Twice as Many Counties Using 100% PDR

Near the start of 2013 the Governor signed Act 2 of 2013, which moved the formerly independent State Tax Equalization Board into the Department of Community and Economic Development. We wrote about this change in a Brief earlier this year and the Tax Equalization Division has its own section of the DCED website.

There’s some data available (some it was there when STEB had its own site) but one interesting aspect is to look at the pages on common level ratios in 2002 and 2012. Besides showing that four other counties reassessed at the same time as Allegheny County (on the 2012 page, but they went into effect in 2013) it is interesting to see that there has been an increase in transparency since 2002 in terms of counties equalizing their pre-determined ratio (PDR). This ratio is defined by the PA Tax Manual as "the ratio of assessed to actual value". Allegheny County used to have a PDR of around 25%: that is, if a house’s market value was $100,000 it would have an assessed value of $25,000. Millage rates appeared much higher (from 1996-2000 the millage rate was 25.2). Following the 2001 assessments the PDR was changed to 100% and now assessed values are the same as market values. Only applied discounts (homestead exceptions) lower the assessed value relative to the market value.

Looking at the 2002 common level ratio page, 20 counties in Pennsylvania had a PDR of 100%. In 2012, 41 counties have moved to a PDR of 100%. Act 93 of 2010 requires counties (not Allegheny, which operates under Act 71 of 2005) to adjust their millage rates to be revenue neutral if they make a change to the PDR.

Reassessment Reforms Become Law

When we wrote our recent Brief on the pending reassessment in Washington County we noted that legislation had passed both chambers of the General Assembly that would make significant changes to the state-level oversight and guidance of property reassessments carried out by counties. The Governor has signed that legislation and it now becomes known as Act 2 of 2013.

The press release on the Governor’s action does not say much but we did note that the most significant changes would bring some degree of uniformity to the process by creating a manual, training, and outlining best practices, but no changes to how often a reassessment has to be conducted or giving counties a tool to inform them to get ready for a reassessment.

Major Assessment Developments for Washington County

 

Two big developments regarding property reassessments have occurred in the last three weeks that will have a tremendous impact on Washington County.  As we noted in our inaugural Brief of this year, the County has been in a court battle with two of its school districts since 2008 over conducting a revaluation of property, a task not carried out since 1981.

 

 

The first big development occurred this week when the Supreme Court of Pennsylvania declined to hear an appeal from the County on the matter.  In December of 2012 Commonwealth Court noted that the parties to the case had agreed in 2008 to a document containing “nine stipulations of fact and a proposed order” that stated if the Legislature or the courts had not made substantial change to the property assessment system in Pennsylvania by September 30, 2009, the County was to move forward with a reassessment.  County officials opposed to a reassessment dispute the nature of the 2008 agreement and were hoping that the Supreme Court would overturn the lower court rulings, but that was effectively ended with the April 9th decision. 

 

The second development came about three weeks ago when the Pennsylvania House of Representatives passed legislation with no opposition (as did the Senate in late January) to move the State Tax Equalization Board (STEB), an independent agency since 1947, into the Department of Community and Economic Development (DCED).  Prior to this legislation, and following the Supreme Court’s 2009 decision on Allegheny County’s base year plan, the Legislature had attempted a legislative moratorium on court ordered reassessments and created a task force to examine the issue.

 

The rationale is that by making this move DCED will, according to a fiscal note prepared on the bill, “provide appropriate administrative, legal, and technical support needed by the Board to accomplish its purpose”.  STEB will be charged with determining the market value of real estate in each school district, obtaining lists of properties transferred in each county on a monthly basis, establishing the common level ratio of assessed to market value by July 1 of each year and informing counties if their ratio has increased or decreased by 10 percent or more, among other duties.  Perhaps most important with respect to counties carrying out reassessments, STEB is to:

  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.”

 

These steps should go a long way to improving the assessment process, and, according to the fiscal note, would do so for a very inexpensive sum of $35,000.  However, while making these changes, the bill does not say when a reassessment has to happen, how often one has to happen, does not call for a statistical trigger that would inform a county that its values are out of kilter and possibly violating the uniformity clause. On the other hand and to its credit, it does not recommend or dictate a moratorium on court ordered reassessments during the implementation of the STEB-DCED integration. A version of the legislation in last year’s session attempted to do that, but it did not pass the General Assembly. As we have noted on several occasions, a legislative order that contravenes a court order is a constitutional crisis waiting to happen.

 

Here’s the question. Are state and local officials from Washington County looking at the state’s bureaucratic reorganization and the development of reassessment assistance as a moratorium of another stripe?  One Commissioner was quoted as saying “[the County] will take a wait-and-see attitude. We’re going to see what this means…how this will affect us and what we need to do to become the pilot program” and a state representative stated “I don’t know how a vendor could respond to a (request for proposals) even as state law is changing under their feet…we need to sit down with DCED and estimate a timeline and find out what [the County] need[s] to do.” 

 

While this might sound like due diligence, it could also be interpreted as an opportunity for foot dragging by officials who have no desire to conduct a reassessment as evidenced by the court battle and public statements made by members of the Board of Commissioners.  It is worth pointing out again that the Commonwealth Court quoted the 2008 stipulations of fact and proposed order that said if there was no state level change by September 2009 the reassessment process would begin.  How can anyone argue with any persuasiveness that a legislative change in April 2013, while substantive, could be grounds to hold off moving forward with a reassessment?  Especially now that the Supreme Court has denied the County’s latest appeal, thereby effectively ending the judicial channel for delaying a reassessment? 

 

Clearly, the recently enacted legislative reforms are long overdue. We pointed out in a 2007 report that some state level department or agency, perhaps the Department of Revenue or STEB, be involved as an overseer of the assessment process, including bringing some standardization to the process.  And it appears there might be some movement in that direction six years later. We also argued for mandated reassessments every three years, zero revenue windfalls from reassessments, and voter approval of all millage hikes.  Unfortunately, the first of these three recommendations has yet to be adopted. However, legislation was enacted earlier requiring municipalities to take separate votes to roll back millage rates to achieve revenue neutrality after a reassessment and then another vote to take a five percent increase. If desired, municipalities can petition the courts for millage rate hikes above five percent following a reassessment. School districts are limited to a revenue increase determined by their state calculated index.

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.

The Recent History of Assessments in PA

As is well known by now, Allegheny County mailed out its assessment notices to owners in the City of Pittsburgh and Mt. Oliver, beginning the process of its first reassessment since 2002. What may also be known, but has not gotten as much attention, is that Washington County is currently in Commonwealth Court over their planned reassessment; it has not reassessed since 1985.

The International Association of Assessing Officials (IAAO) has written "Although assessment trending can be effective for short periods, properties should be physically reviewed and individually reappraised every four to six years". It being 2012, how many counties would fit the IAAO standard? The State Equalization Board (STEB) houses all of the aggregate data on assessments across the Commonwealth and their table on the last reassessment date shows that six counties (Elk, Indiana, Montour, Northumberland, Union, and York) conducted a reassessment in 2006. Philadelphia is listed as "on going" and Allegheny County, as noted, has begun its mailing process. It is not clear what will come from Washington’s case.

What of the other counties? STEB data shows that:

•· 24 counties (not counting Allegheny’s 2002 date) reassessed between 2000 and 2005;

•· 21 counties reassessed between 1990 and 1999;

•· 5 counties (not counting Washington due to its court status) reassessed between 1980 and 1989;

  • 8 counties reassessed prior to 1980