Property tax ‘relief’ that exacerbates inequities

Property tax ‘relief’ that exacerbates inequities

Oh, where does one begin with the folly of public officials seeking to use the legislative process to add to the inequities of the property tax system?

The Post-Gazette reports that a trio of Democrat legislators representing Pittsburgh will seek to amend a 1988 law applicable to Philadelphia (put in place there in 2013 but not allowing homeowners to also claim a homestead exemption) and Pittsburgh/Allegheny County (but never put into practice here) granting them the power “to manage” their property taxes.

Perhaps the more accurate phrase would be “to manipulate.”

Lack of a statewide mandate for regular reassessments — and Allegheny County officials’ steadfast refusal to do the same for political reasons — have left the system filled with gross inequities.

Not keeping up with ever-changing valuations, some properties are underassessed. Others are over-assessed. That means the former aren’t paying their fair share while the latter are paying an unfair share.

And what Sen. Jay Costa and Reps. Ed Gainey and Sara Innamorato seek to do will only exacerbate the inequities.

To wit, they want to create a “Longtime Owner Occupant Program (LOOP) that would, as the P-G reports, “exempt certain homeowners – those who, for example, have owned property for a minimum of 10 years in a rapidly developing neighborhood – from having to pay increased property taxes or allow them to defer the taxes to the next owner.”

Or as Costa told the newspaper:

“This is an attempt to allow those folks to stay in those neighborhoods, those folks who have spent many, many years, in good times and in bad. We don’t want them to be forced out of their homes because of the positive economic development that’s been taking place.”

The City of Pittsburgh is analyzing housing data in fast-developing places such as Bloomfield, East Liberty, Friendship and Lower Lawrenceville and is “poised to begin a public process to decide which neighborhoods would qualify for protection,” the newspaper’s Ashley Murray reports.

The program would apply to city real estate taxes, not county taxes and not school taxes, the latter of which represent the lion’s share of real estate tax bills.

But the simple fact of the matter is that such a program will offload part of the tax burden onto someone else. And it’s not as if the values of these targeted homes haven’t increased and, with that, increasing the equity position of these homeowners. Why should some essentially subsidize the rise in home values of others?

If amended by the state Legislature, this measure would create a situation in which comparable properties would be taxed at different rates solely based on the occupants’ longevity in these respective homes. “Fair”? “Equitable”?

Perhaps next “The State” will guarantee a value floor for the real estate of long-time residents in rapidly declining neighborhoods?

And as with any government operation, unintended consequences loom large.

“Suppose the owner of a property bought the house in a protected neighborhood when he was 35,” says Jake Haulk, the president-emeritus of the Allegheny Institute. “He is now 45 and gets a massive tax break for 25 or 30 years. A 55 year old who bought this year would have to wait until he is 65 and still be living in the house before being eligible.”

Then, too, the Ph.D. economist who’s now a senior advisor to the think tank says, “protected properties might increase in value faster than the market says because of the low taxes and then take a big hit when the tax break goes away upon sale of the property.

“Like rent control, this will have massive unintended consequences. Other groups of property owners will demand relief of some sort,” Haulk predicts.

“The only good news is that the county and district have no incentive to participate,” he notes.

And here’s something else to ponder, per Haulk:

With no regular reassessment, the assessed value will not change unless the property is sold and a governing body appeals the value based on the sales price. The city is on record as not appealing assessments. But the buyer would get hit with the higher assessment following another successful taxing body appeal.

“So, rising property values because of stronger demand will have no impact until a county reassessment or unless the city appeals based on sales prices,” he reminds. “If regular reassessments were in place, all property owners in areas with well above average real estate price increases will get hit hard with higher taxes even with the windfall provision.

“A tax relief program for some of the hard hit will not sit well with others looking at big increases. It will reduce incentive to sell by the beneficiaries of the program, further distorting the market. This plan just has not been thought out well,” Haulk concludes.

Sans Allegheny County officials suddenly having an epiphany and ordering regular reassessments, it remains incumbent upon the General Assembly to pass legislation mandating the same.

Otherwise, this mess will only grow and, with past being prologue, the courts will be forced to step in. And the blame will fall squarely on “leaders” who failed to lead with the latest in a long line of gross panders.

Colin McNickle is communications and marketing director at the Allegheny Institute for Public Policy (cmcnickle@alleghenyinstitute.org).