High Taxed Cities Shows One Surprise

The website 24/7 Wall Street took a report done by Washington, DC’s Office of Revenue Analysis that examined the property, sales, and automobile taxes paid by a hypothetical family of three earning one of two levels of income ($25,000 or $150,000) to see which city had the highest tax burden. To be clear, the data does not look at all cities, only the largest city in each state. So for Pennsylvania only the City of Philadelphia is examined (it ranked second highest for both hypothetical earning levels, taking 13.3% of income for the higher earning family, 18% for the lower earning family).

The highest taxes city was Bridgeport, CT. Its high property taxes add to that distinction, and New York, Los Angeles, Detroit, and Baltimore fill out the top ten. One surprise would be the city that came in fourth, taking $18k from a family earing $150k and $3.5k for the $25k earning family, was Louisville. Readers of our work will recall that Louisville was the last major city to merge city and county functions (in January of 2003), and was the shining star of merger advocates in the southwestern Pennsylvania region (they ignored the example of Philly, which has been a merged government for a very long time) and many officials from Louisville took junkets here to trumpet their successes. A September 2003 article noted "Of particular interest to Pittsburgh, the Louisville merger allows the metro city to be more efficient…Instead of two information-technology departments, there is one. Instead of two human resources offices, there’s one. By eliminating redundant offices, the city will eventually save money not only on personnel, but also on rent, once leases on county office buildings expire." Though not sold as a money saver and rather as an image booster, one would expect that there would be some tax savings through consolidation.

Looking at the statistical section of two of Louisville’s financial audits-the 2003 one and the 2012 one-gives a perspective on the ten years leading up to the merger and the ten years since shows the rates levied on real and personal property by the City of Louisville (now known as the "urban services district") and Jefferson County (now known as the "metro government") shows that from 1993 to 2002 combined real and personal property tax rates fell 7% from 1.325 to 1.236. From 2003 through 2012, the combined rates on those taxes still fell, but by 0.8%, a rate much lower than pre-merger. But who’s in the position to complain about a tax cut of any shape or form these days? Especially when one notes that the combined real, inventory, and personal rates of the long consolidated school district (not part of the 2003 merger) went up 18% since the merger?

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.  

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.

Could Assessment Angst Been Avoided?

“It is important to understand that a taxpayer’s tax liability will not necessarily increase when the assessed value of their property increasesOne of the common misconceptions held by Allegheny County property owners about the reassessment is that the reassessment will automatically result in a higher property tax bill for the homeowner…” -Allegheny County Controller’s Sales Ratio Study, September 2012

 

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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%).