Twice as Many Counties Using 100% PDR

Near the start of 2013 the Governor signed Act 2 of 2013, which moved the formerly independent State Tax Equalization Board into the Department of Community and Economic Development. We wrote about this change in a Brief earlier this year and the Tax Equalization Division has its own section of the DCED website.

There’s some data available (some it was there when STEB had its own site) but one interesting aspect is to look at the pages on common level ratios in 2002 and 2012. Besides showing that four other counties reassessed at the same time as Allegheny County (on the 2012 page, but they went into effect in 2013) it is interesting to see that there has been an increase in transparency since 2002 in terms of counties equalizing their pre-determined ratio (PDR). This ratio is defined by the PA Tax Manual as "the ratio of assessed to actual value". Allegheny County used to have a PDR of around 25%: that is, if a house’s market value was $100,000 it would have an assessed value of $25,000. Millage rates appeared much higher (from 1996-2000 the millage rate was 25.2). Following the 2001 assessments the PDR was changed to 100% and now assessed values are the same as market values. Only applied discounts (homestead exceptions) lower the assessed value relative to the market value.

Looking at the 2002 common level ratio page, 20 counties in Pennsylvania had a PDR of 100%. In 2012, 41 counties have moved to a PDR of 100%. Act 93 of 2010 requires counties (not Allegheny, which operates under Act 71 of 2005) to adjust their millage rates to be revenue neutral if they make a change to the PDR.

Belief in the End of Assessments

Four years after the state’s highest court had the issue of base year assessments before them they said that the base year idea in and of itself was not bad, just that the way Allegheny County applied it violated the uniformity clause of the PA Constitution. Problems with a base year would arise across the state, but that would happen at different times for different counties.

Not long after a state senator from Allegheny County was quoted as saying "the impression I got from other colleagues around the state is, ‘If the court’s not going to make us do it, we’re not going to do it,’…It just seems like no one’s going to step up here." One long time assessing official from southwestern PA once quipped that upon starting his job colleagues told him that the state would soon be getting rid of property taxes.

That was in 1969.

So a huge grain of salt has to be taken when officials in Washington County prep for a hearing this month on moving forward with a reassessment note "We don’t want to be the last county to go under this process. We want to fight to get it changed." The County last did a reassessment in 1981, but don’t want to spend money on updating values that "might be outdated in three to five years". One official even jested that imprisonment might be on the table, a possibility that residents of Allegheny County who followed the most recent County Executive race might remember.

Why the argument if the County agreed to go forward in 2008 if the state had not yet reformed the assessment process in the state? Nothing happened, and now the County feels that it will?

County Priorities Set for 2013

The County Commissioners Association of PA is a statewide association representing the interests of the state’s counties, and it has released its "wish list" by setting priorities for its members of what they would like to see the General Assembly act on. The priorities for county government include action on human services, Marcellus Shale, and 911, but let’s focus briefly on three issues that we have written about:

Property Assessments: The Association talks about the 2010 study done on assessment practices by the Legislative Budget and Finance Committee, task forces, work they have done with other professional associations in the state, and would like to see the recommendations of the 2010 study (training, funding, tools to determine timing of assessments, etc.). No word on the Association’s feelings on the court battles that took place in the member counties of Allegheny and Washington over doing a reassessment.

Transportation: The Association supports the work of the 2011 Transportation Commission on how to fund the state’s road, bridge, highway, and transit needs overall, but points out that it "does not have a unified position on mass transit" because of the differences between systems across the state.

Prevailing Wage: The Association notes how the prevailing wage requirement on public projects has not been updated since the 1960s and how a court decision brought what was considered "maintenance" under the auspices of the wage requirements. Priorities the Association would like to see acted upon include indexing the amount, opt out provisions, or a full repeal.

Examining a 2013 Tax Bill for a Home

The County and its municipalities run their fiscal year on a calendar basis, and so in two weeks will have presumably established their property tax rates for 2013 and adjusting them for revenue neutral requirements under Act 71 of 2005. The only school district in Allegheny County that operates on a calendar fiscal year is the Pittsburgh Public Schools, and they have proposed a millage rate of 9.65 so as to comply with Act 1 of 2006 requirements, which state that in a year of reassessment a school district can’t collect more revenue than what is allowed by its Act 1 index for the previous year.

As of now, proposed rates and homestead exemptions (which lower the assessed value of a qualified owner-occupied home for tax purposes) for 2013 are as follows:

Allegheny County: 4.73 mills, $15,000 exemption

City of Pittsburgh: 7.56 mills, $15,000 exemption

Pittsburgh Public Schools: 9.65 mills, $28,685 exemption

All millage rates were adjusted downward; the County’s homestead exemption amount is unchanged, the City’s proposed exemption is up from $10,000 last year, and the school district’s amount is higher due to increased gambling receipts (it was $19,000 in 2012).

A home in the City assessed at $115,000 that took all available exemptions would have a tax bill of $3,039 in 2012. That amounts to 2.6% of the assessed value.

Assume that the assessed value for the home rose 50% and no appeal of the value was undertaken, establishing the 2013 assessed value at $172,500. The resulting tax bill for 2013 would be $3,328 for 2013, an increase of $289 (10%) over the 2012 tax bill. The tax bill would equal 1.9% of the assessed value.

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.

County Property Taxes: Up, Down, or Same?

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.

County Wants to be Right on Rights

Though there has been a lot of talk about how Marcellus Shale drilling could be a boon for the County, specifically for the County’s coffers if drilling rights were leased on airport land, County officials likely have little firsthand knowledge on what the County owns, if anything, in the way of mineral rights-gas, oil, coal, etc.

That could change if action is taken on a motion that would instruct the County manager’s office to "…determine what mineral rights Allegheny County owns on any parcels within the County and the feasibility and economic value of conveying those mineral rights to other parties for development".

A similar motion was introduced into Council last June but no action was taken on it after it was referred to the Committee on Economic Development and Housing.

It could turn out that the County owns mineral rights under some valuable property in the area. It is doubtful that even if the County owned mineral rights in the middle of, say, a County park, that there would be extraction due to strenuous objections. Recall the 2008 proposal to extract coal in a section of South Park.

Conversely, it could be possible that someone other than the County owns the mineral rights under government structures, that of related County agencies, or perhaps under some of the shiniest new economic development projects carried out in recent years. Could there be drilling next to the County Courthouse in the near future? Or how about digging near the Convention Center?

The proponent of the study wants to use proceeds to reduce the increased property tax burden, which the proponent incorrectly assigns to the new assessments. How about the 21% millage hike passed by Council at the end of 2011? Besides, the County is limited to a 5% windfall that requires a vote of Council. Otherwise, there is no net increase in revenue from the assessment.

The proponent’s comment points out once again how ignorant even County officials are about the assessment process.

County Exec, State Senator and City Councilman Oppose “Unfair” Assessments

In a tour de force of irony, County Exec Fitzgerald, Councilman Peduto and Senator Fontana will take a stand against court ordered reassessments on the grounds they are unfair. Presumably, they are perfectly willing to continue the unfairness of allowing owners with egregious undervalued assessments to pay far below their fair share of property taxes while at the same time forcing those with correct or too high assessments to pay far more than their fair share of taxes. How interesting it is what some call unfair.

The gentlemen will be supporting Senator Fontana’s bill that would give Allegheny County the opportunity to do away with property taxes and replace school, municipal and county taxes with other taxes. Great idea except for two things. The level of sales taxes (almost double its current level) required to replace all property taxes including schools would drive retail out of the County as non-residents stop coming into the County to shop and residents go to other counties to purchase non-essentials and avoid sales taxes. Higher income taxes? Could non-residents be required to pay? If so, jobs would begin leaving the county. Why would residents of Butler County pay taxes to their schools, county, and municipality and then be saddled with a big tax bill from Allegheny County to pay for schools and municipal services in Allegheny County? Likewise, Allegheny residents who work in a neighboring county would have a big incentive to move to that county.

Non-residents who own real estate but do not shop or work in the County would benefit enormously from not having to pay property taxes to the county, schools or municipalities. Think of out-of-state pension funds for example that own office buildings. That revenue has to be made up somehow. Is that fair to residents? It appears the Senator has not thought through his plan very carefully if he is truly interested in fairness.

Finally, how would countywide sales tax revenue be allocated to schools and municipalities? There would be no way to assign the money by point of collection. Some areas have very little retail sales activity while others are chock full of malls and retailing.

In short, such a dramatic tax shifting cannot be done at just the county level. Pennsylvania school districts have held referenda to shift property taxes to income taxes under Act1. Not one vote has come close to approving such a shift. Property taxes are unpopular but so are high local income taxes. A major shift in tax structure will have to be done statewide if at all.

The aforementioned gentlemen could spend their time in Harrisburg urging the Legislature to rewrite Pennsylvania’s preposterously out-of-date and inadequate assessment laws to require periodic updating of assessments. Or they could urge the amending of the Constitution to eliminate the "uniformity clause" that is the source of all their angst. Or they could join others who want to restructure taxes at the state level to reduce the burden of property taxes.

Sadly, they would rather attempt to make political points than to work for changes that would actually address the sources of inequity explicitly not permissible under the constitution. Posturing while elected–a terrible, perhaps fatal disease in a self-governing polity.