Changes to rates bill are unfair and unworkable

The rates revaluation of Dublin city is underway with the first batch of proposed assessments having issued on October 23rd.

In conjunction with this, the Department of Public Expenditure and Reform recently introduced the second stage reading of the Valuation (Amendment) (No. 2) Bill, 2012 in the Seanad.

According to Minister of State for Public Service Reform Brian Hayes, the proposed amendments are designed to accelerate the programme of revaluation of all commercial properties across the State, to minimise exemptions from rateability and to deal with difficulties identified in the working of the Valuation Act, 2001.

But are these changes going to improve things for ratepayers?

To answer that question you have to look at the legislation which is being amended, the Valuation Act 2001. This introduced a system of revaluation of commercial properties for rating purposes every five to 10 years. Such a programme of valuation had not been undertaken in Ireland since the middle of the 19th century.

Continuously revaluing property allows for market movements over time. For example, in the recent revaluation in Dún Laoghaire Rathdown, although retailers generally saw rates increases, the impact of Dundrum Town Centre on Dún Laoghaire was reflected in a fall in rates on George’s Street.

This at least gives the retailers here some chance to remain viable in the face of expanded competition.

The principle and intent behind the 2001 legislation is both compelling and praiseworthy, and the Valuation Office (VO) is to be applauded for bringing it forward.

However, from a ratepayer’s perspective a number of issues emerged with its implementation.

(1) Revisiting a valuation

The VO will only revisit a valuation where there has been what the Act calls a “material change of circumstance” to the property. The VO has chosen to interpret this very narrowly as a physical change only.

The classic example of how this works against ratepayers is the petrol station on a main road into a town which gets by-passed.

Its turnover falls by 60 per cent which is clearly material to the business and its ability to pay rates.

However, the VO will not revise the assessment to reflect this changed circumstance because there has been no physical change to the property.

(2) Decision time limit

The VO must make a decision on an application for revision of rates within six months of a valuer being appointed.

Recently due to reduced resources, the VO has chosen not to appoint valuers, so this clock never starts ticking and businesses can be waiting for over a year for their revision request to be dealt with.

Ratepayers have to pay an application fee and have to comply with deadlines set by the VO and there should be an equal onus on the VO to reply to rates payers within a prescribed timeframe.

(3) Discretion

Section 40 of the 2001 Act gives the VO discretion to change the valuation of “similarly circumstanced properties”, to bring them into line with adjoining properties following determinations of the Valuation Tribunal.

I know of a number of buildings where half of the occupiers are paying higher business rates because the VO has simply chosen not to exercise this discretion, despite having been requested to do so.

In fact, I am only aware of one occasion when this discretion was exercised. Again, this is clearly unfair on the occupier who is paying more rates than their neighbour for the same space.

Adopting this stance also flies in the face of the admirable intent of this section of the Act.

From a political perspective the biggest issue has been the speed of the roll-out of the revaluation process. The legislation was enacted in 2001 and to date only three local authority areas have been revalued. This is largely a resourcing issue.

The recent programme of accelerating the retirement of public servants (to reduce the public pay bill, while increasing the pension’s bill), forced many senior valuers to retire early.

At the same time a freeze on recruitment was introduced so these specialist staff cannot be replaced. The remaining staff in the VO are now working even harder to try and complete the project, in a timescale that has been made less achievable. So the “reforms” already introduced have only exacerbated the problems with the revaluation roll-out.

Planned changes

Do the proposed amendments address any of the issues affecting ratepayers?

The answer is no. Brian Hayes may not be aware that there are issues, because in preparing the draft legislation there was no consultation with any organisation or body that represents ratepayers. Therefore how could he know?

I won’t go into all the areas of concern with the proposed Bill, but the main ones are:

(1) No redefinition of the material change of circumstances provision. So the by-passed petrol station will still not be able to get its assessment revised.

(2) The VO is to be given the sole right to determine the method of valuation for a given category of property. The Valuation Tribunal has in the past rejected the valuation methodology adopted by the VO for a category of property based on the insufficiency of the rental evidence put forward by them in support of their method. This legislation proposes to remove the right to challenge the VO approach.

(3) The “streamlining” of the appeals process is to be achieved by removing the right of first appeal to the commissioner of valuation. All appeals will go straight to the tribunal.

Grinding to a halt

Leaving aside the extra cost which will be imposed on ratepayers, a far greater concern is whether workings of the Valuation Tribunal will grind to a halt as a result.

In the recent Dún Laoghaire/Rathdown revaluation around 22 per cent of ratepayers lodged appeals to the Valuation Tribunal. If this statistic follows through for Dublin city there could be in excess of 5,000 cases. At the same time Waterford is being revalued which could add another 1,000.

In addition, because one of the appeal stages would now be gone, there is a real risk that this figure could be substantially increased.

Each hearing takes on average a half-day. There is a lead-in time for administration and a lead-out time for the panel to give its written judgement.

The statutory deadline provides that the tribunal must give its decision within six months. If we assume a 16-week period for hearing cases, you are looking at circa 70 hearings a day. There is simply no way that a rating tribunal with two hearing rooms and a staff of five can handle it and as a result the whole system could fall down.

Unless the passing of this legislation coincides with the announcement of a massive increase in funding and staff resources for the Valuation Tribunal, it appears that the Department of Public Expenditure and Reform is on track to implement yet another reform that not only doesn’t deliver on its intended purpose, but ultimately results in higher costs and more inconvenience to taxpayers.

Mike Doyle is a rating and property consultant with Bagnall Associates. The views expressed in this article are his own