When the state passed Act 71 of 2005 it required Allegheny County, its 128 municipalities, and 43 school districts to follow new requirements for property tax millage rates following a reassessments. A short year later, the state passed Act 1 of 2006, which involved school property tax relief, tax shifts, gaming money, school tax referenda, and requirements for school districts to adjust their millage rates following a reassessment. As a result, the 43 districts in Allegheny County were effectively removed from the Act 71 framework and placed into a framework with the other 457 school districts in Pennsylvania.
So what does Act 1 say for districts following a reassessment? We discussed this in a Brief previously, but basically the district cannot bring in more tax revenue than it would be allowed under the previous year’s Act 1 index-the index that informs the district how high its taxes can increase. Those going above the index have to either seek out an exception from the Department of Education or place the increase on the ballot in front of the voters.
The Department of Education’s 2013-14 report on Act 1 exceptions shows 11 districts have successfully obtained permission to exceed their index for the fiscal year that starts in just a few weeks. That’s not to say they will use them-the Department points out that many times districts obtain but do not utilize exceptions-but they are in the back pocket for those districts. Act 1 was amended in the last several years to reduce the number of allowable exceptions from 10 to 4 (leaving exceptions related to construction, retirement obligations, and special education). All eleven cited pensions as the reason for their petition: three also cited special education expenses.
So what of the remaining 32 districts? If they did not seek an exception that does not mean the school millage won’t rise this year the assessments go into effect. Just that they are staying below the allowable index.
One of the items that came out of the Governor’s budget presentation on Tuesday was a possible change to Act 1 of 2006, the law that is aimed at providing school property tax relief through gaming money, tax shifts, and, if applicable, taxpayer referenda on tax increases that exceed a predetermined index. Many have opined that state level cuts to education will simply force tax increase at the school district level: one representative stated "it’s a no-state-tax budget, but it will not be a no tax budget at the end of the day for most Pennsylvanians. School taxes will have to go up".
To stave off what has been the norm for school districts in the past few years under Act 1-design a budget and, if a tax increase is included, either increase it to a level just under the index or seek one or more of the ten exceptions available under Act 1 from either the PA Department of Education or the courts-there might be a proposal to tighten the Act 1 requirements. Voters have had little, if any, opportunity to vote a school tax increase up or down on a ballot. The Pennsylvania School Boards Association does not have any hard data, but officials there counted about 12 referendums, none of which were successful. There were 2 approvals on 5 ballot questions on school construction. Contrast that with PDE data that shows just for FY2010-11 133 districts "sought and were granted approval" for referendum exceptions under Act 1.
Some officials fear that voters will choke off funding to schools if they get to vote on tax increases without exceptions. Another representative was quoted as saying "we have to make sure our school districts run as efficiently as possible, but I’ve got great concerns about placing those types of issues on the ballot". Why? Could it be because school officials would have to make a case for justifying their tax increase without getting a pass?
Just because there is referendum power does not mean that an increase will be automatically rejected. The Education Commission on the States showed that in 2008 eleven states put thirteen statewide education funding referenda questions on the ballot: seven passed, six failed. Nearby states have various forms of taxpayer say over tax increases. If education advocates believe in their cause and feel that there can never be too much invested in teachers, facilities, classrooms, and programs, why not make the case to the voters in Pennsylvania’s districts?
In fearful anticipation of the 2012 re-assessment figures, a County Council member has proposed softening the sticker shock by using a fractional Predetermined Ratio (PDR) to lower assessments from the 100 percent of appraised value procedure now in place. That is to say instead of a $200,000 appraised value property being assessed for tax purposes at $200,000, the County could use a ratio of say 80 percent and lower the assessed value to $160,000. For a homeowner whose property appraisal was actually increased from $160,000 to $200,000 by the reassessment that would seem to leave the tax liability unchanged. But in fact it does nothing to change the shift in tax burden that would have occurred if the 100 percent PDR is used.
Since all property values would have the same 80 percent factor applied, the relative values of properties would remain unchanged. Presumably, taxing bodies will need to maintain total revenue collections after the re-assessment somewhere close to the pre-reassessment levels. Thus, millage rates will have to be adjusted to make that happen and changing the predetermined ratio merely creates an illusion of lowering tax liabilities. Thus, property owners whose appraised value rises far more than the average increase in their school district and municipality and county will still face higher taxes while properties that have been over assessed and whose value drops relative to the average change will see decreases.
Re-assessment is about getting accurate values for purposes of taxation so that equity among property owners is achieved. Playing with the PDR is a gimmick meant to disguise the sting of sharp assessment increases. It won’t work.
We have just witnessed the County Council President, who is sworn to obey and defend the Pennsylvania Constitution, call for the Legislature and Governor to overturn a Supreme Court ruling. And not even on the grounds that the Supreme Court ruling is unconstitutional but on the grounds that Allegheny County is being negatively impacted by the ruling-while presenting no evidence that the County is being harmed.
Such a capricious legislative overturning of a Supreme Court ruling would throw the state into a constitutional crisis. If allowed to stand this precedent would undermine and possibly destroy any semblance of a separation and balance of governmental powers with terrible consequences for the Commonwealth.
What is the Council President seeking to have overturned? He is seeking the overturn of the Court decision requiring Allegheny County to reassess properties because of the enormous inequities and errors in current valuations.
After fighting reassessment for six years through one delaying tactic after another, the Council President is obviously heavily invested in maintaining the status quo. But that battle has been fought and lost in several court rulings dating back to 2006. He now claims that reassessments will lead to a less competitive environment in Allegheny County. On what does he base such an argument? That taxes will rise? They are already rising in many County municipalities and school districts despite the assessment freeze in place. These tax rate increases are simply exacerbating the effect of the assessment inequities currently in place. What’s worse, the inequities have widened over time as market forces lead to sales prices and volume that reward the under assessed and punish accurately and over assessed properties.
Tax rates in school districts in surrounding counties have also risen despite their base year property assessment systems. The Councilman seems to have trouble with the reality that it is government expenditure increases driving tax hikes.
The local court has ruled against the County’s unfair assessments for years. The Supreme Court concurred and ordered a reassessment. The Supreme Court in its ruling left the door open for property owners in all counties to sue their county governments if they believe its base year assessment is creating serious inequities. Allegheny County has not been singled out by the Court. It was the county being sued in the case that was before them. The Court decision has opened the door to a viable remedy for other counties if property owners feel sufficiently aggrieved to take the county to court over the assessment system.
By asking the Governor and Legislature to overturn the Supreme Court ruling the Councilman has proposed yet another action in a long running series of Council actions that flout the Constitution and laws of the state of Pennsylvania as well Common Pleas Court decisions.
According to Mayor Ravenstahl there is unanimous agreement in his group of government, university and business leaders that Pittsburgh needs a new source of revenue to bail out its ailing financial problems. We can think of two gigantic problems with the Mayor’s assessment of the situation.
First, there is absolutely no evidence that a new source of revenue will solve Pittsburgh’s long standing tendency to spend or commit to spending all the money it gets its hands on and then some. Over the past two decades the Legislature has provided numerous additional sources of recurring revenue to the City as well enormous amounts of money to large building projects in the City.
And what has the City done to correct its well documented extravagant spending? Not very much. It is still far out of line in its spending, employment and legacy costs compared to other U.S cities. So why would we think a new revenue source would solve the problem? The City needs first to demonstrate its willingness to make the spending cuts necessary to put its house in order. Lower cost government can redound positively to the City with a lot of benefits; lower taxes, a friendlier climate for business and new residents and happier taxpayers.
Raising taxes in the current economic environment is nothing less than preposterous.
The second gigantic problem? Who are the business leaders on the Mayor’s panel who endorse a new revenue source and why are they doing it? No doubt these are the same folks who thought a new tax to fund stadiums was a good idea and that wasting $500 million on a PAT tunnel under the Allegheny River was a good use of taxpayer dollars. If these businesses are so keen to help Pittsburgh with new revenue, why do they not each volunteer a four or five million dollars per year to the City? If it is so important to find new revenue, they should take the lead and make a commitment. That they won’t ante up reveals a fair amount of hypocrisy. Those who want others to pay more should lead the way and donate voluntarily or recommend tax increases on themselves.
That won’t happen because their colleagues in the business world would go ballistic. And no doubt many shareholders in their own companies would as well.
Finally, it is worth noting that the Mayor’s request for $4 million from the tax-exempt institutions received no commitment from the university presidents in attendance at the meeting. Of course being great public spirited citizens they want to help the City by going to Harrisburg and lobbying for more taxes.
We can only hope the Legislature will give this delegation short shrift, exactly what it deserves.
In Act 47 status since 1992 and on its fourth amended recovery plan, the City of Johnstown just started off the year with having to layoff thirteen employees and raising its property tax 10 mills. As if things could not get worse, the Council mentioned the possibility of pursuing Chapter 9 municipal bankruptcy, an option the members felt would have “far reaching and potentially devastating effects for every citizen”.
At last Tuesday night’s County Council meeting the Council President stated that “the story here is that for the ninth year in a row now, this council has not raised property taxes even as all our neighboring counties continue to raise taxes”.