Tag Archives: Property Taxes

School Districts Boost Taxes

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As we pointed out recently in a blog and a Policy Brief there were around eleven school districts in Allegheny County that sought permission from the state to increase property taxes above the Act 1 index for the 2013-14 school year, a year in which reassessed values went into effect in Allegheny County. A news article today presented millage rates for 42 of the 43 school districts (Pittsburgh Public Schools operates on a calendar year) and indicates the districts that increased millage from where it would have settled within the Act 1 parameters.

Under Act 1 requirements, the school districts basically go "back in time" in the year which a reassessment goes into effect by using the Act 1 index of the year prior to the one before the reassessment took place. This is unlike Act 71, which applies to Allegheny County and the County’s municipalities. Districts can still seek exceptions to the index, raise taxes up to the index and not go over, go over the index and put the increase before the voters, or not increase taxes at all. Compared to millage rates from 2012-13, all of the districts 2013-14 millage rates were lowered to comply with Act 1 requirements (the only exception was East Allegheny School District).

Let’s start with the eleven districts we discussed in the blog and the Brief: by the article’s data, nine of those actually enacted a millage increase for 2013-14. North Allegheny and West Allegheny were granted exceptions but did not enact a millage hike.

Sixteen districts increased millage, but these districts were not listed in the Department of Education’s report on exceptions, so the assumption here is that the increases were below the Act 1 index amount.

Fifteen districts did not increase millage and none of those made any petition to the state.

If we group districts by whether they increased millage or not regardless of their position vis a vis the Act 1 index and petitioning the state, 17 districts did not increase millage while 25 did.

Certainties in Life…

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Death and school tax increases? About a quarter of the school districts in Allegheny County have applied for an exception to possibly exceed their Act 1 index that determines the degree to which school taxes can rise in a given year (both the Education Department’s spokesman and a business manager of a western PA school district made the point that even though a district is granted an exception it may choose not to use it) but this year is when new assessments have gone into effect, so homeowners who live in those districts where revenue neutral rollbacks by the County and the municipality may have minimized the tax bill bite may see that disappear. Know too that tax increases could be coming in districts that did not apply for an exception because Act 1 allows for increases up to the cap without a separate action.

The Department of Education has data on school tax rates going back to the 2002-03 school year (all districts in Allegheny County run on a July-June fiscal year except Pittsburgh) and, after tossing out a few districts that straddle the County line and Clairton, which has separate rates for land and buildings, the median tax rate that year was 18.45. Wilkinsburg had the highest millage rate at 32, South Allegheny had the lowest at 13.83. By the 2011-12 school year, the median rate had risen to 23.27 (a 26% increase, the Pittsburgh area CPI increased 33% from 2002 to 2012, so the growth was slower than inflation) and Wilkinsburg still topped the list (at a higher 35 mills) and Pittsburgh was the lowest at 13.92.

If we look at the years prior to when the Act 1 index took effect (2002-03 through 2006-07) the median millage rate for the County’s school districts rose 16%; since then, under the Act 1 provisions (2007-08 to 2011-12), school taxes have climbed 8%. Note that the pre Act 1 years from 02-02 to 03-04 and 03-04 to 04-05 saw some very big jumps (4.8% and 5.5% respectively) and that, outside of those years, the percentage change in the median school tax rate in the County does not look much different before or after Act 1. The median rate did fall in 2011-12 by 0.7% from where it stood in 2010-11, however.

That’s little consolation to taxpayers whose district may have increased taxes year after year or intends to use an exception this year, but overall the degree of increase overall has slowed over the past few years.

Triple Whammy in Monroeville

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Taxpayers living in Monroeville have to be upset. Consider that at the end of 2011 Allegheny County raised property taxes 20%. As reassessed values were being finalized the municipality decided to end a two-decade streak of no tax increases by taking one that allowed them 5% of the previous year’s revenue and then got permission from the courts to levy a higher rate. Now comes word that the Gateway School District, which encompasses Monroeville and Pitcarin, might raise its tax rate. Based on the millage rates tabulated on the County Treasurer’s website, school tax increases in the District occurred in 2003, 2004, 2005, 2010, and 2012.

The District will have to adjust millage rates under Act 1, the same law that governs the degree of annual school tax increases, provides exceptions for going above the index, and even provides for voter referenda because of the countywide reassessment. But homes that saw a big jump in value well ahead of average changes in countywide, municipal, and/or school district aggregate changes could be in for a significant cumulative hike.

The District is grappling with declining enrollment and last year decided to furlough 17 teachers, but 16 of them returned to the District at the start of the school year under a recall agreement and came with the tax hike of 0.83 mills. So what has come up for discussion going into the next fiscal year? Personnel cuts, of course.

Philly Tax Problems

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Hard on the heels of a report that half of Detroit property owners are not paying property taxes comes the story out of Philadelphia that delinquencies in that city are depressing home values and costing the government hundreds of millions in lost revenue. A Philadelphia Inquirer investigation found that home values are being depressed by over 20 percent because of the failure of 15 percent of properties to pay real estate taxes. Overall, this has lowered the total assessed value by nearly $10 billion in the City.

What’s worse, 59 percent of the unpaid tax bills are accounted for by landlords, speculators and investors who do not live on site. In Detroit the motivation not to pay taxes is driven in part by the failure of the City to provide adequate, if any, services to property owners. Of course, Philadelphia is generally in somewhat better shape financially than Detroit but unchecked, the rising trend of unpaid taxes will lead to chaos as those who pay higher and higher taxes on declining property values join the ranks of those who refuse to pay taxes.

Philadelphia needs to get a tight rein on its spending. The school system which is funded in part by City taxes already has to borrow money to pay its bills-never a good sign. Philadelphia benefits from being able to tax commuters, something it alone in Pennsylvania is allowed to do. But that is a two edged sword in that it has undoubtedly driven many jobs out of the City.

Philadelphia has a ring of protection in the form of wealthy surrounding counties that help support its economy. However, profligacy and poor financial management and a desire to make suburbanites pay for its inabilities to manage its affairs prudently will inevitably lead to a severe crisis. Look at Detroit, Oakland and other cities for proof of what happens when lack of discipline and political correctness take over the government.

Big Tax Hike in the Eastern ‘Burbs

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Taxpayers in Monroeville, a suburb in the eastern part of Allegheny County and one of the County’s largest communities with more than 28,000 residents, are seeing firsthand the change in post-reassessment tax policy established by Act 71, a law passed by the General Assembly in 2005.

 

 

That law, which we wrote about last year (Policy Brief Volume 12, Number 8), requires Allegheny County and its municipalities to establish revenue neutral property tax rates following a reassessment (school districts live under different statutory requirements contained in Act 1 of 2006).  If the taxing body wants to get more revenue after it sets a revenue neutral rate, it may do so, “in a separate and specific vote” but the limit is set at a 5 percent increase.  Prior to Act 71, taxing bodies could get the 105 percent in one step, leading to accusations of “backdoor increases” against school districts that supposedly dodged the limitation.

 

If a taxing body wants more than 105 percent of the pre-reassessment revenue level it can do so under Act 71.  Section 1d states “with the approval of the court of common pleas, upon good cause shown, any political subdivision may increase the tax rate [above the 105 percent limit]”. 

 

Here is what happened in Monroeville, according to ordinances posted on the municipal website: on January 8th millage was rolled back to 1.8 mills (from 2.2 mills) to comply with the Act 71 revenue neutrality requirements. At a special meeting on January 23rd Council gave authorization to the Solicitor to “prepare and submit a petition for court approval of tax levy in the excess of the 5% of windfall”. Then, on February 12th Council passed a millage rate increase of 0.084 mills which kept the municipality within the 5 percent Act 71 limit and set millage at 1.884 mills.

 

A synopsis of the timeline and events that occurred in the Common Pleas Court is available based on documents from the County’s Department of Court Records:

  • January 24th-The municipality submitted a petition requesting a tax rate of 2.431 mills, which the municipality calculated as 9.5 percent higher than the 2012 rate of 2.2 mills.  The municipality noted that it had held off on a tax increase since 1991, had shrank the size of its work force from where it was in 1998 and dipped into reserves to the point where it was no longer prudent to do so.  It is also worth noting that the municipality pointed out that its pension costs are expected to increase by close to $900,000 from last year to 2013.  That same day the Court ordered a hearing to be held February 20th on the matter.
  • February 19th-Opposition from residents of Monroeville as interveners to the case was filed.  That document noted that the municipality still maintained its own 911 call center (whereas the majority of municipalities participate in the County’s consolidated system) which could be phased out, savings that could come from enhancing revenues from the library and the senior citizen center, and that, while the municipality characterized the increase as a 9.5 percent boost the requested rate of 2.431 mills was actually 29 percent higher than the 1.884 millage rate approved on February 12th. Ultimately, the residents argued, the court should reject the municipality’s petition. 
  • February 20th-On the date of the hearing based on the order of the court from January 24th, and a day after the opposition document was filed, the court approves the request from Monroeville to increase the tax rate, with the Judge who approved the petition noting, in longhand on the order of the court template, that the “total millage does not exceed 2.431 mills”. Council is expected to take action on March 7th.

 

What did these actions mean for a homeowner in Monroeville?  Let’s use the example of a home that was assessed for tax purposes at $150,000 in 2012.  Last year’s tax rate was 2.2 mills, meaning the homeowner paid $330 in municipal real estate taxes.  Now assume that the assessed value of the home rose to $190,000 under the new assessment for 2013 (26%) and was not appealed.  When the new assessment is measured against the tax rates that have been put together by Council and the Courts here are the results:

 

Millage

Tax Bill

Difference Between 2013 Tax Bill and 2012 Tax Bill

1.8

$342

$12

1.884

$357

$27

2.431

$461

$131

 

So what recourse is there now for disgruntled taxpayers, including the ones who made their case in court, but also those whose home value might have seen its assessment increase significantly higher than the municipal average (22%) including large commercial properties that make up a large portion of Monroeville’s tax base?  Move, grin and bear it, or hope that the state gets rid of property taxes? 

 

The municipal solicitor was quoted in the newspaper as saying “the remedy is at the ballot box”.  True, but to whom is the wrath directed toward?  Four of the seven Council members will be up for reelection this year.  Did all four vote for the initial increase and to petition the court for more or both?  Are they even running again, and will there be opposition?  The remaining three members won’t run again until 2015. The judge who approved the increase above the 5 percent limit?  The state legislative officials who voted for Act 71 back in 2005, if in fact they voted for it, are still in office, and will run again?  The remedy might be at the ballot box, but that won’t be easy. 

 

Hindsight being what it is, perhaps officials should have been thinking about small property tax increases over the last few years as expenses grew.  If millage rate hikes were not acceptable, then they should have been acting to slow spending growth so they would not be facing the large cuts they are now afraid to make, opting instead to boost the millage rate 35 percent above the post re-assessment revenue neutral level.  

Belief in the End of Assessments

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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?

Examining a 2013 Tax Bill for a Home

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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.

Supreme Court in Reassessment Thicket Again

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It has been nearly four years since the state Supreme Court struck down Allegheny County’s base year assessments.  It might have to wade back into the issue based on an appeal to be filed by Washington County.

 

 

Here are the important highlights of the pending case as summarized by a Commonwealth Court opinion from December 5th.  In January of 2008 the McGuffey and Washington School Districts sued Washington County to force a countywide reassessment, arguing that since it had been a very long time since one had been done the uniformity clause of the Pennsylvania Constitution had been violated; in November of that year the County and the Districts came to the Common Pleas Court with a document described as “containing nine stipulations of fact” and a proposed order. 

 

The order-agreed to by all parties-said that if there was no significant legislative or judicial change to assessment law by September 30, 2009 the County was to proceed with the reassessment process. This was delayed by the Legislature’s attempts at a moratorium on reassessments while the issue could be studied. A bill ordering a moratorium for Washington County passed both houses of the General Assembly but was vetoed by the Governor in July of 2011. The County appealed the courts for a “stay” in December of 2011, was denied relief and thereby required under court orders and its own agreement of 2008 to begin a reassessment. True to form, the County felt that would be “a permanent denial of relief because it ‘compelled the appellants to proceed with a countywide reassessment without further delay'”.  Hence the County’s most recent appeal to the Commonwealth Court of the earlier lower court ruling. But in the decision handed down December 5th the Commonwealth Court ruled the previous court order was “not an appealable order”. 

 

Now Washington County will appeal the Commonwealth Court ruling to the Supreme Court in the hope that it will provide the County permanent relief from ever having to reassess. A member of the County’s Board of Commissioners stated in a newspaper article that “we’re stuck in this legal limbo where we’re being forced to reassess. It is a case that’s of interest throughout the state. We don’t want to be the last county in the state to be forced to reassess under the old system.”

 

Why would the Commissioner think that the state is ready to replace the old system?  First, all a moratorium would have accomplished is to raise the specter of a constitutional crisis with counties deciding which branch of government to listen to: the courts, who would be saying “do a reassessment”, or the Legislature who would be saying “ignore the courts, wait until we can find a solution”.  Following the requirements of the uniformity clause in the Constitution, the courts are currently-and by default-the only source of relief for property owners when it comes to correcting massive inequities in property assessments resulting from the failure to update assessments on periodic basis.  

 

But more to the point about the old system being replaced, it is noteworthy that whenever the possibility of significant reform of Pennsylvania’s assessment laws arises, it gets punted away.  We wrote last year (Policy Brief Volume 12, Number 20) about the legislative task force that was charged with giving counties a self-evaluation tool to tell them when they should reassess or to come up with a statewide standard on a time frame for reassessments.  The group failed to reach agreement on either problem-indeed, it did not offer a pathway to reaching needed meaningful long term reform. 

 

Washington County is in a bind: it stated it would wait for Harrisburg to act by September 2009, but that did not happen nor is the Legislature likely to act on the issue in the foreseeable future. If the Supreme Court hears the latest appeal, it may choose to limit its ruling to whether or not the County can appeal the order, an option already denied by the Commonwealth Court.  If the Court instead decides to deal with the broader issue of whether the County’s assessments are sufficiently inequitable to violate the uniformity clause, it will undoubtedly look at the 2009 Allegheny County decision as a precedent. 

 

In that ruling, the Court did not deal with the use of a base year in and of itself.  The majority opinion held that “we find no ineluctable constitutional deficiency with the use of a base year system; it is only through the passage of time that a base year assessment will become stale, and thus unconstitutional”.  In effect, this made the issue a case by case situation wherein aggrieved taxpayers could seek relief through court action. Different counties would find their base year plan has become deficient at various points of time.  The Supreme Court did find that Allegheny’s base year plan had kept in place inequities that violated the uniformity clause of the Pennsylvania Constitution.  Maybe the Court will find that Washington’s assessments have not yet reached that point, but it will be hard for the Court to ignore the 2008 consent order and what lower courts have  ruled.  Note that while Allegheny County had done a reassessment in 2002 Washington County has not done one since 1981.

 

Officials reluctant to reassess will never have a shortage of reasons not to reassess. However, they should take the time to present a clear explanation of the process to the taxpayers, especially the fact that state law requires counties and municipalities to adjust millage rates so as to be revenue neutral and, in the case of school districts, to be limited to an increase after reassessments not to exceed the Act 1 index. They should further point out that a large number of properties could see their tax bills go down following the reassessment, or for many others remain unchanged. An honest presentation of the “windfall” limitations would go a long way to avoiding a lot of the confusion and anxiety that will otherwise accompany the opening of envelopes containing updated assessment values. 

 

Such a move by Allegheny County officials could have lowered the level of angst among home owners considerably if it had been employed rather than the non-stop efforts by officials to make taxpayers believe that reassessments are necessarily followed by tax bills going up for everyone.

 

As we have written on several occasions previously, if opponents of reassessments believe they can never get accurate results, then it is imperative and incumbent on these opponents to end the levying of property taxes in short order and to develop alternative sources of revenue to fund local governments and schools in the Commonwealth.  Perpetuating gross inequities in property taxation is unconstitutional and unethical.

Diagnosing the UPMC Hearing

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Allegheny County Council held a public hearing recently regarding the University of Pittsburgh Medical Center, better known as UPMC.  Based on the motion passed by Council in November the purpose of the hearing was “…to allow the opportunity for public comment regarding the tax exempt status of property owned by [UPMC] within Allegheny County pursuant to the Institutions of Purely Public Charity Act”. 

 

The twelve Council members who were present at the November meeting voted in favor of holding the hearing. The Council member who would chair the hearing said at the time “it’s a good idea to have this meeting and air it out properly in front of everybody” though the “it” and the “everybody” were never exactly clear.  The motion said “tax-exempt property” but some believed “labor relations” was the intent. 

 

A day after that quote an opinion piece appeared stating “given the backdrop of labor politics, the event should not be a club aimed at UPMC, but a lens through which a broad system of tax exemption and its public impact get close examination”.  However, a newspaper report detailing the meeting stated “…many of the speakers talked more about what they said was UPMC’s opposition to union organizing efforts by the Service Employees International Union.” 

 

Maybe we will never know for sure whether this was supposed to be a fact-finding mission or a show trial.  In the spirit of the holiday season, let’s give Council the benefit of the doubt on three points; one, the meeting really was aimed at examining UPMC properties exempt from taxation  to ascertain whether the justification for each parcel was warranted; two, the chair could not stop the large numbers of people from speaking on issues tangentially related to the topic at hand (salaries, pay levels, and organizing come to mind) thereby depriving many who might have  been ready to speak to the tax-exemption issue of that opportunity (they have been encouraged to submit their comments in writing); and third, there will be a sincere effort to examine other tax exempt property owners and that the UPMC hearing was just the first of many (the Council meeting chair was quoted as saying “We’re not picking on UPMC. They just happen to be the biggest and the first”).

However, even assuming all the benefit of the doubt is warranted, what transpired was in direct violation of the ordinance Council passed to determine if properties are deserving of their tax-exemption. 

 

Council passed ordinance #3504-07 in November of 2007 to establish “a County policy for periodically reviewing the status of all properties qualifying for exemption from property taxation under the Institutions of Purely Public Charity Act”, the state law that sets out the parameters for non-profit tax exemption. 

 

But this County ordinance does not give Council the power to review tax-exemptions: that’s the job of the Chief Assessment Officer.  The ordinance’s language added a new section to 5-210.12 of the Administrative Code stating:

 

“All properties granted tax-exempt status by the Chief Assessment Officer under the provisions of the Institutions of Purely Public Charity Act…shall be subjected to a parcel review by the Chief Assessment Officer…at least once every three years…the Chief Assessment Officer shall determine whether each property or any portion thereof continues to qualify for tax-exempt status , and shall forward written notice of this determination to the legal or equitable owner of the property and all taxing bodies within which the property is located”.

 

Nothing in that language assigns Council or the public responsibility for determining whether a tax-exemption is warranted under state law.  Was the Chief Assessment Officer (currently a contract employee holding the title of “acting” director) or assessment office staff present at the hearing?  Were they invited? Is Council forwarding the recorded comments to the assessment office? Will officials from municipalities and school districts where UPMC owns property get any information on the findings of the hearing?

 

In addition, note that the ordinance language states the review is to be done every three years.  Since the ordinance was passed in 2007, all exemptions subject to review should have been done in 2010 and the County should be gearing up for another review next year.  Clearly, something happened on the way to implementation-much like the delays in carrying out the County Charter’s required Sunset reviews. 

 

A news article in September quoted the Council member who chaired the hearing-and who sponsored Ordinance #3504-that something “fell through the cracks…and what we have to do is sit down with [the County Executive] and talk about that”.  In that same article the administration said that the tax-exempt review process had not been formalized and that it would start once the reassessment was over.  Since the reassessment is supposed to be completed December 20th it is curious as to why the UPMC hearing took place December 5th.  Two days after the hearing it was reported that the administration was prepared to direct the Office of Property Assessments to begin the process of reviewing exemptions, thus enforcing the ordinance six years after its enactment.  Is there confusion over territory in this episode? 

 

Lastly let’s examine something the ordinance does not do; a sin of omission, perhaps.  State law allows tax exemptions for many types of property, not just those owned by non-profits.  Ordinance #3504 does not instruct the Chief Assessment Officer to review all tax-exempt property every three years, only the tax-exempt property owned by non-profits under the provisions of the Purely Public Charity Act. 

 

That means the County is not going to scrutinize the broad swathes of property owned by Federal, state, local, school, and authority governments.  A report done by the County Controller’s office in June looked at exempt property in the County based on land use codes.  Roughly the same percentage of property value is held by higher education, churches, and hospitals as that attributed to County, municipal, and school district uses.  But stadia and the convention center owned by the Sports and Exhibition Authority, and property owned by the array of authorities at the County, City, and municipal level (redevelopment, housing, transit, airport, parking, etc.), school districts, municipalities, and the County itself won’t come under the auspices of #3504.  Council’s thinking in 2007 must have been that only non-profits are expansionist and take taxpaying properties off of the tax ledgers and that such action must be justified every three years. 

 

There is merit in reviewing tax-exempt property to see if the exemption is truly justified.  It is not clear if anyone involved in the UPMC hearing, either from County government or members of the public who attended came away with a better understanding of the issue of property tax exemptions.  That is a shame, but with plenty of tax-exempt non-profits, and Council’s pledge to be vigilant, along with the Executive’s directive to the Office of Property Assessments to do the job Council gave it, the public might be become well-informed of the topic in the months and years to come. 

December 21st: An Important Date

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And we are not talking Mayan calendar here. In our seemingly never ending reassessment story, the Judge overseeing the process has given the County that date to get total assessed values as a result of the reassessment to municipalities. The municipalities, which all run on a calendar year for fiscal purposes, will then have until the end of January to finalize their budgets (some are already done). As appeals come in, those that affect a given municipality will be forwarded on so that millage rates can be accurately calculated to comply with requirements under Act 71.

The PA Supreme Court rendered its decision on the County’s base year in April of 2009 and gave the County Court of Common Pleas the charge of determining a "reasonable time frame". Most reports this year as the process went on put December 17th as the day cities and towns would get the numbers from the County, but that is now four days later. An official from the appeals board stated that 90% of the residential appeals would be done by the 21st.

Note that school districts, with the exception of Pittsburgh Public Schools, will start their budget process in early 2013 under the Act 1 requirements.