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Originally published Tuesday, June 1, 2010 at 8:07 PM

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Assessor asks: Were tax bills too low?

King County Assessor Lloyd Hara is studying whether large numbers of properties have been significantly undervalued for tax purposes — and whether the county could solve its budget problem by billing owners of those properties for underpayment.

Seattle Times staff reporter

Where property-tax revenue goes

THERE ARE 165 taxing districts in King County, with varying tax rates. The breakdown below is a countywide average.

Schools: 50 percent

Local services (cities, fire and utility districts, etc.): 31 percent

King County: 17 percent

Port of Seattle: 2 percent

Source: Metropolitan King County Council

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King County Assessor Lloyd Hara is studying whether thousands of properties have been significantly undervalued for tax purposes, and whether their owners should be billed for underpayment — even though the owners may have paid their tax bills in full.

Because the county has the authority, in cases of "manifest error," to bill landowners for three years of past taxes, millions of dollars could be at stake.

Hara has been working closely with tax consultant and former Assessor Harley Hoppe, who has touted back taxes from underassessed properties as a solution to the county's projected $60 million budget shortfall next year.

Hara's office is examining records for three categories of property:

• properties on which assessed values didn't change from one year to the next amid a volatile housing market;

• properties valued below the price for which they sold; and

• "personal property" such as art collections on which corporations and wealthy individuals may have failed to pay tax.

But sending a second bill to property owners who already paid their taxes is fraught with legal questions and political peril.

Any taxes collected would presumably have to be shared with cities, schools and other tax districts, according to sources in the assessor's and executive's offices.

Hara said he hasn't received legal advice on whether the county and other tax districts could keep the revenue or would have to refund it to other taxpayers.

Two Metropolitan King County Council members said they are leery of sending another bill to homeowners who already paid their taxes — particularly at a time when thousands of people are complaining their taxes have gone up even as property values have plummeted.

"For obvious reasons that strikes me as unlikely," Council Chairman Bob Ferguson said.

"I don't think that's going to be going over well," said Kathy Lambert, a member of the council's budget leadership team.

Because state law limits how much tax the county can collect, Deputy County Executive Fred Jarrett said the county can't solve its budget problem by collecting more from the owners of undervalued properties.

"I would expect that any taxpayer that receives that bill would probably take it to court, and they would probably win on the basis of the fact that it's an assessor's error," he said.

Hoppe, at 79 a sometimes-crusty figure as colorful as the star-spangled U.S. flag tie he wore to a recent County Council meeting, said he is personally aware of "thousands" of undervalued properties. As part of his consulting business, Hoppe monitors assessment records and property sales.

He said he doesn't know how much money the county could collect on undervalued properties — but he believes the amount is huge.

"Dow Constantine doesn't have to worry a bit about cutting anybody, he's going to have a lot of money coming in," Hoppe said, referring to County Executive Constantine's task of balancing the 2011 budget.

Hara, who was elected assessor and took office in November, said he doesn't know whether the county could collect a large amount from taxpayers whose properties were undervalued.

"Well, potentially," he said. "I don't want to make any flat statement. I want to see the data first and to see, potentially, the impact."

The Department of Assessments last week found the assessed values of 38,000 properties had not changed from 2008 to 2009. Staffers are taking a closer look at those accounts, said Chief Deputy Assessor John Arthur Wilson: "Is there a pattern in that? What's the explanation?"

That assessments on those properties didn't change in a changing market — property values were falling that year — made department staff wonder whether those assessments were valid.

Getting information from the Assessor's Office's 1970s-vintage mainframe computer is cumbersome and time-consuming because "queries" must be written in the COBOL programming language.

"Since I've been here, I've asked a lot of questions," Hara said. "They say, 'When do you want it, how much do you want to pay to get it, how valuable is it?' It drives me nuts because you can't ask a lot of what-if questions. We clearly need to upgrade that system because it's so critical."

Hara wants his budget boosted by more than $2 million to speed up his inquiry into possible undervaluations, add new construction to the tax rolls more quickly and respond to an unusually high number of appeals from commercial-property owners.

If the assessed values of undervalued properties are raised, that would shift the tax burden from some taxpayers to others in future years but wouldn't affect the total amount of tax to be collected.

Under state law, unless voters approve an increase, total tax collections can rise by only 1 percent per year, plus any taxes due on new construction.

Collecting back payments now could boost revenues available to the county and other tax districts next year, but only for that year, and only if the county isn't told to return the money to other taxpayers.

King County receives 17 cents of every property-tax dollar, according to the County Council figures.

Hoppe is also urging Hara to make sure wealthy taxpayers are paying personal property tax on art and other assets. Hara said he would check into whether Chase paid tax on art works it removed from Washington Mutual headquarters in Seattle last year after Chase acquired the failing bank.

A spokeswoman for Chase said she didn't know whether the bank paid personal property tax on those assets.

Keith Ervin: 206-464-2105 or kervin@seattletimes.com

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