(Editor's note: The following article was put together
from three panel presentations on 8-31-01 at the Council of
Georgist Organizations conference held in Pittsburgh, PA.)
Pittsburgh's City Council had to switch from the
2-rate tax rate back to a unified tax rate, at least for a
couple of years. This was because Sabre, a private
appraisal company, had botched assessments so badly that
if taxes had been imposed for year 2001 based on Sabre
System's valuation, there would have been barricades thrown
up in middle class and upper class neighborhoods like
Squirrel Hill. According to Kevin Forsythe of the City
Controller's office, the botched Sabre valuations came out
during the heightened atmosphere of the mayoral campaign for
Pittsburgh.
The 2-rate proponents tried to alert Sabre and the
Allegheny County officials who hired Sabre, of the
importance under the 2-rate tax of paying special attention
to land values. Yet the resulting land valuations were so
inequitable that Sabre now is being sued, and a new firm
has been hired to repair the damage.
When the Sabre assessments were first made public,
past president Dr. Steven Cord and current president Joshua
Vincent of the Henry George Foundation of America and of
the Center for The Study of Economics, went in to talk to
the staff of the Pittsburgh Mayor and to some of the top
brass at the Controller's office. Mayor Murphy wanted to
keep the 2-rate tax, but the City Council overturned the
differential tax rate in his preliminary budget.
Mayor Murphy's mayoral opponent in the 2001
Democratic primary election seized upon the reassessment
issue and attacked the land tax, announcing that doing away
with the 2-rate tax would make downtown office buildings
crowding into Pittsburgh for the past 30 years pay "through
the nose." Never mind that Pittsburgh's traditional
business-friendly land tax had kept rents low for tenants
and productive businesses. Mayor Murphy also found himself
in a bind, having extended himself fighting for new sports
stadiums, and in need of support from Allegheny County
Chief Executive Jim Roddey.
According to the Center for The Study of
Economics, Roddey disparaged the tax policies of the four
2-rate tax cities in Allegheny County (Pittsburgh,
Duquesne, Clairton, and McKeesport). He essentially
demanded they stop using the system that has seen lowered
taxes for most and economic development without costly
giveaways or sweetheart deals. It was the Republican
County Chief Executive and previous County officials who
had hired Ohio-based Sabre Systems.
Dan Sullivan of the Center for Local Tax Research
had been calling Sabre and asking them what they were doing
on land assessments and he had been assured everything was
fine. CSE also opened a correspondence with George
Donatello of Sabre, who also promised that land valuations
would be given strict attention. The valuations defied
common sense, Sullivan said, upon finally getting to see
the Sabre's figures.
The assessments are run by Allegheny County, and
only about a fourth of the county's population is in the
City of Pittsburgh. The campaign contributions for
Republican candidates to county officials primarily come
from people who own property in the city but live in the
suburbs. The county has always been our obstacle, said
Sullivan.
Josh Vincent, current president of HGFA and of
CSE, and Steve Cord had talked to Sabre Systems and pointed
out that four municipalities (Pittsburgh, Clairton,
McKeesport, Duquesne) use the 2-rate property tax to levy
millage on land and buildings. There are 130
municipalities in Allegheny County.
The new Republican county Commissioners, Dunn and
Crammer, who took office at the beginning of 1996, over the
course of their first year in office, fired 85 county
assessors who were apprenticed and qualified and familiar
with the territory. Sabre, a former computer data base
company, brought in their tax techies and hired people who
weren't qualified or trained. Sullivan said a Sabre
staffer was measuring his back yard with no equipment,
until Sullivan went and got a tape measurer to help him.
Since Sabre is being sued, its executives aren't admitting
what methodology they used. Tax lawyer Frank Peddle of
Ontario observed that Sabre apparently didn't care about
the split between the land and buildings. Rather, they
presented property values for each parcel that they thought
they could defend in court. Usually it is in the
depreciation tables that things get screwed up, which will
result in land for commercial or residential properties
being thrown off.
Sabre tried to assign land as a residual value, noted Sullivan. The law requires assessing land value exclusive of buildings, then assessing the buildings. Sabre instead came up with its total value and then arbitrarily assigned a value to land. Since they had no land basis they didn't know if the building was appropriate to the location or not. They used a replacement cost formula for assessing buildings, which may make sense when replacing a building with a similar upgraded building in the same type of category, i.e., Residence 1. But in downtown Pittsburgh, for example, some people hold these little buildings thinking that some day they will replace them with sky scrapers, so the buildings have little or no replacement value. In such cases, building values are much lower and land values are much
higher.
The office of the Pittsburgh City Controller, Tom
Flaherty, first saw the Sabre valuation figures and
recognized that it had resulted in systematic
overassessment of homes in low and moderate income
neighborhoods and underassessment in more affluent
neighborhoods. Sabre's computer model leaned too heavily
toward replacement cost and away from market values. The
Controller's office brought this to the attention of
others. Four subsequent independent reviews essentially
said the same thing. One was by the County Controller's
office, a second one was by a consultant hired by the
County Comptroller's office to evaluate their review, a
third was by the Pittsburgh Post Gazette, and another
independent review was commissioned by the County Council.
Pittsburgh had not had a reassessment in more than
20 years. The Pittsburgh land assessments had been going
bad for a long time. Essentially the land assessments were
the same as when Pittsburgh Chief City Assessor Percy
Williams, a Georgist and outstanding professional,
evaluated them in the 1940s. Neighborhoods had changed,
and the land valuations were out of date.
Dr. Herbert Barry, Professor Emeritus at the
University of Pittsburgh, phoned the Pittsburgh Finance
Office to inquire about the valuation. He found that
Allegheny County recently has been assessing property at
about 20% of market value. In the year 2000 overall, land
in Pittsburgh represented 18% of citywide property values,
with buildings therefore representing 82%. In 2001,
assessed value of land in the city increased only slightly,
to 21%, and therefore buildings were 79%. Generally, the
reassessment increased the land value for homeowners and
decreased the land values for commercial property.
According to the 4-22-01 Pittsburgh Post Gazette, the value
of land in the recent reassessment went up to where it now
represents 25.54 percent of Allegheny county's total real
estate value, up from 17.57 percent in 2000.
According to the 4-22-01 Pittsburgh Post Gazette,
the irony of Pittsburgh's recent struggles with land and
values is that the old tax system may have been partly
responsible for creating the recent controversy about the
changes in land values. The value of land skyrocketed in
the recent reassessment of many Allegheny County
properties. Hardest hit were Pittsburgh homeowners in
Shadyside, Squirrel Hill, and other city neighborhoods.
Citywide, land values nearly doubled to $2.8 billion.
Property owners and politicians reacted with indignation,
arguing that Sabre's land values were outrageously high or
varied wildly on properties that appeared to be
identical. Most people agree that land values were low
before the reassessment. One theory is that assessors
previously may have felt a need to compensate for the high
taxes on the land by keeping the value of the land low.
Kevin Forsythe, an attorney in the City
Controller's office, demonstrated the lack of consistency
of Sabre's land assessments with a map of properties in
three blocks of Walnut Street in the prominent Shadyside
business district. Each rectangle on the map is a lot, and
the land per square foot in the business district of
Shadyside should be roughly the same from one property to
another. In the second block, bounded by Copeland and
Bellefont St., two lots are the exact same size and
adjacent to each other, but one is at $67.51 per sq. ft.,
and it is right next to one at $110.47 per sq. ft. In the
next block bounded by Bellefont and Filbert Sts., of the
first two properties, one is $191 per sq. ft., and the lot
next to it is $14.71 per sq. ft.
Sabre didn't take into account frontage; on the
middle street bounded by Copeland and Bellefont, on the
right hand side are lots that have a lot of frontage on
Walnut St. The ones across the street are less valuable
because they are very narrow--part of the rectangular lot
fronting on Walnut St. and the rest being common walls with
other commercial buildings. However, the one with a lot of
front footage has a square footage of $79.50 per sq. ft.,
whereas several of the ones across the street are higher
than that. None of that appears to have been taken into
account. The lowest dollar per square footage figures on
the entire three blocks lot map is one at $50.28 per sq.
ft. Yet that property not only has a sizable amount of
frontage on Walnut St., it is on a corner, and the whole
corner of the lot fronts S. Aiken which is also part of
that Shadyside commercial business district. This shows
some of the common sense type things that people
immediately began to discover were wrong on land valuations
that Sabre had given.
Attackers of Land Value Taxation say people
don't understand how to deal with land values, said
Sullivan. Yet the disparities in land values were what
everybody saw immediately. Nobody said my building is
assessed lower than my neighbor's building, but they knew
their neighbor's land ought to be assessed about the same
as their land.
Sabre did not define neighborhood boundaries
carefully and they did not define gradients. Between the
mansion end of Shadyside and the row house end of Shadyside
there should be a gradient for a middle section, which is
right behind that business district shown on the three
blocks map. Even though properties are similar, the closer
you are to the mansion end of Shadyside, the more valuable
your property and the land value is higher. Next to
Shadyside is Friendship and then next to that is a poor
neighborhood called Garfield.
All the land in Friendship is assessed as if it were the
same. Sullivan said he used to live in that neighborhood,
and the closer you were to Garfield the more likely you
were to get robbed. Gradations within neighborhoods are
needed to reflect how close you are to the next
neighborhood that is more or less valuable.
Sabre incorrectly assumed that the variance needed
before rebuilding on vacant lots attached to the land and
not to the building, said Sullivan. Sabre said that the
vacant lot next door to his house was grandfathered in, so
a house can be built on the lot, making the lot worth
$8,000, even though the lot next door with a house on it is
only worth $800. Wrong! The lot is not grandfathered in.
The buildings were grandfathered. To rebuild on the vacant
lot would require getting a variance. When the building
that was on that vacant lot was torn down, the variance
disappeared on the vacant lot. Vacant lots in most
residential neighborhoods are assessed at tiny fraction of
lots with buildings on them, noted Sullivan. Because Sabre
did that, they had no base for land value, putting the
vacant lots in a whole separate category. Sabre has no
uniformity on land.
Most of the housing in Pittsburgh is old and it was
planned housing even in the 1800s. Some houses were torn
down and the problem is some of these houses were replaced.
So there is an old neighborhood with 20 old houses and one
new house. The new house is similar to new houses in other
neighborhoods, but the land value is different from the
others in the same neighborhood. If Sabre had done land
separately, the assessed value of land would have been
comparable to the neighbor's land. And the building has to
be comparable to any building in a neighborhood that is
appropriate to that building. Basically people aren't
building brand new houses in older neighborhoods unless a
tax subsidy is involved.
Sullivan pointed out that until this year
Pittsburgh had a really bad zoning system, and the system
was such there could be 20 identical lots and 19 of them
have houses on them and one vacant, and on the one that is
a vacant lot you are not allowed to build a house.
Somebody came along and said you have to have twice as much
square footage on that lot to build a house as anybody else
on that block has. If a house had been torn down, and if
wasn't replaced right away, you had to appeal and get a
variance and go through hassle to rebuild.
Joseph Sabino Mistick, head of Pittsburgh's zoning
board under Mayor Richard Caliguiri in the 1970s and
executive director under Mayor Sophie Masloff in the 1980s,
commented on the conflict between zoning, variances, and
assessments. Mistick said he is not sure how Allegheny
County factored it in given 130 different municipalities'
game plans. Once a Variance has been granted you can
factor in the value of the structure that has been built
pursuant to that variance, but you find yourself with a
difficult burden of proof. Variances are only to be
granted in the event there is some hardship that runs with
the land. Suddenly the land is worth less; now you must
have a proposal in order to get your relief.
You go in with your proposal and if you can
demonstrate this is a hardship that runs with the land, you
are supposed to get your variance. Assuming you get the
variance, you can build, and then suddenly the land is
worth more because you got some relief from the zoning
board. But each of these 130 municipalities in Allegheny
County has a different approach to variances. Some
municipalities decide we will have a particularly
restrictive zoning ordinance -- make everybody come in to
us and we decide what we want. How does the assessor take
that into consideration? Some towns don't give variances,
and don't care what the law says. Some give many
variances.
After the Pittsburgh Controller's staff had
spotted and documented the botched Sabre valuation
results, that office became the city department to take the
lead in dealing with the problem. A lawsuit, on behalf of
City Controller and on behalf of a number of named
plaintiffs, addresses the issue of systematic over and
under assessment. Attorney Kevin Forsythe has been with
the Controller's office for 15 years, and is working with a
law firm which is actually the lead counsel for the
litigation that has forced Allegheny County to do a better
job in the 2002 assessment. The plaintiffs are working
with attorney Don Driscoll who represents the Mon Valley
Unemployed Committee and a number of separately named
plaintiffs who are in those overassessed lower value homes.
The two lawsuits filed have been consolidated,
Forsythe presented a graph and attached
description of the points about each of 56 properties on
Walnut St. and some on the adjacent intersecting streets,
which showed an unbelievable amount of disparity between
properties going down the same street in Shadyside. The
graph and the map were two handouts that were part of the
Controller's Office traveling road show, when trying to get
anyone who would listen to realize what had happened.
The third way the Controller's office is involved
is that the Pittsburgh City Council asked the Controller to
do something about the assessment mess, and gave him $150,000
to go out and try to help 40,000-50,000 homeowners so they
would have a better chance of prevailing in their
individual property appeals. Working off a base of 400,000
residential properties in Pittsburgh, in an average year,
there may be 4,000-5,000 appeals filed. There are 90,000
appeals filed this year, a sizable number of which are city
residents. Many of them don't have the first idea of how
to proceed. The Controller's office put together ten mass
public meetings, a couple of ad hoc TV shows that went out
on the government station, did a mass mailing, and is also
offering through a private professional appraisal firm,
appraisals for $100 each for owner occupied city
residences, and is offering free legal assistance (which
at the moment means Forsythe, the City Controller, and one
other colleague in the City Controller's office.) They
will continue going with these people for assessment
appeals to fight the 2001 assessments, at least until May 2002.
Attorney Don Driscoll said the appeal process is
being used to try to fix this mess. We have learned that
is not going to work. We need to take this problem and get it corrected and not go on appealing. The preliminary information indicated that the average assessed value of properties that are the subject of appeals is $187,000, twice the actual medium property value in Allegheny County. Using the appeals process to
fix bad assessments is not working, and will further skew results so that they may become worse.
Paul Levico is the attorney with the Mon Valley
Unemployed Committee, which has members in Pittsburgh,
Allegheny County, and throughout Southwest Pennsylvania.
They got involved because a lot of their members were
concerned. A lot of low income people aren't appealing
because it costs money to hire an appraiser if you want any
serious chance of prevailing in the appeals. It costs
hundreds of dollars to hire an appraiser, unless you are in
city of Pittsburgh and can get help through the
Controller's office. Having to take off work to win only a
small amount is another of those stacked decks against low
income people, he said. Any massive reappraisal or mass
reassessment has its political component.
The Mon Valley Unemployed Committee is trying to
connect with low income homeowners and have them put
forward their position and their arguments, and that will
take education. Though land values were a major part of
assessments and got redone in Pittsburgh, a lot of people
didn't understand why land value was taxed so much higher.
Land value tax education was done years ago but the job of
public education wasn't kept up. To do any kind of land
tax now there will have to be a large education job to
large numbers of folks and not just at the top.
Herb Barry commented that reprints were available
of the three-page article about Pittsburgh that he wrote
for the Jan.-Feb. 2001 GroundSwell.
A member of the audience asked whether the
Pittsburgh shift was revenue neutral. Sullivan responded
that the mayor was accused by his opponent of padding the
shift. It was not supposed to go up more than 5%.
Pittsburgh's incumbent mayor and the City Council
passed a $10,000 exemption on homestead properties, but the
homeowner had to go down to the county building, and many
didn't apply because they work from 9 AM to 5 PM. Educated
people signed up for the protection that was meant to help
the poor. Renters, though, according to the Center for The
Study of Economics, will see their taxes climb with no
relief in sight.
Ontario, Canada, tax attorney Frank Peddle has
expertise with land values research and last year alone his
law firm did 60 tax assessments trials, mostly on
commercial property. Reassessments are necessary, he said,
but the problem is Allegheny County waited 20 years or more
to do this. In Ontario some municipalities are fairly up
to date, though Toronto was 40 years out of date and had
huge tax shifts like those in Pittsburgh. The government,
for political purposes, tried to put in tax mitigation
measures along with reassessments. Politicians will back
off and put measures in place that are going to be contrary
to what you achieve with the reassessment, and so there is
tension between the two of them.
Pittsburgh's mistake was trying to mitigate the
effects of the assessment by going from two-rate back to a
uniform tax rate, Peddle said. Pittsburgh could have used
a gradual phase in and other tax mitigation measures, which
was done in Ontario. The tax mitigation measures, though,
reintroduced inequities into the system. Tax mitigation
measures are necessarily a part of a long overdue
assessment. From our perspective, the shift from two-rate
to uniform was not a good way to go.
You need a proper appeals system and procedures in
place so you can at least say to people, if the assessments
are botched you can go into court. Peddle said there were
600,000 appeals in Ontario in 1998, out of 1.2 million
reassessed properties. They are mostly cleared out now,
though, because there was a lot of reform in the assessment
review board that handles this. Mass assessments will
contain significant errors. What is a homogeneous
neighborhood for a comparable is often an issue for appeal.
You can't have huge broad neighborhoods, so we use the
phrase "similar properties in vicinity." Another issue
that comes up with these reassessments is that they are
generally underfunded.
County Councilor-elect Brenda Fraser asked, "how do
you train your appeal processors?" Peddle responded that
the Assessment Review Board has courses and endeavors to
get qualified people, but it is still a political process.
In Ontario, the assessors generally defend their
assessments at the Review Board, though at times they are
represented by a lawyer. The Assessment Review Board's
decisions are annotated and published and put on the
internet. The property owner can demand that written
reasons be given for the assessment at the hearing, and the
board has a legal obligation to produce them. That
procedure gives disclosure and takes the process away from
being a star chamber operation. We have got to preserve
legal rights for people.
That is not happening in Allegheny County,
commented Forsythe. When the taxpayer goes into Appeals,
there is hearing officer and another officer and another
called an assessor, just someone to punch numbers into a
computer. That assessor has not seen the subject property.
The home owner should be able to talk to and cross examine
the person that came to his home and set a value on it.
With the computer model that is not always possible. The
owner should be able to correct the data collector, but
Sabre is gone now. There is no opportunity to cross
examine a certified property evaluator who reviewed that
value set on your home. That is part of the Sabre
contract, which was breached because there hasn't been that
certified property evaluator review. A licensed appraiser
never took a second look.
They draw these hearings officers from a qualified
pool, appraisers and some real estate attorneys, to form a
qualified board, Forsythe said. But three or four sources
say they are rating the people on the number of reductions they
allow, the people holding faster to Sabre values are asked
to come back at $200 per diem and the people not holding to
Sabre value are not asked to come back or not asked to come
back as frequently. There should be nothing that resembles that kind of rating process for the person supposed to be an independent fact finder.
On 8-29-01 the Pittsburgh Post-Gazette announced
that "County officials are turning to a chief rival of
reassessment contractor Sabre Systems and Service to help
set property values next year and are scrapping the
computer software used by Sabre to calculate assessments.
The county has awarded a $175,000 contract to Cole Layer
Trumble Co. of Dayton, Ohio, to help the Office of Property
Assessment in validating property sales from 1998 through
part of 2001 and in redrawing some neighborhood boundaries,
both key elements in determing values for 2002.
"As part of the contract, Cole Layer Trumble will
supply the county with new computer software to replace
that installed by Sabre last year in calculating values in
the controversial reassessment. The software is important
because it evaluates property characteristics,
neighborhoods, sales and other factors in order to arrive
at a value for a house.
"County Manager Bob Webb said one big advantage of
the new program is that it will give homeowners more
precise examples of the comparable properties used in
determining real estate values. The switch is aimed at
addressing one of the chief criticisms of reassessment --
that the properties selected for comparison and available
over the county's assessment Web site were not comparable
at all and in some cases were blocks, neighborhoods, or
even municipalities away. Webb said the Sabre comparables
were intended to be more general in nature. The new
software, on the other hand, is expected to produce the
exact comparables used in setting values, Cole Layer
Trumble Pres. and CEO Bruce Nagel said.
"Nagel said the firm's software program, which uses
multiple regression analysis, is up to the task. Under its
contract, Cole Layer Trumble will utilize county employees
in helping to validate sales, redefine neighborhoods and
perform other tasks. It will also train county employees
to do those jobs in the future. The two are to work
closely so that county assessors will be able to defend
2002 values at appeal hearings."
According to the 12-22-00 Pittsburgh Post Gazette,
in 2000, the respective mills on land and buildings of
Allegheny County's two-rate cities were: in Clairton, 100
and 21.05; in Duquesne, 80 and 38; and in McKeesport, 100
and 19. In Pittsburgh the 2000 tax was 184.5 mills on land
32 mills on buildings.
About ten years ago, the UTNE Reader, a noted
progressive journal, called Pittsburgh the "affordable San
Francisco". The article cited the "unique tax system
inspired by 19th century economic theorist Henry George,
[which] assessed land at a higher rate than buildings, thus
encouraging historic preservation, discouraging downtown
parking lots, and reducing sprawl." The tragedy, said
Vincent, is that I don't think anybody in Pittsburgh took
the time to look at the actual parcel numbers.
Sullivan noted it was the progressivity of the
2-rate tax that initially interested former Pittsburgh
councilman, now U.S. Representative, Bill Coyne in the
two-rate tax in the first place. John Weaver brought in
assessment totals for each ward to Coyne, who saw that the
five richest wards paid half of the total land value tax
for all 32 wards, and the biggest savers were dense working
class wards. Then Coyne got the Council to pass ordinances
raising the land-to-buildings millage from the 2-to-1 it
had been since 1913-14.
Peddle said in an ideal Georgist world, we would
just use pure land value and not assess buildings at all,
just the market value of land and not the residual value of
the building, though there will be differences like lots on
corners. Equity will recognize those differences. We
believe that the building residual method in assessments is
a better technique. The International Association of
Assessing Officers, which sets the standard, says land
residual method is the way to go. You should make a huge
fight at the professional level in the tax assessment
industry over this land residual technique. Peddle often
fights over land residual assessments because too often
they depend on depreciation tables on buildings. If they
are not fairly assessed, people are going to say chuck the
whole system.
A caucus is forming to try to bring in more sales
and income tax to help local revenue sources, warned
Forsythe. The local income tax is not a true income tax,
it is a wage tax, and the local taxing bodies will never
go after passive income, stocks and dividends that the
wealthy have. Many wealthy people have no wages. It would
be a shame to lose almost a century of experience with the
2-rate tax, and this could be an opportunity for making the
case to return to the split rate tax and perhaps even to
adopt a true land only tax.
Clairton, one of the four 2-rate cities in
Allegheny County, took the time to analyze the numbers and
to explore all the options, spoke up Josh Vincent of the
Center for The Study of Economics. He had six meetings
lasting 8-9 hours total with Clairton officials where he
walked them through it. Clairton's elected and appointed
officials did what the Alleghney county-level appointed and
elected officials could not conceive or imagine: they
dropped the building tax down to almost nothing: 1.22
mills. They rocketed the Clairton land tax up to 28 mills.
A study indicated that by reducing the building tax,
96% of homeowners saw a reduction in property tax.
Clairton's elected and appointed officials checked the
facts before they made a move.
In McKeesport they decided to keep the old ratio
and do an exploration parcel by parcel. For Duquesne, CSE
will do a parcel by parcel study but the city officials did
promise to maintain the tax rate.