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.

The Regressive Impact of a Homestead Elimination

In last week’s Brief we noted that if the County eliminates its $15,000 homestead exclusion-a decision the County may or may not be deliberating on as it finalizes the 2012 budget-the impact would be quite regressive and would fall upon owners of less expensive homes.

Looking at Census data from the American Community Survey we obtained value ranges for owner-occupied homes in Allegheny County. There are roughly 351,000 owner occupied homes in the County; just over 80% of them have a value of $199,999 or less. Using that data as a proxy and assuming that all of these homes have taken the exclusion, it means close to $17 million of the $21 million the County budgets for the homestead exclusion goes to homes carrying a value of less than $200,000. Based on the Survey data about 4% of owner occupied homes have a value of $500,000 or more (the County tax bill on a $500k home is $2,300); allocating a 4% share of the total pool of homestead exclusion money amounts to $840,000.

Again, any qualified homeowner is allowed to take the exclusion to lower the assessed value of their property for County tax purposes. The impact of a $15,000 deduction is much greater on lower valued homes than more expensive homes.

With all the noise about tax cuts for the rich and unfairness about deductions nationally, the local discussion about the homestead exclusion offers a stark contrast in tax policy.

Could Homestead Exclusion Be Nixed?

Since 2003 Allegheny County has offered a flat, uniform deduction of $15,000 from the assessed value of owner-occupied property. The ability for the County to make the deduction-known as the Homestead Exclusion-came from statewide approval of a Constitutional amendment in 1997. The exclusion saves an owner $70.35 per year on their County property taxes.

With the debate over a possible 1 mill increase in the property tax and the limitations on that happening (the Charter requires a 2/3rds vote to pass, and a separate state law, Act 71 of 2005, provides additional limitations on tax increases during reassessment years) the idea of eliminating existing tax exemptions like the Homestead Exclusion have been raised. There are other discounts the County offers to senior citizens and other classes of property, but the Homestead Exclusion is by far the largest, reducing the County’s property tax revenue by $21 million in 2012.

What are the downsides to getting rid of the Exclusion? Since it is a flat dollar amount the benefit is much greater for owners of less-expensive homes, making the exclusion elimination a regressive action. The County Executive-elect noted "If you get rid of the homestead exemption, then you’re raising taxes on the people who can least afford it." To be sure, the owner of a house assessed at $60k is going to benefit a lot more in percentage terms than someone owning a house assessed at $300k.

There is also the complicating factor of the looming reassessment and what the County’s total tax levy will be.

Of course, the existence and the amount of the Exclusion is solely at the discretion of the County government. The County did increase the Exclusion from $10,000 to $15,000 in late 2003-so it is possible the County could roll it back to its initial amount or phase it out completely if it was inclined to eliminate the deduction. That, combined with a millage increase, would certainly not be a popular move, nor would just ending the Homestead Exclusion while leaving the other exemptions in place.