SB76: The Reassessment Myth

Part 4 of a series on the myths promoted by those opposing school property tax elimination.  Links to other parts in this series are:

  1. SB 76: The Retained Debt Myth
  2. SB 76: The Myth Of Local Control
  3. SB 76: The Sales Tax Myth

 

We’ve heard it time and time again that if we had regular reassessments of property the property tax would be more fair.  That’s a bold statement to make when you actually step back and look at what is happening in county after county where these reassessments take place.

Regular reassessments is usually described as a county wide reassessment every three years.  In Lebanon County the reassessment cost $5 million dollars.   The cost to maintain these three year reassessments would amount to an increase in the property tax burden of $16.67 million every 10 years.  That isn’t factoring in the cost of interest paid for the counties that must take out bonds to pay for the reassessment because the money isn’t there right now.

There are 67 counties and in some counties the cost of reassessment is higher.  The cost is reflected on the number of residents and properties in that county.  Lebanon County is a smaller populated county.  If all 67 counties had to pay $5 million dollars every three years to conduct a reassessment we would add a $335 million dollar tax burden to Pennsylvania property taxpayers at the local level.   How is that a solution?   10,00 tax payers are already having a great deal of trouble meeting their property tax obligation.  Adding to that burden isn’t going to fix the problem….it’s only going to make it worse.

When the reassessment took place the appeals followed.  In the overwhelming majority of the appeals, the newly assessed value of the property was determined to be incorrect and had to be adjusted.  To make the claim this this will make property taxes more fair requires ignoring the appeal factor.  I believe the appeals demonstrates how flawed the assessment process actually is.

The initial appeals were factored in to the cost of the reassessment but the reassessment was 4 years ago and people are still filing appeals.  These people must now pay a fee to appeal the assessed value of their property.   If you win your appeal, that fee is NOT refunded.   That’s just the price you have to pay for proving your being asked for more taxes on your property than your property is actually worth.  The reassessment defenders call that fair….I disagree.

Again, the overwhelming majority of these people are winning those appeals further demonstrating that the assessment is a flawed system for evaluating property worth.

With every successful appeal, the revenue anticipated from the property tax declines.  This results in a need to inflate the millage rates to meet that revenue want.  For homes that appeal that impact may not be a drastic but we are finding more and more businesses appealing their assessed values and such appeal can result in millions of dollars of revenue removed from the tax rolls.

An article recently appeared on newswire (March 11, 2016) that tells the story of one such business appeal.   According to the MorningCall.com, Alliance HSP pursued a reduction of the $46 million property tax assessment for a warehouse in 2012. After the board of assessment appeals refused to reduce the facility’s assessment, the company then appealed in Lehigh County Court. Alliance HSP then settled its appeal after the county agreed to a $34.33 million assessment.  That is $11.67 million in revenue that the county is going to have to make up by raising the millage rates on others.

Let’s not misdirect our anger at the business.  They were being asked to pay taxes on $11.67 million dollars of assessed property worth they didn’t actually own.

Even with this reduction the business could no longer afford the property and the bank foreclosed on the $56 million mortgage.  Until that property is resold the property taxes will become the responsibility of the bank which is going to impact the cost to other customers.

These types of actions also impact jobs which would then impact the PIT collected while adding to the cost of unemployment until those individuals can find other employment. Everybody loses in this scenario accept the government tax collectors.  That’s why it irritates me so much when they use the phrase “Property Taxes are Stable!”

That stability is only a stability for the collection of the taxes but its a predatory stability that is reliant upon the instability it can create for those who have to pay for it. In any other environment we would call that sort of stability for those who collect the fees what it is….extortion.

Property value is a fluctuating market and the only real measure of a properties worth is the fair-market value of a property.  That is a price agreed upon by a willing seller and a willing buyer.  You have neither in a reassessment.

Every $1,000 of assessed value for your home above what you can actually sell that home for in the open market is taxes being paid on property you don’t actually own.   When the housing market takes a down-turn property values aren’t adjusted to account for loss of property worth.  The assessed value stays the same and during those times all of us are paying property taxes on property worth we do not possess.  It is the only tax that works this way.  If your wages decrease because of hard economic times your total PIT payment will decrease with it.  The percentage may stay the same but you are earning less so you pay less.  That’s not how property tax works.  In fact in down economic times where money is tighter for the consumer, property taxes have actually increased  creating more instability for home owners.

Besides the government doesn’t assess your job and tax you on what they think you should be earning.  Government also doesn’t assess any taxable items you purchase and levy taxes according the the price the government determines that item is worth.  Why do we allow this when it comes to our homes?

During an assessment your property is not assessed by trained realtors who understand the housing market in your area.  Outside firms are hired and then a fleet of people are trained to do this assessment but its hardly the training of an experienced realtor.

Sheds that aren’t on foundations are assessed as if they are and if you don’t know the law you don’t know you are being wrongly assessed.  During our assessment they showed us floor plans on our home that included a fully cemented basement.  There is no basement under out kitchen but the floor plans showed there was.  Only half of our basement  has a concrete floor.  Those types of errors can and do happen.  If you don’t appeal you simply don’t know.

Our backyard shed raised the assessed value of our property even though it was not on a foundation.  The assessed value on that shed was more than we actually paid for the shed the year before and now they were going to tax that shed for more than it was worth and we’d have to pay that tax every year.  If we hadn’t known the law we wouldn’t have known that the shed couldn’t be taxed because it wasn’t on a foundation.

In other words, you should probably consider hiring a lawyer familiar with property and real estate tax laws in order to get a decent assessment.  Our assessed value was lowered but it’s still higher than we can sell the property for.  To appeal again is costly but if we sold the home for less, the new owners can easily appeal using the selling price of the home and find themselves with a lower tax bill.

How is any of this just?

Assessments aren’t fair, they simply shift the burden around but assessments actually will never  successfully reflect the actual fair-market value of a property which could change with the seasons and the economy.  If this is the best way to keep the property tax fair it’s failing.  Shifting the property tax burden to other taxes that actually do reflect ability to pay will eliminate the need for the costly flawed assessments saving our county government money in the long run providing revenue that could go to local infrastructure like  local police, fire and safety/health related departments.

 

 

 

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