Club of Little Rock that were underappraised.
"They're wrong," said Ward. "We messed up." Finding the precise root of the problem has proved elusive.
The complicated story stems from the fact that the properties are carried as acreage (technically described by "metes and bounds") on tax records, rather than as lots in a platted subdivision.
The mistakes cannot be corrected until the 2012 countywide reappraisal, under state law, and any changes will be reflected on 2013 tax bills. No taxes lost in years past can be recouped. Furthermore, because of other provisions in the constitution on property taxation, the correct tax rate can only be imposed over an extended period of time, if at all. It will produce annual tax increases of no more than 5 percent for the property affected (roughly $700 more per year in the Stephens case, for example).
The acreage designation is not unusual in undeveloped parts of the county, but rare in the city of Little Rock. More than 20 years ago, the city of Little Rock began insisting that all development be done in platted subdivisions with numbered lots, even those where lots might be an acre or more.
Gradually, most of the city has been put on the tax books that way. But the assessor's office identified 27 parcels in the Heights and Hillcrest areas still carried as acreage with "metes and bounds" descriptions, not as subdivision lots.
When property is listed as acreage, any houses on the land are appraised based on square footage and construction features and a visual inspection by appraisers. The land value is also supposed to be considered in the context of the neighborhood. In the Country Club neighborhood, for example, a small lot that's a fraction of an acre might sell for $250,000. So an acre should be valued at much more.
But for reasons unclear, a handful of expensive residential properties had only standard Little Rock raw acreage values assigned to their underlying land. That standard acreage value is $17,500.
Many of the 27 parcels can't be developed. They include tracts of significant size. For example, they include the steep hillsides below the pricey Palisades neighborhood. A $17,500 acreage price isn't out of line for those properties, Ward and her chief deputy, Joe Thompson, said. A few of the 27 parcels, though carried as acreage, have been properly valued as to land, including four homes just north of Stephens' and Ford's homes, Ward said.
The five parcels on Longfellow are a special case. (See map.) Those five parcels are all undeveloped acreage behind homes on Longfellow which were platted as subdivision lots and properly appraised. But the longer, rear portions of these parcels outlined in red on our map are carried as simple acreage, five pieces of land ranging from 1.4 to 3.1 acres and appraised for tax purposes at market values ranging from $24,840 to $39,500. The land is undeveloped and there's some question whether, even with existing easements, it could be developed. But, even if landlocked, Thompson says the worth of such large lots in this neighborhood is significantly more than current appraisals, perhaps as much as $250,000 an acre.
The assessor's office estimated Dempsey's 12 acres, purchased in 2001, is roughly worth as much as $5 million, though it currently carries a market value of $621,000.
A check of records showed that all these properties have carried the lower acreage valuations at least since the 2003 countywide reappraisal and were simply picked up again in the same manner in 2006 and 2009. The valuations likely go farther back, before Ward took office in 2001. Appraisers look at every listed property as to home attributes during reappraisals, but do not consider underlying property valuation, Ward said. For that, the office studies subdivision prices as a whole looking for discrepancies on comparable properties in a subdivision. In this handful of cases among tens of thousands, prime properties were not in subdivisions in which prices could be compared. "They were just unique properties," Ward said.
The lack of turnover on the properties helped perpetuate the errors. Each one has been held by the same owner since before the 2003 reappraisal. Many have been in the same hands since before a landmark 1996 reappraisal. That appraisal, and the resulting property tax rates it produced, is, by state law, the baseline for taxes on all property that has not changed hands since.
That 1996 taxing level is important in understanding why tax bills would only be slightly higher today even if these properties were properly appraised. A constitutional amendment contains a tax "circuit breaker" to guard against a big tax burden from the huge increases in value experienced statewide after correction of years of poor appraisal practices. It limited an annual homestead property tax increase to 5 percent of the tax bill and the 1996 tax rate is the beginning of the scale.
Even 15 years later, with an annual increase of 5 percent a year, the tax would remain small against today's market given the 1996 tax levels. When Ford bought his house in 2002, its tax rate was pegged to the 1996 tax rate as the law required, not the sale price. The law has since changed. A 2006 law required that properties be adjusted to market, as determined by the assessor, on sale.
Why can't the erroneous appraisals be instantly adjusted? Because, Ward says, state law says that errors in value only may be corrected in the every-third-year reappraisals. Errors in fact — a transcribing error, say — are instantly fixable. By law, taxpayers are also held harmless on past errors of valuation, Ward said. No retroactive billing is possible.
One more thing: Joe Ford's house will never be brought up to the level of taxes possible on a home with his value as long as he owns it. Why? Because he qualifies for the property tax freeze given on homesteads to people 65 and older. He turned 65 nine years ago. He's actually never claimed the freeze, but the rate need not exceed that charged in 2003 and that was pegged to a 1996 tax bill.
Ford said he'd never given a thought to the value on his property tax bill. "When I bought the house I assumed they put down whatever they needed and sent me a bill." He said, "I think whatever the criteria is it ought to be the same for all in the same residential area."
Stephens responded in similar fashion through a spokesman: "The county always sends me a bill for a property taxes, which I promptly pay and I will continue to do so. Regarding the total amount of taxes I pay, I don't think anyone is getting shortchanged."