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Allegheny County property owners are getting the opportunity to slash their real estate taxes. The open questions: By how much? And when?
A lawsuit pitting property owners against the county and school districts appears to be winding down, bringing a change in how taxes are calculated after assessment appeals.
For commercial taxpayers who appeal their assessments, the lawsuit is likely to result in tax bills roughly 20% lower. For homeowners who appeal, potential reductions could be even steeper because they can also tap the homestead tax exemption. That prospect could bring a flood of property tax appeals.
“Everyone’s going to say: ‘What about me?’” predicts Michael Suley, a real estate consultant who led the county’s Office of Property Assessments from 2006 through 2012 and is working with the lawsuit’s plaintiff property owners.
For taxing bodies, especially school districts, it could mean budgetary pitfalls.
The impact is “alarming. Do the math,” says attorney Ira Weiss, whose firm serves as solicitor for the Pittsburgh Public Schools and five other districts within Allegheny County. PPS relies on property taxes for around $189 million this year, covering more than one-quarter of its budget.
Depending on how it’s implemented, the impending change in the county’s property tax math could start cutting into revenues this year or next.
“And there is no local government – school district or municipality – that can cope with that,” says Weiss.
Challenging the ratio
The lawsuit’s lead plaintiff is Maddie Gioffre, a systems engineer living in Wilkinsburg, whose house’s assessment more than doubled after she moved to the borough and the school district appealed its value. Thirteen months after filing in the Allegheny County Court of Common Pleas, and following lengthy negotiations and orders by Judge Alan Hertzberg, many of its issues were resolved with a July 19 order he issued.
Understanding that order requires a sense of the basics of property taxation in Pennsylvania and Allegheny County and what a Common Level Ratio is.
Counties assign tax values to properties. Some counties revise all property values regularly, but Allegheny County hasn’t done so in a decade. Counties, school districts and municipalities decide on property tax rates, referred to as millage. A property’s value (minus any applicable break for homeowners, farmers and low-income seniors) times the millage rate, divided by 1,000, determines the tax bill.
The owner, the school district or the municipality can appeal the value.
When someone appeals, the Property Assessment Appeals & Review Board decides on the fair market value of the building and land, based on evidence of the recent sales of comparable properties. To get the property assessment, the board then multiplies that market value by a factor called the Common Level Ratio.
That ratio is intended to reduce the tax bill to an amount comparable to those of similar properties. In Allegheny County’s case, most assessments stem from 2012 market conditions. The Common Level Ratio is calculated by the State Tax Equalization Board, based on a representative sample of recent market-rate property sales provided by the county.
More sales data could shave tax bills
The State Tax Equalization Board calculated a Common Level Ratio of 81.1% for this year’s appeals, meaning that 2012 values were deemed to be around 81.1% of current values. Therefore, to be fair, a property with a market value of $100,000 would pay taxes based on $81,100.
The plaintiffs, represented by attorney John Silvestri, allege that the county provided the state board with a skewed sample of 5,357 sales, resulting in an inflated ratio. Hertzberg’s order last month compelled the county to give the state board a new sample including purchase prices of 10,114 properties.
Suley expects that the new data will result in a revised Common Level Ratio in the “ballpark” of 64%.
For an owner-occupied house in Pittsburgh with a value, determined via appeal, of $200,000, the total school, city and county tax bill with the 81.1% Common Level Ratio would be around $3,200. At 64%, it would be around $2,400, according to the city’s property tax calculator. Suburban and commercial property owners would see different levels of savings because of varied tax rates and exemptions.
All owners who choose to appeal will have one thing in common, says Suley: “Everything moving forward will favor the property owners.”
Just maybe not yet.
Reopen the window?
The Property Assessment Appeals & Review Board accepted appeals starting Jan. 1 and ending March 31, long before the court had compelled the calculation of a new ratio. It received 12,659 appeals of which 89% were filed by school districts and 92% related to residential properties.
That represents just a tiny fraction of the roughly 580,000 parcels in the county.
Many of those appeals have been put on hold, says attorney David Montgomery, the board’s solicitor. He said the school districts are waiting for the new Common Level ratio calculation. “If the CLR drops in a significant way, the school districts may reconsider whether the appeals that they’ve filed are beneficial.”
Take, for instance, a house that is now assessed at $200,000, but recently sold for $300,000. An appeal under a ratio of 81.1% would likely yield an assessment of $243,300, and an increase in the taxes due to the schools, municipality and county. But an appeal and a ratio of 64% would result in an assessment of $192,000 – and lower tax bills.
While districts can withdraw their appeals, there’s as yet no mechanism for the owners of properties in the county to slash their bills this year. That’s because the window for appeals closed at the end of March.
“They should definitely open up the period again,” says John Petrack, executive vice president of the Realtors Association of Metropolitan Pittsburgh, which has supported the lawsuit.
Suley argues that County Executive Rich Fitzgerald and County Council “should open the window” and allow another round of appeals, this year.
A spokesperson for Fitzgerald’s office wrote in response to questions that the administration would abide by any orders from the court regarding appeals.
County Council President Pat Catena says it’s premature to comment on potential courses of action since the litigation continues. “As soon as we have a bit more clarity surrounding the court case I will be suggesting additional action to my colleagues on County Council to not only get to the bottom of the previous breakdown in process but also what is the fairest and most equitable way we move forward,” he wrote.
Regardless of what happens this year, next year will bring another opportunity to appeal assessments.
This year or next, says Suley, the “historic drop in the ratio … will be a lightning bolt to the school districts and other taxing bodies.”
The City of Pittsburgh’s 2022 operating budget includes $657 million in revenue of which the biggest component is $151 million in property taxes. A slew of appeals could whittle that down.
Mayor Ed Gainey’s administration is watching the litigation closely, according to Jake Pawlak, the city’s deputy mayor and director of its Office of Management and Budget.
“Overall, while we are taking the potential impacts of this case seriously and are monitoring them closely, we believe the City’s financial situation is stable and are cautiously confident in our ability to absorb revenue reductions resulting from a round of appeals without any major disruptions,” he wrote in response to questions.
The appeal system
Lawyers, public officials and larger property owners are all preparing for the emerging appeals landscape.
‘There’s a lot of interest regarding the lawsuit regarding the Common Level Ratio that may give thousands of people reason to appeal their assessments,” says attorney Bob Peirce, whose firm handles many property tax cases.
Peirce said people like him, who live in homes they bought before 2012, might not be able to use the new ratio to shave their tax bills, which are already based on decade-old values. But property owners who bought in more recent years and then saw their assessments increase may benefit from appealing.
County Controller Corey O’Connor has announced that he will work with the Pittsburgh Community Reinvestment Group and Realtors Association of Metropolitan Pittsburgh to hold information sessions on the assessment appeal process. Dates have not been announced, but the sessions could start in September.
“The base year,” Suley says, “is a house of cards that is about to tumble.”
The Gioffre litigation makes no attempt to force the county to reassess all properties but Petrack says there is now “a distinct possibility of a class-action suit” challenging the county’s Common Level Ratio calculations and tax bills for several prior years.
He said the litigation has exposed, again, the shortcomings of the base-year tax system, and the need for regular reassessment of all properties.
Realtors Association of Metropolitan Pittsburgh has “advocated for a biennial or triennial reassessment for many, many years,” Petrack says. Compared to a system built on base-year values and appeals, regular, modest increases in property assessments are “much more palatable to the consumer and, coincidentally, much more budget-friendly to the taxing bodies. It would be a win-win.”
Rich Lord is PublicSource’s managing editor. He can be reached at firstname.lastname@example.org or on Twitter @richelord.