Another Western PA County Will Reassess

If Indiana County sticks to what has been announced as the start of a three-year reassessment process that will produce new values for 2016, it will leave the small fraternity of counties belonging to the "pre-1969" club. Those counties, according to the State Tax Equalization Board and our research, have not done a reassessment since 1969 or earlier. Indiana County did change its predetermined ratio (the ratio of a property’s assessment to its market value, used for taxation purposes) in 2006, but its last true comprehensive reassessment was done before the Apollo 11 moon landing.

Is there anything from Allegheny County’s experience that could guide Indiana County?

Some officials from Allegheny County might say that while Indiana is voluntarily going forward Allegheny was forced by the courts to reassess. Recall, however, that Allegheny County Council did pass an ordinance in 2002 that said new values would go into effect in 2006. Fear about new values led to various plans before deciding no new assessment would be the best assessment. Indiana will have a good dose of "sticker shock" with such old values.

The more education on the assessment the better, especially when it comes to state law requirements on windfalls. New laws are on the books dealing with what happens following a reassessment. In Allegheny County, since it is the only county of the second class, this is Act 71 of 2005. Indiana County, a county of the sixth class (population ranges of 45,000 to 89,999), has to follow the requirements of Act 93 of 2010. All school districts in the state fall under Act 1 of 2006. The difference between the two is that once a revenue neutral rate is established if the taxing body wants to get more tax revenue in Allegheny County the limit is 5% whereas in Indiana (and all counties other than first [Philadelphia] and second [Allegheny] class) it is 10%.

Taxpayers have to be attentive as well. Note that just as Allegheny County did in 2011 and as Butler County announced it would do last week Indiana County is planning a millage rate hike. That means everyone’s taxes will go up. In a reassessment it is possible that some people’s taxes may go down. Taxpayers need to understand that, and county government can help.

Is It Sayonara to Property Taxes in Allegheny County?

Stop the reassessment in Allegheny County, no matter what it takes.  That has been the consistent mantra from the County Executive (before and after his election) who has asked for the Legislature to enact a moratorium on court-ordered reassessments and has now enlisted the support of several City Council members. This group is backing an effort of a state Senator who wants to allow Allegheny County to end assessments and in so doing end the levying of property taxes by the County, its municipalities, and its school districts. 


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Penn Hills Will Test Assessment Law

A newspaper article this morning indicated that Penn Hills-the second largest municipality in Allegheny County-plans to pass a 0.5 mill increase in its property tax rate for the 2012 fiscal year. According to the Treasurer’s website, Penn Hills’ millage is currently 5.35 mills. Raising it 0.5 to 5.85 mills would constitute a 9% boost in the millage rate.

From another article, this one about the new assessment mailings that will go out to Pittsburgh and Mt. Oliver (the two communities that make up the Pittsburgh Public School District) on December 19th: "State law provides two protections for property owners following a reassessment. An anti-windfall provision requires municipalities to readjust their millage rates to reflect changes in overall property values. The hoped-for result will be to keep the total amount collected through real estate taxes before and after reassessment ‘revenue neutral.’ Elected officials, however, can vote separately to raise tax collections by up to 5 percent following reassessment. Amounts higher than 5 percent would have to be approved by a judge."

The state law in question is Act 71 of 2005, which is going to get a lot of attention in the coming weeks and months as the assessment moves forward. This is especially true of County Council’s planned 1 mill increase (21%). Previously Allegheny County and taxing bodies in the County could take 105% of the previous year’s revenue through a reassessment windfall. Now that percentage would have to be arrived at in a two step process. Anything above that requires court approval.

Property Tax Rates Move Up, Maybe

Grant Street will see plenty of activity regarding property tax rates for the City of Pittsburgh and Allegheny County this week as both the City and County Councils deliberate on property tax millages for 2012. The respective fiscal year for the City and the County begin on January 1st.

The City Council has to codify a 0.25 mill increase as a result of the referendum on library funding earlier this month. That mill will be added on to the current 10.8 mill rate "…exclusively for the maintenance and operation of the Carnegie Library of Pittsburgh" and a property taxpayer will pay a rate of 11.05 mills as of January 1, 2012.

County Council’s Budget and Finance Committee is meeting tomorrow to discuss its tax levy for 2012. Right now the millage is 4.69: the bill being discussed, as of its most recent publication on Council’s website, would raise it a mill to 5.69. It would take a vote of ten Council members to pass the increase.

Under normal circumstances, the increases would mean a Pittsburgh homeowner with an assessed value of $80,000 would be paying a combined $100 more in property taxes than they are now. A homeowner with a similar value outside the City (assuming no changes in municipal or school rates) would pay $80 more. As last week’s Brief pointed out, the big unanswered question is how the court-ordered reassessment impacts the picture. Under a 2005 state law, if 2012 is really a reassessment year, then all taxing bodies have to roll back their tax rates to be revenue neutral. They then can take a separate vote to collect 5% more and could then petition the courts for more revenue.

For the City, the library millage was not being levied so the focus would be on the 10.8 rate. The referendum binds the City to levy a quarter of a mill into the future, so it will be part of the millage going forward. The reassessment might mean the general City rate would drop, but could end up lower, identical, or higher upon a separate vote. County Council would have the same rollback, but a 5% vote would still require the 10 votes per the Home Rule Charter.

Opening BID

If the legislation passed this week by City Council becomes law, the business improvement district for Downtown Pittsburgh will be extended for another four years through 2016. It has been in place since 1996 (amended six times since then) with a special assessment levied on the land value of commercial properties within the district for "administrative services and improvements". If approved, the BID will have existed two decades when the next term is completed.

The Pittsburgh Downtown Partnership (PDP) acts as the agent for the BID and carries out services related to the District. The renewal of the BID comes one week after the PDP announced its new CEO.

A 1996 study by the Allegheny Institute showed that the initial expenses were slanted more toward marketing/advocacy than cleaning/security, the exact opposite of the situation in other improvement districts around the country at the time. The study asked "if the primary purpose of the BID is to make the downtown cleaner and safer, then why is such a disproportionate share given to marketing, advocacy, and administration as contrasted with the other successful BIDs?" That year $558k of the $1.270 million budget (44%) went toward "security and cleaning".

Has that situation changed? In the PDP’s 2011 business plan the BID expenditure total stands at $1.476m, about 16% higher than 1996. This year, "clean and safe" expenses are $959k, or 64% of total spending. So it is accurate to say that a higher percentage of resources are being devoted to what could be termed the core functions of the BID. "Marketing" was $240k, or 16% of total expenditures.

But comparing the growth rates of these two functions from the PDP budget shows that while "clean and safe" grew 9% from 2007 through 2011 (audited compared to budgeted) "marketing" grew 43% from $167k to $240k. Total BID expense (clean and safe, marketing, housing, planning and economic development, transportation, and administration) grew 13% over the same time frame, from $1.305 million to the aforementioned $1.476 million. All categories were dwarfed by the growth in administration, which nearly doubled from $93k in 2007 to $183k in 2011.

Taxman, Meet Parking Garages

As we pointed out in yesterday’s Brief part of the expense side of the equation for the successful bidder will be the responsibility of paying real estate taxes on garages and lots owned by the Public Parking Authority presently. That’s because the Authority, as an instrumentality of the City, is exempt from paying real estate taxes on its properties and a lease that is longer than 29 ½ years implies ownership (it is envisioned that the bid will involve a 50 year lease).

Examining the nine garages located in the Golden Triangle and their block and lot numbers from the County’s assessment website shows that the structures have a combined assessed value of around $88 million. The highest valued structure is the First Avenue Garage, located by a trolley stop and PNC Firstside and has the most spaces of any Authority owned garage, at $20 million. The lowest valued garage is the Fort Duquesne/Sixth structure built in 1959 and having a value of $5.4 million.

On that $88 million the City, Pittsburgh Schools, and Allegheny County would share $2.6 million in annual tax revenue from the garages.

Of course, since the County is in the process of reassessing all properties in order to prepare for the 2012 tax year it is likely that some values, and the overall tax tike, will likely increase.

Here’s a Ruling Judge Wettick Could Make

Paraphrasing the legal language, here’s what the Supreme Court of PA said in its decision on the County’s assessment last spring: the County’s base year is unconstitutional, and we hand the decision back to the Court of Common Pleas to come up with a reasonable timeframe to fix the issue. Judge Wettick is, once again, center stage on the issue. Yesterday parties to the case batted around what constitutes a "reasonable timeframe".

The County feels that the Supreme Court wanted a full reassessment and such an exercise would take two to three years to complete. The County’s former chief assessment officer-the person who once said that the updated 2005 numbers met international standards for uniformity and accuracy-said that using those numbers now would be "unacceptable". What hypocrisy! Counsel for the taxpayers who brought suit against the base year presented testimony and experts who felt the matter could be resolved in a couple of months, basically as a stopgap measure.

No ruling has come as of this writing. So here’s what we would suggest the Judge should do: tell the County that it needs to have a reassessment completed by this coming March (about the time when County real estate taxes are due) or adjust the mailing of tax notices until the reassessment is done. Corollary to that ruling, the Judge should declare that taxpayers don’t have to pay any property taxes (County, municipal, or school district) until an updated, fairer assessment is complete. This would prevent an unconstitutional collection of taxes.

Can Property Owners Be Required to Pay Unconstitutional Taxes?

In May, the Pennsylvania Supreme court ruled that Allegheny County’s base year property tax assessment system was unconstitutional because it produces severely inequitable results, forcing some property owners to pay more than their true market value share of taxes while others are paying less than the amount they should because their assessments are well below actual market value.

Under the Pennsylvania Constitution’s Uniformity Clause, similarly situated taxpayers must be treated equally. That means if property taxes are based on "fair market" value then assessments must as accurately as possible reflect market values. That was determined not to be the case in Allegheny County and the Court has, in effect, ordered the County to carry out a revaluation of properties to reflect actual, true market values.

The House has passed a bill calling for a moratorium on court ordered re-assessments until the Legislature can write reform legislation governing property assessments in the state. The Senate is considering the bill. If it passes the Senate and the Governor signs it into law, we will have a Constitutional crisis with one branch of government saying "carry out a reassessment as soon as possible" and another branch saying "ignore the Court and wait for us to write an assessment reform bill"-which will happen about the same time pigs fly.

Thus, the question: in light of a Supreme Court decision that Allegheny County’s assessment system is unconstitutional, can property owners be required to pay property taxes until such changes are made in the system to bring it in line with the state’s Uniformity Clause? If a property owner in the County refuses to pay property taxes, on what grounds will the taxing bodies be able to argue that the person is in violation of a constitutionally permitted tax law?

And that is just the beginning of the state’s problems. Undoubtedly, the law will be challenged in court and will go directly to the Supreme Court where the ruling will be the law is unenforceable and the prior Supreme Court order must be obeyed. And then what?

One can only gasp at the willingness of the Legislature to issue such a challenge to the Court. A challenge that will not redound to the state’s credit and can only create further loss of respect for state government. The moratorium is not the way to deal with the assessment problem. Rather, the Legislature should get busy and write a reform bill that seriously addresses the state’s assessment shortcomings, which are legion.