national legislative program evaluation society september
TRANSCRIPT
National Legislative Program Evaluation Society
September 19, 2011
Pennsylvania Legislative Budget and Finance Committee
House Resolution 2009-334• Study the systems of real property valuation and
assessment
– Pennsylvania
– Other states, in particular Maryland and California
• Protection for taxpayers following reassessment
Pennsylvania Legislative Budget and Finance Committee
Why Were We Asked to Complete this Study?
2007 - $14.85 billion for local governments
Unlike many states, the Commonwealth receives no revenue from property taxes
Unlike many states, there is no state agency responsible for property valuation.
Unlike many states, state funding for schools does not require the state to directly equalize property values and assessments or tax rates across school districts.
Pennsylvania Legislative Budget and Finance Committee
Pennsylvania’s Property Valuation and Assessment System
In Pennsylvania, counties have a key role in the state’s property valuation and assessment system. They are primarily responsible under relevant provisions of the state’s constitution and general laws for:
– maintaining a property inventory– valuing all properties and assuring that such values are arrived at
uniformly– assessing all properties and assuring all assessments are arrived at
uniformly– selecting the percent of value on which property in the county is
assessed (county predetermined ratio)– deciding when to revalue the county’s property inventory– serving as the first formal level for taxpayers and others to appeal the
county’s property values and/or assessments
Pennsylvania Legislative Budget and Finance Committee
In Pennsylvania, counties can choose to assess property based on a property’s “current market” value or “base year” value.
“Current market” value refers to recent or present day price.
The International Association of Assessing Officers (IAAO) has developed standards for mass appraisal of real property which is appraised at “market value.”
No national standards for “base year” systems in which property is appraised based on values or prices in an earlier year.
Pennsylvania Legislative Budget and Finance Committee
Current market value systems continually track current property prices and avoid the “sticker shock” that can occur when property values are not frequently updated.
– highly labor intensive and costly to maintain
In 2009, the Pennsylvania Supreme Court stated a base year system:
– in and of itself is not unconstitutional – as the lower court had ruled
– can provide stability in assessed values and efficient use of public funding
– not all counties are the same, and the need to conduct a comprehensive reassessment will arise at different rates depending upon the stability of a county’s property market, the variety of real estate in the county, and other economic and market factors
– counties that do not reassess at least periodically are at risk of failing to maintain a uniform (i.e., constitutional) system
Pennsylvania Legislative Budget and Finance Committee
Pennsylvania Legislative Budget and Finance Committee
Chester1998
Delaware2000
Philadelphia
Carbon2001
Lacka-wanna1986
Luzerne2009
Monroe1989
Pike1993
Susquehanna1994
Wayne2005
Wyoming1997
Adams1991
Cumberland2005
Dauphin2002
Franklin2001
Juniata2003
Lancaster2005
Lebanon2005
Perry2001
York2006
Allegheny2001
BeaverPrior to 1986
Fayette2003Greene
2003
WashingtonPrior to
1986
WestmorelandPrior to 1986
Bedford2001
BlairPrior to
1986
Cambria2005
Centre1995
Fulton2002
HuntingdonPrior to 1986
Mifflin1999
Somerset1998
Bradford1999
Clinton2009
Columbia1992
Lycoming2005
Mon-tour2006
Northum-berland2005
Potter2002
Snyder2007
Sullivan2004
Tioga2002
Union2006
Armstrong1997
Butler2009
Cameron1986
Clarion2009
Clearfield1989
Elk2006
ForestPrior to
1986
Indiana2006
Jefferson2005
CrawfordPrior to 1986
Erie2003
Lawrence2003
McKean2005
Mercer2002
Venango2005
Warren1989
Berks1994 Bucks
2005
Lehigh1991
Montgomery1998
Northampton1995Schuylkill
1997
Prior to 1986 1986-1989 1990s 2000 or Later
Last County Effective Reassessment DateDuring the Period July 1, 1986, Through January 1, 2009
_______________
NOTE: Graphic includes county-wide reassessments, predetermined ratio changes, and both in combination. Philadelphia reassesses on an ongoing basis and is
not on a base year system. Allegheny retrospectively adopted a base year system in 2005.
Source: Developed by LB&FC staff from the Pennsylvania Department of Revenue Common Level Ratio (CLR) Real Estate Valuation Factors.
One Supreme Court Justice proposed that the courts should presume constitutional requirements were not met based on State Tax Equalization Board (STEB)data.
Pennsylvania Legislative Budget and Finance Committee
How to Conduct Such a Study? Stick to Basics
– Surveyed and followed up with all county chief assessors
– Reviewed state statutes (We had one for each class county.)
– Reviewed all relevant case law (Which was frequently different than language in state statutes.)
– Became familiar with national assessment standards and practices
– Analyzed and assessed relevant state and national data
– Reviewed other state constitutions, statutes, rules, and spoke with other state officials
Remember: your recommendations may come true
Pennsylvania Legislative Budget and Finance Committee
PA Courts Have Played a Major Role in the State’s Property Valuation and Assessment System
Since 1909, courts have held under the state constitution’s uniformity clause, all real estate is one class and all taxes must be uniform upon the same class of subjects.
Residential and commercial property cannot be treated differently for purposes of assessment and taxation absent specific constitutional provisions providing an exception (e.g., PA’s limited homestead exemption).
At least 21 states permit different types of real property to have different levels of assessments or different property tax rates, including states with uniformity clauses similar to PA’s.
The courts have ordered counties to conduct comprehensive assessments whenever selective reassessment or partial reassessments occurred, even though partial reassessments are permitted in national standard and other states.
Pennsylvania Legislative Budget and Finance Committee
States Differ in the Property Valuation and Assessment Systems
Maryland Ohio
West
Virginia
New
Jersey
New
York Delaware Pennsylvania California
Responsible for ValuationState
Agency
88 County
Auditors
55 Local
Elected
Assessors
550
Municipal
Assessors
1,000+ Town,
Village, and
County
Assessors
3 Counties &
Several
Municipalitie
s
67 Counties58 Local Elected
Assessors
Reassessment May Be Partial or
Selective NA
Current Value
Current or Base Year Value
One Statewide Level of Assessment
Prescribed Valuation Cycle
One Value Per Property
Certification of Assessors Required
Central Valuation Unit
State Taxes Certain Property
Local Assessors Not Accountable to Local
Government NA
State Directly Equalizes Values or Taxes
NA NA
State (or its agent) Can Order Selected
Property Value Changes, and/or
Comprehensive ReassessmentNA
Pennsylvania Legislative Budget and Finance Committee
Reassessments Do Not Assure That Statistical Standards for Assessments Are Met
One year after completion of a comprehensive countywide reassessment, only 25 percent (14 of 54) of the reassessments from 1988 through 2008achieved standards for level of assessment, uniformity, and equity. More than half of those that met the standards in the first year did not by the second.
Even counties that conduct frequent reassessments often fail to meet one or more of the three performance standards.
Pennsylvania Legislative Budget and Finance Committee
Possible Reasons Performance Standards Are Not Met
Reassessments were not properly performed by county contractors
Significant housing price volatility
– Erie underwent a court-ordered reassessment after 1998, with the new values and assessments going into effect in 2003. As the report graphic (S-6) shows, the Erie area experienced house price volatility between 1999
and 2002. When the court-ordered reassessment was implemented, the county’s COD was 19.66, but one year later it was outside the COD standard of 20.
Pennsylvania Legislative Budget and Finance Committee
STEB’s CLR (and its related statistical measure the COD) as currently derived is not designed to evaluate if a
county should be required to reassess and are not the same as national assessment standards
Before such measures could be used even as one of several factors to evaluate the need to reassess, several technical issues would need to be addressed. For example:
– Sales data used to calculate the CLR and COD do not necessarily represent the county’s property inventory, even though they are expected to represent the “bulk” of properties.
– Values for sold properties may not be representative of the values of unsold properties.
– Geographic locations of sold properties may not represent the county’s overall property inventory.
– Available sales may not be sufficient to draw appropriate conclusions.
– Pennsylvania’s COD does not distinguish between property types and property markets, the exact same COD can have totally different meanings in a suburban vs. a rural area.
Pennsylvania Legislative Budget and Finance Committee
Recommendationsand Options
• Recommendations to enhance the currentsystem
• Options for major changes
Pennsylvania Legislative Budget and Finance Committee
Recommendations to Enhance Pennsylvania’s Current
Property Tax Assessment System
Pennsylvania Legislative Budget and Finance Committee
Recommendation 1. Enhance the state’s assessor certification process, for example:
Expand the requirement for certification of assessors to all counties in Pennsylvania—major counties not covered by existing law—bills have been introduced
Pennsylvania Legislative Budget and Finance Committee
Recommendation 2. Consolidate the state’s general assessment laws.
Act 2010-93
Pennsylvania Legislative Budget and Finance Committee
Recommendation 3. Provide tools to assure the quality of reassessments
Develop a set of uniform standards for county reassessment contracting—HR 343 adopted June 2011
Create a state revolving loan program for counties that have identified non-uniformity in their property valuations and assessments and that are not financially positioned to conduct reassessments—bill has been introduced.
Pennsylvania Legislative Budget and Finance Committee
Recommendation 4. Require public disclosure of the key elements of a county’s chosen system for property valuation and assessment, including how properties are valued and assessed—HR 343 adopted June 2011.
Pennsylvania Legislative Budget and Finance Committee
Recommendation 5. Improve current county performance measures—HR 344 adopted June 2011.
Modify existing STEB performance measures to assure they are developed using data that is consistent and verified, and representative of the “bulk” of a county’s property inventory.
If state-developed and reported performance measures are to be used to evaluate county assessment uniformity, the criteria and methods used to derive such measures should be published in state regulations.
Pennsylvania Legislative Budget and Finance Committee
Recommendation 6. Develop a self-evaluation tool for counties to use to help determine when a reassessment is warranted—HR 343 adopted June 2011.
Pennsylvania Legislative Budget and Finance Committee
Options for Major Changes to the Current System, Including,
for example,
Pennsylvania Legislative Budget and Finance Committee
Amend the state constitution to allow for certain property valuation and assessment practices similar to those in other states.
Provide for caps on individual property tax increase following reassessment. (California, Maryland, Ohio, and West Virginia)
Permit property to be treated as separate classes.
Provide for partial reassessment or selective reassessment of areas of a county or classes of property.
Provide for an “acquisition value” system of property valuation. (California)
Pennsylvania Legislative Budget and Finance Committee
HR 334 Full Reports Pennsylvania’s System for Property Valuation and
Reassessment
Fiscal Impact of Preferential Assessment of Farm and Forest Land (Clean and Green Program)
Web: http:/lbfc.legis.state.pa.us - click on “Reports Released” under the topic ‘State and Local Government’
Pennsylvania Legislative Budget and Finance Committee