OCEAN CITY — If two independent appraisals are correct in valuing a former car lot next to the Community Center at $8.3 million to $9 million, the tax assessment on the property should have gone up substantially in 2014, according to real estate experts.
That’s when the city last did a reassessment on the property and others in the neighborhood. It was the year after City Council voted in June 2013 to change the zoning to allow high-density coastal cottages to be built there, increasing its value.
City Council recently voted to bond $8.45 million to buy the 1.86-acre property for $9 million, causing an outcry from some in the community who feel the city is paying too much to owner Klause Enterprises.
City spokesman Doug Bergen said last month the city was required under state law to assess the Klause property for its current use as a car lot rather than at its highest value use for high-density housing.
Recently he clarified that assessments are supposed to be based on market value of the land under its highest allowed use, after being questioned by The Press.
Attorney Bill Thompson, of Callaghan, Thompson & Thompson attorneys in Atlantic City, said assessments are supposed to reflect highest and best use of the land.
“When we go in and do appeals and try to argue a value is lower, the attorneys representing a city always say it needs to be based on the highest and best use,” Thompson said.
Assessments can’t legally be changed on just one property, but generally can only be changed when a municipality does a formal revaluation or reassessment, Thompson said.
The land, however, remained valued at about $3 million, even after the city’s 2014 reassessment of that neighborhood, said tax assessor Joseph Elliott. It was the same amount it had been valued at before the cottages were allowed there, and it was a business zone, he said.
By law assessments are made on the value on Oct. 1 of the year before the assessment, Elliott said.
So for the Klause property it would have been the value as of Oct. 1, 2013.
Bergen said the zoning ordinance took effect 20 days after the adoption in June, well within the time frame to be taken into consideration for the reassessment.
Klause Enterprises has paid about $25,000 a year in taxes rather than the $50,000 to $75,000 a year it would have paid had the land been valued between $6 million and $9 million.
All total value assessments in Ocean City consider the principle of highest and best use of the property, wrote Elliott in an email.
He called highest and best use as the reasonable, probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible and results in the highest value.
And he said in a phone interview he believes the 1.86 acre Klause Enterprises property (made up of three lots used as one) next to the Community Center is properly assessed at $3,097,800.
“I haven’t seen the appraisals — I don’t know what they used for hypothetical conditions,” said Elliott. “I’m not doing that as tax assessor. In my opinion, I believe the assessment was correct and continues to be correct since it can’t change once established.”
The zoning ordinance was again changed in 2016 to disallow new coastal cottage construction in the city, Elliott said. But if the assessment had been increased in 2014, it would not have been assessed back down to reflect the 2016 change, Elliott said. That’s because no area-wide reassessment was done.
Klause Enterprises and partners sued the city over the 2016 change in zoning, and a Superior Court judge sent their application to build 44 cottages on the block back to the planning board for consideration.
Now, John Flood, of Palmer Center LLC, a partner who dropped out of the deal and took his land with him, says the court decision does not apply to an application made in June by Klause and another partner to develop the cottages.
The application was made a month after Klause Enterprises signed a contract to sell the land to the city.
Harry Klause, a partner in Klause Enterprises, said in a phone interview the court decision does cover the updated application, and that it is an amended application not a new one.
Bergen did not respond to a request for information on whether the application was an amendment or a new application.
A citizens’ group, Fairness In Taxes, has started a petition drive to stop the bonding from going forward. Representatives have said they want the purchase to happen but don’t feel $9 million is a fair price.
The city has said Klause Enterprises approached it with the offer to sell, but would not negotiate on the price.
The Klause brothers have said the brothers will move ahead with developing the land if the group gets enough signatures to force a referendum vote.