A Microcosm of Tax Policy

A newspaper article over the weekend provided an in-depth and interesting take on what it means to homeowners who have their street split down the middle between two taxing jurisdictions. In this case the purpose of pointing out the split is the looming reassessment in Allegheny County, with new values expected to take effect countywide in 2013, and Butler County, which has not reassessed since 1969 (that was the last year of a full reassessment, but the County did change its predetermined ratio [the ratio between assessed and market value] in 2009).

Noting that home #1, within Allegheny County, pays more in taxes than home #2, who lives in Butler County (about $3,000 more), the Allegheny County Executive opined that by not reassessing for ten years "[Allegheny County] brought stability into the system, and people could predict what their taxes were going to be." The Executive stopped short of saying that owners could predict their taxes would be "high". Stability and predictability were two themes the Supreme Court considered before tossing out Allegheny County’s base year plan, uniformity trumping both.

With two "real world" examples-the current assessments of both homes mentioned in the piece are available on the respective real estate websites for both Allegheny and Butler counties-we can see how the current millage rates (2012 for county and municipal, 2011-12 for schools) of each county and the municipality and the school district affect each home. Keep in mind that neither property has been officially reassessed in some time (home #1 since 2002, home #2 since 1969) though home #1 should be getting a reassessment notice in the coming months.

Home #1-Allegheny County, Pine Township, Pine Richland School District

Current assessed value: $391,900 ($376,900 for County tax purposes after applying homestead exemption, and according to the PA Department of Education the average home in the school district received $200 off school taxes as a result of Act 1 gaming refunds [also a homestead exemption])

County Taxes: $376,900 x 4.69 mills = $1,763

Municipal Taxes: $391,000 x 1.2 mills = $469

School Taxes: $391,000 x 21.9084 mills = $8,566 (less $200 from Act 1) = $8,366

Total: $10,598

Home #2-Butler County, Cranberry Township, Seneca Valley School District
Current assessed value: $55,480 (no County homestead exemption, and the PA Department of Education puts the average Act 1 tax reduction for a homestead in Seneca Valley School District at $100)

County Taxes: $55,480 x 23.63 = $1,299

Municipal Taxes: $55,480 x 13 = $715

School Taxes: $55,480 x 105.60 = $5,808 (less $100 from Act 1) = $5,708

Total: $7,722

The Allegheny County home is paying $3,000 more in taxes as a result of a higher County tax bill ($464) and a higher school tax bill ($2,758). The Butler County home is paying more to the municipality than their neighbor. Both are paying more than 75% of their total tax bill to fund public education.

So obviously the Butler County home, according to the County Executive, must be free from worry about their taxes. A quick look back to 2005-that’s when Allegheny County adopted its base year-shows that Butler County increased its taxes then cut them in 2009 after a change to the predetermined ratio; Cranberry increased its taxes this year, and Seneca Valley school district had increases in 2006, 2007, 2010 and 2011. It is planning an increase for the coming school year according to its preliminary 2012-13 budget.

Just down the street in Allegheny County, home #1 will see a higher County tax bill this year as a result of the millage hike; his municipal taxes have not changed since 2005; and his school tax bill went up in 2010 and is expected to go up again according to the preliminary 2012-13 budget. Home #1 might see a tax cut when rates rolled back once the windfall provisions are applied and the new values go into effect.

Can we once and for all stop the talk that reassessments lead to tax increases? There is enough hard evidence of tax increases happening without them to believe otherwise.

Allegheny County’s Tax Hike: A Regional Perspective

Setting aside all the madness surrounding the reassessment process that began with the mailing of new values to property owners in Pittsburgh and Mt. Oliver, it is important to recall that Allegheny County Council voted to increase the County millage rate from 4.69 mills to 5.69 mills effective for 2012.  One member stated “the draconian cuts in the state budget” were the cause for the 21 percent millage increase.


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Tax Increase Advances

Last night County Council’s Budget and Finance Committee advanced a 1 mill increase in the property tax, a 21% increase that defies explanation. The Committee wants to raise taxes in the face of a reassessment that, because of state law applying to counties of the second class, will require millage rates to be revenue neutral. The law permits a separate tax increase vote that would allow the County to take in 5% more than the revenue neutral amount. Anything above that requires court approval.

Of course, many on Council might be hoping that the state is going to somehow intervene and stop the reassessment ordered by the state Supreme Court. The incoming County Executive has stated he will not mail out assessment notices. So County government is treating 2012 as a non-assessment year, as silly as that sounds, and the only requirement for a tax increase would be an affirmative vote of 10 of the 15 Council members. Perhaps the Council is hoping to find a judge that will find the 1 mill increase permissible by outright ignoring the fact that the County and Judge Wettick are meeting weekly to discuss the progress of the reassessment.

A quick word on the mechanics of the tax: the County’s operating budget has four main funds-general, debt service, liquid fuels, and transit support. Only the first two partake of any property tax revenue. Right now, at 4.69 mills, the general fund gets 3.6852 mills (equating to 79% of the total millage) and the debt service fund gets 1.0048 mills (the remaining 21%). The 1 mill increase and the allocation of millage would stay roughly the same at 80/20. Council is free to change that ratio at any time by majority vote.

Enacting a 1 mill increase now would seem to muddy the waters, to say the least, since taxing bodies don’t know how much the reassessment will net. All in all a silly notion.

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.

Property Tax Increase Enters through the County’s Front Door

After years of extolling the fact that the property tax rate in Allegheny County had remained unchanged from 4.69 mills, the County Executive-elect has put his support behind a proposed 1 mill County tax increase for the 2012 budget year. At the same time, unless something has changed, he remains fully in opposition to a reassessment ordered by the PA Supreme Court and at one point made it clear he was willing to go to jail rather than send out assessment notices.

The opposition was based on the belief that governing bodies-the implication, sometimes clear, sometimes not, was that it was school districts-would take in more tax revenue than permitted without having to take a clear and public vote to increase millage rates. As we pointed out numerous times nearly all of the County’s school districts and a very sizeable portion of the County’s municipalities had indeed raised their millage rates during the time period in which the County felt having a base year was the way to manage the reassessment system. No need to wait for a backdoor increase when a front door one can be enacted.

Now the County is faced with a $50 million deficit that the Executive and many members of Council feel cannot be closed without a tax increase. According to the County’s Home Rule Charter (Article VII, Section 4c) "any ordinance changing the real estate tax rates shall require an affirmative vote of at least two-thirds of the seated members". That plain language-codified in the County’s administrative code at 5-809.2-means it will take 10 members of 15 to enact the change. With 11 of the 15 members sharing the same political affiliation with each other and with the Executive-elect it is a good chance the threshold can be met and attained.

So here is the short tax record in recent years for Allegheny County, perhaps the one that might get more attention if the string of consecutive years without a property tax increase is ended: two new levies (one on alcohol, one on car rentals) begin in 2008; the County begins collecting gaming host fees by virtue of the law that awarded a license to the Rivers Casino in 2010; and now the proposed millage rate increase set to begin in 2012 if enacted. Yet the County does not have enough money to cover its spending needs.