South Portland officials are sounding the alarm about a revaluation that will likely cause residential property values to soar citywide, driven in part by a spike in home sale prices versus assessed residential property values.

City Manager Scott Morelli sent out a letter to taxpayers last week warning residents about the possible spike, and that the increases are not a result of spending increases in the proposed 2022 budget.

“It will not be uncommon for residential property owners to see tax bill increases of 10%, 20%, 30% or more even if the city budget were to remain flat,” Morelli wrote in the letter.

This week, Morelli said he hoped that the letter would help steel residents for what will likely be a significant increase to their property tax bills.

“In many cases, there are people who are going to be shocked by the tax increase,” he said.

The City Council is scheduled to discuss the 2022 budget at a public hearing on Tuesday, April 6, at 6:30.

Officials said it will take months to know what the impact will be for sure. The city has put up a page on its website explaining that the city has been conducting an update to commercial and residential property values since 2019, described by state law as a “revaluation” and necessary to fulfill the law’s mandate that citywide property values reflect “just value” compared to what property is selling for.

In simplest terms, homes in the city are selling now at prices far higher than their assessed values, according to Greg L’Heureux, the city’s finance director.

“The value of homes in the city is skyrocketing,” he said.

City Assessor Jim Thomas said his office collects data on home sales in the city to track trends. Monthly data, he said, was not available, but he offered average annual sales ratios, expressed as a percentage — a lower percentage means that homes are selling for more than what they are assessed. The data, covering a 10-year period from 2009-2019, reflects a downward trend. Back in 2012, the data shows, the sales ratio was 101%, but that number has steadily gone down since, falling to 67% in 2019. This trend, L’Heureux said, has continued through this year, and that’s what has him worried.

“There are a lot of homes selling at that 50-70% ratio, and that’s really alarming,” he said.

In a presentation to the city council earlier this year, Thomas cited real-life examples of the problem. He declined to list addresses or owners’ names, but said in 2014 one home sold for $200,000, just under the current median average for the city. In 2019, it sold for $286,000. The $200,000 price of five years earlier is just under 70% of the price it sold for in 2019. Another home sold for just over $182,000 in 2013, and $323,000 in 2019, putting the 2013 value at just over 56% of the value it sold for six years later.

It matters, Thomas said, because certain reimbursements from the state, such as those allowing for homestead exemptions, depend on that ratio being above 70%. That means a citywide revaluation will likely be necessary to bring residential property values citywide in sync with average home selling prices, L’Heureux said.

The increase, L’Heureux said, is completely independent of any impact of the city’s proposed 2022 budget. Even if the proposed budget remains flat, he said, the average residential property tax bill will still go up, because the assessed value is going up.

Thomas said the city will finish gathering data for the current revaluation on April 1, but it will take a few months to process all the numbers. It’s likely, he said, that officials won’t know what increases are in store for residents until early June.

Morelli said the city is trying to offer some relief in the form of the tax rate stabilization fund, a fund in the city’s annual budget earmarked toward keeping tax bills from fluctuating too widely during such revaluations. Right now, he said, the fund contains $1 million, but cautioned that while that might soften the blow for residents, tax bill increases are still likely.

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