What is the County’s Reassessment Policy?

Based on the statements made by the County Chief Executive this week in response to when the next reassessment will come, we can probably say the outlook is "read my lips: no new assessments". The Exec, a longtime opponent of reassessments in general and the 2012 one in specific, said "We’re not going to be reassessing. We’re using a base-year plan like every other county…It’s tough to look 10 years down the road. It’s my hope that the Legislature will deal with this issue." That quote was taken this week but it could have been written at any point over the last decade.

We know where things stand at the state level-the Legislature has shown no desire to pass a law that mandates when reassessments have to happen and the Supreme Court has said a base year in and of itself is not bad but that eventually the assessments will become "stale" and violate the uniformity clause of the Constitution, thus necessitating a reassessment (when that happens exactly will vary). Could things be different by 2023? Maybe. The point here is to determine what the County has on their books and what it will have in the future.

The Administrative Code (Article 210) reflects the language of a base year plan, notwithstanding the fact that something funny happened on the way to the implementation of the last base year. An ordinance passed in October 2005 established the base year and another ordinance in early 2006 was enacted to clean up language that would"…otherwise impede the orderly administration of a base year…" Subsections deal with special provisions for 2003, 2004, 2005, and 2006 and the most recent section applying only to 2013 states only that appeals for 2013 had to be filed by April 1st of this year. If the County is intent on keeping a base year it might have to tweak some of that language or continue adding transitionary provisions as it has.

There is separate language on reassessments written into the County’s ordinances (Article VIII of Chapter 475 on taxation) reflects the plan to have values ready for 2006 which came from a ordinance passed in 2002 prior to the base year plan, but it seems clear that this section is no longer valid and could be stricken from the code.

Two years ago when we put together a report on some of the critical issues facing Allegheny County as a guide for office seekers and we recommended that a new policy be established after the completion of the court ordered reassessment based on the IAAO recommendations that a physical examination of property be done at least once in a six year period. The Executive and the members of Council who were on Council in 2005 and 2006 and voted for the base year would obviously be opposed to that recommendation. It could lead to another court challenge as alluded to by some in the news article, and given present conditions a court would have to determine whether the County’s base year had reached the point where it violated uniformity.

Washington County Opens Bids

Late last week Washington County opened bids from four contractors interested in undertaking a countywide reassessment, one that is moving ahead after years of delay and court battles as we documented this year (here and here). A newspaper article states that the companies are essentially the same as the ones who expressed interest in 2009, before the matter went to court.

So what are assessors getting ready for? As we noted in the latter Brief, the state passed legislation that moved the State Equalization Board into the Department of Community and Economic Development: the board is now known as the Tax Equalization Division, and its section of DCED’s website has a couple of interesting links to data.

The total assessed value of property in Washington County in 2011 was $1,550 million: that counts value from residential, trailers, seasonal, lots, industrial, commercial, agriculture, oil/gas/minerals, and land (by way of comparison Allegheny County’s 2011 market value measured by TED was $58,906 million). About 68% of the $1.5 billion in Washington County is tied to "residential" (statewide the average was 69%) and one-quarter of the residential value is concentrated in Peters Township. When the municipalities of North Strabane and Cecil are added, just over 45% of all the residential value in Washington County is accounted for.

Of much interest will be the value of the oil/gas/mineral category given the focus of Marcellus Shale activity in the County. There were two municipalities that the TED data shows has more than $5 million in assessed value for this category. East Finley Township had $10.7 million and South Franklin Township had $6.2 million.

Triple Whammy in Monroeville

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.

Could State Guide Washington Reassessment?

Earlier this week the Board of Commissioners in Washington County, a county where a reassessment has not been conducted since 1981 (their base year, but they adjusted their predetermined ratio of assessed to market value in 1985) and enacted a 16% millage hike in 2010, reached back to 2009 to the vendors who said they would be interested in conducting a countywide reassessment should that ever happen. Based on articles (here, here, and here) that may be coming soon, albeit with a state level change.

Under a bill pending in the General Assembly the state’s Equalization Board would be housed inside of the Department of Community and Economic Development (DCED). The hope is that by making this move there will be more professionalism and sharing of expertise. The powers and duties of a shifted Board would include notifying county assessors when there is a change in a county’s common level ratio of plus or minus 10%, informing school districts of certified market values, etc. The key points that might affect a reassessment in Washington County or other counties conducting assessments after the legislation (should it become law) are these:

  • 1. "Create an operations manual in consultation with the County Commissioners Association of PA and the Assessors’ Association of PA for counties to utilize when completing a countywide reassessment or when valuating property".
  • 2. "Create and maintain a centralized and standardized statewide database for counties to utilize and report all property values and data to the Board."
  • 3. "Develop and maintain statewide basic and detailed training programs for all persons involved in the valuation of property within all counties. The programs shall be completed and passed by any person that is employed to collect, compile, compute or handle data for purposes of reassessment valuation within the State."
  • 4. "Develop standards on contracting for assessment services in consultation with the County Commissioners Association of PA and the International Association of Assessing Officers."

Our 2007 report on improving the property assessment system in PA included a recommendation that the Department of Revenue or STEB be involved as an overseer of the assessment process, including bringing some standardization to the process. We argued for a three year time line on reassessments, zero windfalls, and voter approval of all millage hikes.

Washington County Commissioners, while holding their nose after much delay, hope to be guided by this legislation. Taxpayers should also be aware that the County has to abide by Act 93 of 2010, which prescribes what has to happen to millage rates following a reassessment. Much like Allegheny County’s Act 71, the taxing body (county and municipalities) have to roll millage rates back to be revenue neutral, then, in a separate vote, can get 10% more than the amount the revenue neutral rate would bring in revenue. Taxpayers, knowing that it is possible for their assessment to go up but their taxes could go down with revenue neutral rates, would know that they could gauge their increase against the increase in the community as a whole.

Letter Writer’s Shock Should Be Channeled

A letter to the editor today from a resident of Mechanicsburg who still owns property in Allegheny County who just received his 2013 County tax bill expresses outrage over a 60% tax increase in his taxes. The letter does not divulge the location of the property (only that the writer "still own[s] property back in the Pittsburgh area, but had to move to Mechanicsburg for employment 25 years ago") or its type (if it is residential, commercial, industrial, land, etc.)

Let’s assume for simplicity sake that the writer owns a single family home in Penn Hills that was assessed at $50,000 in 2012. He could not take the homestead exemption as that is not his primary residence, so at the 2012 tax rate of 5.69 (following the millage rate hike), his Allegheny County tax bill would have been $284. If his 2013 County bill is 60% higher, or $454, that means the value of the structure would have risen to around $95,000 (almost doubling) based on the 4.78 millage rate that was printed on the County tax bill. That increase in value would be far in excess of the percentage changes for the County and all municipalities based on December assessment data.

The writer is angered as well because someone unspecified said he "…should not worry about my taxes going up quickly as there is a clause in the tax code that limits the increase to 5 percent". This is incorrect in that the state law applying to Allegheny County says after a reassessment tax rates must be rolled back to be revenue neutral and then, if the taxing body so wishes, they can raise tax rates so that they can get an additional 5% from the prior year’s revenue and then if more is desired, a petition to the courts can be undertaken. What someone at the County in person or through public pronouncements should have done is to explain that an increase in one’s property value has to be gauged against the increase of the taxing body to determine if taxes go up, down, or remain unchanged.

What is perhaps most amazing is that the letter writer, presumably as a real property owner in Mechanicsburg, which is located in Cumberland County, somehow forgot that his home county just reassessed in 2010. Maybe the reassessment did not result in a significant jump in his county taxes, which is entirely possible, or it did, which is also possible. Cumberland County, which assesses property at 100% of market value just like Allegheny County, just increased taxes in 2013 (from 2.045 mills to 2.274 mills), which meant a tax increase for him and all other taxpayers in the County.

If the letter writer really wants to get steamed he might calculate what his assumed $95,000 home in Allegheny County would pay in county real estate taxes vs. his assumed $95,000 home in Cumberland County would pay-it’s a $236 difference. There might be a lesson about the cost of county government in there.

Big Tax Hike in the Eastern ‘Burbs

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.  

Supreme Court in Reassessment Thicket Again

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.

December 21st: An Important Date

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.

Another Western PA County Will Reassess

If Indiana County sticks to what has been announced as the start of a three-year reassessment process that will produce new values for 2016, it will leave the small fraternity of counties belonging to the "pre-1969" club. Those counties, according to the State Tax Equalization Board and our research, have not done a reassessment since 1969 or earlier. Indiana County did change its predetermined ratio (the ratio of a property’s assessment to its market value, used for taxation purposes) in 2006, but its last true comprehensive reassessment was done before the Apollo 11 moon landing.

Is there anything from Allegheny County’s experience that could guide Indiana County?

Some officials from Allegheny County might say that while Indiana is voluntarily going forward Allegheny was forced by the courts to reassess. Recall, however, that Allegheny County Council did pass an ordinance in 2002 that said new values would go into effect in 2006. Fear about new values led to various plans before deciding no new assessment would be the best assessment. Indiana will have a good dose of "sticker shock" with such old values.

The more education on the assessment the better, especially when it comes to state law requirements on windfalls. New laws are on the books dealing with what happens following a reassessment. In Allegheny County, since it is the only county of the second class, this is Act 71 of 2005. Indiana County, a county of the sixth class (population ranges of 45,000 to 89,999), has to follow the requirements of Act 93 of 2010. All school districts in the state fall under Act 1 of 2006. The difference between the two is that once a revenue neutral rate is established if the taxing body wants to get more tax revenue in Allegheny County the limit is 5% whereas in Indiana (and all counties other than first [Philadelphia] and second [Allegheny] class) it is 10%.

Taxpayers have to be attentive as well. Note that just as Allegheny County did in 2011 and as Butler County announced it would do last week Indiana County is planning a millage rate hike. That means everyone’s taxes will go up. In a reassessment it is possible that some people’s taxes may go down. Taxpayers need to understand that, and county government can help.

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.