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If a real estate tax assessor comes around to your house to reassess you, don’t despair. He may be there to help you. In a recent case, Judge R. Stanton Wettick Jr. declared that the present Pennsylvania system for real estate tax assessments is unconstitutional and produces “arbitrary, unjust, and unreasonable discriminatory results.” He ruled in favor of the complaining homeowners and ordered Allegheny County to conduct reassessments of all properties to bring them into line. In the case of Clifton, Cranor, et al. v. Allegheny County, Wettick confronted the constitutionality of Pennsylvania’s assessment laws, which permit real estate taxes to be levied on assessed values established by the use of a base-year market value for an indefinite number of years. If his decision holds up on appeal, it will affect real estate assessments throughout the state of Pennsylvania. Allegheny County uses 2002 as its base year. This means that real estate taxes for 2007 were determined by using the 2002 fair-market value of the taxpayers’ properties. Under that system, market fluctuations over the five-year period were not reflected in this decision. Therefore, for example, the Woodland Hills School District includes Edgewood and Braddock, and those taxes were calculated using 2002 fair-market values even though between 2002 and 2005 property values in Edgewood increased by approximately 36 percent while property values in Braddock declined by 16 percent. On average this would make for a discrepancy of 52 percent. The decision pointed out the obvious. Property values change at different rates. Also, properties in high-value neighborhoods appreciate at higher rates than property values in low-value neighborhoods. This reverberates throughout the state because at least 34 of Pennsylvania’s 67 counties have not conducted a comprehensive countywide reassessment within the 20-year period from 1985 to 2005. The judge explained, “Constitutions of almost every state, including Pennsylvania, have Uniformity Clauses. Pennsylvania has consistently required equality of taxation under the Uniformity Clause, and based on long-established case law, this equality “is met only when, to the extent reasonably practicable, the ratio of assessed value to actual value is the same to every property.” According to the court, constitutional uniformity does not require mathematical preciseness. “Tax assessments would be generally uniform if most properties were assessed at between 55 percent and 65 percent of their fair-market value.” Unfortunately, in many Pennsylvania counties, including Philadelphia, a large number of taxpayers are substantially over-assessed compared to others. In coming to this conclusion, the court discusses what is called a coefficient of disbursement (COD), which is apparently a widely accepted statistical indicator of inequality in tax assessments. A COD of 15 is not so bad. That means that approximately 50 percent of property owners are neither under-assessed nor over-assessed by more than 15 percent of fair-market value. On the other hand, a COD of 40 means that approximately one out of every four taxpayers is over-assessed by at least 40 percent, and approximately one out of every four taxpayers is under-assessed by at least 40 percent. According to Wettick, as of 2005, 18 Pennsylvania counties, including Philadelphia, had CODs of 40 or more. These 18 counties had one thing in common. They had not conducted a countywide reassessment for more than 20 years. For example, in 2005, a Philadelphia owner of property with a fair-market value of $100,000 in the most over-assessed quartile paid property taxes of at least $3,310; and the owner having a fair-market value of $100,000 in the most under assessed quartile paid taxes of no more than $1,418. Wettick then brought home the uniformity point: “Using income tax terminology, one out of every four Philadelphia property owners was in a tax bracket of at least 3.31 percent and one out of every four property owners was in a tax bracket that did not exceed 1.42 percent.” Wettick also highlighted what he called a high “Price-Related Differential” of 1.18, which means that owners of less expensive properties are more likely to be over-assessed, and owners of more expensive properties are more likely to be under-assessed. These issues reverberate from arguments made by Benjamin Franklin and others to the British Parliament more than 250 years ago and are the flames that sometimes boil the pot of revolution. The court went on to explain that those counties that reassessed in recent years do not have high CODs. The decision listed 22 counties that conducted countywide reassessments since 1985 that produced CODs below 20 as of the year of the reassessment. Legislative Challenge Apparently, the main culprit is the General Assembly. Pennsylvania and Delaware are the only states without requirements that assessments be based on current or relatively current actual values. The laws and regulations of 22 of the remaining 48 states provide for annual assessments. Nine of these 22 have specific requirements for periodic field reviews. The other 26 states provide for reassessments at intervals of more than one year. With few exceptions the period of time is between two and five years. Pennsylvania and Delaware also differ from other states because the other 48 states, unlike Pennsylvania and Delaware, have state agencies that exercise supervisory responsibility over the assessment programs of the different counties. Based on his detailed analysis, Wettick held that Pennsylvania’s assessment laws violate the Uniformity Clause of the Pennsylvania Constitution. He also found that because Allegheny County’s assessments are more uniform than those of most other counties, Allegheny County should not be saddled by the reassessment standards that do not apply to Pennsylvania’s other 66 counties. He then threw out the gauntlet to the Legislature with this conclusion: “Thus the interests of justice are served, by permitting Allegheny County to continue to assess property in the same manner as all other counties while the anticipated appeal from my ruling is pending in the Pennsylvania Supreme Court. Also, this will permit the General Assembly to consider whether to enact assessment laws similar to those of other states.” Despite his comment about “interests of justice” for Allegheny County, Wettick ordered that county to conduct reassessments for use in 2009 and 2010. Frequent reassessment would facilitate uniformity. Unfortunately, it would place a substantial burden and expense on municipalities that try to conform to this standard, instead of sticking with the “base” year system generally used throughout the commonwealth. In his decision, Wettick acknowledges that absolute equality is not the goal. As earlier cases have held, only “approximate equality” can reasonably be expected. The body of case law on these issues provides that there must be substantial uniformity, which means as nearly uniform as practicable under all of the circumstances. The law must attempt to set up a system so that the burden of real estate taxes is shared by all owners fairly. The county argued that a base-year system does not violate the Uniformity Clause because an owner has a safety valve of appealing a base-year evaluation by applying the established common level ratio to the property’s current market value. The court rejected that argument because it would place the burden on the taxpayer to equalize ratios. Also, a possibility of appeal does not work to equalize assessments because taxpayers who are under assessed will not be likely to file appeals to increase their assessments. A substantial part of the opinion is dedicated to a state-by-state analysis of assessment laws and constitutional amendments throughout the country that deal with uniformity and real estate taxes. This may prove to be only of academic interest to real estate practitioners, but it may prove to be a valuable guide if and when the Legislature ever gets around to honoring Wettick’s recommendations and attempts to bring tax uniformity into Pennsylvania. Based on his analysis he concluded that more than half of the states have enacted assessment legislation that does not require annual reassessments. Virtually every state other than Pennsylvania has set up a state agency with oversight responsibility as a necessary feature of an assessment scheme designed to produce assessment uniformity and equality. Pennsylvania has not done this, but Wettick’s conclusion is that courts should not have the duty to provide for alternatives to annual reassessments or to the kind of agencies that must be set up to accomplish these objectives. He feels strongly that these things are a matter for the Legislature. Impact of Decision With attachments, including statewide statistical analyses, the decision runs 111 pages. It is a thorough and thoughtful analysis of earlier assessment litigation in Pennsylvania, the constitution’s Uniformity Clause, standards for measuring assessment uniformity, statistical analysis of assessments throughout Pennsylvania, and assessment laws in other states. For anyone interested in real estate taxes it is recommended reading. Allegheny County will undoubtedly challenge the opinion and oppose the order to reassess all properties. The Legislature will be likely to ignore the recommendations for new legislation, at least for now. The decision will undoubtedly be appealed. However, meanwhile the impact of this decision on taxpayers will have to be carefully considered. For example, while Philadelphia has not done a citywide reassessment for years, it has been periodically selectively reassessing certain properties, groups of properties and areas. Property owners in Philadelphia and elsewhere who think they are being unfairly assessed will undoubtedly be citing this Allegheny County case in attempts to achieve fairer assessments for themselves. There’s an old canard that “You can’t fight City Hall.” The Allegheny County case is support for the proposition that you can fight it – and maybe you can even win. HARRIS OMINSKY is with the law firm of Blank Rome and is a former president of the board of the Pennsylvania Bar Institute.

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