Bizarro World

Step right up folks, you are about to encounter the topsy-turvy world that has come to southwestern Pennsylvania as a result of property assessments. Allegheny County is hurtling toward completion of a court-ordered reassessment following a state Supreme Court decision in April of 2009. It looks like certified numbers will be ready is approximately two weeks, roughly ten days before the fiscal year starts for Allegheny County, its municipalities, and the Pittsburgh Public Schools.

The County passed its budget for 2013 earlier this week. As a result of the rise in assessments and state law changes in 2005, the County had to adjust its millage rate. Presto chango, the millage rate that rose from 4.69 mills last December to 5.69 mills is now set at 4.73 mills for 2013. The County Executive stated in a press release that "I’m very pleased with the budget that Council passed this evening and am glad that we are able to move into 2013 with no tax increase and a lower millage rate and that we did so without using one-time revenues to balance our budget (emphasis added)".

Is this the same Executive who spent years on Council decrying reassessments, vowed when running for the office of County Executive that he would go to jail rather than send out new assessments, dismissed the state law on windfall adjustments, and stated, most recently at the start of 2012, "reassessments cause tax increases"? If reassessments cause tax increases, and Allegheny County is just finishing its, then how can the Executive claim the budget has no tax increase?

Here is where a good dose of clarity would have been welcome. Sure, a reassessment causes tax increases: even after millage rates are adjusted, if a property’s assessed value rose faster than the relative change in the county, municipality, and school district in which the property is located then taxes will go up. It is also possible that taxes could go down if the opposite holds. That’s what the County’s own assessment department has made available for taxpayers for some time, albeit online: enclosing such information in a mailer at the start of the process would have gone a long way to quelling a lot of fear. If Washington County moves forward with a reassessment (also a court matter), it might take some pointers from what did not happen in Allegheny.

Know what else causes a tax increase? A millage rate hike. That’s what is possibly happening in nearby Butler County, a county that has not reassessed since 1969 and changed its predetermined ratio three years ago. The proposed increase there is 8%, which is smaller than Allegheny’s 20% increase last December. Spending drives the need for tax revenue,especially when assessments are frozen in place.

A Bigger Exemption for City Taxes?

The City Controller has suggested increasing the homestead exemption for City taxpayers. A homestead exemption allows homeowners to decrease their assessed value by a fixed dollar amount so as to lower the property tax bill. The County has a homestead exemption of $15,000 while the City’s is $10,000. While the Pittsburgh Public Schools offers one it is funded through gaming money and it is not quite at the discretion of the school board to change the amount.

In a Brief we wrote last year we showed the effects of the homestead exemption on County taxes since County Council was exploring the idea of eliminating it. The exclusion was boosted from $10k to $15k about a decade or so ago. That’s the decision point the City may come to if it decides to follow through with the Controller’s recommendation.

Using our sample of 100 properties that sold in 2011, twenty of those randomly selected homes were located in the City. If the forecast of the Property Tax Estimator holds accurate Pittsburgh’s 10.8 millage rate would fall to 6.94 mills to be revenue neutral under Act 71 requirements. If that rate held the homes in our sample located in the City would see differing results for their City property taxes: nine homes would pay more in taxes, eleven would pay less. A bigger homestead exclusion for City homeowners would obviously shrink the tax payment: going from a $10k exclusion to a $15k exclusion would result in roughly a $35 decrease in the City property tax bill.

County Property Taxes: Up, Down, or Same?

As we have pointed out in Briefs this year, a property owner’s first bill under the new assessment will not necessarily be higher than the bill for this year and years past just because the assessment is higher. That’s despite the claims by several elected officials that make the statement that reassessments lead to tax increases. And despite the County’s own property assessment webpage that points out a taxpayer’s obligations depend on how their assessment changed relative to the taxing body overall.

With one county, 128 municipalities, and 43 school districts all levying property taxes it would be quite an undertaking to describe the present and future tax burden for all properties in the County. A new website, Property Tax Estimator, allows taxpayers to examine their property and see what to expect based on new assessed values and anticipated millage rates. Recall that the County and municipalities have to establish revenue neutral rates after values are certified. Tax hikes can happen after that.

Revisiting our sample of 100 sales that we utilized in two Briefs in 2012 (here and here) we examined the resulting impact of the assessments on County property taxes. We used the following assumptions:

  • The home would take the County’s homestead exemption that lowers the taxable assessment by $15,000 for both 2012 and 2013
  • The millage rate for the County currently (5.69 mills) would fall to 4.11 mills based on the Estimator’s calculation

So what happened? Of those 100 sales, 38 would end up paying more in County property taxes in 2013 than they did this year. This ranged from one home paying close to $800 more to one paying $1 more. The remaining 62 would all see a drop in their County property taxes. The range goes from a $3 cut to a $500 cut for the group.

A higher tax rate-whether a revenue neutral rate settles in at higher than what the Estimator predicts or the County increases the rate as permitted under the law-would obviously change what the final tax bill looks like. Assume that the County Council increased the tax rate by 5% in a separate vote (it would take a 2/3rds affirmative vote) and then successfully petitioned the courts to utilize the same 5.69 millage rate that is in place this year, only with the new assessments taking hold. Of those 100 properties in our sample, 9 would pay less in 2013 than they did in 2012. Their assessed values have fallen far enough for that scenario to happen.

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%).

Last Gasp for Moratorium?

Back in September of 2009, we noted in a Policy Brief that attempts for the Legislature to pass a law that would stop court decisions from mandating property reassessments would create "…an explosive Constitutional crisis". It seems simple: the courts would be telling a county "do a reassessment" while the General Assembly would be telling the county "don’t do a reassessment". That September mention came months after the Supreme Court ruled that Allegheny County’s base year plan violated the uniformity clause of the Constitution and remanded the matter back to the County courts.

Nearly three years later, just as the budget deliberations were wrapping up, the moratorium issue came up again and was discussed as a larger piece of legislation dealing with the agency that handles issues related to assessments. The moratorium would have applied to Allegheny and Washington Counties.

No doubt the results will be decried by officials in those two counties as well as by legislators who pushed for the moratorium. But what about the counties that are scheduled to see new reassessed values go into effect in 2013 like Allegheny County?

Lehigh, Lebanon, and Erie Counties are all expected to have new values. Lebanon’s came about because of a court decision at the Common Pleas level. Same with Adams County, which completed its reassessment in 2011. Why aren’t legislators and the public hearing from the experiences in these counties?

County to Get Handle on Tax Exempt Properties

All non-profit property is exempt from taxation, but not all tax-exempt property is exclusively non-profit. That’s one of the important layers that have to be peeled off by the public, as well as by policymakers, when they discuss the status of tax-exempt property and say that if tax-exempt property were taxable taxing bodies would reap a bounty of dollars.

As yesterday’s Blog pointed out, there is merit in reviewing whether or not a property is truly deserving of a tax-exemption under the Pennsylvania Constitution or statutory provisions. That’s what the County Controller wants to do, as that office has issued its inaugural Taxpayer Alert discussing tax-exempt property, a recent court case, and the makeup of exempt property in Allegheny County.

The alert points out that "the total appraised value of exempt properties in Allegheny County is nearly $17 billion. After the latest reassessment this total to rose to over $23 billion". That means the rate of change in exempt value is roughly 35% from 2012 to 2013. But is that rate of change bigger than the rate of change for taxable property? It was $58 billion in 2011 according to the Controller’s CAFR.

How about in proportional terms? Based on the 2011 numbers, the $16.5 billion in exempt value represented 28% of total taxable residential and commercial value in the County (the $58 billion mentioned above). If taxable value rises to around $86 billion upon certification, the projected rise in exempt value to $23 billion keeps the ratio at around the same level as currently.

Then we have to turn to the original point above: just because a parcel is exempt from taxation does not mean it is a hospital, university, church, or charity. This was the analysis we did about a decade ago when looking at the City of Pittsburgh’s exempt parcels. The Alert shows that, based on land use codes (which may or may not have shortcomings), about 36% of the County’s total tax-exempt value can be attributed to church, hospital/charity, or higher-ed. About the same share, 38%, is tied to County government, school districts, or municipal government. A big piece (21%) is identified as "other", which could mean non-profit but could also include a lot of property owned by public authorities (unless those are counted under the county or municipal total). It is doubtful that even a serious examination of exempt parcels is going to lead to taxes being imposed on the County Courthouse or the slew of municipal centers or school buildings, meaning that the tax "loss" attributed in the Alert to various taxing bodies is overstated.

County Wants to be Right on Rights

Though there has been a lot of talk about how Marcellus Shale drilling could be a boon for the County, specifically for the County’s coffers if drilling rights were leased on airport land, County officials likely have little firsthand knowledge on what the County owns, if anything, in the way of mineral rights-gas, oil, coal, etc.

That could change if action is taken on a motion that would instruct the County manager’s office to "…determine what mineral rights Allegheny County owns on any parcels within the County and the feasibility and economic value of conveying those mineral rights to other parties for development".

A similar motion was introduced into Council last June but no action was taken on it after it was referred to the Committee on Economic Development and Housing.

It could turn out that the County owns mineral rights under some valuable property in the area. It is doubtful that even if the County owned mineral rights in the middle of, say, a County park, that there would be extraction due to strenuous objections. Recall the 2008 proposal to extract coal in a section of South Park.

Conversely, it could be possible that someone other than the County owns the mineral rights under government structures, that of related County agencies, or perhaps under some of the shiniest new economic development projects carried out in recent years. Could there be drilling next to the County Courthouse in the near future? Or how about digging near the Convention Center?

The proponent of the study wants to use proceeds to reduce the increased property tax burden, which the proponent incorrectly assigns to the new assessments. How about the 21% millage hike passed by Council at the end of 2011? Besides, the County is limited to a 5% windfall that requires a vote of Council. Otherwise, there is no net increase in revenue from the assessment.

The proponent’s comment points out once again how ignorant even County officials are about the assessment process.

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.

Assessment Task Force Shies Away From Solutions

Nearly three years after the Supreme Court ruled Allegheny County’s base year plan to be in violation of the uniformity clause of the Pennsylvania Constitution comes the report of a Task Force on reassessments.  This latest foray into looking at the state’s seemingly insoluble assessment problem was created pursuant to a resolution passed by the General Assembly in 2011. 

 

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