The SISO method of accounting for government budgets ... by gimleteye

"Shit in/ Shit Out", SISO, is the new method of accounting of property values to establish taxable property values in Florida. I'm still trying to understand why foreclosures and other distressed sales of homes are not considered "arm's length transactions" at a time when such sales dominate _real_ estate markets in South Florida. The point of this post is to talk a little about what is real and what is not.

If I understand Florida Department of Revenue rules correctly, only "arm's length transactions" are included in assessments for property tax purposes. What Eyeonmiami documented recently is that sales recorded in the Property Appraiser database are remaining at assessed value of the sale preceeding the transaction under foreclosure or distress. Although this method of accounting appears to be within DOR rules, those rules probably should be changed. Why? Because foreclosures and distressed property sales were always considered to be the exception and not the rule.

Not only are distressed sales the rule in the majority of transactions in South Florida (at least), it also appears that Florida counties are not using the same standards to assess property tax rolls. This led to a further question: the S&P/Case Shiller data for performance of housing markets is assembled by an independent company, Fiserv Inc. It claims to be using "proprietary" techniques to evaluate housing markets. Beyond that simple statement, I haven't been able to establish what are the "real" rules for the S&P/Case Shiller data. Given everything else that has gone wrong in the last year and a half, in estimating the depth of the economic crisis, doubt is warranted.

The public deserves to know what is "in" the numbers that portray the housing markets as stabilizing, or, falling "less quickly". I haven't been reassured by answers-- incomplete as they are-- to this point. I'll share that information with blog readers as it is provided. While consumers are worried about the value of their home-- the biggest asset for most Americans, confidence in the economy and government continues to fall. Questions about the veracity of data of housing markets lead directly to related doubts about the size of government budget deficits.

In the case of foreclosures or homes selling in some stage of distress, there is a huge difference between what homes are selling for, and in many cases-- the assessed value for tax purposes. Homeowners will be questioning-- especially if homes were purchased during the boom years-- why their assessments have not been lowered. From local government's point of view, assessed values need to stay high in order to deliver revenue based on millage rates. If assessed values fall, the millage rate will have to go up. Unless housing markets recover, the budget deficits are likely to increase-- not stabilize. It will take years and years to work through the growing number of vacant homes: on banks' books, as foreclosures, as failed condominium associations, and Community Development Districts.

Instead of establishing the true parameters of the housing market implosion, the crisis is providing opportunity for the home builders and construction and development lobby to knock down laws and barriers to further "streamlined" zoning and permitting changes. It just happened in the Florida legislature. The Republican majority in the legislature is desperately trying to eliminate the government agency charged with growth management: the Florida Department of Community Affairs.

With elected officials like Gov. Charlie Crist, the industry has found pliable collaborators. For the sacrifices taxpayers are being asked to make, the least they are owed is honesty: honesty in data and honesty in what our taxes are paying for and guaranteeing. So far, it's just SISO.