Is It Sayonara to Property Taxes in Allegheny County?

Stop the reassessment in Allegheny County, no matter what it takes.  That has been the consistent mantra from the County Executive (before and after his election) who has asked for the Legislature to enact a moratorium on court-ordered reassessments and has now enlisted the support of several City Council members. This group is backing an effort of a state Senator who wants to allow Allegheny County to end assessments and in so doing end the levying of property taxes by the County, its municipalities, and its school districts. 

 

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County Exec, State Senator and City Councilman Oppose “Unfair” Assessments

In a tour de force of irony, County Exec Fitzgerald, Councilman Peduto and Senator Fontana will take a stand against court ordered reassessments on the grounds they are unfair. Presumably, they are perfectly willing to continue the unfairness of allowing owners with egregious undervalued assessments to pay far below their fair share of property taxes while at the same time forcing those with correct or too high assessments to pay far more than their fair share of taxes. How interesting it is what some call unfair.

The gentlemen will be supporting Senator Fontana’s bill that would give Allegheny County the opportunity to do away with property taxes and replace school, municipal and county taxes with other taxes. Great idea except for two things. The level of sales taxes (almost double its current level) required to replace all property taxes including schools would drive retail out of the County as non-residents stop coming into the County to shop and residents go to other counties to purchase non-essentials and avoid sales taxes. Higher income taxes? Could non-residents be required to pay? If so, jobs would begin leaving the county. Why would residents of Butler County pay taxes to their schools, county, and municipality and then be saddled with a big tax bill from Allegheny County to pay for schools and municipal services in Allegheny County? Likewise, Allegheny residents who work in a neighboring county would have a big incentive to move to that county.

Non-residents who own real estate but do not shop or work in the County would benefit enormously from not having to pay property taxes to the county, schools or municipalities. Think of out-of-state pension funds for example that own office buildings. That revenue has to be made up somehow. Is that fair to residents? It appears the Senator has not thought through his plan very carefully if he is truly interested in fairness.

Finally, how would countywide sales tax revenue be allocated to schools and municipalities? There would be no way to assign the money by point of collection. Some areas have very little retail sales activity while others are chock full of malls and retailing.

In short, such a dramatic tax shifting cannot be done at just the county level. Pennsylvania school districts have held referenda to shift property taxes to income taxes under Act1. Not one vote has come close to approving such a shift. Property taxes are unpopular but so are high local income taxes. A major shift in tax structure will have to be done statewide if at all.

The aforementioned gentlemen could spend their time in Harrisburg urging the Legislature to rewrite Pennsylvania’s preposterously out-of-date and inadequate assessment laws to require periodic updating of assessments. Or they could urge the amending of the Constitution to eliminate the "uniformity clause" that is the source of all their angst. Or they could join others who want to restructure taxes at the state level to reduce the burden of property taxes.

Sadly, they would rather attempt to make political points than to work for changes that would actually address the sources of inequity explicitly not permissible under the constitution. Posturing while elected–a terrible, perhaps fatal disease in a self-governing polity.

Bye, Bye Property Taxes?

Can Allegheny County, by virtue of being home rule, eliminate property taxes for the County, its municipalities, and school districts?

It seems like the chances are slim, but there may be legislation to try just that in the near term. Spurred on by the current reassessment, the legislation would apply only to Counties of the Second Class, in other words Allegheny County. The legislator sponsoring the proposal noted that "the best option for the assessment situation is to apply the Home Rule Charter if our local government cannot determine a long-term solution".

Leaving aside the issue of what a tax shift involves, problems abound with the proposal. The language in Section 2962 of the state’s home rule law-the section that prevented petitioners from rolling back the rate of the drink tax a few years ago-rears its head because the section prohibits a charter from giving a home rule entity powers regarding "regulation of public schools", "fixing the subjects of taxation", and "the assessment of real or personal property and persons for taxation purposes". It would take an act of the General Assembly to remove that language from the home rule law.

But there is language in the Allegheny County Charter itself that prevents the proposal from moving too far forward as well. Article I of the Charter says that "this Charter shall not limit in any way the jurisdiction, rights, powers, or autonomy of the municipal governments in the County". Prescribing a cessation to property taxes and a shift to a new menu of taxes via a County driven referendum as opposed to state legislation for municipalities seems to do that. In addition school districts are not mentioned anywhere in the Charter.

Additionally, the legislation would allow County Council to pass an ordinance eliminating assessments. If Council does not do it by a simple vote, "the county council, or the voters of Allegheny County, will have the ability to propose the ordinance through a public referendum." That’s where other problems arise. Article XII of the Charter says that voters can ask for a referendum on an ordinance as long as the requisite number of signatures is gathered and the issue is singular and germane to County government. While property assessments are the domain of the County, can voters put an issue on the ballot that would affect the taxing powers of the municipalities and school districts in the County? Seems unlikely given the 2962 language. And since the Charter says Council can only call for a referendum by ordinance to amend the Charter, is the proposed law going to spell out that Council would be able to ignore that language so they could put a general question on assessments and tax mixtures on the ballot?

Other home rule counties could provide guidance here. There are six, not counting Philadelphia and Allegheny. Many have been home rule since the 1970s, and all still levy property taxes, as do their municipalities and school districts. It is not clear if the General Assembly has tried something like this proposal for them, but if the referenda and initiative powers vested in them by home rule would allow for the elimination of property taxes and replacement of other sources, one would think they would have done it by now. Curiously, two of them-Lehigh and Erie-have new assessments scheduled to go into effect for 2013, just like Allegheny County, which was to have them ready for 2006 before embarking on the present course.

Long story short, if the goal is a tax shift away from property taxes to something else, particularly giving taxing powers to entities that don’t have them now (like sales taxes to schools or wage taxes to counties), it is going to have to be a statewide plan.