Thursday, January 12, 2012

Sound Collision

So again, if you are a new reader here and are only looking for information on the accuracy, tax implications of just the sheer Zeitgeist of the new property assessment figures in Allegheny County, you may want to skip below and look at 3 previous posts here on the subject.  Click here: (1),  (2), or (3). 

As much as I would really love to look at something other than property assessments today, it just wouldn't seem right.  There are several new angles on this today.  Both Trib and PG explain that Downtown property owners are a bit miffed at the new assessment values and that they might hurt their rental business.  Remember, I've pointed out in the past the incredible story that Downtown Pittsburgh is not only far from dead, but about as about as identically packed with jobs as it was 10, 20 and 50 years ago.  About as densely packed with jobs as 4/10ths of a square mile can likely support here given challenging transportation, parking and transit issues Downtown Pittsburgh has (all of which clearly have costs that seem not to have deterred investment Downtown of late).  There was an announcement last week of an entirely new PNC skyscraper, on top of the bigger one that was just built.  Also, the North Shore Connector is about to open and can only help push down parking prices which will benefit Downtown occupancy.  And if you really want to get into it... there are a lot of Downtown investment properties that had their values drop incredibly in the new assessment numbers which, according to the logic cited in the news articles from the Downtown landlords, can only increase the probability of more investment and occupancy in the future.  The Granite Building in particular dropped in value by a rather incredible 80% in the new numbers and some of the high end condos that were priced rather incredibly for Pittsburgh were brought down to, still high, but less astronomical numbers. That should increase their marketability now and in the future should it not?    So yes, I get it that Downtown property owners who may indeed be looking at some marginal tax increases (again you have to look beyond the nominal assessment increase to figure by how much) want any tax increase not to happen, but given all the other costs and issues Downtown, you are really incredibly hard pressed to make the case that the new assessment numbers will somehow flip everything on its head.  Just isn't going to happen, of if it does it will not be because of the assessment.  I'll skip the rational expectations argument that Downtown landlords might have read the news over the last 5 years and seen that a property reassessment was coming, yet that seems to be a particularly good period for the city in these things.  Though maybe the uber rational Yinzer-owner really thought assessments would never ever happen ever again.

And by the way I would love to show some data on what is happening with Downtown assessment values to see if what is being reported is true for all the properties owners down there.  That is impossible of course because Allegheny County took all the new assessment data off of its website and has otherwise made it all unavailable... even to all the media organizations who have tried to get it I am told. So we really do not know if the stories being reported are more than anecdotal stories from the self-selected owners that are upset with their own property assessments.. and just can't make any broader statements for Downtown and the City's commercial properties in total . They might all be correct, but we just don't know.  Policy by anecdote is not considered a best practice anywhere on the planet. 

Then the news of the day is that there is a meeting this afternoon that may, just may, lead to a few headlines.  How big a deal is the question at hand? We can calculate a $$ value. 

So taking just the city of Pittsburgh and Pittsburgh School System property tax millages (10.8 and 13.92 respectively) you can get a $$ for how much the total distribution is at stake in the decision this afternoon.   What I come up with via the analysis of the posts this week is that if the new assessment goes through, there is a total of $20 million in increased payments for one set of home owners in the city.  Also at stake is $33 million in lowered payments for another set of residential owners.  So it is a $53 million dollar question in a sense. 

County-wide it will add up to more than that of course.  Those numbers are just for the City of Pittsburgh and there will be some similar calculations in the suburbs. It is also a shift in taxes that recurs annually.  So if we are fighting over the permanent fixture of a past-year base year then one might want to calculate the NPV of that tax shift for winners and losers each and every year into the future.   You can see why some are fighting this to its scorched earth conclusion.

We could do a thought experiment and calculate how much the lack of a reassessment since 2002 has cost the citizens of Allegheny County.   As an assumption that is clearly false, but lets say the values of properties changed consistently in a straight line from old values to new values over a a decade.   That $53 million in 2012 adds up to $265 million dollars in counter-factual tax shift that didn't happen because there was no reassessment implemented over all those years.  And if whatever happens today leads to another 10 year delay in getting a new assessment completed what then?  Let's say that $53 shift grows to $100 million over the next decade.  Added up it is another $750 million on a very fictional table.  Real money at the end of the day though.

It is not over of course, no matter what happens in court today.  Given the uncharted territory we are all in it is a bit silly to speculate to far on the potentialities until decisions are made.  Keep in mind that these tax impact calculations will get far more complicated for most suburban residents compared to what is going on within the City of Pittsburgh.  Most suburban residents have, in addition to the county itself, typically pay property taxes to a municipality and a school district and those geographies are not coterminus.  So there is another whole dimension to this question of how the tax bill is changing for a specific parcel.  You will need to figure out the tax neutrality for two distinct taxing bodies and then add.  Given the confusion in the city thus far, the unknown tax calculation could be ever more painful if there continues to be no data to help coming from the assessors on how tax rates should change.

At some point we will get to the next question which unfortunately is far too rhetorical: what do we do if and when this reassessment is completed.  Will it be another decade before we do it again?  Remember that with the implementation of the 2001 reassessment it was all to be updated continuously with new values issues annually.  That is why there was a 2002 reassessment and there would have been a 2003 reassessment as well until Jim Roddey decided for the political expediency of pushing it off 3 years into the future.  The myth was that it would become a triennial reassessment, but of course that was fiction and once turned off no politician would ever be able to survive restarting assessments.  It was a brief moment Allegheny County could have moved into the 21st century, but was not to be, and likely will not be again.

For me, the saddest part of this is how we so confuse ourselves.  There are innumerable people in town who work toward a goal of improving the economic development of the city and region.  Real estate prices really capitalize almost all the good and bad of what happens in a place.  So we can argue over the accuracy of individual property values in this assessment, but there is much less error in the cumulative value the reassessment is placing on local properties.  So buried in all the noise is a nugget of a bigger truth that property values in a lot of parts of the city are going up.  We think Lawrenceville is hot, certainly the Financial Times does, but it really was not that long ago when Lawrencevile was as written off as a lot of other neighborhoods remain today.  South Side Flats appreciating far beyond what anyone can conceive.  I can tell you personally what the South Side Flats was like 30 years ago and it was not pretty and yes you could buy blocks of row houses for less than what subcompact cars cost today.  Far less actually at one point not that long ago; yet those $200K and larger transaction prices for those same homes are very real.  Most of the world actually likes and wants their property to appreciate. We have taken a fundamentally positive things and turned it on its head.  We do that a lot.

So there is something uniquely Pittsburgh in all of this: A persistence of memory that keeps us from seeing the changes all around us.  Time to stop being afraid of the future.

2pm. Might make the OK Coral look tame.  Though the only weapons will be pen and pencil.

Maybe next week we will find something else to talk about? Or not.


Anonymous State Rep. Jesse White said...

Your conclusions assume that the taxing entity will lower the millage rate to avoid a windfall, which can hardly be safely assumed. Consider this:

The lawsuits in Washington and Allegheny Counties have been either brought directly or indirectly by the school districts. Why would they do that if the process is designed to be revenue-neutral? At a time when school funding is dropping, why waste money on a process that in theory would not benefit them?

It's simple. If a school district gets an illegal windfall, the only remedy under the law for a property owner is to file a lawsuit, which could easily take years. Even if the property owner wins, the only way the school district could make the plaintiff whole would be to raise taxes! It's a black hole- once you fall in, you can't get out.

For these and many other reasons, no reassessments should proceed until the anti-windfall provisions in the law are given some real teeth, which is what I have been trying to do in Harrisburg for two years now.

Thursday, January 12, 2012 8:42:00 AM  
Anonymous MH said...

The lawsuits in Washington and Allegheny Counties have been either brought directly or indirectly by the school districts.

I hadn't heard that before about Allegheny County.

Thursday, January 12, 2012 9:07:00 AM  
Blogger C. Briem said...

indirectly is an incredibly broad and vague ad hominum.

Thursday, January 12, 2012 9:10:00 AM  
Anonymous MH said...

I was trying to say "Link please" in a less directly way.

Thursday, January 12, 2012 9:17:00 AM  
Blogger Vannevar said...

"So there is something uniquely Pittsburgh in all of this: A persistence of memory that keeps us from seeing the changes all around us. Time to stop being afraid of the future."

You know I'm part of the fan club, but that may be one of the best lines of yours that I've read. FOTP n'at. (finger on the pulse)

Thursday, January 12, 2012 9:48:00 AM  
Anonymous BrianTH said...

Compliance with the old, looser windfall laws was pretty high following the last reassessment--in the long run in all of Allegheny County there was only one clear case of a school district flouting the law, and there was one other school district that claimed it was following the law but whose numbers were disputed by the County. Otherwise, over 90% of the districts complied immediately, and with the exceptions above the stragglers complied as soon as the County put them on notice.

I'd guess compliance with the new, tighter anti-windfall laws will be at least as high this time. And it may well be 100%, since Wettick has made it clear that he is tracking this issue, and therefore it likely would not take a new, lengthy lawsuit to get court orders enforcing compliance.

Anyway, I know this is not a headline issue, but I am still very interested in the topic of whether or not the new assessments, either by design or de facto, have ended up increasing the relative tax on land versus structures. Some of the (admittedly unverifiable) anecdotes in the Downtown story are consistent with that hypothesis, and if so I think this will end up being good news for the pace of development in the County.

Thursday, January 12, 2012 10:16:00 AM  
Anonymous Anonymous said...

"So we can argue over the accuracy of individual property values in this assessment, but there is much less error in the cumulative value the reassessment is placing on local properties."

The assessments could get things right in "cumulative value" and wrong in almost every instance. Unfortunately, we pay our taxes on our particular property and not cumulative value. Sabre's survey of properties was pretty accurate but their models, which might work in homogeneous suburbs, are completely out of kilter for urban property where there may be drastic changes in values block to block. Given the degree of error in individual assessments, the actual cumulative value and millage rates will only be known after the appeals are heard and then the cumulative values may no longer match up. The people who were underassessed won't appeal and the people who were overassessed will so the end result will be a cumulative underassessment. Those who were overassessed still pay too much because the millage has to make up for those who were underassessed but it is not quite as bad. After the appeals have all been heard the assessed values are at their most accurate (correct for over assessed property and incorrect for underassessed). If the county would simply stick with these corrected values and readjust assessed value when sales occur values could be approximately accurate and we could avoid obvious errors such as assessments in Shadyside that are much lower than sales prices. As things are, those of us who are "victims of the model" get egregious overassessments every time and have to go hire an appraiser & lawyer and go through the same rigmarole to get our assessments corrected.

Thursday, January 12, 2012 10:46:00 AM  
Anonymous Anonymous said...

I think the OK Coral should be the OK Corral. Tried to find another meaning in the slip, but not sure I am smart enough to do that... there probably is some cool alternate meaning somewhere.

And yes, something uniquely Pittsburgh indeed. A great line. It does seem that increasing real estate values might be in fact a good thing, but maybe I see that only because I lived elsewhere for a time. I get the whole 'big picture' and it is interesting to see the drama unfold, but it must be unique to Pittsburgh, I have to think, that there is so much uproar that values are rising!

Thursday, January 12, 2012 10:51:00 AM  
Anonymous Anonymous said...

Brian TH asked about land vs. structure

In our case land value decreased by 13% and structure increased by 165% or about 2.5 times the previous assessment

Thursday, January 12, 2012 10:57:00 AM  
Anonymous Anonymous said...

The Pgh. school dist, and Ira Weiss in particular, are being held out by Fitzgerald as the devil incarnate in the assessment battle. It's almost comical the way he's been demonizing Weiss, and honestly, I was having trouble understanding his argument, but thanks to Rep. White, its a bit more clear now. Not saying I believe it though.

Thursday, January 12, 2012 11:34:00 AM  
Anonymous BrianTH said...

Note Chris has a prior post looking at the fit between assessments and recent sales of individual properties. It isn't perfect either way, but there was a tighter fit with the new numbers.

Thursday, January 12, 2012 1:03:00 PM  
Blogger Infinonymous said...

which is what I have been trying to do in Harrisburg for two years now

. . . and a bang-up job you appear to have been doing, Rep. White.

If you are not prepared to respect or enforce the Commonwealth's Constitution, please stand aside and let adults handle this.

Thursday, January 12, 2012 1:23:00 PM  
Anonymous MH said...

He wasn't one of the pay raise people, at least.

Thursday, January 12, 2012 1:32:00 PM  
Blogger Bram Reichbaum said...

I will warrant that every time I inform somebody about Anti-Windfall laws and the Lowering of Millage, I am met with a knowing, "Pffft. Yeah right. You know they're never going to do that."

However, an examination of the motivations of the plaintiff taxpayers and and of what that could reveal, ignores the more important fact that THEY'VE WON. AT EVERY LEVEL OF THE JUSTICE SYSTEM. REPEATEDLY.

First we remedy the present unjust inequities among taxpayers and classes of taxpayers. Then and meanwhile we can haggle about what will make the system more efficient for all taxpayers. That after all is an infinite project of improvement -- but the fact is that people are being screwed now. And it's the poor being screwed, just like always, while the politicians dither and divert.

Thursday, January 12, 2012 3:42:00 PM  
Blogger Bram Reichbaum said...

But thanks for playing?

Thursday, January 12, 2012 11:36:00 PM  

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