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Opinion & Commentary - May 28, 2000

Richart P. Strauss Reassessment 2000: Do you feel lucky?

By Robert P. Strauss

The time is growing near for the event of the decade: real property reassessment.

Five years ago this fall, Allegheny County residents were treated to television coverage of a county assessment supervisor happily taking his for-profit fishing charter boat around Lake Erie while simultaneously being paid by the county for supervising assessments.

To the shock of many, a Republican majority took control of the county, largely on the promise of cleaning up a property tax mess riddled with inequities and petty corruption as symbolized by the assessor getting paid while running a fishing charter on Lake Erie.

But that promise proved impossible to keep, and, once again, the way Allegheny County measures the value of real estate in order that the county, school districts and municipalities can tax it has become a ward of the local court.

Homeowners may now wonder what the expenditure of $24 million-plus to Sabre Systems & Service Inc. to devise new assessments means for them. My purpose is to display some statistics from 1998 which should begin to prepare homeowners for the shock (or joy) they will experience later this year when the reassessments are mailed out.

What follows is a bit dry, but since it ultimately will involve who pays how much of the $1.1 billion-plus in real estate taxes each year (real money), and who does not, I urge you to read this rather carefully. Get a calculator, a strong cup of coffee, turn off the TV, put out the dog for a while, and take a look below.

Bob Newell/Tribune-Review CRUNCHING THE DATA

This past fall, a student at Carnegie Mellon University came upon a data tape of 17,344 properties which had been sold in Allegheny County in 1998. Such information on sales is used when reappraisals of unsold properties are performed. The basic idea is that actual selling prices of homes can be used to update the sales of similar, but unsold, properties. Since 17,000-plus actual sales is a large number, they can be analyzed to predict just how much adjustment in estimated market values will take place when Sabre Systems applies this to all 500,000-plus properties in the county.

For each of the real estate transactions, the actual sales price and the assessed value were recorded, along with the municipality and school district in which the property resides. If we take the ratio of the assessed value to the sales price, we can see how accurate the assessment actually was. Call this calculation the ``actual assessment ratio.''

Historically, all property in Allegheny County was supposed to be assessed at 25 percent of fair market value. As we shall see, that was far from the case based on the 17,344 properties that changed hands in 1998.

Table 1 contains two kinds of information:

  • The distribution of actual assessment ratios based on the 17,344 properties (column A); this column shows how uneven assessments have been;

  • The implications of column A for a hypothetical house that sold for $100,000 in terms of its assessed value (column B); and, then, the real estate tax implications of such assessments (column C).

    Column A is based on the actual data from the 17,000-plus transactions. Columns B and C are a hypothetical example of the assessment and tax implications. Later, I will discuss how you can figure out what the reassessment will mean for you personally.

    First, let us focus on column A. It has five rows. Suppose one were to sort the actual assessment ratio from smallest to largest, all 17,344 of them. If one were to throw a dart at the distribution and hit the midpoint or middle of it, one would be at actual assessment ratio number 8,672. This is the row entitled Median, also known as the 50th percentile. Half the actual assessment ratios are larger, and half are smaller.

    We might expect the median actual assessment ratio to be 25 percent, because that is what the appointed county Board of Assessment, Appeals and Review told the assessors to make it years ago. But, based on a comparison of actual sales prices to the assessed values that the assessors had for such properties in 1998, we see it was not 25 percent but much lower.

    It was 18 percent in 1998.

    Now, if all the other actual assessment ratios were close to 18 percent, say 17 percent for most below 18 percent, or 19 percent for most above 18 percent, then we might well have confidence that the assessment process, while low compared with 25 percent, was low for everyone. If everybody is under-assessed to the same extent, we would likely say it was fair. Nothing to worry about, time to go to the sports or comics sections of this paper. However, this was far from the case.

    To see this, let's explore some of the actual assessment ratios that were below the median or 50th percentile.

    The 25th percentile would be the 4,336th actual assessment ratio (17,344 divided by 4). Is it close to 18 percent? No, it is 14.8 percent. What this means is that, instead of being 25 percent of fair market value, one-quarter of the properties that changed hands in 1998 were assessed below 14.8 percent of fair market value. Remember, we sorted the actual assessment ratios from lowest to highest.

    What if we look at actual assessment ratios that are even lower in the ordered distribution? The 10th percentile of the actual assessment ratios was 11.2 percent. That is, one-tenth of the properties that changed hands in 1998 were not assessed at 25 percent, but at less than 11.2 percent.

    Table 1: 1998 actual assessment ratio
    Position in order of actual assessment ratioActual Assessment ratio in 1998 (A)Hypothetical assessed value for $100,000 house (B)Hypothetical Taxes at 100 mills (C)
    10th percentile 11.2%$11,200$1,120
    25th percentile 14.8% $14,800$1,480
    Median18.0% $18,000$1,800
    75th percentile 21.9% $21,900 $2,190
    90th percentile 29.8%$29,800 $2,980
    Now, let's look at the actual assessment ratios that were larger than the median. Three-quarters of the way through the 17,344 actual assessment ratios, ordered from smallest to largest, we get to the 75th percentile. At this actual assessment ratio, one-quarter are higher and three-quarters are lower.

    The 75th percentile actual assessment ratio was 21.9 percent. That means that one-quarter of the properties were assessed at greater than 21.9 percent. Finally, take a look at the 90th percentile actual assessment ratio; it is 29.8 percent, which tells us that one-tenth of the properties were assessed at more than 29.8 percent.

    Columns B and C take a hypothetical house that sold for $100,000, which should have been assessed at $25,000, and works through the implications of the house being under- or over-assessed. If the combined tax rate (county, school and municipality) added to 100 mills, then it is clear that the house could have paid anywhere from $1,120 to $2,980 per year, depending on just where the assessor threw the dart. The range of actual variation was $2,980 to $1,120, or 2.6-to-1. The International Association of Assessing Officers recommends that the range of variation in assessments be on the order of 1.22-to-12, not 2.6-to-1.

    Now let us contemplate some of the politics of this table. If an 18 percent assessment ratio and current millages are what will keep county, school and municipal budgets whole, and if everyone's new fair market values estimated by Sabre are adjusted to the magic 18 percent, who will be happy and who will be spitting mad?

    Certainly those whose assessments are above 18 percent will find their assessments revised downward. They will get tax cuts and be happy.

    On the other hand, those who are under-assessed are in for a rude awakening. How big is this rude awakening going to be? We know one-tenth of the properties were assessed at 11.2 percent or less in 1998. These under-assessed properties are going to see their assessments go up a minimum of 60 percent! And so will their property taxes. How can I infer this from Table 1?

    If a house is assessed at 11.2 percent, its taxes are $1,120 (See column C). The house should have been paying taxes of $1,800. Raising taxes $580 is a 60 percent increase: ($1,800-$1,120) divided by $1,120 equals 60 percent. If they were under-assessed even more, then their tax increase will be even larger. Off to the lawyers for appeal?

    Table 2: 1998 actual assessment ratios by school district
    DistrictNo. Sales10th Percentile25th PercentileMedian75th percentile90th Percentile
    Allegheny Valley 16711.2%13.9%17.6%21.8%25.8%
    Baldwin Whitehall 42012.8%16.2%18.5%21.0%24.2%
    Bethel Park 45013.8%15.5%17.4%19.1%21.2%
    Brentwood Borough13313.8%15.5%17.3%20.1%22.7%
    Carlynton 17511.0%13.3%16.4%19.8%30.0%
    Chartiers Valley3787.5%14.1%16.7%19.0%23.0%
    Woodland Hills72912.9%16.0%19.4%24.3%36.3%
    Clairton City11011.2%15.0%18.2%29.4%45.3%
    Cornell 114 10.7% 13.3% 16.7% 22.5% 39.0%
    Deer Lakes 160 5.3% 11.6% 15.9% 18.0% 23.7%
    Duquesne City100 14.1% 17.9% 28.6% 53.3% 97.5%
    East Allegheny 199 9.7% 13.7% 16.7% 21.8% 30.5%
    Elizabeth Forward182 8.5% 12.0% 15.8% 18.6% 25.1%
    Fox Chapel Area 411 11.8% 14.9% 18.1% 21.0% 25.0%
    Gateway 382 12.2% 14.7% 17.3% 19.5% 23.0%
    Hampton Township 271 9.5% 14.2% 17.1% 20.3% 23.4%
    Highlands 256 10.9% 13.5% 16.6% 22.1% 31.9%
    Keystone Oaks 294 12.2% 14.1% 16.7% 19.9% 22.8%
    McKeesport Area 484 11.3% 14.4% 18.4% 28.5% 55.4%
    Montour355 10.3% 14.9% 17.9% 20.8% 24.2%
    Moon Area 425 0.7% 14.2% 17.8% 20.1% 22.3%
    Mt. Lebanon 619 13.4% 15.8% 18.3% 21.4% 24.3%
    North Allegheny 934 6.4% 15.9% 19.5% 22.2% 24.8%
    North Hills 542 13.4% 16.0% 18.6% 21.2% 24.2%
    Northgate 179 11.7% 14.3% 17.8% 23.8% 36.9%
    Penn Hills 633 14.8% 16.9% 19.4% 22.8% 29.3%
    Pittsburgh4,154 10.9% 13.9% 17.9% 24.6% 40.5%
    Plum Borough 322 9.9% 15.1% 17.0% 20.2% 25.2%
    Quaker Valley 271 11.1% 14.3% 18.2% 21.1% 25.3%
    Riverview 139 2.7% 14.2% 17.7% 21.6% 28.0%
    Shaler Area 507 12.3% 15.3% 17.8% 20.6% 25.8%
    South Allegheny 148 11.0% 13.4% 16.7% 22.2% 37.0%
    South Fayette Township 234 0.1% 15.2% 18.4% 20.2% 21.6%
    South Park 159 13.3% 15.8% 17.8% 19.9% 22.1%
    Steel Valley 247 11.7% 14.6% 18.0% 24.9% 43.5%
    Sto-Rox 171 13.1% 15.6% 20.0% 28.4% 43.0%
    Upper St. Clair 401 13.8% 16.6% 19.4% 21.9% 24.9%
    West Allegheny 274 0.2% 12.7% 19.1% 21.5% 23.8%
    West Jefferson Hills 241 9.5% 14.7% 17.7% 20.5% 25.7%
    West Mifflin Area 253 12.6% 15.0% 17.6% 21.5% 33.2%
    Wilkinsburg Borough 264 13.2% 18.4% 21.6% 33.4% 61.8%
    Total 17,350 11.2% 14.8% 18.0% 21.9% 29.8%

    Table 2 shows by school district the number of properties transacted in 1998 and the percentiles of the actual assessment ratio in that school district. It is Table 1 by school district without the hypothetical house calculations. In looking at such data by smaller geographic area, we need 30 transactions to be confident about the measure of central tendency. Since hundreds of properties sold in each school district, the analysis is, according to statistical theory, quite reliable.

    There were 4,154 properties that sold in the city of Pittsburgh in 1998. The median assessment ratio was 17.9 percent; however, the diversity in assessment ratios was larger than for the county overall. The 10th percentile assessment ratio was 10.9 percent, and the 90th percentile assessment ratio was 40.5 percent. So the range of potential taxes on the $100,000 house could be about 4-to-1, enough to really create havoc and massive appeals.

    There are some truly stunning disparities in the Mon Valley. In the Duquesne School District, the 90th percentile assessment ratio was 97.5 percent; in McKeesport it was 55.4 percent. In Steel Valley it was 43 percent. In Wilkinsburg it was 61.8 percent. If assessments had been accurate, the figures would have been 25 percent.

    Equally stunning are some remarkably low assessment ratios in the more affluent suburban school districts. In the North Allegheny School District, the 10th percentile assessment ratio was 6.4 percent. To get to 18 percent will require a threefold increase in the estimated fair market value, and a threefold increase in real estate taxes for homeowners who have been lightly assessed.


    In the movie ``Ghostbusters,'' the refrain is ``Who you going to call?'' In this case irate taxpayers will not be calling Dan Aykroyd, Harold Ramis, et al., to get rid of a tax ghost that slimes green goo; they are likely to call their elected officials. Perhaps they will call county Executive Jim Roddey. He already is telling groups around the county that change in their property taxes is in the air, but not with the sort of specifics here.

    Who else to call?

    If you were to call the Allegheny County Board of Assessment, Appeals and Review to complain, you will be told that the matter right now is out of its hands. If you want to file an appeal, fine, there is a process, a form, and a hearing can be scheduled. However, if you want to talk to the parties that created this green tax goo, you will be told their assessors are not making the new assessments. The board will tell you the assessments will be made by Sabre Systems.

    Huh? Wait a moment - the data above compare actual sales to assessments in 1998. Sabre didn't make the assessments in 1998; the board's assessors did. But those who were under-assessed and whose assessments go up by 60 percent or more will not have the Board of Assessment, Appeal and Review to rail at, but rather Sabre Systems. OK, so one reason you were under-assessed was because of the old assessors.

    So, you call up Sabre Systems to complain (are they listed in the phone book, by the way?). They will tell you they are only doing what Allegheny County Common Pleas Judge R. Stanton Wettick told them to do. Then, they will tell you that the above assessment statistics reflect the old system, that they are building the new system. But it's up to the judge.

    But wait a minute - this is supposed to be a democracy. Each taxpayer has a County Council representative to complain to, and the council controls the budget of all of the above folks (Executive Roddey, the Board of Assessment, Appeals, and Review, Sabre System and Judge Wettick).

    After all, in real estate assessment, doesn't money talk?

    If past is prologue, the legislative branch of government is apt to hear from those whose assessments go up.

    Table 3: 1998 actual assessment ratios by council district
     No. sales 10th Percentile25th PercentileMedian75th percentile90th Percentile
    1: Mr. Francis 1,8777.2%14.2%18.2%21.7%25.1%
    2: Ms. Rea1,44513.0%15.9%18.1%20.8%23.7%
    3: Mr. Shumaker1,5257.8%13.6%17.2% 21.0%25.1%
    4: Ms. Wagner1,5958.3%14.9%17.9%20.7%24.0%
    5: Mr. Gastgeb1,187 11.3%14.9%17.3%19.7%24.0%
    6: Mr. Crossey1,398 13.1%15.4%18.1%21.0%24.1%
    7: Mr. Schwartz 1,37613.4%15.9%18.6%21.8% 27.6%
    8: Mr. Martoni1,19711.6%14.7%17.7%22.0%31.6%
    9: Mr. Olasz1,10311.9%15.0%18.9%28.1%51.0%
    10: Dr. Simms1,38411.8%14.7%19.0%25.4%45.0%
    11: Mr. Fitzgerald72110.3%13.7%18.0%24.9%40.0%
    12: Mr. Fontana1,23611.5%14.4%17.5%23.8%36.7%
    13: Mr. Natoli1,3119.8%13.4%18.4%26.0%46.4%
    As a courtesy to the council, Table 3 retabulates the 17,355 transactions by County Council district. The extreme variation in actual assessment ratios that we saw by school district is as pronounced when viewed by County Council district. Some districts are worse than others: There are four whose 10th percentile actual assessment ratio is below 10 percent (instead of being 25 percent).

    Homeowners in every council district will be spitting mad that their assessments go up by 60 percent or more.

    If the County Council's phone system dissolves under the pressure, the judicial branch of government may then draw the public's ire. Judge Wettick does not seem to relish publicity. By Aug. 1, 2000, my guess is that he will be forced to state his intentions about whether the judicial receivership of the assessment system and wide swings in property taxes for 2001 will still be implemented.

    So, do you feel lucky? Well, do you?

    If you have persisted through these tables and their description, you realize the aptness of the initial query. Real estate owners in Allegheny County are like one of Clint Eastwood's targets, lying on the ground, weaponless and defenseless as the judicially imposed reassessment takes place. Judge Wettick and Sabre Systems are pulling back the hammer of the Smith & Wesson tax gun and asking taxpayers if they heard five or six shots out of it.


    If the chamber is empty, a tax decrease of as much as 70 percent may be in the offing for you. A sigh of relief, plans for a big vacation?

    If you are unlucky, BANG!, your real estate taxes could go up 30 percent to 60 percent. Financial agony ensues, and there goes the planned big vacation.

    In some of Clint Eastwood's movies, the hapless criminal, facing his maker, gets a bright idea to forestall finding out whether Lady Luck will shine his way. Why not tempt Eastwood with a share of the wealth? Perhaps one can avoid the tax hammer and preordain the outcome by dividing up the booty.

    There are more than a few similarities here, I'm afraid. What we saw in the North Allegheny School District, one-tenth of the actual assessment ratios at 6.4 percent or less, likely did not happen through chance, or good luck either.


    For many readers, the above analysis and data could still be remote. Experiencing a 60 percent increase in assessed value, and then a 60 percent increase in county, municipal and school property taxes, could cause some agonizing examinations of monthly budgets. But how to know whether one is going to be lucky or not? Maybe this is just an ivory tower ranting on a Sunday morning.

    To know whether you are going to be lucky is very simple. Go to your 2000 property tax notice and write down your assessed value. Call this X.

    Then ask yourself what you think your property is worth in today's real estate market. No wishful thinking. Just think about what you think you could reasonably sell your property for. Call that Y.

    Next, divide X by Y. Call that Z. You just computed your own actual assessment ratio, which Sabre should be able to estimate after $24 million-plus. If Z is below 18 percent, you can expect a tax increase; if Z is above 18 percent you can expect a tax cut.

    So, are you lucky or not?

    Unless commercial and industrial property turns out to be more important after reassessment than today, the comparison of Z, your actual assessment ratio, to 18 percent will tell you what will happen to your taxes. It's likely that half of you will be lucky (you've been over-assessed, the new assessment will be lower and you will have a tax cut), and half of you will be unlucky (you've been under-assessed, the new assessments will be higher, and your taxes will go up).

    Now, changes in property tax burdens always occur when reassessments are made. What will make this summer particularly interesting is the size of the change for so many taxpayers because the old assessments were so inaccurately done.

    I would be remiss if I did not give some opinions about what all this means, having described what likely will happen to the numbers. The change and taxpayer outcry will be large, and for a new government not something they want to contemplate. My best guess is that they wish this would go away.

    If our elected officials think their political survival depends on not actually implementing the changes, then they will stall and pressure Judge Wettick to change his mind about forcing the 2001 tax bills to reflect the new assessments. I think it's fair to say that those elected officials, who got their education in private some time ago about what reassessment could mean, are terrified about how angry some taxpayers will be.

    Our history in Allegheny County of accepting new assessments and maintaining them is abysmal. Being under court order twice in 25 years is no record to be proud of. The reason elected officials are so quiet is because they are scared.

    More terrifying ought to be the prospect of not getting the system right once and for all after $24 million-plus and yet more to be spent.

    Simply put, there are reasons why the numbers above are as bad as they are, and until the system that created such craziness is permanently corrected, it is hard to imagine that investors or prospective homeowners will view Allegheny County at the margin as a place to locate in.

    When I have tried to explain to various movers and shakers that the county's really bad property assessments, which are nationally known, torpedo economic development and chase people away, I'm told that I don't understand. People want to be here to benefit from the unique quality of life in Allegheny County. I don't lack imagination, but I wonder, are they talking about the weather here compared to Buffalo or what?

    If you agree with my view that taxation is ultimately about ethics, the question to ponder is whether the sort of system that has generated and continues to generate such widely varying results comports with any notion of quality that makes honest use of the English language. If anybody is serious about improving the quality of life here, they ought to get serious about fixing the way we tax ourselves. Handing off that responsibility to private interests hardly seems either likely to succeed, or like leadership to me.

    The writer is a professor of economics and public policy at Carnegie Mellon University.

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