May 15, 2003 – Sen. Emmett Hansen II said on Thursday that he has submitted legislation to bring Virgin Islands property tax assessment procedures into federal compliance and to conform to the mandates of a District Court ruling issued on Monday.
"This ruling has virtually brought the real estate industry in the Virgin Islands to a screeching halt," Hansen said in a release. "No one can buy or sell any real estate because the property taxes cannot be paid."
He added, "Although I understand the intent of the judge, that ruling represents millions of dollars that won't be circulating in this community. We cannot stifle the only industry putting money in the economy of St. Croix. Whatever problem exists within the lieutenant governor's Office of Tax Assessor needs to be fixed so that we can save this industry and get those taxes collected."
District Judge Thomas K. Moore issued a moratorium on the sending out of commercial and residential property tax bills and the collecting of such taxes on bills outstanding since 1999 until the V.I. government reforms its tax assessment system to comply with a settlement agreed upon in 2000.
Monday's ruling was in a consolidated lawsuit brought by 11 plaintiffs making the same argument advanced successfully in several earlier cases: that the territory's practice of assessing commercial property values on the basis of replacement value rather than market value results in inflated taxes and violates federal law.
Hansen stated in the release that real estate representatives had testified at a Senate committee hearing he had chaired earlier in the day that was called to discuss affordable housing issues. "Both the affordable housing and real estate markets in the Virgin Islands are being threatened by the current disposition of the property tax suit in the District Court," he said.
He cited Dwain Ford, president of the St. Croix Board of Realtors, as saying: "The real estate market is the only industry really moving on St. Croix right now. It's keeping the economy afloat. If we can't pay property taxes, no one can buy or sell anything — not land, not homes."
Ford added, according to the release, that "all of the high-end property purchasers have been used to being able to come in and make cash purchases immediately, but now even that is being held up. There is no end in sight to this, and it has totally crippled the market."
Administration opts for a fight
The day after Moore's ruling, Attorney General Iver Stridiron filed an appeal with the Supreme Court seeking reversal of a 3rd Circuit Court of Appeals ruling in March that the District Court does have jurisdiction under the federal Revised Organic Act of 1954 which serves as the territory's constitution.
Stridiron said on Wednesday that Gov. Charles W. Turnbull acknowledged the high cost of pursuing such an action but felt it was necessary to get a definitive ruling on "that the local government has some degree of autonomy." (See "A fight for autonomy vs. a need for revenue".)
Stridiron also said the ban on property tax collections could add another $40 million to the government's projected deficit of $115 million for this fiscal year, which ends Sept. 30.
Reassessment of property values also could impact on the territory's borrowing capability. The Revised Organic Act provides that "indebtedness of the V.I. government shall not be incurred in excess of 10 percent of the aggregated assessed valuation of the taxable real property in the V.I." If property valuations are reduced, so will be the government's bond ceiling.
Two senators favor a fix over a fight
Hansen became the second senator to go on record as saying the territory should comply with the court order so as to get the tax-collection moratorium lifted as soon as possible.
Sen. Louis Hill on Wednesday called on the Turnbull administration and the Legislature to formulate and pass the legislation that Moore called for in his memorandum. Hilll said the administration's intent to appeal Moore's ruling should not stall efforts to bring the territory's tax assessment process into complieance with the Uniform Standards of Professional Appraisal Practice (USPAP) and other orders and past agreements.
"Fix the problem so we can send out the tax bills and focus on our larger fiscal and management failures," Hill said.
Hansen said on Thursday: "We don't need to spend years waiting for the attorney general to argue this case before the Supreme Court — that could take decades. We need to focus on resolving this issue, rather than engaging in any legal jousting."
He also said that while he appreciated the separation of powers and is "wary of the encroachment of the federal government in local affairs," he also recognizes that "our property tax situation is less than fair to the property owner."
In order to fix the problem, according to Moore's decree, the Senate would need to amend the V.I. Code to provide for retroactive adjustment of property tax bills for 1999, 2000, 2001, 2003, and 2004 "and for a reasonable time thereafter until a fair and equitable system capable of reliably and credibly assessing all real property at actual value is in place." From the opinion it appears that Moore's concern is for property owners to have recourse to recoup inflated taxes they paid that were based on assessments in violation of federal law.
Property tax reform "being made" 2.5 years ago
The landmark case challenging the tax assessment procedure ended in a settlement in 2000 in which the V.I. government agreed to the appointment of a "special master" to analyze the tax assessment procedures and oversee reforms.
Immediately after announcement of the settlement in December 2000, Government House issued a release stating that "upgrades and improvements are being made" to the Tax Assessor's Office and that legislation was being prepared to update the tax assessment of V.I. properties.
The release did not mention the suit or the settlement, but it quoted Gov. Charles W. Turnbull as saying that "having a current, accurate assessment of the property values in the territory and an office which is equipped to better serve the public will benefit all of the people of the Virgin Islands."
The settlement provided for the special master to review the commercial property assessment procedures and process in place pursuant to a mass appraisal approach and Uniform Standards of Professional Appraisal Practice; certify the procedures to be used as proper; randomly sample assessments to verify compliance; and report to the court as to compliance every six months for two years.
The special master, Joseph Hunt, filed his first report with the court in January 2002. In it, he recommended a plan to collect new information about business properties to be used in creating mathematical models for making mass property appraisals based on widely accepted systems that incorporate such factors as building type, location and income earned from the property.
Hunt noted that the Tax Assessor's Office has "a state-of-the-art computer system that will allow the assessors to conduct mass appraisals that would be in line with the V.I. Code and accepted appraisal practices." But he said raw data about properties was lacking, in part because Hurricane Marilyn caused so much damage that the information on file about many properties was out of date.
The assessor's office had plans in place to begin collecting new data on properties, Hunt said in the report. But before widespread data collection could start, he said, officials needed to determine which models are appropriate for the Virgin Islands and to collect the data needed to run those models.
Tax Assessor Roy Martin,
testifying before the Senate Finance Committee last June, said his office had not been able to assess all commercial property for the preceding year because he lacked the resources.
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