Letter Writer’s Shock Should Be Channeled

A letter to the editor today from a resident of Mechanicsburg who still owns property in Allegheny County who just received his 2013 County tax bill expresses outrage over a 60% tax increase in his taxes. The letter does not divulge the location of the property (only that the writer "still own[s] property back in the Pittsburgh area, but had to move to Mechanicsburg for employment 25 years ago") or its type (if it is residential, commercial, industrial, land, etc.)

Let’s assume for simplicity sake that the writer owns a single family home in Penn Hills that was assessed at $50,000 in 2012. He could not take the homestead exemption as that is not his primary residence, so at the 2012 tax rate of 5.69 (following the millage rate hike), his Allegheny County tax bill would have been $284. If his 2013 County bill is 60% higher, or $454, that means the value of the structure would have risen to around $95,000 (almost doubling) based on the 4.78 millage rate that was printed on the County tax bill. That increase in value would be far in excess of the percentage changes for the County and all municipalities based on December assessment data.

The writer is angered as well because someone unspecified said he "…should not worry about my taxes going up quickly as there is a clause in the tax code that limits the increase to 5 percent". This is incorrect in that the state law applying to Allegheny County says after a reassessment tax rates must be rolled back to be revenue neutral and then, if the taxing body so wishes, they can raise tax rates so that they can get an additional 5% from the prior year’s revenue and then if more is desired, a petition to the courts can be undertaken. What someone at the County in person or through public pronouncements should have done is to explain that an increase in one’s property value has to be gauged against the increase of the taxing body to determine if taxes go up, down, or remain unchanged.

What is perhaps most amazing is that the letter writer, presumably as a real property owner in Mechanicsburg, which is located in Cumberland County, somehow forgot that his home county just reassessed in 2010. Maybe the reassessment did not result in a significant jump in his county taxes, which is entirely possible, or it did, which is also possible. Cumberland County, which assesses property at 100% of market value just like Allegheny County, just increased taxes in 2013 (from 2.045 mills to 2.274 mills), which meant a tax increase for him and all other taxpayers in the County.

If the letter writer really wants to get steamed he might calculate what his assumed $95,000 home in Allegheny County would pay in county real estate taxes vs. his assumed $95,000 home in Cumberland County would pay-it’s a $236 difference. There might be a lesson about the cost of county government in there.

Small Pension Plans in the County

Based on data from the Pennsylvania Public Employee Retirement Commission (PERC), there were 298 pension plans in Allegheny County in 2011 (most recent audited year). Based on active membership (in aggregate there were more than 18,000) about half of these plans had 10 or fewer members in them that year.

How does that compare statewide? In PERC’s 2011 municipal pension plan report there is a higher percentage of plans (68%) that have 10 or fewer members than in Allegheny County. PERC notes that it uses a threshold of 100 active members to determine whether a plan is "large" (100 or more) or "small" (99 or less) and, by that measure, 98% of local plans in Pennsylvania are considered small. Here the plans in Allegheny County track much closer to that calculation, with 96% of plans having less than 100 members. Only 10 plans have 100 active members or more-all of them are either related to the County or the City of Pittsburgh by being the primary plan of employees or of related authorities.

Tough Sledding for Lift Proposal

As part of the drive to find efficiencies in County government and determine the proper functions of County government the Parks Department and Council’s Parks Committee might test the slopes to see if there is a private interest out there who might want to take over the skiing and snowboarding functions at Boyce Park. We have written previously about the County’s efforts (here, here, and here) which go back to a 2007 study on identifying revenue sources in the park system. The County put out a request for proposals for the Boyce Park facilities but it was not successful in drawing interest.

The Executive, sounding a bit like the Governor when discussing the liquor store privatization plan, stated "We’re going to take a look at, say, our ski slopes, (and ask) is that a business we should be in. I don’t know that it is."

That’s the perspective the County needs to take as part of its next Sunset Review and not be dismissive of getting the report done and being serious about it. The 2003 Review raised the issue of looking for alternative revenue sources for the parks,

An Update on Municipal Finances in Allegheny County

Many people keep fairly close tabs on the goings on of the Federal and State governments.  However, they often are unaware of what is happening within their own municipality, specifically regarding the amount of spending and revenue collection.  Three years ago we launched the first in a series of reports dedicated to examining the expenditure and revenue collections of the municipalities in Allegheny County.  This year we update the analysis by looking at the data from 2010-the latest available.  This Brief provides a summary of the findings. 

 

 

The data examined are from the 2010 annual financial reports submitted to the Department of Community and Economic Development.  We include all municipalities located entirely within Allegheny County-eliminating McDonald and Trafford since each spans two counties.  We have also excluded the City of Pittsburgh because it is the subject of analysis elsewhere.  Thus, this report covers 127 of the 130 municipalities within Allegheny County.  The study examines per capita (using 2010 Census figures) general fund expenditures, revenues and general obligation debt as well as median household incomes of the municipalities

 

To begin the analysis we looked at per capita expenditures.  For the 127 municipalities, the weighted average per capita total expenditures in 2010 is $651, representing a two percent increase over 2009 ($638) and a three percent increase over 2008 ($629).  Eighteen municipalities spent more than $1,000 per capita on total general fund expenditures, led by Sewickley Heights, Pine, and Rosslyn Farms each spending more than $2,000 per capita.  In 2009 only fifteen had spent as much as $1,000 per capita.  At the other end of the spectrum, thirty five municipalities spent less than $500 per capita on general fund spending-down from thirty nine the year before.

 

The largest component of general fund spending is for public safety.  Public safety includes not only police and fire, but code enforcement, planning and zoning.  The 2010 weighted average is $231, four and a half percent higher than the 2009 level of $220 and eleven percent higher than the 2008 level of $208.  The top eleven municipalities such as Sewickley Heights and Rosslyn Farms spent more than $400 per capita while at the lower end of the scale the seven lowest spent such as Wall and South Versilles less than $100 per capita.

 

Other components of general fund spending include highways and streets, where the weighted per capita average in 2010 increased over that from 2009 ($113 vs. $105) and general obligation debt where 2010’s weighted per capita average also increased, by six percent, from the previous year ($543 vs. $514).  Only two spending categories have posted declines from 2008 through 2010-general government and recreation.  General government spending declined six percent while recreation expenditures declined 9.5 percent.

 

Of course local governments must raise revenues to cover their spending and their ability to raise revenue will, to some degree, determine the level of expenditures as well as either attract or deter residents from moving into or out of the municipality.  The weighted average per capita total general fund revenue for 2010 is $649, a three percent increase over 2009 ($628) and four and a half percent increase over 2008 ($621).  In all nineteen municipalities raised more than $1,000 per capita in general fund revenues led by Sewickley Heights, Pine, and Leetsdale.  At the lower end of the scale, thirty six municipalities had per capita revenues, such as Fawn and Brackenridge, under $500. 

 

The largest component of revenue for municipalities comes from property taxes.  The weighted average per capita level of property taxes collected by the municipalities in 2010 is $221-greater than the 2009 value of $214 and the 2008 amount of $207.  Keep in mind that property taxes are dependent upon two things:  the assessed value of the property and the municipal millage rate.  Since the County was operating under a base year assessment system in 2010 the increase was likely attributable to increases in millage rates.  The top ten collecting municipalities collected more than $500 per capita, however with a median amount of $228 half of the sample of 127 municipalities collected less than this amount. 

 

The earned income tax provides municipalities with another reliable stream of revenue.  It is however capped by state law at 0.5 percent unless the municipality is under home rule (seventeen are) or under Act 47 supervision (four are).  The weighted average per capita for this sample is $145, slightly higher than the 2009 amount of $143, but lower than the value from 2008 ($146).  While it may be reliable, it is subject to economic conditions beyond the municipality’s control.  From late 2008 through early 2010 the nation was mired in a deep recession and the recovery has been sluggish.  Thus the dip in 2009 is likely due to the recession.  While the top ten collect at least $250 per capita in earned income taxes, more than half of the municipalities in the sample collected less than $100 per capita. 

 

The analysis above represents only a snapshot of some of the spending and revenue categories covered in the full report.  For more information about individual municipalities the complete data set is available on our website:   www.alleghenyinstitute.org

County Eases Recent Air Pollution Guidelines

Just two months after adopting new, stiffer toxic emission guidelines for new installations of plant and equipment, the Allegheny County Health Department voted to relax one of the new guidelines. Rather than measuring pollutant levels at the company’s property line, as called for in the November approved guidelines, the new relaxed requirement will be to measure the pollutant level at the nearest habitable structure.

Last August when the guidelines were proposals and made available to the public, the Allegheny Institute produced an analysis of the guidelines in which we challenged the type of measure of toxicity being proposed and all also strongly questioned the use of the company "fence-line" as the appropriate place to measure the pollutant. For one thing, the gauge of carcinogenic effect being employed is the Maximum Individual Carcinogenic Risk (MICR). The MICR-a creature of the EPA-is defined as the estimated risk of contracting cancer for an individual exposed to the pollutant 24 hours per day, 7 days per week, and 52 weeks per year for 70 years. The risk setting is placed at one predicted case of pollutant caused cancer in 100,000 persons so exposed.

Obviously, the MICR is a questionable measure since there has never been, nor is there likely to ever be, a study lasting 70 years that keeps a person continuously exposed to a specific toxic emission level. In other words, the MICR is a projection and depends on assumptions about mechanisms and extrapolations of effects over a very long time based on controlled experiments for much shorter duration. Indeed, subjecting individuals to deliberate exposure to toxic emissions for periods of time in order to assess carcinogenic effects is a violation of accepted protocols for human testing. In the absence of direct tests, scientists are forced to use epidemiological studies in an effort to assess the carcinogenic effects of a toxic substance. Such studies are extraordinarily difficult to refine to a level that statement t with high degrees of confidence can be reached, especially when the risk factor is being set so stringent as one cancer in 100,000 exposed individuals-over a period of continuous exposure lasting 70 years.

However, beyond the inherent difficulties in using the MICR, having the measure taken at plant boundary line is seriously over the top. What if the nearest domicile is 200 yards away? The likelihood of the toxic emission being nearly as concentrated as at the boundary is highly improbable, the more so depending on strength of prevailing air flows.

In short, the Health Board made the right decision regarding where to measure the pollution. Now they need to revisit the MICR and satisfy themselves that the standard is of value.

Finally, it should be borne in mind that the new guidelines apply only to new or rehab installations. What if the new equipment is less polluting than the old but does not meet the new guidelines? The impact might well be to have the firm continue using the old equipment rather than investing in new, cleaner equipment. Where is the logic in creating such a scenario?

A Collegial Relationship

A few years ago, 2009 to be exact, the County’s tangled web of relations between itself and UPMC, the County’s role as the body that assesses property value and certifies that parcels exempt from real estate taxation really should be, the County’s role as promoter of economic development and leaning heavily on "eds and meds", and the County’s role as viewing itself as needing to intervene in matters such as UPMC’s decision to shutter the hospital in Braddock all intersected at one Council meeting, one that we wrote about then. That’s because on the same night that County Council decided it wanted to explore what UPMC owned and whether everything was deserving to be exempt (presumably as a tactic to scare UPMC into changing its mind) it had to decide whether the County-acting through its related Hospital Development Authority-would issue $1 billion in bonds on behalf of UPMC.

The issue of the Authority acting as a debt issuing vehicle rose again in 2011 when the UPMC-Highmark battle was at its apex. Again, we wrote about that debate and the $330 million borrowing request that, in case the County wanted to exert influence by not issuing the debt, another state level authority stood ready. The County did not issue the bonds.

So why bring these instances up? Because at the end of 2012 County Council held a hearing on UPMC which it promised would be the first of many on finding out if property owners classified as charitable and exempt really deserved all their exemptions. As an article today pointed out, the classification system the County has on exempt property is a mess, but tomorrow night the Council will take up business deciding whether its Higher Education Building Authority should issue over $80 million in debt for two private universities in the City of Pittsburgh and, after that, whether the Authority needs a new lease on "municipal" life, which amounts to fifty years additional. The County does not pledge its revenues or the state’s by issuing the bonds but it has the opportunity to make plenty in fees and payments. That’s the decision point it has to deal with when deciding if it wants its instrumentalities to help the institutions it is trying to get to act a certain way.

County’s Towns and Cities Face Assessment Changes

Earlier in 2012, Allegheny County released preliminary assessed value changes for its cities and towns showing how property values had changed, in aggregate, for 2013. The range ran from a 75% increase in Rankin (with values rising from $14 million to $24 million) to a 5% decline in Pitcarin, the only municipality that saw aggregate property values fall in the County.

With appeals taking place and certified values reflecting those changes as of their December 20th release, we see that five municipalities (Turtle Creek, East Pittsburgh, West Homestead, Sewickley Hills, and Pitcarin) saw their certified values come in higher than their preliminary numbers. Nine municipalities saw no change. The remaining 114 municipalities saw certified values fall from preliminary numbers. A good many of these (86) saw rather small decreases (5 percentage points or less). Sizeable reductions from preliminary numbers to certified numbers came in these communities: Dravosburg (86% to 34%), Neville (96% to 56%), Versailles (43% to 17%), Sewickley Heights (61% to 37%), and Harmar (56% to 41%).

Municipalities have until the end of January to set millage rates for 2013 tax bills that comply with the Act 71 requirements on revenue neutral rates and rate hikes following the establishment of those revenue neutral rates.

Measuring the Changes in Certified Assessed Values

Prior to Christmas and New Year’s Day, back on December 20th, Allegheny County certified assessed values for 2013. It will take until the end of January for local governments operating on a calendar year for their fiscal year to finalize millage rates for 2013 tax bills. School districts, with the exception of the Pittsburgh Public Schools, operate on a July-June fiscal year but with Act 1 governing budget development that process will begin rather soon.

Appeals of initial values have adjusted the aggregate changes for the County, municipalities, and school districts. As reported after the certification, the County as a whole will see values rise 32%, from $64.1 billion to $84.5 billion. Earlier in 2012 it was projected that the County would rise to $86.8 billion, a 35% increase.

A quick look at values sorted by school district (there are 43 in Allegheny County) shows a few with what could be considered sizeable drops in the initial projections of assessment changes. Pittsburgh (Pittsburgh and Mt. Oliver) was initially projected to increase 55%; now it will rise 48% under certified numbers; Cornell (Coraopolis and Neville) was initially set to rise 42%; now values are expected to rise 26.7% (in initial 2012 numbers Neville Township was projected to rise 95%, and now the certified numbers show the municipality’s values climbing 56%); Wilkinsburg, Allegheny Valley, McKeesport Area, and Quaker Valley are others that will see somewhat significant drops in what was originally projected to be their assessed value increases.

Only one district, Steel Valley (Homestead, Munhall, and West Homestead) saw even the slightest uptick in values from initial to certified, rising from 25.4% early in 2012 to 25.5% in the certified numbers.

Diagnosing the UPMC Hearing

 

Allegheny County Council held a public hearing recently regarding the University of Pittsburgh Medical Center, better known as UPMC.  Based on the motion passed by Council in November the purpose of the hearing was “…to allow the opportunity for public comment regarding the tax exempt status of property owned by [UPMC] within Allegheny County pursuant to the Institutions of Purely Public Charity Act”. 

 

The twelve Council members who were present at the November meeting voted in favor of holding the hearing. The Council member who would chair the hearing said at the time “it’s a good idea to have this meeting and air it out properly in front of everybody” though the “it” and the “everybody” were never exactly clear.  The motion said “tax-exempt property” but some believed “labor relations” was the intent. 

 

A day after that quote an opinion piece appeared stating “given the backdrop of labor politics, the event should not be a club aimed at UPMC, but a lens through which a broad system of tax exemption and its public impact get close examination”.  However, a newspaper report detailing the meeting stated “…many of the speakers talked more about what they said was UPMC’s opposition to union organizing efforts by the Service Employees International Union.” 

 

Maybe we will never know for sure whether this was supposed to be a fact-finding mission or a show trial.  In the spirit of the holiday season, let’s give Council the benefit of the doubt on three points; one, the meeting really was aimed at examining UPMC properties exempt from taxation  to ascertain whether the justification for each parcel was warranted; two, the chair could not stop the large numbers of people from speaking on issues tangentially related to the topic at hand (salaries, pay levels, and organizing come to mind) thereby depriving many who might have  been ready to speak to the tax-exemption issue of that opportunity (they have been encouraged to submit their comments in writing); and third, there will be a sincere effort to examine other tax exempt property owners and that the UPMC hearing was just the first of many (the Council meeting chair was quoted as saying “We’re not picking on UPMC. They just happen to be the biggest and the first”).

However, even assuming all the benefit of the doubt is warranted, what transpired was in direct violation of the ordinance Council passed to determine if properties are deserving of their tax-exemption. 

 

Council passed ordinance #3504-07 in November of 2007 to establish “a County policy for periodically reviewing the status of all properties qualifying for exemption from property taxation under the Institutions of Purely Public Charity Act”, the state law that sets out the parameters for non-profit tax exemption. 

 

But this County ordinance does not give Council the power to review tax-exemptions: that’s the job of the Chief Assessment Officer.  The ordinance’s language added a new section to 5-210.12 of the Administrative Code stating:

 

“All properties granted tax-exempt status by the Chief Assessment Officer under the provisions of the Institutions of Purely Public Charity Act…shall be subjected to a parcel review by the Chief Assessment Officer…at least once every three years…the Chief Assessment Officer shall determine whether each property or any portion thereof continues to qualify for tax-exempt status , and shall forward written notice of this determination to the legal or equitable owner of the property and all taxing bodies within which the property is located”.

 

Nothing in that language assigns Council or the public responsibility for determining whether a tax-exemption is warranted under state law.  Was the Chief Assessment Officer (currently a contract employee holding the title of “acting” director) or assessment office staff present at the hearing?  Were they invited? Is Council forwarding the recorded comments to the assessment office? Will officials from municipalities and school districts where UPMC owns property get any information on the findings of the hearing?

 

In addition, note that the ordinance language states the review is to be done every three years.  Since the ordinance was passed in 2007, all exemptions subject to review should have been done in 2010 and the County should be gearing up for another review next year.  Clearly, something happened on the way to implementation-much like the delays in carrying out the County Charter’s required Sunset reviews. 

 

A news article in September quoted the Council member who chaired the hearing-and who sponsored Ordinance #3504-that something “fell through the cracks…and what we have to do is sit down with [the County Executive] and talk about that”.  In that same article the administration said that the tax-exempt review process had not been formalized and that it would start once the reassessment was over.  Since the reassessment is supposed to be completed December 20th it is curious as to why the UPMC hearing took place December 5th.  Two days after the hearing it was reported that the administration was prepared to direct the Office of Property Assessments to begin the process of reviewing exemptions, thus enforcing the ordinance six years after its enactment.  Is there confusion over territory in this episode? 

 

Lastly let’s examine something the ordinance does not do; a sin of omission, perhaps.  State law allows tax exemptions for many types of property, not just those owned by non-profits.  Ordinance #3504 does not instruct the Chief Assessment Officer to review all tax-exempt property every three years, only the tax-exempt property owned by non-profits under the provisions of the Purely Public Charity Act. 

 

That means the County is not going to scrutinize the broad swathes of property owned by Federal, state, local, school, and authority governments.  A report done by the County Controller’s office in June looked at exempt property in the County based on land use codes.  Roughly the same percentage of property value is held by higher education, churches, and hospitals as that attributed to County, municipal, and school district uses.  But stadia and the convention center owned by the Sports and Exhibition Authority, and property owned by the array of authorities at the County, City, and municipal level (redevelopment, housing, transit, airport, parking, etc.), school districts, municipalities, and the County itself won’t come under the auspices of #3504.  Council’s thinking in 2007 must have been that only non-profits are expansionist and take taxpaying properties off of the tax ledgers and that such action must be justified every three years. 

 

There is merit in reviewing tax-exempt property to see if the exemption is truly justified.  It is not clear if anyone involved in the UPMC hearing, either from County government or members of the public who attended came away with a better understanding of the issue of property tax exemptions.  That is a shame, but with plenty of tax-exempt non-profits, and Council’s pledge to be vigilant, along with the Executive’s directive to the Office of Property Assessments to do the job Council gave it, the public might be become well-informed of the topic in the months and years to come. 

Which Road Will the County Take?

Wages and health care: those are the two "biggies" for Allegheny County as it negotiates with collective bargaining units representing more than 5,100 of the County’s more than 7,000 employees. Both the County and at least one union leader are in agreement on the importance of wages and health care, and for good reason: personnel and fringe benefits are typically the largest share of expense for government. Based on the County’s 2013 financial plan and the statement of revenues and expenditures personnel and fringe benefits represent 53% of the general fund, 46% of all funds (general, debt service, liquid fuel, and transit support).

One of the bargaining units with whom the County is negotiating represents personnel who do a lot of the County’s road work (spreading rock salt and asphalt) which is housed in the Public Works Department (a good portion of that Department is being spun off into a new department called Facilities Management). Based on Public Works’ 2013 budget of $19 million, $13.1 million is tied to personnel cost and the remaining $5.9 million is identified by the County as non-personnel (services, supplies, materials, repairs and maintenance, and minor equipment). Note that Public Works has almost 70% of its departmental budget into personnel and fringes, higher than the County as a whole.

One of the "Strategic Goals" for the Department is for "Continuous Improvement" and within that goal is an emphasis for the Department to "practice greater fiscal constraint". It’s not clear exactly how the fiscal constraint is to be practiced, but one way would be to be judicious with labor agreements, including the one that would be executed with the aforementioned union representing the road workers.

Upon seeing the County’s initial offer of annual 2 and 2 ½ % raises over the four year contract the union head said it was "…hard to swallow that the county‘s best offer is less than what the city gave under Act 47 (state supervision)."

Pardon us, but we did not know that a local government had to be under state watch to be restrained with its spending on labor contracts. Perhaps the County has learned something from watching the events at the City-County building and does not want to jump into the same fiscal boat. Overly generous contracts and above the norm legacy costs are what got the City into Act 47 and state oversight-is the County supposed to follow suit? Will they?