Values ran below market, state numbers show

ANALYSIS: Dale Washam says skipped inspections hurt taxpayers, but state numbers suggest the biggest effect was lower taxes for residential, commercial property owners

November 14, 2010 

What if computers are better calculators than people?

What if mathematical models churn more accurate numbers than eyeballing?

What if breaking the law turned out to be fairer than following it?

Dale Washam, Pierce County assessor-treasurer, claims his predecessor, Ken Madsen, is a criminal who should be investigated, convicted and jailed, along with those who followed his instructions.

Why? Because Madsen, in Washam’s words, falsified, forged and corrupted county property records.

“Look at my lips and read them,” Washam said during a recent public meeting. “It’s about falsification of files.”

On one level, Washam has a point. Madsen has admitted relying on computer-driven statistics to revalue some properties and skipping physical inspections required by state law.

Exactly how many properties were affected is unclear. Washam has cited different

numbers over the past two years: sometimes 133,000 properties, sometimes 188,671, sometimes 368,642. The last number is greater than the total number of parcels in the county, which hovers around 324,000.

Madsen claimed approval from the state Department of Revenue for his practice. Agency leaders say they never formally authorized it – nor could they, without a change in state law.

County property owners suffered, Washam contends – but annual statistics compiled by state legislative analysts in Olympia suggest that the biggest injury was lower taxes.

Throughout Madsen’s eight-year administration, Pierce County property assessments hovered below market value, and often matched or exceeded international standards of accuracy, the state numbers show.

During some of those years, Pierce County assessments stuck closer to market value – the true measure of accuracy – than assessments in the state’s most populous counties, including King, Snohomish and Thurston.

The state numbers compare assessments to actual property sales. They show that Pierce County’s assessments held close to statewide averages for accuracy during Madsen’s tenure.

Analysts with the Legislature’s nonpartisan Office of Program Research have compiled the annual “Ratio Study Report” every year since 1997. The report examines assessment patterns in the state’s 39 counties. Washam touted the latest report at a Nov. 1 public meeting to show how well his administration is doing in terms of accurate assessment.

He didn’t mention that assessments during Madsen’s administration showed similar levels of accuracy.

COMPUTERS AND TAXES

In Pierce County (and the rest of the state and the nation), computers calculate your property values every year and set the amount of property tax you pay.

State law says that’s just fine. It’s called mass appraisal. Nationally, the practice dates to the 1930s.

State law also says that every six years, someone from the Pierce County Assessor-Treasurer’s office – an appraiser – has to stop by your property to check for illegal decks, unexpected carports or four-story mixed-use additions, and adjust your property value accordingly.

This is known as a physical inspection. It is enshrined in RCW 84.41.041, a law skirted for most of the past decade by Madsen.

Instead of on-site physical inspections, Madsen knowingly relied on computer models to adjust the annual values of thousands of county properties – not all properties, but some.

The selection method used by Madsen hinged on mass-appraisal techniques, according to public records. Long-established patterns demonstrated that some properties, such as mature residential neighborhoods, changed more slowly than others, such as new developments.

Without state approval, and over the objections of some staff members, Madsen’s administration used statistical methods on properties where change was slow and targeted physical inspections to areas where change was swift. The approach offered a cost-effective way to maximize the efforts of a historically overloaded staff at a time when growth was popping.

The system was not blind. It included numerous triggers. When reported sales jumped too far out of line with expected values, a physical inspection could follow.

Building permits for new structures – decks and carports – were factored into the statistical calculation. New construction, which brought brand-new structures and corresponding values, took first priority for inspection.

BURDEN OF PROOF

Madsen took the law into his own hands, but the law he ignored is not a criminal statute. There is no penalty associated with it.

Washam draws the criminal link by referring to Madsen’s acts as forgery – a felony repeated each time county computers plugged artificial numbers into assessment records, worthy of imprisonment, he suggests.

“This is as important as any capital crime,” he said at a recent public meeting. Later, he added, “If somebody is responsible for a felony, where are most felons?”

Washam has dogged the argument for five years, ever since his failed attempt to recall Madsen from office in 2005.

Superior Court Judge Thomas McPhee threw the recall petition out of court, after questioning Madsen directly.

“Madsen: ...the computer can identify those parcels [where] we need to put boots on the ground, we need to put boots on the ground because something’s wrong.

And I want to emphasize there are people out there that are doing physical inspections. And now, in this time frame, they are going to the property that says we need somebody there.

McPhee: Do I understand your answer to mean that for those approximately 89,000 parcels, that – all of which contained your initials – that there may have been some of those that were not physically inspected?

Madsen: I would agree with that.”

– Excerpt of verbatim testimony, March 21, 2005

McPhee’s written decision stated that Madsen had a “legally cognizable justification” for his actions, which meant they didn’t meet the legal threshold required for a recall.

Statements in Madsen’s defense included a written opinion from Robert J. Gloudemans, a member of the International Association of Assessing Officers and the former director of research and equalization for the Arizona Department of Revenue. Gloudemans authored the international standards utilized by the state ratio studies. He ranks as the nation’s leading expert on mass appraisal.

“(The) assumption may be that physical inspection and individualized attention is better or more accurate, but that is not necessarily the case at all. The scientific validity of mass appraisal techniques, and the informed use of statistics and modeling, has been well demonstrated in this nation for many years now. Especially in large counties, such as Pierce County, mass appraisal techniques have the major advantage of ensuring uniformity across property types and locations.

“Indeed, in these times of tax limitation initiatives and reduced budgets for many local governments in many states, including Washington, use of mass appraisal techniques is absolutely essential.

“... In my opinion, Pierce County’s use of mass appraisal techniques and its assessment operations in general are not only sound and appropriate, but also reflect the ‘state of the art’ in appraisal of real property at the present time in the state of Washington and in the United States.”

- Robert Gloudemans affidavit, March 3, 2005

At the time, Washam called Gloudemans’ statements “worthless.”

He never accepted the outcome of the recall. To this day, he contends that the judge’s decision was erroneous and not a finding of fact.

“A recall is not a court action,” he likes to say.

The 2005 decision came from a court. The briefs were filed in court. The arguments took place in court. A Superior Court judge made the final decision. Washam did not appeal it.

He says he resurrected the physical-inspection issue after taking office and discovering that Madsen’s mass-appraisal practices continued after the recall attempt.

“It wasn’t even in my mind that Madsen would continue to do what he was doing after it had been brought out,” Washam said.

He scorns the recent conclusions of county performance auditors, state tax collectors and county prosecutors, all of whom say investigation is unnecessary.

Performance auditors ran a brief study of the issue in March 2009. They interviewed assessor-treasurer staffers and consulted with Don Duncan, a former chief appraiser at the assessor-treasurer’s office.

“There is no reason to believe that individual property taxpayers were harmed by missed physical inspections of their homes in the past. Tax revenues are likely to have been lower than if all physical inspections had been conducted as scheduled.”

- Excerpt of Pierce County Performance Audit study, March 30, 2009

Washam dismissed the findings of the auditors. “They’re idiots,” he said.

The state ratio studies, based on actual property sales, not statistical models, support the reckoning of the county auditors. Overall assessments never exceeded market value during Madsen’s tenure; they stayed under it every year, in both residential and nonresidential (commercial) categories.

Translation: lower tax revenues.

The auditor study also referenced opinions from the state Department of Revenue.

“Although concerned that physical inspections did not occur as scheduled under the current revaluation plan, the department is not considering legal or administrative action against Pierce County...”

– Excerpt of study, March 30, 2009

Washam didn’t agree with that, either. He has repeatedly called on the county prosecutor to back a criminal investigation. Two successive prosecutors, Gerry Horne and Mark Lindquist, have declined to pursue it, earning Washam’s wrath. After the latest refusal from Lindquist, Washam’s chief deputy, Albert Ugas, filed paperwork seeking to recall Lindquist from office.

Horne, Lindquist and Doug Vanscoy, the prosecutor’s chief civil deputy, have told Washam that the judge’s finding in the 2005 recall case presents a legal barrier too difficult to overcome in a criminal setting.

“The burden of proof in a criminal case is, of course, much higher than in a recall matter,” Horne told Washam in 2009.

Washam argues that the prosecutors are wrong.

“This idea that it should just be forgotten is just not right,” he said recently.

Horne, now retired, understands the point, but he also knows there are times when prosecution becomes a waste.

“A prosecutor has a great amount of discretion on when to charge and when not to charge,” he said in a recent interview. “We have to be concerned about our resources and the good spending of our resources. You try to reason with people, and if they can’t abide by it, that’s just the way it is.

“We utilize that discretion every day, and this is one where we weren’t gonna use our resources on something like that. It doesn’t seem like a reasonable expenditure of resources today. It’s just unfortunate that Mr. Washam just somehow or other can’t let go of that and move on.”

Washam says he has moved on. He dismisses critics who say he’s pursued his cause at the expense of running his office.

“Anybody that tells you that the office is not being run very, very efficient, you tell them, ‘Don’t believe it – show it,’ ” he said.

He says his administration is gradually fixing the mistakes of the past and completing more physical inspections than his predecessor ever did. He brandishes complimentary reports from the state Department of Revenue that praise his progress.

He cites an April 26, 2010, letter from the Revenue Department, and highlights the closing quote: “We commend your effort in completing the revaluation requirements as mandated by Washington State law.”

HOW INSPECTION WORKS

A physical inspection by a government appraiser is not what it sounds like, in Pierce County or anywhere else where property taxes are assessed and collected.

It sounds like a walkthrough – like the guy with coveralls and a clipboard who tramps through the house you’re trying to sell, climbs under the sub-floor, marks down every hole in the wall and frowns at your taste in paint colors.

That’s a real-estate appraisal: a private survey. It’s not a government physical inspection.

A physical inspection, even under Washam’s rule, is far less. It’s closer to a drive-by shooting with a digital camera. On Washam’s watch, records say appraisers have been ordered to conduct 50 inspections a day – and discouraged from getting out of their cars to conduct them.

The quick method is mirrored around the state.

“You can’t go into every house,” said Patricia Costello, Thurston County assessor. “We don’t care if they have golden spigots in there. We’ll follow that up when it sells.”

The approach, by nature, leaves room for error. Some unpermitted structures are overlooked.

“There’s always exceptions to the rule,” said Costello. “There’s always somebody out there who’s going to try and pull something. But you live with it. The important thing is uniformity.”

MEASURING ACCURACY

Uniformity is the gold standard of appraisal: similar properties should have similar values, leading to fair taxation. The standard appears in the state constitution.

Washam argues that Madsen’s methods unraveled uniformity and created injustice: residential property values rose quickly, and commercial values grew more slowly. Thus, Washam contends, commercial (nonresidential) property owners paid lower taxes while residential property owners took a financial shot to the teeth. Washam claims that the disparity equates to an unjust shift of $2.1 billion in tax burden.

The argument has a hole in it: The same thing happened everywhere in Washington over the past decade. It was called the housing bubble.

Residential properties ran hot. Commercial properties ran cooler. The pattern repeated itself throughout the state’s population centers, the big suburban counties: King, Snohomish, Clark, Thurston, Spokane – all with assessors of their own, all (reputedly) conducting physical inspections according to the prescribed state method.

Statistically, Pierce County property values mirrored the statewide effect during Madsen’s administration. Typically, assessed values ran close to actual sales – closer than many other counties, according to the state reports.

REAL VALUE

The ultimate arbiter of property value and property taxes isn’t inspections. It’s sales.

Your house and property are worth exactly what a buyer is willing to pay for it. No more, no less. Everything else – appraisals, physical inspections, statistics calculated by computers – is a guess. An informed guess, perhaps, but that’s all.

Government assessors and appraisers do not control market value. They track it. They follow behind it and adjust their numbers accordingly. A government appraisal can set one value, and a property can sell for another – lower or higher.

Exhibit A is Dale Washam himself. In 2005, he sold a half-acre of land on South Hill. The land was assessed at $61,900, county property records say. Washam sold it for $157,500 – more than 21/2 times the assessed value. He made a killing.

Technically, Washam’s property was under-assessed. As a result, his property taxes before the sale were correspondingly low.

Official records show no sign that he complained about it.

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