Yes, We Have No Enforcement

A column over the weekend pointed out that while state law spells out what has to happen to tax rates after an assessment in Allegheny County and its municipalities, along with school districts in Allegheny County and across the state, it is ultimately going to fall on the citizens-possibly with the help of elected officials that watch the public purse such as county and city controllers, the Auditor General’s office, etc.-to pay attention to what has happened to their millage rates thus far and what will happen soon as school budgets are adopted for the coming fiscal year.

The primary sponsor of the law that pertains to Allegheny County and its municipalities, Act 71 of 2005, noted "There’s nothing in law that says [local officials who don’t follow procedures] get thrown in jail…The whole purpose was not to let them hide behind these windfalls".

To reiterate, any non-school taxing body in Allegheny County would have to set their millage rate at a revenue neutral level, and then, in a separate action-which contrasts with the previous law-could take a vote to raise millage so that the taxing body could get up to 5% more in revenue. If they wanted more, they could petition the courts, which happened in Monroeville.

To the point of the column, we wrote about the question of "what happens if someone violates the law" in the February 2012 Brief mentioned above. We did note that "A serious shortcoming of the laws is that they don’t spell out who is in charge of ensuring that taxing bodies follow the requirement, nor specify what, if any, punishment should be imposed for refusal to follow statutory requirements…Clearly, refusal by elected officials to comply with state laws ought to be grounds for severe punishment, including possible removal from office".

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.  

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.

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%).

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.