National Legislative Program Evaluation Society September 19, 2011
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
Erie 2003 Last County Effective Reassessment Date During the Period July 1, 1986, Through January 1, 2009 Mercer 2002 Lawrence 2003 Beaver Prior to 1986 Washington Prior to 1986 Crawford Prior to 1986 Greene 2003 Butler 2009 Allegheny 2001 Venango 2005 Fayette 2003 Clarion 2009 Armstrong 1997 Warren 1989 Westmoreland Prior to 1986 Forest Prior to 1986 Jefferson 2005 Indiana 2006 Somerset 1998 Cambria 2005 McKean 2005 Elk 2006 Clearfield 1989 Blair Prior to 1986 Bedford 2001 Cameron 1986 Fulton 2002 Potter 2002 Huntingdon Prior to 1986 Centre 1995 Clinton 2009 Franklin 2001 Mifflin 1999 Juniata 2003 Tioga 2002 Perry 2001 Cumberland 2005 Adams 1991 Lycoming 2005 Union 2006 Snyder 2007 Dauphin 2002 Montour 2006 Northumberland 2005 York 2006 Bradford 1999 Sullivan 2004 Columbia 1992 Lebanon 2005 Schuylkill 1997 Lancaster 2005 Wyoming 1997 Susquehanna 1994 Luzerne 2009 Carbon 2001 Chester 1998 Lackawanna 1986 Lehigh 1991 Wayne 2005 Monroe 1989 Northampton 1995 Delaware 2000 Pike 1993 Berks 1994 Bucks Montgomery 2005 1998 Philadelphia Prior to 1986 1986-1989 1990s 2000 or Later 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 Valuation State Agency 88 County Auditors 55 Local Elected Assessors 550 Municipal Assessors 1,000+ Town, Village, and County Assessors 3 Counties & Several Municipalitie s 67 Counties 58 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 State (or its agent) Can Order Selected Property Value Changes, and/or Comprehensive Reassessment NA NA NA
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 2008 achieved 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.
Recommendations and Options Recommendations to enhance the current system 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