In a recent op-ed piece a business owner made an incredible statement. "My business would be hurt far more by allowing the tax cut for America's most fortunate to continue and instead slashing budgets for things like public education, research and infrastructure to pay for them."

 

Nice rhetoric but completely wrong on every point.  Federal income taxes are not even close to the most important component of education spending. Public education is funded primarily by state and local taxes.  Infrastructure, especially roads and bridges, are funded mostly by special taxes designed to collect money from people and businesses that use them. And the notion that Federal budgets have been slashed totally ignores the fact that Federal spending is up a trillion dollars since 2007. Which budgets have been slashed?  Federal spending as a percent of GDP is at its highest level in history save for WWII.  The claim that programs are being starved is nothing if not hilarious.   

 

The writer is obviously concerned about Federal tax revenue not keeping up with the nation's spending binge. But the primary reason for depressed tax revenue is the weak economy that has not responded to the bulge in Federal spending as we were promised it would by the President and his people.  Moreover, the policies of regulation and the threats of higher taxes coming out of DC are depressing private sector investment and growth. It is important to remember that the USA has one of, if not the, highest corporate tax rates on the planet. And the magnitude of the final real costs of Obamacare is still unknown both in terms of direct expense for employees for health care costs and for compliance.

 

The notion held in some quarters that allowing the tax cuts to be eliminated for those making over $250,000 is going to solve the nation's fiscal crisis is irrational. That will not raise nearly enough money in a depressed economy and will have a chilling effect on business growth. The tax raisers are forever and always disappointed when higher rates fail to produce more revenue. But they never learn.  

 

Getting more people on private sector payrolls is the only sensible answer to our fiscal woes, Federal or local. Current and prospective policies in DC are pushing in exactly the opposite direction.  It is too bad and very sad that some folks can be successful in the private free enterprise system and still have so little understanding of what makes the system great or have so little respect for keeping free enterprise free and as unfettered as possible. A look at France, Greece  or Spain might help them but the writer of the op-ed in question is too busy linking things together fallaciously to take a look elsewhere to see what happens in the world he thinks would be better than ours.

 

Finally, the typical ignorant comment about the need to spend ever more money on public education in the country fails abominably to see what is happening in public education in Chicago, Philadelphia and Pittsburgh and other cities. Seven percent of Westinghouse 11th graders are proficient in math. The majority of Chicago students are unable to function at grade level. Lack of spending? Over $20,000 per pupil in Pittsburgh and the nation's second highest paid teachers in Chicago. How many more tax dollars must be thrown at these failed school systems to satisfy the business man who thinks we are under taxed?

 

Acquiring some actual knowledge about the world and how it works could go a long way to correcting the thinking of the business owner. 

 

Reaction is coming in to the County Controller's audit of the contractor that performed the reassessment.  The audit deals with four main findings: the contract provisions were satisfied, but they were weak; the project was not completed in the timeframe; the County's Office of Property Assessments (OPA) did not adhere to its contract provisions; and various internal control deficiencies.

 

There's plenty of data as the Controller's office calculated median, mean, coefficient of dispersion, and price related differential for sales covering two time periods and displayed the results by municipality and school district.  There is a response to the audit from OPA, which basically concludes that the property tax system in the Commonwealth is flawed and needs reformed. 

 

What's very important to note is that in at least two instances the audit goes to great length to dispel the notion that a reassessment automatically causes a tax increase.  We noted earlier this year that the County's reassessment page published a quick and handy guide to this fact, and the Controller's audit notes that "it is important to understand that a taxpayer's tax liability will not necessarily increase when the assessed value of their property increases" and "one of the common misconceptions held by Allegheny County property owners about the reassessment is that the reassessment will automatically result in a higher property tax bill for the homeowner..." 

 

By detailing the anti-windfall provisions in Act 71 and Act 1 along with providing examples of homes the Controller's office has provided another voice to counteract the drumbeat of "reassessments mean higher taxes" that has been so prevalent in the near decade long tussle over revaluations. 

 

A couple of weeks ago Moody's Investor Services assigned an A1 rating to Allegheny County bonds.  Much glee was expressed by the County Executive at the rating agency's good opinion. 

 

There is no gainsaying the fact that a high bond rating is a very good thing for the County in terms of its ability to borrow money at the best interest rates. But before County residents get too comfortable they should know the details of the rating that might be somewhat less reassuring. 

 

First of all, the rating comes with a negative outlook based on Moody's concerns about the challenges facing the County; namely, the very low reserve balance, the low pension funding levels and lack of financial flexibility.  Moody's does credit the stable economic base that is heavily structured toward higher education, health care and government employment. A point the Institute has made for quite some time.

 

Second, it is instructive to examine Moody's rationale for the A1 rating. Quote; "The bonds are secured by the county's general obligation, unlimited property tax pledge." (Bold and italics added by the Allegheny Institute.)  Moody's is saying that because the County can raise property taxes as much as necessary to make bond service payments the agency will give the County a high credit score. Thus, the low reserve balance, the budget balancing by one time funding sources-such as grabbing gaming money headed to the airport, the sale of tax liens, etc.-and the low pension levels and ongoing structural imbalances that might otherwise have caused a rethinking of the bond rating are overridden by the fact the County can raise taxes as much as necessary to make bond payments.

 

Taxpayers might be more comfortable if the bond rating was due to careful financial management, keeping a strong reserve, not depending on last minute finding of money to close a budget gap and holding prudent debt levels. In other words, the good debt rating should not be used to go borrowing more money other than for refinancing. Taxpayers would also be more comfortable if the County's budget problems were resolved by spending cuts through outsourcing and privatization.  County employees might feel differently about that but it is the taxpayers who must be served. After all, they pay for the government.  

 

The Moody's unlimited taxing power rationale that underpins its high bond ratings can lead governments to get themselves into trouble by borrowing imprudently and not paying enough attention to controlling spending.  High credit ratings have undoubtedly led municipalities to go too far into debt and created financial crises when the economy stumbled and tax revenues began to fall. Slashing core government functions has often been required to leave enough money to pay debts.  Raising taxes in an already depressed economy can be counterproductive and actually drive tax base away.  Moody's might want to rethink how it weights the "unlimited" taxing power criterion.

 

Several months after City of Pittsburgh voters opted to increase their property taxes in order to fund the Carnegie Libraries and after residents and businesses in the South Side never got a chance to see if a Neighborhood Improvement District (NID) concept would come to pass and what higher taxes would do for improvements in that part of the City, the next improvement district is being proposed in Lawrenceville this week in City Council.

 

There are still only two improvement districts in the City, one in Downtown and one in Oakland.  Others have been tried in East Liberty, West End, and the aforementioned South Side.  If the opposition to the proposed Lawrenceville BID reaches the point where 40% or more of the affected property file objections to the plan then the BID plan does not move forward. 

 

According to published reports the fee assessed on businesses would be based on the linear storefront width rather than on property value which would likely see big changes as the new assessments would likely be in effect about the time the approval process would be completed. 

 

The City Controller has suggested increasing the homestead exemption for City taxpayers.  A homestead exemption allows homeowners to decrease their assessed value by a fixed dollar amount so as to lower the property tax bill.  The County has a homestead exemption of $15,000 while the City's is $10,000.  While the Pittsburgh Public Schools offers one it is funded through gaming money and it is not quite at the discretion of the school board to change the amount. 

 

In a Brief we wrote last year we showed the effects of the homestead exemption on County taxes since County Council was exploring the idea of eliminating it.  The exclusion was boosted from $10k to $15k about a decade or so ago.  That's the decision point the City may come to if it decides to follow through with the Controller's recommendation. 

 

Using our sample of 100 properties that sold in 2011, twenty of those randomly selected homes were located in the City.  If the forecast of the Property Tax Estimator holds accurate Pittsburgh's 10.8 millage rate would fall to 6.94 mills to be revenue neutral under Act 71 requirements.  If that rate held the homes in our sample located in the City would see differing results for their City property taxes: nine homes would pay more in taxes, eleven would pay less.  A bigger homestead exclusion for City homeowners would obviously shrink the tax payment: going from a $10k exclusion to a $15k exclusion would result in roughly a $35 decrease in the City property tax bill.  

 

As we have pointed out in Briefs this year, a property owner's first bill under the new assessment will not necessarily be higher than the bill for this year and years past just because the assessment is higher.  That's despite the claims by several elected officials that make the statement that reassessments lead to tax increases.  And despite the County's own property assessment webpage that points out a taxpayer's obligations depend on how their assessment changed relative to the taxing body overall.

 

With one county, 128 municipalities, and 43 school districts all levying property taxes it would be quite an undertaking to describe the present and future tax burden for all properties in the County.  A new website, Property Tax Estimator, allows taxpayers to examine their property and see what to expect based on new assessed values and anticipated millage rates.  Recall that the County and municipalities have to establish revenue neutral rates after values are certified.  Tax hikes can happen after that. 

 

Revisiting our sample of 100 sales that we utilized in two Briefs in 2012 (here and here) we examined the resulting impact of the assessments on County property taxes.  We used the following assumptions:

• The home would take the County's homestead exemption that lowers the taxable assessment by $15,000 for both 2012 and 2013
• The millage rate for the County currently (5.69 mills) would fall to 4.11 mills based on the Estimator's calculation

 

So what happened?  Of those 100 sales, 38 would end up paying more in County property taxes in 2013 than they did this year.  This ranged from one home paying close to $800 more to one paying $1 more.  The remaining 62 would all see a drop in their County property taxes.  The range goes from a $3 cut to a $500 cut for the group. 

 

A higher tax rate-whether a revenue neutral rate settles in at higher than what the Estimator predicts or the County increases the rate as permitted under the law-would obviously change what the final tax bill looks like.  Assume that the County Council increased the tax rate by 5% in a separate vote (it would take a 2/3rds affirmative vote) and then successfully petitioned the courts to utilize the same 5.69 millage rate that is in place this year, only with the new assessments taking hold.  Of those 100 properties in our sample, 9 would pay less in 2013 than they did in 2012.  Their assessed values have fallen far enough for that scenario to happen. 

 

Never has so much inanity, ignorance and denial of reality been on display as the Pittsburgh City Council's proclamation calling for the Federal government to enact a second Bill of Rights to protect the middle class.  The proclamation would have the new Bill of Rights include a living wage, education rights and full participation in the electoral process. 

 

How fascinating that Pittsburgh's City Council would be the promoters of a Bill of Rights which have in effect already been implemented in the City. Are they not happy with Pittsburgh's results?  Has the City's living wage bill not worked to grow the middle class' income? Apparently not.  Has spending over $20,000 per pupil, having a Promise scholarship program that guarantees money for Pittsburgh school graduates and adopting every politically correct education strategy and gimmick coming down the pike improved education in City schools? Absolutely not. What new educational rights could possibly do more than is already being done? And how likely are they to achieve better results than are already occurring?  History says they will be a counterproductive waste of time.

 

The nation has long since had a minimum wage and a labor policy that gives great power to unions. Look at the industries the unions have decimated through their demands. The nation and the state have had prevailing wage laws for decades. Pennsylvania has labor laws that give public sector unions enormous bargaining advantages over the elected officials representing the taxpayers.  And given the incestuous, mutual back scratching relationship between elected officials and public sector unions taxpayers end up getting short shrift.  Those laws enrich the government employees but have pushed 26 municipalities in the state into distressed status, including Pittsburgh.

 

Which of these policies, along with business strangling environmental policies, have been helpful in promoting private sector activity and creating sustainable high paying jobs? Look at the deep blue cities all around the country such as Philadelphia, Detroit, Buffalo, Cleveland, San Bernardino, Scranton, and Harrisburg. Where is the evidence that all the "progressive" programs in those cities have protected the middle class? 

 

The unwillingness to recognize the damage being done to our economy and financial system by progressive programs is to be in complete denial. Model cities ring a bell? How did the Civic Arena work out for the Hill District?  Have progressive education policies improved education? Look at academic achievement in Chicago, Atlanta and many other cities across the country where the lack of discipline and kowtowing to teacher unions have held sway for years.

 

Finally, how can a City that has been totally under the control of one party for 80 years in a country that has been under the control of the same party for much of the same time and is in a country which has a voting rights act have concerns about electoral participation?  Where has their party been? The same party that has a very checkered history when it comes to electoral malfeasance. Philly Black Panthers ring a bell anyone? ACORN shenanigans?  Then there is the candidate for Congress in Maryland who has had to drop out for voting in both Florida and Maryland in the same election season.  Does full participation in the electoral process include being able to cheat?

 

Rights cannot specify outcomes as the Council apparently believe they can. Rights should ensure freedom to work, start a business or any other pursuit of happiness an individual chooses with minimum of interference and then only to protect the same rights of other people. Rights should ensure the sanctity of life, the ability to own and dispose of private property and the right of free speech, the freedom of the press and religion. In fact, the founding documents including the Bill of Rights and other amendments already do these things as long as politicians and judges do not subvert them. And therein lies the rub for the Council's proclamation. They are unhappy with the tried and true way the country has guaranteed our rights and produced the greatest prosperity the world has ever seen.

 

But progressives are never happy. And they have enacted idiotic laws such as those that led to the subprime mortgage debacle that nearly destroyed our financial system. They have worked to choke off the country's ability to exploit its own resources and to hamstring the ability of entrepreneurs to build and grow businesses. The drafting of the proclamation demonstrates the inability of progressives to be open minded enough to question whether or not all they have done before is doing what they promised? Or will they ever they recognize the unintended consequences of their policies and beliefs? They would choke the goose that lays the golden eggs and expect the goose to keep producing the eggs.

 

When a reassessment is conducted by a county in Pennsylvania, state law requires the county and the other taxing bodies in that county-municipalities and school districts-to adjust their millage rates so that the amount of revenue taken in the first year under the new values is neutral and that hikes to millage rates above the revenue neutral amount necessitate a separate vote of the taxing body (governing entities in Allegheny County used to be able to take 105% of the pre-reassessment revenue without a separate vote) and increases above require permission of the courts.  We wrote about these requirements in two Briefs this year, here and here.

 

A new property tax analyzing tool, Property Tax Estimator, allows the average taxpayer to see what he or she can expect to pay in property taxes after the rollbacks occur.  Much of this is forecast based on what the changes in assessed value are for the County and other taxing bodies.  School districts, with the exception of Pittsburgh Public Schools, already adopted their millage rates for the fiscal year covering the first half of 2013 and won't adjust the millage until the fiscal year that starts next July.  That leaves this analysis to Allegheny County and its municipalities (excluding two that lie partially in another county and three that carry separate land and building tax rates).

 

In the big picture for 2012, the average millage rate is 6.39 mills; the Estimator's analysis forecasts the average to fall 24% and stand at 4.86 mills in 2013.  The County's rate is expected to fall from the current 5.69 mills to 4.11.  The City of Pittsburgh from 10.8 mills to 6.94 mills.  The community with the highest millage rate in 2012 (East Pittsburgh) and the community with the lowest (Pine) remain at the top and the bottom, respectively, in 2013's estimates, it is just that both rates are lower than this year's. 

 

The one outlier, so to speak, is the borough of Pitcarin in the eastern part of the County.  It was the only municipality where assessed values were projected to fall under the new assessed values.  In order to remain revenue neutral, its millage rate would have to rise.  That places its 2013 rate at 6.1 mills, up from 5.75.  Municipalities with small drops in millage include Turtle Creek (7%), Mt. Lebanon (7%), and Coraopolis (8%) while sizable millage rates drops are projected in Rankin (43%), Dravosburg (46%), Neville (48%) and Harmar (56%). 

 

In a scenario remarkably similar to those played out all too frequently in Pennsylvania schools and transit agencies, strikes and threat of strikes are being used in Chicago to boost public employee pay, benefits and working conditions.  Teachers walked off the job this morning making good their threat of two weeks ago.

 

Like a bad relationship, this is a gift that keeps on giving. The right of teachers to strike in Illinois, one of the three leading states for teacher strikes and one only a handful that still permit strikes, should be a wakeup call for taxpayers around the country. Demands of public sector unions are the primary force in the rapidly growing number of state and local governments facing financial chaos.

 

Chicago teachers already earn far more than the average Chicago household, $71,000 to $47,000, and receive substantially more benefits. Yet they are demanding a 30 percent pay increase over the next four years in addition to job security guarantees.  All this against a backdrop of a school district facing nearly a billion dollar deficit by the need of the school year.  Where will the money come from?  State taxpayers that just recently saw a huge increase in their income tax rate?  Local property taxes? This in a state with horrendous financial problems of its own. 

 

What's even more deplorable is the abominable academic performance in the public schools in Chicago where only 15 percent of fourth graders are reading at fourth grade level and only 56 percent of students ever graduate. It is little wonder that 50,000 of the City's 400,000 students are enrolled in charter schools-where there is no strike and students are going to school.

 

The taxpayers are almost certain losers in this episode, the way they always are in Pennsylvania public sector work stoppages.  The shame is that people with the power to shut down vital public services have learned that enough is never enough. And experience tells them the taxpayers, the students and the parents of students can just shut up and take it. And they will take it until they grow a backbone strong enough to vote out the legislators who insist on protecting public sector unions.

 

Given the Mayor's strained relationship with the union and his opposition to the demands of the teachers, it will be interesting to see how the President reacts and which side he will support.  Will it be loyalty to his former chief of staff or go where the votes are-the teachers unions as representative of his most formidable voting bloc?

There are lies, damn lies and statistics.  Never was this more true than with the report of a decline in the unemployment rate to 8.1 percent in August.  The drop was entirely due to a massive 368,000 slide in the labor force-the number of folks looking for work. The number of people reporting themselves as working in August actually fell by 119,000.  So, in this world of the monthly Household survey's strange accounting, the unemployed number tumbled by just under 250,000.  Hence, the unemployment rate, the ratio of unemployed to the labor force went down.  Pure fiction as it relates to what is happening to the labor market.

 

And if one is looking for solace in the Establishment survey report-forget about it.  Payroll jobs rose a scant 96,000, less than half the monthly increase in the civilian non-institutional population of labor market age.  Jobs fell in manufacturing and mining suggesting the goods producing sector has run out of upward momentum. Jobs in the temporary help category also dropped, a negative omen for future hiring of permanent workers. Hiring in the professional and business service group slowed to half the rate of growth in previous months, also an indication of a substantially weakened job market.

 

Watch for the Fed to jump in with more monetary policy stimulus efforts. Which will amount to nothing more than pushing on string in the face of the fiscal calamity and regulatory nightmare facing the nation.