State Comptroller: Betterment levies deemed 'successful' by local authorities

Planning to add a room to your apartment or sell it? You were likely asked to pay an exorbitant betterment levy far beyond the value you added. Think it's a mistake? You're right 95% of the time. 

Brace yourself: Despite this important issue affecting every property owner in Israel, State Comptroller Matanyahu Engleman reveals last Tuesday that betterment levies have turned into a chaotic market, akin to a 'success' method, where the winners are the fixers and local authorities, while the losers are us, the public, losing millions. 

Furthermore, the state comptroller shows that the current method of collecting betterment levies further exacerbates the massive gaps between the periphery and the center. The financial state of local authorities is dramatically influenced by the revenue from betterment levies (as they are the big winners in this whole story), which widens the economic gaps between them and affects their ability to cope with the expected population growth and densification in the coming decades.

It's worth noting that the government had tried in the past to favor the individual on this matter, but in reality, the establishment of a public committee to examine the betterment levies mechanism, as per a government decision from August 2021, has not been implemented to date.

What is meant by improvement charges?

Due to legislative changes, property owners are now required to pay betterment levies amounting to half of the property's improved value. In other words, the state does not allow all the profit to remain with those who made the improvements but imposes a tax that shares the profits with the public. This aligns with the principle of distributive justice, which suggests that property owners should share with the public the profits generated by the improvements and bear part of the planning and physical-spatial development costs.

How much are we talking about? According to the report, in 2021, local authorities collected nearly 8.7 billion shekels in betterment levies from residents, double the amount from the previous year and a 171% increase compared to 2013. In short, someone made a huge profit at the expense of property owners.

What caused the dramatic jump in the improvement charges?

The market, you say? More like a flea market. Due to the current situation where authorities impose enormous sums on apartment and property owners, which can reach millions of shekels and raise questions about the demand's validity, fixers have stepped in and succeeded in reducing the betterment levy set by the local planning and building committee by a third or more in 95% of cases (an average of 36% based on a random sample of 60 decisions from 2022, concerning assessments prepared by 34 local committees). 

To put it simply - received a betterment levy assessment of millions? Contact the right people and sometimes pay nothing.

An in-depth audit was carried out in 4 large municipalities: the conclusions are shocking

The State Comptroller analyzed the financial reports of all local authorities and conducted an in-depth audit in four municipalities: Herzliya, Jerusalem, Ramat Gan, and Ramat Hasharon. 

"Distributive justice?" Don't make me laugh. The report shows that revenues from betterment levies in the most peripheral and low-ranked municipalities (1-4) on the socio-economic scale averaged 559 shekels per resident, while in the municipalities closest to the center and highest-ranked (8-10) on the socio-economic scale, revenues averaged 8,476 shekels per resident, a 15-fold difference.

Revenues from betterment levies in the municipalities closest to the center and ranked highest on the socio-economic scale account for about 40% of all revenues, while only 13.5% of the population lives there.

In municipalities ranked 8-10 on the socio-economic scale, where about 20% of the population resides, the fund balance totaled approximately NIS 4.5 billion, accounting for about 60% of the total fund balance in all local authorities. In the rest of the local authorities, where about 80% of Israel's population lives, the fund balance totaled about NIS 3 billion, accounting for about 40% of the total betterment levy fund balance in all local authorities. 

The Ministry of the Interior's measures to bridge income gaps between local authorities - the balancing grant and the gap reduction fund - do not take into account the authorities' revenues from betterment levies, despite the hundreds of percent gaps in revenue per resident between different socio-economic and peripheral clusters, and even though the revenues total billions of shekels.

Act Surprised: Municipalities Ignore transparency to the public

It was also found that the audited municipalities - Herzliya, Jerusalem, Ramat Gan, and Ramat Hasharon - did not prepare assessment tables in 2018-2022, despite the benefits such as increased transparency and public oversight, thereby reducing the risk of corruption. 

These municipalities typically prepare individual assessments for each property at the time of rights realization or upon the property owners' request, and in 2018-2022, they prepared about 11,500 such assessments. Mapping by the State Comptroller's Office revealed areas within the audited municipalities where there were concentrations of hundreds of individual assessments, indicating that using an assessment table could have streamlined the processes by consolidating them into a comprehensive assessment document.

In 2018-2022, there were 6,991 appeals regarding betterment assessments submitted across all districts; 3,156 (about 45%) were submitted in the Tel Aviv district, but as of the audit's conclusion, treatment in 2,296 (about 73%) of the appeals submitted there had not been completed. In the Northern district, treatment in 423 (43%) of 995 appeals submitted during those years had not been completed. In contrast, the Southern district had a relatively low rate (10%) of unresolved appeals, and the Haifa district had a rate of 12%. 

Additionally, the municipalities of Herzliya, Ramat Gan, and Ramat Hasharon do not provide information on their websites about circumstances allowing exemption from betterment levies.

More seriously, the Ramat Gan municipality does not provide information on the right to appeal or request an appointed appraiser. Those three plus Jerusalem do not inform levy payers for a permit regarding exceptional use for business purposes that they may post a bond of up to 40% of the determined betterment levy, despite such a right being enshrined in the Planning and Building Law, and they require full payment of the levy as a condition for obtaining the permit.

Planning to appeal the appraisal? Municipalities will drag you for nearly two years

Furthermore, the State Comptroller's report indicates that the average time to resolve appeals across all districts was 429 days - more than three times the standard completion time of 140 days. The longest time was measured in the Tel Aviv district - nearly two years, almost five times the standard. 

In 55% of the appeal processes initiated in 2018-2022 on assessments prepared by local committees (1,305 out of 2,353), the appeal was fully or partially accepted or ended in a compromise agreement between the parties. In other words, in about half the cases, the appeal led to a change or cancellation of the assessment. 

We're talking about huge sums. In three of the audited municipalities - Herzliya, Ramat Gan, and Ramat Hasharon - the average amounts of the change in the charge following the appraisers' decisions ranged between about NIS 320,000 and about NIS 1.42 million. 

Angry? I warned you.