How Would Properties Fare Under New Tax Rate?

The County Executive released what he anticipates the 2013 property tax rate to be this past week. As a result of changes to state law in 2005, the County and municipalities have to adjust millage rates following a reassessment to be revenue neutral. Subsequent tax rate hikes have to occur in a separate action. Recall that last December the County hiked millage rates from 4.69 to 5.69; with new values countywide were expected to rise 35% (that’s still what the County’s assessment webpage shows) but a newspaper article said the County is basing its new tax rate on a 20% increase in value.

How will that tax rate, if it holds, affect tax bills? Property owners can use the millage rate to calculate it against the 5.69 rate in place. Assuming no change to the homestead exemption that allows a homeowner to reduce the assessment by $15,000 for County tax purposes, a home assessed at $100,000 would apply the millage against $85,000. This year, the County tax bill for that home would be $483.65. If the assessment rose to $120,000 for 2013, the homeowner would take the homestead exemption (now the County assessment would be $105,000) and apply a millage rate of 4.73 against it and the tax bill would be $496.65, a $13 increase.

We went back to the data complied for our most recent report and applied the proposed millage rate against our 100 sales. We actually had a scenario in the report which estimated the County rolling the millage rate to 4.69 mills, so the 4.73 rate is not much different. Of the 100 sales, 57 properties would pay more in County taxes, while 43 would end up paying no more or less. The 4.73 rate moved one property in our sample (in quartile 3) from paying $2 less to breaking even.

Could Assessment Angst Been Avoided?

“It is important to understand that a taxpayer’s tax liability will not necessarily increase when the assessed value of their property increasesOne of the common misconceptions held by Allegheny County property owners about the reassessment is that the reassessment will automatically result in a higher property tax bill for the homeowner…” -Allegheny County Controller’s Sales Ratio Study, September 2012


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Do Homeowners Get It?

Reaction is coming in to the County Controller’s audit of the contractor that performed the reassessment. The audit deals with four main findings: the contract provisions were satisfied, but they were weak; the project was not completed in the timeframe; the County’s Office of Property Assessments (OPA) did not adhere to its contract provisions; and various internal control deficiencies.

There’s plenty of data as the Controller’s office calculated median, mean, coefficient of dispersion, and price related differential for sales covering two time periods and displayed the results by municipality and school district. There is a response to the audit from OPA, which basically concludes that the property tax system in the Commonwealth is flawed and needs reformed.

What’s very important to note is that in at least two instances the audit goes to great length to dispel the notion that a reassessment automatically causes a tax increase. We noted earlier this year that the County’s reassessment page published a quick and handy guide to this fact, and the Controller’s audit notes that "it is important to understand that a taxpayer’s tax liability will not necessarily increase when the assessed value of their property increases" and "one of the common misconceptions held by Allegheny County property owners about the reassessment is that the reassessment will automatically result in a higher property tax bill for the homeowner…"

By detailing the anti-windfall provisions in Act 71 and Act 1 along with providing examples of homes the Controller’s office has provided another voice to counteract the drumbeat of "reassessments mean higher taxes" that has been so prevalent in the near decade long tussle over revaluations.

A Peek at Millage Rates

When a reassessment is conducted by a county in Pennsylvania, state law requires the county and the other taxing bodies in that county-municipalities and school districts-to adjust their millage rates so that the amount of revenue taken in the first year under the new values is neutral and that hikes to millage rates above the revenue neutral amount necessitate a separate vote of the taxing body (governing entities in Allegheny County used to be able to take 105% of the pre-reassessment revenue without a separate vote) and increases above require permission of the courts. We wrote about these requirements in two Briefs this year, here and here.

A new property tax analyzing tool, Property Tax Estimator, allows the average taxpayer to see what he or she can expect to pay in property taxes after the rollbacks occur. Much of this is forecast based on what the changes in assessed value are for the County and other taxing bodies. School districts, with the exception of Pittsburgh Public Schools, already adopted their millage rates for the fiscal year covering the first half of 2013 and won’t adjust the millage until the fiscal year that starts next July. That leaves this analysis to Allegheny County and its municipalities (excluding two that lie partially in another county and three that carry separate land and building tax rates).

In the big picture for 2012, the average millage rate is 6.39 mills; the Estimator’s analysis forecasts the average to fall 24% and stand at 4.86 mills in 2013. The County’s rate is expected to fall from the current 5.69 mills to 4.11. The City of Pittsburgh from 10.8 mills to 6.94 mills. The community with the highest millage rate in 2012 (East Pittsburgh) and the community with the lowest (Pine) remain at the top and the bottom, respectively, in 2013’s estimates, it is just that both rates are lower than this year’s.

The one outlier, so to speak, is the borough of Pitcarin in the eastern part of the County. It was the only municipality where assessed values were projected to fall under the new assessed values. In order to remain revenue neutral, its millage rate would have to rise. That places its 2013 rate at 6.1 mills, up from 5.75. Municipalities with small drops in millage include Turtle Creek (7%), Mt. Lebanon (7%), and Coraopolis (8%) while sizable millage rates drops are projected in Rankin (43%), Dravosburg (46%), Neville (48%) and Harmar (56%).

Just How High Did School Taxes Climb?

In the 2006-07 school year, the median school tax rate in Allegheny County for all districts (excluding Clairton, which has separate land and building rates) was 21.62 mills (2.16%). That was the first school year after which Allegheny County Council expressly declared that it would be using a base year assessment plan and would not be conducting any reassessments.

For the school year that just began at the beginning of July (the 2012-13 school year) the median school tax rate for those same 42 districts was 23.275 mills (2.32%). The median rate grew by 8% for all districts.

But not all districts boosted taxes in that time frame. As a blog last week noted, nine districts either cut tax rates or left them unchanged. Grouping together the 33 districts where taxes went up shows that the median rate for those districts went from 21.5 mills to 24.16 mills, or 12% higher, over the time period. Ten of those 33 districts had tax increases of 12% or more: ranging from 25% in South Fayette to 12% in Bethel Park. Average or above-average increases came in such districts as Elizabeth-Forward (17%), Upper St Clair (15%), and Gateway (13%). Recall too that much of this time frame was spent living under the requirements of Act 1, which tries to limit the magnitude of annual tax increases but provides ample opportunities for districts to secure exceptions for large tax increases.

Another Look at School Tax Increases

The newspapers reported it this past weekend: just over a third of the 43 school districts in Allegheny County raised property tax rates for the coming 2012-13 school year. The loss of stimulus funds and the state’s fiscal condition, along with the looming pension obligations for the school employee system led districts that did not increase taxes to dip into reserves, shut down programs and buildings, leave positions unfilled, and/or layoff employees. It is a similar refrain statewide.

However, Allegheny County has an additional wrinkle in that there is a pending reassessment that will require districts to adjust their millage rates so that they don’t take in more than the previous year’s Act 1 index would allow. That will happen once the new assessed values are certified. But with the new tax rates for 2012-13 we can measure the impact of school tax increases during the years of the County’s base year plan, which was adopted by ordinance in October of 2005. It is reasonable to measure from the start of the following school fiscal year, 2006-07 through the projected 2012-13 rates, for 42 of the County’s 43 districts (Clairton had a two-tier rate in 06-07 and only one rate was reported in the news report, so it was eliminated).

  • 33 districts had a higher millage rate for 2012-13 than they had in 2006-07. Obviously there is a sizeable range in the degree of how much higher. Some of the larger ones were Cornell (22% higher), Elizabeth-Forward and Northgate (17% higher), and South Fayette (23% higher).
  • 3 districts-Baldwin, Carlynton, and McKeesport-had lower millage rates projected in 2012-13 than they had in 2006-07.
  • 6 districts-Pittsburgh, Duquesne, Plum, Montour, Sto-Rox, and Brentwood-project no change in school millage rate over the years of the base year.

Recall the drumbeat that "reassessments cause tax increases" and realize that over 75% of the school districts in the County increased their tax rates over the years when the County conducted no reassessment and the argument rings hollow. Also realizing that Act 1 does not do much to prevent property tax increases makes that policy measure seem lacking.

The Next Reassessment

The County is putting the final touches on the reassessment of real property, the first one in a few years. It will go into effect on January 1, 2013, and the County, its municipalities, and its school districts will have to adjust their millage rates to adjust to the new values. That is all yet to come, but the question of "when do we do this again" has already come up.

Sounds a lot like Allegheny County, doesn’t it? It is not. In fact, it is the county tucked up in the far northwest corner of PA, Erie County. After spending many years not reassessing, the County lost a court battle and reassessed in 2003. After doing that one, Erie’s County Council passed an ordinance in 2005 that mandated reassessments every eight years, giving way to the one set to go into effect in seven months. That time frame is still longer that what the IAAO would recommend as best practices.

If 2005 rings a bell, it should. That was the year Allegheny County released new assessed values that were to go into effect in 2006. That would then lead to annual assessments after another three year breather. That was all scrapped and the base year plan was hatched. We have for several years been pondering what comes next for Allegheny County’s reassessments.

Of course, Erie’s question-and Allegheny’s, and all other counties’-could be answered if the General Assembly comes up with a mandatory schedule for assessments, crafts a statistical trigger, or eliminates property taxes altogether.

One and a Half Cheers for County Assessment Office

For years and, most recently, over the months leading up to the mailing of court ordered reassessments to Allegheny County property owners, the Allegheny Institute has urged the Assessment Office to include information on the new assessment notice that would show the owner how his/her assessment change compares to the average for the County, school district and municipality. With that information the property owner would know immediately whether tax bills for the property were about to rise, stay the same or go down, assuming the taxing bodies all rolled back millage rates to eliminate any revenue windfall resulting from the reassessment.

The Assessment Office has taken a partial step toward providing property owners the information the Institute has been recommending. The Office has created a link on its web site in the "What Do You Want to Know" section that enables property owners to look up the increase in assessment values for their municipality and school district and offers the owners guidance as to how to figure out if their County, school district and municipal tax bills are going up, down or staying the same.

This is a major breakthrough given the County’s antipathy toward the reassessment. Of course, the County is not advertising this feature heavily and taxpayers who are not aggressive in searching the Assessment Office web site will not know about the link, especially since it is buried in the menu options on the "What Do You Want to Know" page. The County should be touting the feature heavily and making it far more prominent on the web site. And it should be making preparations to put all the necessary information on future assessment notices.

Washington County Assessment Appeal Thrown Out

In a long running drama remarkably similar to the case in Allegheny County, a Commonwealth Court judge denied Washington County’s appeal of a November 2011 lower court order requiring the County to begin a property reassessment immediately.


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College Pretends Tax Hike was Imaginary

The Community College of Allegheny County (CCAC) was set to receive $16 million under the initial 2012 budget proposed by the former County Executive, but after County Council passed a 1 mill tax hike CCAC’s appropriation to $25 million.

Before the hike became a reality, top officials of CCAC’s student government told Council that many students could not afford another tax hike. One burned a $20 bill. CCAC’s president said that "a cut of $7 million could mean layoffs, closing of facilities, and higher borrowing costs." Advocates did not offer suggestions for combing through the budget and finding the savings elsewhere since the implicit belief was that taxpayers could afford a tax increase.

Now comes word that CCAC’s fundraising drive for program and capital projects has gone so swimmingly that the goal has been raised from $30 million to $40 million as the public phase of the drive begins. That drive includes the construction of a new science building. In short, in four months time the college has moved from mothballing buildings to possibly constructing new ones.

It will be curious to see how many prospective donors from Allegheny County are approached who will kindly tell the college that they would like to donate but their contribution will be included in the document mailed back to the County Treasurer’s office titled "2012 tax bill".