By Christopher Briem, on June 11th, 2012
So I will say this…. there is surely going to be a paper written after the assessment is over with an evaluation of whether the appeals process decreased the inequities in the assessment results… or if they made the inequities worse.
Why would I even suggest such a thing? If you read the short article on the state of the appeals process, you can parse some interesting factoids. See: Allegheny County pads staff to meet deadline
Yet we know that there is a major effort underway to ‘adjust’ the assessment results with a focus on overassessments in some of the poorer communities in the county. Yet the article is clear that of the informal appeals heard, 43% resulted in a lower assessment by an average reduction of $37,805 for those parcels. Note that number.
Now consider the communities that are thought to be overassessed? The article mentions specifically a focus on places like Braddock, Rankin, Duquesne and Clairton. What are the average assessed values in those municipalities? I’ll bet that it is not the municipalities thought to be overvalued that are getting an average $37.8K reduction in their assessments.
The problem is that I think the public is getting confused with how this is all being reported. The stories about the appeals process is being written about almost completely independently of the story of potential overassessments. People I think are mixing up the two and thinking the appeals are fixing the overassessments in the news when most likely it all works out to be the opposite.
By Christopher Briem, on April 27th, 2012
One of the owners of the Rivers Casino says the business is a terrible investment. Just terrible. In context you can’t ignore that the statement is made as part of litigation to lower the property’s assessed value for tax purposes.
So here is the deal. Maybe he is right, maybe he isn’t. The Rivers Casino could be an awful investment or a great one. What is a bit clearer is that the value of the casino has only gone up since he invested in the business. When Don Barden and his coinvestors were supplanted as the equity owners of the casino there still were not table games in PA casinos. No assurance there was going to be table games in the future. Table games have been very very lucrative for Pennsylvania casinos. Not only do tables games incur a lower tax rate on gross revenues but they bring more people through the door which has been pushing up slots revenues as well. Add in the deteriorating economy at the time and other reasons to think that the price paid at the time was actually pushed down from what it might have been a year earlier or a year later. One way or another the value of the casino has gone up since that investment was made.
Consider that if it was a bad investment, the new owners were clearly warned of that fact by just how well all the previous investors fared. The ‘bad’ part of the investment was not hidden and assuming the investors were not unsophisticated they took all the available information into account when deciding what price to pay.
Remember it was not just the late Don Barden who took a bath, but his co-investors and even the folks who backed the loans he took out. That would include the Detroit public pension system.. someone may need to check to see what the outcome was of that story. The point is that the casino was probably worth what it was paid by the new owners at the time they made the investment.. and the whole enterprise can only have increased in value since.
Recall Don Barden’s financing scheme for the casino early on…..
By Simon Grey, on April 9th, 2012
A somewhat strange myth has taken hold in some precincts of American conservative opinion that some vast swathe of the population isn’t paying taxes. In fact everyone pays sales taxes and other state and local taxes, and as Adam Looney and Michael Greenstone write for the Hamilton Project almost all working-age people pay federal tax on their income.
The main bloc of people who don’t pay income or payroll taxes are elderly people. Old people tend not to work, and many old people don’t have much in the way of investment income either. But it’s not like they’re freeloading, they’re just people who paid taxes in the past when they were working.
There are a couple of points worth making.
First, Yglesias is correct in noting that technically everyone pays taxes. Some taxes are direct, like fees for federal services, sales taxes, payroll taxes (which are generally only avoided by student workers, a handful of other workers, and the unemployed), and a few other taxes besides. Furthermore, everyone pays taxes indirectly, in the form of foregone goods and services. Corporate taxes are a perfect example of this, and some limited taxes (think: capital gains) also have indirect costs. Thus, to say that no one pays taxes is technically incorrect and highly misleading. If conservatives continue to say that there are a large number of people who don’t pay any taxes, they will find themselves facing political problems later.
Second, the more technically correct claim would be that there are large numbers of people who don’t have any income tax liability. This could mean that some people don’t earn enough to be charged taxes, it could mean that some people are able to claim enough deductions to avoid having to pay taxes, or it may be that someone is able to claim enough tax credits to negate their tax burden. Not having an income tax liability does not necessarily make one a parasite on the system, and given that a large number of current non-tax-payers have basically paid taxes for fifty or more years, painting them as lazy or as parasites, or as evidence that the system is on the verge of collapse is likely not going to go over very well politically.
Finally, the correct response to this issue should be two-fold. Conservatives should use this issue to argue for generally lower tax rates for all, in the name of fairness. Instead of raising taxes on current non-payers, conservatives should argue for lowering rates on current payers. In keeping with this, conservatives should also call for radical spending cuts. Ideally, conservatives would cut out all unconstitutional spending, which would cut the current budget by roughly 60%. In lieu of this, a spending cut of at least 45% would be acceptable.
At this point in time, conservatives have a good opportunity to cut taxes and reduce government spending. As long as they understand the reality of non-payers and take pains to not put their collective feet in their collective mouths, and as long as they hammer home spending cuts (hopefully in a more serious manner than Paul Ryan), they should have a chance at actually making a difference.
By Christopher Briem, on April 6th, 2012
Compare and contrast the two recent news items that don’t seem to intersect much if you just read them separately:
Only in Pennsylvania is the argument that an $800 million dollar investment is worth less than 10 cents on the dollar for tax purposes.
Well, I guess it isn’t novel for some business to make the claim, but only here is it even conceivable to be taken seriously. In fact the casino wants its assessment lowered well below what it was set at BEFORE it was allowed table games. Go figure that. Is it arguing table games hurt their bottom line? Realize the casino property is likely valued on the basis of what potential income it can generate, so all of this is relevant.
Actually, that $800 million number was the reference number early on. I forget what the Lehman line of credit was just in itself that Don Barden had lined up (and which did him in when it unraveled). Since then there has been investment in the table games and I think some reconfiguration of the structure itself to accommodate them. That plus adjusting for inflation makes me wonder if the casino represents a $billion dollar investment in current dollars. Just don’t dare tax them at even $100 million!!
Funny looking at old news related to this. Check out the line from 2007 ‘a report by Lehman Brothers, calling Majestic Star the “best long-term buy in the gaming universe.’ Some corollary of ‘even paranoids have enemies’ in that Lehman may have gotten that right. Of course that was self serving since I think Lehman was backing the enterprise at that point. (and full disclosure I once was a minion on the derivatives trading floor at Lehman).
Then there is the rosetta stone question. Did the North Shore Connector raise or lower the value of real estate on the Near North Shore to include the casino property? Someone might want to point out that the casino has voted with its checkbook by underwriting the fares between downtown and the stop closest to the casino. They are not doing that out of altruism one can presume, so there must be value there for them.
Yeah, I know I stopped updating my “Casino Watch” there on the right. No time to do such things.
For the record, I do know that the casino represents one of the biggest tax payers in the city (see the old graphic I once made up below which I believe was from 2010) which may irk them. But it is also true that the casino in itself represents one of the biggest real estate investments in the city in the last decade so it all makes a certain perverse sense. Put another way, the $$ spent on the casino could have literally bought all the real estate in a dozen or so city neighborhoods. Probably more now with the new reassessment lowering values in a lot of neighborhoods.
Effective Property Tax by City of Pittburgh Neighborhood (with Rivers Casino identified on its own)
By Christopher Briem, on March 23rd, 2012
Here is one of those issues I am perplexed has not even been raised yet.
So we all know by now there is a mass property reassessment going on in Allegheny County. The news of late is that the reassessment itself is complete. It is not really complete of course, but complete in that the new numbers are all calculated and distributed. Still have appeals, tax rate resetting and so on and so forth.
We all know there is lots of angst over the new numbers. Much concern is for long time homeowners, particularly older homeowners, who may not be able to afford higher taxes if indeed they get hit with higher taxes. Let’s skip the debate over whether many will actually see reductions in the end.
Here is the thing. If there is really concern for lowr income homeowners and what jumps in their property value will be, there is a simple and legal way to help them comprehensively.
There is in Pennsylvaia a provision in the law called the Act 50 Homestead Exemption. Allegheny County has enacted the provisions of Act 50 to give resident homeowners in the county an abatement on a part of their home value in order to lower their property tax. Right now many if not most resident homeowners in the county make use of the act and claim a $15K reduction in their property value for taxation purposes.
So what do we know? City property values have gone up by 50% or so in aggregate. Countywide it is 25% and every other school district and municipality has some different number.
Some straightforward math: Now if the homestead exemption stays at a fixed $15K then in a sense it is a regressive tax change. The 15K is going to be a smaller percentage of new valuations on average. So if you want the impact of the homestead exemption just to stay the same, the value exempted has to at least be raised proportionally to the aggregate value increase.
Can you do that? I don’t see why not. From what I read the limit to the amout of the homestead exemption is:
“The exclusion is a flat-rate uniform dollar amount, and it cannot exceed 50 percent of the median value of all homestead property within the taxing jurisdiction as certified by the county assessment office.”
Well, by my quick division, the $15K is well below that threshold and if Allegheny County so wanted to increase the amount, it is at least not prevented by statute. You could probably double the homestead exemption and still be well below that threshold with the new assessed values. Raising the exemption would also have the impact of dealing with a lot of the inequity issues arising from the new assessment numbers. If indeed lower valued homes have been overassessed, an increase in the homestead exemption amount would redress that directly. Not raising it actually hurts those same homeowners even if the assessment was perfectly accurate. I’ll leave to others what political machinations have to happen to change the amount.
By Christopher Briem, on March 5th, 2012
I was going to label this ‘Beyond grad school public finance’, but I thought that would make folks’ eyes glaze over. So this is one of those convoluted policy things in Pennsylvania that make it too hard to figure out what side you are even on. The angles and implications of this are so wound up that the public can’t make sense of it, nor even notice. Yet the $ implications for city, state and taxpayer are huge…. and according to this piece the world should notice when it comes to investing in Pennsylvania I guess.
So, I get ahead of myself. First try and get through this from Forbes last week: The Tax Shelter from Hell – U.S. Steel Tower in Pittsburgh
So remember the Steel Building’s recent sheriff sale/transfer that generated no transfer tax revenue for the City of Pittsburgh? We’ve addressed that a bunch here in the past. Some are trying to plug this particular loophole I read, though there are others to address as well. Any progress there??? Becoming a bigger and bigger issue since by all accounts the commercial real estate market is heating up.
So what I get out of this begins with the observation that the state may in fact have a real incentive to not fix the tax loopholes that prevented the city and school district from getting the transfer tax they could get from a real estate transaction like this. Structuring this as a sheriff sale transaction prevented the city and school district from getting transfer tax revenue, but may have resulted in the state being able to collect real tax $$ that they would not have otherwise been able to get. Or so I think, I have to admit this is all a bit beyond me as well. What I think it is saying is basically everyone loses on the sheriff sale tax loophole in the transfer tax… everyone except for the state itself. And along the way they may provide a disincentive to investment across PA along the way. But to be clear, I am not sure on any of that. Sounds like even the tax lawyers don’t quite agree on any of this. Still a multi-million dollar a year issue for the city of Pittsburgh that gets far less attention than things worth orders of magnitude less.
Anyway… lots of stuff in that worth reading. Thought I guess it is only for a certain jaded reader. Note that the original Forbes article there which came almost a week ago has had zero tweets.
By Christopher Briem, on February 1st, 2012
OK.. I can’t resist this one. It’s just floating up there.
EPR has this story on County Councilman Matt Drozd upset over the valuations of 4 vacant properties he owns in the city. Their inconsistent valuation is evidence that the whole assessment is kaput. He really seems to say that his new property valuations are evidence that the reassessment of all 580 thousand properties in the county must be wrong.
So let’s see. Indeed Mr. Drozd owns 4 vacant properties on Perrysville Ave. Technically one is owned by him, and 3 others by DROZD DEVELOPMENT & CONSTRUCTION CORP. Here they are in the current assessment records.
The source of anger it seems is that all 4 properties were indeed assessed similarly at ($2000, $2100, $2,200 and $2,000) respectively. Yet the new assessments: $6200, $1000, $8000 and $8800. Egads. what is up with that? We’ll come back to the $1,000 valued parcel in a minute, but the other prices all may make a lot more sense than you think.
First off, despite what is quoted in the article, they are not identical.. at least not in the parcel record which is consistent with the maps/shapes of these parcels.. The Sq. foot of each are: 2080, 2618, 2925 and 2800 . So for the three of them, the assessment per square foot is much more consistent with the new valuations than with the old. An error?
Then…. Are these recent purchases? No, it seems. One bought in 1980. Another couple bought in 1994. So they have remained vacant land in the city for literally decades. What were they bought for? $450, $2,275, $2,275 and $4,323. So he paid very different prices on them, maybe it makes sense they have slightly different values now?
Funny thing right when you think about it. When he bought decades ago there was a land tax in the city of Pittsburgh so he likely had to pay the split tax which really hit vacant land harder than other properties. He did well when the reassessment came in and got rid of the split tax in the city at the time.
So the property listed as $1000? It is the only property listed as having no utilities and no off street parking. I don’t see how 2 of them have off street parking as it is… All seem to have some hillside issues. Maybe if the good Councilman corrects the parking data on the property cards as they have shown for the last decade on those two properties he might get a big tax break administratively… no need to go to a formal appeal even. Though what I really think is happening is that the low valued property is one that has signed away an easement for this billboard. If I am right it is another reason the parcels are not homogenous and clearly a disamenity for one of them… if I got the spot right which is unclear.
I’d ask for a commission on that advice for the savings he will get.. but it just can be much. The county tax bill on each property now comes to about $9.38 per year. With the 2% for paying early, and he does pay early each year it comes down to $9.19. Works out to 76 cents per month. So 45 cents postage on the letter back to the county represents almost 5% of his entire tax bill. I guess since he works for the county part-time, he might just drop it off and save the postage.
But this is the entire point of Henry George’s land tax. Property in the city undeveloped is not supposed to happen. So sitting on 4 city parcels for decades with taxes so low that there is no incentive to either develop or sell to someone who is willing to develop is exactly what you don’t want to happen for a city parcel. Now with the new values jumping several hundred percent he might have to pay $25 in tax annually to the county. Granted a bit more to the city and school district, but still.
and since everything gets tied together in Pittsburgh. The nano-tempest over what percentage of Pittsburgh property owners who will see their taxes will go down with the reassessment?? Well, I excluded properties with previous values under $3K precisely to exclude the many parcels like these that just are not the point when you see the news interviewing long time residents worried they wont be able to pay their new tax bills. These 4 parcels showed up as 4 datapoints in the other calculation.. not mine… so implicitly weighted the same as 4 life long residents elsewhere in city. Does that make sense?
In the end though.. what looks to me like a prime example of the new assessments doing a lot better than previous values is turned on it’s head. In this case the old values sure seem to have been done a bit superficially and clearly didn’t reflect what was different about the parcels. Now that has been corrected, it is deemed to be evidence of gross error???
By Christopher Briem, on January 6th, 2012
I said recently that it would soon be All Assessment All the Time for much of the 2012. It was no joke. Think I could get away with writing on something else today? Guess not. Some quick hits:
PG talks about possible contempt of court outcomes in the latest develoments. Truth is I am quite sure the county (the county itself, or its apparachiki in their official capacities) has most certanly been past the point of possible contempt citations many times in the past in all of this. The problem is, as I am sure Judge has pondered, what exactly does that mean? Does the Judge really want to be in the situation of holding a County Executive in contempt. Then what? Put his top functionaries in jail or fine them? Seems pretty unfair to do it to the underlings, but just impractical to do much to the top dog. Fine the county $ per day for noncompliance? Well then, who is going to collect from the county if they prove to be continuingly uber beligerient? Would county sheriff go around serving the county executive or otherwise enforce the judge’s rulings. All becomes painfully more complex than even it is now and I suspect Judge Wettick has considered all that in detail. Likely would get other common pleas court judges involved in related rulings that could themselves be inconsistent in the end. Not good.
So if it is true that commerical values went up by 71% in the city of Pittsburgh, then to follow up on my post yesterday on the distribution of changes in assessment values, and the winners and losers that result, here some back of the envelope calculations. Roughly I think 60% of city property tax revenue is from residential and 40% from commerical property. If you don’t believe commercial is that much of total revenues then remember this graphic which shows a huge, almost entirely commerical, Downtown impact all by itself. So if residential values went up on average 46% and commercial went up by 71%, it means the overall average is more like 56%. The article says it is 57.89% (there are some significant digits for you). Now go back to the distribution I put up there yesterday. If millage is adjusted based on that calculation even roughly, then it is more lopsided and OVER 2/3rds of all city residents would see their property tax revenues go down resulting from the new assessment, yet people are univerally livid. At the same time barely any public anger over the county’s recent 20% property tax rate increase. I am missing something.
Further it means it is now far less than 5 percent who would expect to see taxes go up by 100 percent or more. More like 3.5 percent now. I really need to see if I can calculate a total estimated savings in $$ from all the homes that lose out if there really is going to be no assesment. Must be some dollar amount to all of that,
For school districts or other municipalities worried about a month delay in getting their property tax revenues through the door… realize that short term municipal paper is yielding close to 1% or less (at an annual rate) interest these days. What does that work out to for a month or so? So all I have to say is: Tax Anticipation Bond. Done all the time in lots of places quite routinely for precisely the same reason as may be needed here (without the soap opera of course). What is routinely dealt with as a matter of routine elsewhere is some inconceivable trauma for us. Can be said for more than assessments of course as well.
and yes.. there will always be assessment mysteries. The Casino which supposedly had well over $400 million in construction costs, something like an $800 million total cost, is still appealing it’s $199 million dollar assessment.. an assessment which I think was set before they got their approval for table games which would impact an income based assessment.
The old RET and older Alcoa building is upset over an assessment increase from 10 to 30 million. This is for an entire skyscraper. Scrap aluminum is pretty expensive these days. Might be 3-4 million in aluminum value alone in there, let alone the value of the XPlorion. That cost a million to install I bet at one point. Whether it counts in the cost of the building these days would not even be a rhetorical question.
On this notion that canceling (I am struggling with the correct verb to describe what actually happened yesterday) a new property assessment will help property values in the county.. what will be the impact of the years of uncertaintly and confusion this is going to have on property values in the future? High taxes are one thing, but not really knowing what taxes will be is another thing altogether. Sometimes the devil you know…
Crystal ball. Barring some quick resolution. If no reassessment I suspect there will be strong patterns in the new (’old new’?, or ‘new, now old’?) assessment numbers that correlate with race in some way which will prompt some sort of filing in Federal court on this and I suspect the Federal bench in town are collectively Wettick supporters. Just a guess.
and just from the archives. October 19, 2009: “We’re here because of the Supreme Court’s mandate to me,” Indeed ……….Ditto
By Christopher Briem, on October 26th, 2011
So it’s not quite the same thing, but I note today’s news that Bill P. is promoting a new form of tax abatement on commerical and industrial development in the city of Pittsburgh if the news account has that right.
Is the goal to encourage more industry in Pittsburgh (the city proper) or to encourage more people to live in the city? Is the city losing residents or jobs?
I just bring that up because I once made the case for a more complete tax abatement on Pittsburgh residential investment.
By Ajay Shah, on May 5th, 2011
Manmohan Singh as finance minister killed off smuggling, by eliminating customs duties. Black money in the real estate sector recently attracted his attention. He suggested lowering of stamp duties to check the flow of black money in this sector. But will this solve the problem of black money? And how will the State compensate for the loss of revenue collected from stamp duty?
Stamp duty is a transaction tax; it is charged as a percentage of the transaction value of the property. Public economics teaches us
that all transaction taxes are bad taxes, that the right level for the stamp duty is zero (as it is for all taxation of transactions).
The stamp duty distorts the behaviour of parties to the transaction. Stamp duty on property is usually paid by the buyer. Hence, the buyer tries to coax the seller to agree to undervalue the property on paper (the transaction value declared to the government) and accept the rest in black money. On the other hand, sellers have an incentive in accepting black money from the buyer in order to evade the taxation of capital gains. As long as real estate capital gains are taxed, eliminating the stamp duty will influence the
behaviour of the buyer but not that of the seller.
Hence, modest changes in the stamp duty rate will not solve the problem of black money in real estate. When stamp duty is eliminated, the buyer will be comfortable with zero evasion, but the seller will still urge him to take some black money.
Bad taxes should be eliminated because they are bad taxes. There should be no attempt at finding a direct replacement. As an example, India largely phased out customs duties, because the economists said these are bad taxes, without specifically trying to find a replacement. The elimination of customs duties enabled high GDP growth, and the main pillars of taxation (income tax and the VAT) generated bountiful revenues. A similar story will hold for stamp duty.
The economists teach us that all taxation of transactions is wrong. The property tax suffers from no such problems. Much work is needed in India in building a sound property tax system. In some countries, property tax revenues can be as large as 1% of GDP, which is a very big number compared with the financing of local government in India. The key issue is that the average value of property in each micro neighbourhood (e.g. a 200 metre stretch of road) needs to be assessed correctly and revised every year. This should then be used as a preumptive property tax rate, per square foot, for that micro neighbourhood. Once this is done, property tax collections will be a powerful source of revenue for local government.
There is a link between these two issues. As long as there is a stamp duty and high taxation of real estate capital gains, the reported data will understate property values. This will hamper the revenues obtained through the property tax. To the extent that we solve the twin problems of stamp duty and capital gains taxation, the data in the hands of government about real estate prices will improve, and this will bring property tax to life as a significant revenue source.
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