Land of Opportunity
Jose Milton became nearly a half-million dollars richer on June 20. The well-heeled Coral Gables contractor didn't win the lottery, cash in an exceptionally prescient stock investment, cut a lucrative real estate deal, or come into a windfall inheritance. Like thousands of his fellow Dade Countians, Milton simply appealed the property tax assessments on his Dade County holdings.
And he won.
Unlike the less affluent hordes who race to their appointments with the Value Adjustment Board, Milton did all his negotiating behind the scenes, ensconced on the other side of the fabric partitions that separate the honchos from the hoi polloi in the Dade County Property Appraisal Department. The day his hearing was scheduled, Milton didn't even bother to show up.
In his absence, Special Master Pedro Lopez absent-mindedly initialed the fourteen-property deal Milton had worked out with county appraisers. In fact, Lopez gave so little thought to the changes he had made -- changes totaling at least $412,761.26 -- that five months later he couldn't remember seeing the case.
Such is the numbing nature of the property tax appeals system.
Last year 28 special masters, the lay "judges" who decide tax appeals, whacked more than one billion dollars off Dade County's tax base, shrinking tax revenues by $31.5 million. Included in the numbers were some whopping reductions: $350,865.45 for the owners of the Omni International Mall; $308,374.53 for the Fontainebleau Hilton; $258,057.51 to Koger Properties, a megadeveloper of office parks in West Dade.
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To the unsophisticated taxpayer, the mere thrill of manipulating such massive quantities of moola (not to mention the impact of reductions on Dade County public services) might seem enough to make these decisions memorable, but most special masters appear to have difficulty recalling even the vaguest details about their cases, no matter how colossal the sums.
Lopez, who also ruled on the Sheraton Bal Harbour's appeal, is at a loss to explain why the luxury hotel merited a reduction of $170,813.55. "I don't remember the specifics," he grouses. "It must have been warranted. You study the case, and if the property is overassessed, you grant a reduction."
Special Master Manuel Blanco had a similar memory failure regarding Koger Properties, although county records show that on March 2, Blanco ruled on 32 different Koger parcels, lowering the total assessment by several million dollars and lightening Dade's tax kitty by more than $250,000.
"You know how many properties we hear in a session?" Blanco asks testily. "We hear around 50 properties, and you are there once a week for five or six months. It would be impossible for me to tell you what I did on a particular day or what happened with a particular piece of property."
Given that some special masters have been reappointed for more than a decade, it's plausible that individual cases would become indistinguishable, that when looked at a certain way, a $25,000 homestead exemption (worth about $778 in tax dollars) would appear identical to a $71,619 reduction to a developer (the amount Blanco granted to an outfit known as United States Development Ltd.). But while figures may tend to blur, the toll on the county's budget is easy to quantify.
Property taxes account for 61 percent of Metro-Dade's general fund, which pays for everything from libraries to police protection, public hospitals, roads, and parks. Last year $746 million in property tax revenues went into the general fund, while an additional $309 million was set aside for other parts of the county budget and millions more were distributed to local municipalities.
How much property tax you pay is determined by the assessed value of your property, which is designated by county appraisers. The assessed value multiplied by the millage rate set by city and county governments yields your tax.
If the county makes an error in assessing your property, the Value Adjustment Board hearings provide a forum for redress. The special masters are supposed to right wrongs, correct mistakes, and ensure that millions of dollars aren't unfairly funneled into (or out of) county coffers. (For more on the way the appeals system operates, see sidebar.)
How well is the system working? In an effort to analyze the process, New Times examined all the appeals filed in 1994, looking for problems that have plagued the property tax appeals process here and across the nation: questionable patterns in tax appeal approvals, such as obvious favoritism toward the rich, powerful, or well connected; indications of payoffs; and improper relationships among special masters, employees of the Property Appraisal Department, and representatives hired by property owners.
The study was based on data New Times purchased from Dade County's Information Technology Department. Sorting the records with the Microsoft Access database program yielded one immediate discovery: The county's computer data were in sloppy shape.
The records are rife with typos. Thirty-nine reductions were attributed to two masters who didn't exist, while hundreds of other reductions, ranging from a few hundred to a few hundred thousand dollars, weren't attributed to any particular special master and would have required extensive research to track down. New Times's requests for information about inconsistencies in the data took weeks to answer because the programmer most familiar with records no longer works for the county.
Although the unreliability of the data hampered conclusions, a few points were clear:
* Owners of homes of modest value generally find themselves at a distinct disadvantage when they file tax appeals, especially if they represent themselves at a hearing.
* The tax appeals process is controlled by a close-knit group of professionals with longstanding ties whose actions are governed largely by their own discretion.
* The unwieldy nature of the system and the slipshod condition of the records guarantee that regulation of property tax appeals by the Metro Commission and the Property Appraisal Department is haphazard at best.
First, some background. For alert Florida property owners, 1994 was a watershed in property tax assessment appeals. It was the year before Amendment 10 went into effect, modifying the state constitution to prohibit county appraisers from making soaring adjustments to the value of Florida homes. As of July of this year, the assessed value of residential property in Florida can rise by only three percent annually, or by the cost of inflation as calculated by the Consumer Price Index, whichever is lower. This year the CPI measured 2.7 percent, so the value of a home as determined by county appraisers could increase by no more than 2.7 percent, regardless of the sporadic bursts of buying frenzy in certain segments of the local real estate market.
Amendment 10, which passed in 1992 under the rallying cry of "Save Our Homes," puts the brakes on escalating assessments. It ends an unhappy past of tax-bill whammies, assessments that sometimes doubled overnight, lopping household budgets and forcing some people to move out of neighborhoods where they'd lived for years, simply to escape the tax squeeze.
In effect, the amendment caps the assessed value of a home -- the amount the Property Appraisal Department decides a dwelling is worth for tax purposes. Under the new law, the cap remains in place until a house is resold, at which time the property is reassessed at full market value (usually the amount the house sells for, minus any broker's fees or closing costs, et cetera).
A homeowner didn't have to be a financial wizard to figure out that the lower his assessed value was when the cap went into effect, the lower his taxes would be from that year onward. So beginning in 1993, homeowners began appealing their property tax assessments like never before.
But homeowners weren't the only ones anticipating the advent of Amendment 10. The county also rushed to make certain that all homes were accurately assessed before the cap was clamped on. Neighborhoods where property values were known to have risen A South Beach, Miami Shores, and Miami's Morningside district, for instance A got a thorough look-see, to the chagrin of homeowners there. "Everybody's taxes were raised drastically," reports realtor Norah Schaefer, who works primarily in the area known as Miami's Upper East Side, which includes Morningside. "I had people that had paid maybe $1800 in taxes, and their bills went up to $3200, almost double. It was very, very shocking."
Last year 18,390 residential properties were appealed, more than a 50 percent increase over 1992. Joining the crush were cost-conscious celebrities such as Willy Chirino, who hired a tax consultant and got his tax bill trimmed by $7696.15. Other local notables had the same idea: Gloria and Emilio Estefan saved $6649.97 using a tax consultant. Multimillionaire entrepreneur Victor Posner had his tax burden lightened by $36,951.24. Thomas Kramer, the scandal-plagued German commodities trader turned South Beach developer, appealed three properties on Star Island and received a tax cut of at least $25,211.48. Even Carnival Cruise Lines CEO and Miami Heat owner Micky Arison took a shot at a reduction for his home in Bal Harbour. Arison, however, failed to score.
Not that the odds of winning a reduction were unfavorable. Special masters approved 6948 residential property appeals, or about 38 percent. But a savvy businessman like Arison should have realized that the real opportunity for tax reductions lay in commercial property. Those cases, involving large office buildings and sprawling strip malls, carried odds of one in two; appeals were approved more than half the time.
"The average layman doesn't stand a chance," observes Special Master Alvin I. Siegel, an appraiser who has decided Dade tax appeal cases since 1979. "They don't know how to appeal an assessment. They look at [the tax notice they receive from the county], and they see that the house next door has a lower assessment. But they have no idea whether there's a difference in lot size, or a difference in the condition of the property."
Siegel says that last year he asked the Value Adjustment Board (VAB), which oversees the tax appeal hearings, to make provisions for long-time homeowners, many of them pensioners on fixed incomes, who had failed to present convincing appeals but were faced with large increases in their assessments and tax bills they couldn't pay. "When these people come before you, they're in tears, and all they do is tell you that they can't afford their taxes. They don't know what to say. I stuck my neck out and went before the VAB to try and fight this damn thing, and basically I think that's what put me on the spot." The board, he says, denied his request -- and didn't approve his application to serve as a special master for next year's round of hearings, despite his long record of serving the county.
A spokesman for the VAB acknowledges that most special masters are reappointed. Confirming that Siegel did not receive sufficient votes from board members, he declined further comment.
"My recommendation is that you tell [taxpayers] to learn how to appeal an assessment or you tell them to call a tax professional," Siegel concludes.
Those tax professionals, also known as agents or tax consultants, are the middlemen in the assessment appeal process -- and the primary reason commercial property owners file successful appeals with such regularity. Many consultants are former employees of the Property Appraisal Department; a few have worked as special masters themselves. They know the system intimately and are treasure troves of appeal-related minutiae. Equipped with an uncanny sense for sniffing out overvalued properties, consultants also have an uncanny ability to zero in on county appraisers' errors.
Reductions obtained by the thirteen top-grossing consultants in Dade County accounted for about $16 million this past year, or about half the boodle rescued from county coffers. The consultants' combined tally of successful cases was 5464, approximately 41 percent of all winning appeals, for an average tax reduction of $2873 per parcel.
By comparison, property owners who represented themselves netted an average tax savings of only $1510. These tax ingenues accounted for 3079 cases, or 23 percent of the winning appeals, and won only $4.7 million, or about 15 percent of the reduction jackpot.
Despite their success, most consultants are reluctant to trumpet their skills. "This is a quiet business," confides Roberta Montero, president of Abatement Incorporated, a six-person firm that has managed to carve almost ten million dollars from its clients' tax bills in the seven years since its founding. According to county records, the firm won at least $673,500 in tax relief last year for Dade taxpayers, while discreetly maintaining its low profile. "Everyone in the world doesn't know about this business," Montero adds.
Word of the potential bonanza in the tax-consulting business, however, is beginning to spread. Although many tax consultants are licensed real estate brokers or appraisers, the state has no requirements for those who wish to enter the fray. Anyone can hang up a shingle, and many have. Ten years ago, there were only a handful of tax consultants in Dade. Today more than 100 "real estate consultants" are listed in the yellow pages.
Abatement Incorporated's listing is Montero's sole attempt to reach out to the public at large. Like most tax consulting firms, Abatement Incorporated relies mainly on commercial clients with large, valuable properties. Montero says she rarely advertises and generates much of her business through word-of-mouth referrals. "If you advertise, you're going to attract homeowners," she explains. "We don't want an onslaught of people asking us to lower their assessments just because their taxes are too high."
It's not that consultants don't sympathize with homeowners, but few Dade homes are worth their while. Most consultants operate on contingency fees, collecting between 35 and 50 percent of the tax savings if they win an appeal, and nothing if they don't. As a result, consultants tend to limit their residential work to homes worth at least $250,000, though as a favor some will appeal the homes owned by their commercial clients. The emphasis on profit could explain why the average tax saving granted to a consultant during appeal hearings is more than 75 percent higher than that given to a homeowner.
A discerning selection of clients can bring rich rewards. Tax consultant Dennis Eisinger represented one of the condominium buildings on Williams Island, presenting the arguments of 315 condominium owners to Special Master Rennee Rolle-Dawson on December 1. That was a felicitous day for Eisinger. In one fell swoop Rolle-Dawson approved all the appeals, granting tax reductions that totaled $132,025.07.
While it might make sense to rule on all the units in one large condo building on the same day, the ease with which consultants often earn their living, and their dependence on the judgment of a special master, has made some county employees suspicious.
"It's common knowledge in the property appraiser's office that consultants give work to masters," asserts a county employee who has represented the department in tax appeal hearings and who asked to remain anonymous.
Most of the special masters are professional real estate appraisers whose main business involves estimating property values for banks, government agencies, and private businesses. "The market's tight out there," the employee continues, laying out his theory that consultants sometimes steer appraisal jobs to special masters in return for a favorable ruling on their appeals. "[The masters] need that extra $10,000," he adds, in reference to the approximate fee to appraise a large office building.
The same staffer reports that some special masters have occasionally made golf dates with consultants while they were sitting together in a hearing room in front of a representative from the Property Appraisal Department, and that others have asked consultants to donate to philanthropic organizations like the Shriners.
Special Master Pedro Lopez admits he "may" play golf with a consultant every once in a while; other special masters acknowledge that they run into consultants at social gatherings and professional luncheons. But all deny that these encounters represent any sort of ethical violation. Lopez says he never discusses his cases outside the hearing room, and that the consultants he counts among his friends know better than to bring up the subject. "These are professional people," he declares. "They know the rules."
But as in any industry, there are always a few who seek to bend the rules to their advantage. Special Master Alvin Siegel says he was approached by a county employee A whom he suspects may have been working for a consultant A who offered a bribe in exchange for lowering an assessment. Siegel describes the bribe as being "four figures" but would not specify what year the offer was made or who made it.
He reported the overture immediately to the Value Adjustment Board, Siegel says. "They gave me a harder time than [they gave] to the person who offered it to me," he grumbles. "I decided that if it ever happened again, I'd just chew the person out and forget about it."
Steven Schultz, counsel for the board, says he knows nothing about the incident. Bill Oliver, the director of intergovernmental services for the clerk's office and supervisor of the VAB, says he too was unaware of Siegel's predicament. "If that had happened to me, I would have reported it to the state attorney, that's where that kind of report should go, not to the VAB," he comments.
Even Siegel underscores that bribery attempts occur infrequently. "These things happen," he observes. "I don't want to make a big point of it. I'm just saying they happen."
Jack Schlossberg, a tax consultant who worked in the Property Appraisal Department until last year, says he thinks rumors of graft spring more from low morale in the appraiser's office than from actual knowledge of corruption.
"When you go [to the hearings] every day, an us-against-them mentality develops," Schlossberg explains. "You wonder why you're wrong so often."
During the early Nineties, when the Resolution Trust Corporation was dumping property it had acquired amid the savings and loan debacle, Schlossberg recalls, he was profoundly frustrated at hearings when he tried to defend assessments made by the Property Appraisal Department. "We'd go, and the assessments would be chopped," he remembers. Although rumor-mongering about corruption and incompetency was rampant at the time, he says, he believes the reason assessments were so frequently overruled was that the Property Appraisal Department was "in denial" about the effect the RTC's actions were having on Dade real estate values.
Like Schlossberg, Al Blake had the opportunity to view the assessment appeal system from both sides. The chief Dade County appraiser from 1969 to 1979, Blake now heads Tax Adjustment Experts, the consulting firm that obtained the largest amount in tax reductions in the county last year. He, too, repudiates the suggestion that a special master would accept a payoff. "I don't think anyone with an ounce of sense would take a chance like that," Blake declares.
As a county employee turned consultant, Blake is keenly aware of ethical questions. According to Dade County ordinance 2-11.1, "no person . . . shall, for a period of two years after his county service or employment has ceased, act as agent or attorney for anyone other than Dade County in connection with judicial or other proceedings . . . or other particular matter . . . in which he participated personally and substantively . . . while so employed in County service."
Blake and Schlossberg checked with the county attorney before becoming private consultants. Blake went into consulting the year after he left the Property Appraisal Department, while Schlossberg waited a few months. Both say that their years with the department don't add up to any special clout during VAB hearings.
Officials at the Property Appraisal Department and the VAB agree. The general consensus is that the appeal process is tainted neither by influence-peddling nor payoffs.
Frank Fernandez, manager of the appeals board, points out that the position of special master is widely seen as a prestigious one, and a professional would be foolish to risk his or her reputation for a few thousand dollars. Special masters are also well paid, earning $75 per hour -- up to $600 per day -- reducing the temptation to snag gratuities. Furthermore, the identity of a special master is not released until the day of a hearing, so theoretically a consultant does not know who will be deliberating his appeals.
While county employees speculate about the ethics employed by tax consultants, consultants level allegations against county employees. Chief among the charges is the accusation that the Property Appraisal Department unfairly collaborates with the VAB to influence the outcome of appeal hearings.
Jeffrey Mandler, a real estate attorney who is also one of the top five consultants in Dade County in terms of dollars won in tax appeals, filed a civil suit against the property appraiser and the Value Adjustment Board, alleging that the Property Appraisal Department has illegally been given responsibility for scheduling hearings. According to Mandler, Florida law stipulates that the clerk of the court should set the schedule.
"[The property appraiser's] involvement in the scheduling creates the appearance of impropriety," Mandler asserts. "That alone should be reason enough to separate the functions."
The suit, which is pending, alleges that the Property Appraisal Department ensures that certain properties will be heard by particular special masters (who are believed to be more favorable to the department's point of view) and that the department sometimes stacks the docket in order "to prevent taxpayers from fully presenting data essential to their appeal and severely limiting the time available for a meaningful presentation to the special master."
Herb Parlato, the county's deputy appraiser, denies that his department has any input when it comes to scheduling and predicts Mandler's suit will be dismissed.
The mere suggestion that their decisions might be less than evenhanded leaves special masters nonplused. Special Master Stuart Perlman, who has heard Dade tax appeals for a decade, was surprised to learn that he ranked as one of last year's stingiest masters, approving only 261 cases out of 787, for a total tax impact of $182,090.92. (John Bruce, the most generous special master, approved 831 cases out of 1255, saving taxpayers $2,881,614.81.)
"That's funny," Perlman comments. "I always considered myself to be pretty fair-minded about it, and certainly there's no pressure from the VAB to rule one way or the other. No one has ever said to me, 'I want you to favor the property appraiser, or the people.' The instructions are quite clear. The whole purpose of the hearings is to address the inequities in the system."
During an annual four-hour orientation, VAB counsel Steven Schultz, along with board manager Frank Fernandez, instruct special masters about the importance of being impartial. Special masters are told not to discuss any cases outside the hearing room or in the presence of either the petitioner or the representative from the Property Appraisal Department. They are reminded not to review evidence that either they, or one of their associates, has prepared on behalf of a petitioner for a hearing. (For example, independent appraisals of a property's worth are often included as part of an argument for a lower assessment.) In addition, a special master is forbidden to represent a client before the VAB.
"If a special master feels they can't dispose of a case in an unbiased and neutral way, they're asked to recuse themselves," Schultz explains. "They're asked to avoid even the appearance of impropriety."
Despite these elaborate instructions, most special masters believe that ethical questions are left up to their personal discretion. Special Master Manuel Blanco, for instance, says he would be able to decide the appeal of a property owner for whom he had once done an appraisal, as long as the appeal concerned a different piece of property. "I'd tell the [representative from the Property Appraisal Department], 'Look, I've done business with [the petitioner] before,' but basically the decision would be up to me."
Special Master Ena Jane concurs. Jane recused herself once during the three years she has served as a master, because she remembered appraising the property that was being appealed. But she also sees no conflict in deciding the cases of former clients.
"Basically, [to prompt a recusal] it has to be a property you know," Jane explains. "Unless it's a property owned by a relative or a business associate or someone you know you couldn't make a fair decision about." Even if a special master does not see the need to recuse himself, Jane says, he should disclose to the Property Appraisal Department when a case with which he is familiar turns up on his docket.
Whether special masters are disclosing potential conflicts of interest, however, is not something that preoccupies VAB manager Fernandez. "There might be any number of reasons why masters might recuse themselves," Fernandez says, explaining why he sees no need to keep track of recusals. "It happens, but it's very seldom."
In fact, the county makes little effort to track the performance of special masters, to ensure that their decisions are impartial, or to systematically check whether a particular special master is overruling county assessments disproportionately. Although the VAB, which is made up of three county commissioners and two members of the school board, meets once a year to approve the changes made by the special masters, Fernandez says they do not review individual changes as a matter of policy. Instead, they rubber-stamp the amended tax roll and leave any challenges -- either by taxpayers or the Property Appraisal Department -- to be sorted out by a civil court judge. In other words, the system is supposed to be self-policing.
This year the property appraiser has filed suit on 108 cases. Herb Parlato, Dade's deputy appraiser, explains that the county appeals special masters' reductions if they appear unwarranted, and if the impact on the tax rolls outweighs the cost of a court case. Though every year county computer specialists produce a report (such as the one used in researching this story) which lists each reduction in assessed value according to the special master who made the change, the property appraiser doesn't systematically review the decisions of each special master.
"A couple of years ago, we looked at it quickly, but it was very difficult to see if any trend was taking place," Parlato admits. In the past ten years, he says, the property appraiser has found cause to question the decision making of only one special master.
"I can't remember who it was," he says. "We just brought it to the VAB's attention. We said, look, there are a lot of properties being reduced that we don't agree with."
According to Parlato, the property appraiser has no authority to challenge special masters who appear either incompetent or biased. "We can bring things up to the attorney for the VAB, but we are not part of the hiring or dismissing process," he notes.
In fact, special masters and consultants say the Property Appraisal Department tends to take a nonconfrontational approach to decisions with which they disagree: They simply raise the assessment again the following year. Ed Sachs, owner of South Florida Property Tax Consultants and president of the Florida Association of Property Tax Professionals, says he often finds himself appealing the same properties over and over again.
"It's typical of the abuse from the property appraiser's side," he says. "We have an appeal process that could be reduced and hundreds of thousands of dollars that could be saved by getting properties to the properly assessed value. The property tax appraiser has a massive job, and I wouldn't expect them to be correct in every case, but when they are shown they made a mistake, they need to rectify it. I can't tell you how often I've [presented information about why a property assessment should be reduced] and somebody in the property appraiser's office has said, 'I'll take my chances with the master.' They're rolling dice." Sachs estimates that the county could cut its hearing load in half just by admitting to obvious errors in assessed value.
And with fewer cases, the Property Appraisal Department could tighten its supervision of the process. Conflicts of interest could be ferreted out, and record keeping improved. The system could be made friendlier to homeowners who are unable to afford a consultant. A lighter case load might help the memory of special masters, enabling them to be held accountable for the large sums of money they divert from the funding of vital public services -- schools, police, roads, et cetera -- resulting in a more efficient and more responsive system in which everyone pays a fair share.
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