The demolition fee is here to stay

Summary: Included in the more than 60 pieces of legislation signed by the governor on Nov. 3 was a bill that ended the sunset provision in Act 152 of 2016.  That Act permits counties to add a $15 fee to deed recordings for the purpose of demolishing blighted property.  It was to end in January 2027.  Besides Allegheny County, 23 counties have adopted the fee. 

Having a sunset provision was good public policy to allow the General Assembly to determine if the stated goals of the demolition fee were met, hear from counties that had levied the fee—and compare them with ones that had not—to see if blighted properties were eradicated at a faster pace. If the legislative goals had been achieved, the fee could have been reauthorized. That check and balance is now gone as a result of Act 149 of 2022. 

Requirements that counties deposit revenue in a special fund and file reports with the Pennsylvania Department of Community and Economic Development (DCED) remain in the law.

Allegheny County authorized the fee in April 2020.  Its budgets have included a description of the fund and its financial details. It filed its initial report with DCED in May 2020 and two annual reports in May 2021 and July 2022.  The county published its first demolition award list in August 2021 (see Policy Brief Vol. 21, No. 42). 

The second annual report to DCED showed $402,712 in fee revenue was spent between June 1, 2021, and May 31, 2022.  Of this, $41,112 went to asbestos surveys—all demolition projects are required to obtain an asbestos permit according to the report—which left $361,600. While the county’s ordinance and initial DCED report were quite optimistic on how many blighted structures could be taken down each year (100 to 200), the report stated that due to “the legal clearance process [that] was long and tedious,” seven commercial structures were demolished.

Three were on the list of funded projects in August 2021 while four not on the list were emergency demolitions according to the county’s economic development department. As of Nov. 28, the county’s real estate website reflects no changes in ownership (all were purchased by the county’s Redevelopment Authority at some point between 2016 and 2020) or assessed building value for the properties that had structures demolished. 

While the ordinance creating the fee estimated “a $10,000 to $12,000 average demolition cost” the $361,600 spent on the seven demolitions averaged closer to $52,000. 

Fewer demolitions and a higher average cost than anticipated for the first year of activity are not encouraging. Land sitting idle or remaining under government ownership waiting for redevelopment proposals that keep the land off the tax rolls are of limited benefit.  

Perhaps the next DCED report will show additional demolitions that bring down the average cost.  In the meantime, the county published a list of new awards in October 2022 covering 95 structure demolitions funded with $2.1 million of fee revenue. The macro-level characteristics of the demolitions are based on the award list and data obtained from the county’s real estate website. 

Here are some highlights:

  • 81 structures are residential with 54 of those single-family homes.
  • The county’s property condition scale, which ranges from “excellent” to “unsound” shows 41 structures are rated “poor,” “very poor” or “unsound,” which entails structural deficiency, deferred maintenance and barely livable conditions.
  • The last recorded sale on the structures shows a date range from 1941 to 2022.  Of the single-family homes, 16 were sold prior to 1990.  It is possible to infer that these might be homes where the owner passed away and heirs were not interested in the property or could not be located, leaving the structure to deteriorate. 
  • 88 structures are classified as taxable and the total assessed value is $2.9 million.  Applying the county’s 4.73 millage rate, the average municipal millage rate of 6.5 mills and the average school district millage rate of 23.6 mills, total tax collections would be $100,255.
  • Not too surprisingly, owners of 62 of the 88 structures did not pay Allegheny County property taxes on the properties from 2019 to 2022.  It is very likely that if county taxes have gone unpaid so, too, have municipal and school taxes.  That forces other taxpayers to pay for the public services that benefit the structures.
  • The highest assessed value property slated for demolition is owned by a municipality (thus tax-exempt) and is assessed at $1.8 million. 
  • Between January 2021 and January 2022, countywide taxable assessed value increased from $82.6 billion to $84.4 billion (2.1 percent).  There were 13 municipalities that saw a decrease in taxable assessed value over that time frame.  Of those, five will have at least one structure demolished.  In all, 10 demolitions are to occur in those five municipalities.

With the date for the fee to expire now eliminated, it will be interesting to see if there is an uptick in the number of counties that had not adopted the fee decide to do so; that might indicate county officials may have not wanted to participate in a time-limited program. 

A $15 fee that may be paid once or twice in most people’s lifetimes means it is likely that most people won’t ever notice it.  But with the presence of dilapidated properties that have an effect on property values and community safety, the use of the fee, which will now continue for many years, will be of critical importance.

Why No State Reports on the TIF Program?

“The Department of Commerce, in cooperation with other State agencies and local governments, shall make a comprehensive report to the Governor and the General Assembly every two years commencing January 1, 1992, as to the social, economic, and financial effects and impact of tax increment financing projects.” –53 PS 6930.10, Tax Increment Financing Act


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Going to the RACP Well

How far removed the City seems to be from the New Year’s rush to avoid a state takeover of the pension system, how plan after plan was tried until Council settled upon using the infusion of value of parking tax monies over the next three decades. All because the state would have been iron-fisted in its treatment of pensioners, at least according to proponents who pushed for the alternative plans.

Since that time the City has authorized the Urban Redevelopment Authority not once, but twice, to apply to the state’s Budget Office for permission to obtain funding from the Redevelopment Assistance Capital Program (RACP) to help prevent the spread of blight and promote economic development. This week Council will give the URA its blessing to pursue $15 million for redevelopment of the Produce Terminal in the Strip, $4 million for the "Downtown Preservation" project, and $1.5 million for projects in Lawrenceville and the North Side. The RACP has assisted many projects around the state for 25 years.

When the previous Governor visited Pittsburgh in December bearing $84 million in RACP "gifts" he indicated that some of the money was committed but not all of it and "he said he was hopeful that [the] incoming governor…would honor all of the requests". Well, now that the new Governor’s administration has begun we will see how the RACP is viewed. The borrowing limit of the RACP increased 179% on the previous Governor’s watch (it took 16 years from the time RACP was created in 1986 to grow at a pace somewhat close to that) and now stands at $4,050 million.

What’s a Six-Letter Word for Handout?

The City’s Planning Commission has declared a section of land (176 acres altogether) next to the Summerset Park home development blighted. Doing so allows for the City and its related entities, along with the County and the Pittsburgh Schools to sign off on a tax increment financing package for the developer.

Only officials want to redefine the term because, of course, nothing says move to a housing development like a blighted area. The Commission chairman said in a newspaper article that "the term blight is the wrong term…I think it’s really an area in need of redevelopment."

That’s what previous planning officials, redevelopment advocates, and elected officials said when the Summerset project began over a decade ago. By now, with 256 high-priced homes built and more planned on the now blighted area, the public should expect that the time for subsidies and special tax treatment would be over.

But that’s not the case, since a URA official noted that the TIF package will be necessary since the state’s help through the Redevelopment Assistance Capital Program-which provided close to $18 million to the development-is likely dried up. What the official did not note is that during the 20 year life of a tax increment package part or all of the incremental taxes won’t go to pay for the public services necessitated by new homes, families, vehicles, etc. but will go to pay off the debt to build the new high-priced homes.

In fact, the new phase of development might be in line for an $11 million loan from PENNVEST, which is another arrow in the state’s development quiver.

Remember that lots for the new development were once decided by a lottery. The Mayor at the time noted that the housing plan was "going against the popular misconception that people don’t want to live in the city". As recently as 2008 an official of the development company indicated "we’ve continued to have steady interest and good sales despite the economic downturn…we sell about two units each month just as we’ve been doing for years. I currently have a list of over 20 perspective buyers from around the region who want to move into the city." So when does the public get to opt out as a silent development partner?

Challenges for Land Task Force

The Mayor has asked for permission to create a 25 member task force that will deal with the City’s vacant properties. The panel, if created, will have two years to write a plan.

How extensive is the problem? The Act 47 plan contains data on vacant housing units as a percentage of total housing units. Pittsburgh has some 29k housing units that are vacant: with 160k total housing units, that works out to 18%.

That percentage is higher than other PA cities looked at by the recovery team-Philadelphia (14.9%), Allentown (9.5%), and Erie (14.7%)-but not as high as Buffalo (21.2%), Cleveland (23.3%), or St. Louis (21.3%). Pittsburgh exceeded the overall U.S. average of 11.6%.

To be sure, data shows that the rate of condemnations far outpaces the rates of demolitions, thus making the backlog grow annually. And though we have been told that the Pittsburgh region by and large did not partake in the housing boom (thus implying there has been no housing bust here) there has to be a good portion of stock that fell into foreclosure. To be sure, there are examples out there of what other cities have done to combat vacant housing and most certainly the task force will have to address the operations of the Bureau of Building Inspection, which was examined by both the Act 47 team (in the amended report) and a separate oversight board study.