National Legislative Program Evaluation Society September

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


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’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


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.


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



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.


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


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.


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


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.


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.


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.


Recommendationsand Options

• Recommendations to enhance the currentsystem

• Options for major changes


Recommendations to Enhance Pennsylvania’s Current

Property Tax Assessment System


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


Recommendation 2. Consolidate the state’s general assessment laws.

Act 2010-93


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.


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.


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.


Recommendation 6. Develop a self-evaluation tool for counties to use to help determine when a reassessment is warranted—HR 343 adopted June 2011.


Options for Major Changes to the Current System, Including,

for example,


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)


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’


Documents

National Legislative Program Evaluation Society September