The Ferlo Dividend
Last year the law was changed and at least one big loophole called the 89-11 rule was closed, much due to the effort of retiring State Senator Ferlo. Did it help?
First, go back to the news earlier in the year from the Pittsburgh school district. A vastly improved fiscal situation this coming year, where a big deficit turned into a fairly historic surplus, came in part due to a big jump in Now the city of Pittsburgh has the exact same tax base (with the minor exception of the Borough known as Mount Oliver) as the school district. See PG: Pittsburgh school district ends '13 with $20.8 million surplus). Transfer taxes came in "$3.9 million over the budgeted amount. The transfer taxes, which totaled $10.9 million, were higher than they have ever been"
So how did the city of Pittsburgh fare with real estate transfer taxes? Pretty good it turns out and in a budget sense better than the school district.. The city budgeted (expected) an amount of $15.9 million to come in from transfer taxes in 2013. Turns out the amount was $21.3 million, or over $5.4 million above what was budgeted for 2013.
So the unexpected windfall from transfer taxes offset much of the lower regular real estate taxes said to be from a miscalculation from the reassessment.(2013 budgeted $130.5 million, actual $123.4 million). A $7.1 million shortfall, but if real estate and transfer taxes were added together, the shortfall from budgeted comes to $1.7 million, which is well within the range of volatility common over recent decades.
How much of the transfer tax windfall is due to the closing of the loophole? Not all of it for sure, and it would take a lot more data and work to calculate. Potentially Senatory Ferlo could be responsible for Pittsburgh city and school district having over $9 million more in their respective budgets last year. So the question then becomes what about the future. A $9+ million per year gain annually in to the future equates has a NPV of ?? a few hundred $million maybe depending on your assumptions. So if there is a balanced city budget now, or into the future, offer the good senator, and former city councilor, some kudos.
But maybe it was all a fluke or a variation that will not be repeated? That certainly seems to be the belief of the Act 47 team that does not expect the 2013 take in transfer taxes will be repeated even the next year. Claiming the transfer tax being too volatile they expect transfer tax revenues to actually decline in 2014. Nowhere in the new Act 47 plan is there any mention of the impact of closing the 89-11 loophole and even 5 years out the assumed transfer tax revenues remain below what was actually collected in 2013. Since these are THE tax experts, they are saying something in not saying anything about the change in tax law. They must believe it is all de minimus?
Consider that if the loophole had been closed the year earlier, the Steel Tower sale by itself would have brought the city and school district together an addition $10 million (4% of $250 million reported price). I bet even absent the change in the law, general trends in city real estate trends might be generating higher rates of real estate transactions, and thus more transfer taxes. Also, it looks like the loophole was further closed only in the middle of 2013, so the impact was only partially felt in the 2013 tax revenues. Yet still the trend is presumed to be down.
* That is just a puzzle for @ to grok. Others probably just want to move on.