Audit sheds light on Allegheny County tax exemptions
Controller Chelsa Wagner has called for a review after finding procedures lax
January 7, 2013 10:00 AM
Chelsa Wagner, county controller
By Sean D. Hamill Pittsburgh Post-Gazette
Allegheny County Controller Chelsa Wagner's call Thursday for the county to review all of its tax-exempt property and property tax abatement programs was the third phase in a yearlong effort to push the troubled Office of Property Assessments to clean up its act.
Starting early last year with a review of the county's contract with an outside company to conduct the recent reassessment, followed by a June report that focused on charitable exemptions, Ms. Wagner's latest salvo was backed by an audit that found an office in "disarray," she said.
After the prior findings about the troubled reassessment contract and the charitable exemptions, Ms. Wagner said "it's hard to be surprised at this point by what we found, and that's the sad truth here."
The audit found problems ranging from missing files and applications to incorrectly approved applications for tax breaks, incomplete reviews of properties and seeming indifference by the OPA to a county administrative code provision that requires a review of whether a property deserves an exemption every three years.
Amie Downs, spokeswoman for county Executive Rich Fitzgerald, said Friday the county would not comment about the audit beyond a letter that was sent to the controller last month by Jerry Tyskiewicz, director of the Department of Administrative Services, which oversees the OPA.
In that letter, Mr. Tyskiewicz, who began his job Dec. 3, wrote, in part: "During the interview process, as well as in the directive that I received from the County Manager and the County Executive, it was made clear to me that addressing some of the challenges within the Office of Property Assessments was a priority. Many of those items dovetail with the information in your analysis. I appreciate the confirmation."
He added that OPA will begin the required triennial review of tax-exempt properties in 2013, though he didn't provide details about exactly when and how quickly it would proceed.
Mr. Tyskiewicz replaced Timothy Johnson, who took a new job running the county's retirement board, but his departure came just a week before Mr. Fitzgerald fired the head of the OPA, Michael Suley, as part of a shake-up in the office.
One of the glaring findings in Ms. Wagner's audit was that the county could not even locate 21 of 141 files for property tax exemptions or abatements. Those 21 files combined had a $16.2 million property value that, if the exemptions or abatements weren't granted, would have added $76,156 to the county's coffers in 2011 and hundreds of thousands more in revenue to local municipalities and school districts.
That finding was similar to a Pittsburgh Post-Gazette discovery this past summer when it asked for files from the OPA on hospital giant UPMC's 196 exempt properties in the county and only found applications for 64 of them.
Ms. Wagner said after the Post-Gazette's discovery last summer, "I was not surprised by what we found."
Another part of the audit found that the county couldn't locate applications for 27 of 358 properties that had some kind of exemption or abatement.
"It's really staggering, the lack of record keeping, the absence of policies," Ms. Wagner said.
It's a problem that stems from decades of neglect in the office that was accelerated over the last decade, Ms. Wagner said, when the county -- in a search for budget savings -- turned many of the duties of the OPA over to part-time and contract employees rather than a full-time staff.
"This office has suffered under the banner of so-called 'reform,' " she said.
With a modest increase in full-time staff, Ms. Wagner believes, "the office could be run much more efficiently and keep the knowledge in-house."
The disarray, the audit found, extends to policy decisions.
By far the most popular exemption or abatement in use in the county is the Homestead Exclusion, which allows the owners of their primary resident to reduce the value of their assessment by $15,000. The audit found 317,522 properties using the abatement in the county, worth $4.7 billion and resulting in a loss to the county of $22.3 million in tax revenue.
The exclusion is only supposed to be used on one home at a time, a requirement that is occasionally violated by homeowners, as Allegheny County voters learned in 2011 during the county executive race when Republican candidate D. Raja was found to have Homestead Exclusions on two Mt. Lebanon homes at the same time. He later paid the county to make up the difference he saved on the second home.
But the county did not penalize Mr. Raja, and as a matter of policy does not penalize anyone else for such violations, OPA personnel told the controller's office.
The audit reads, in part, that "even if it is due to a fraudulent application, OPA will remove the exclusion, but will not assess any back taxes, penalty or interest."
That is even though it says on the application that if the Homestead Exclusion is misused homeowners will be required to pay back taxes, plus a 10 percent penalty, and could be convicted of a misdemeanor and fined up to $2,500.
A review by the controller's office found 46 properties in the county that should not have been granted Homestead Exclusions, either becausen -- like Mr. Raja -- the homeowner used the exclusion twice, or they lived out of state, or it was owned by a corporation, or it was vacant land. And there may be many more, Ms. Wagner said.
However, she said, the way it is now "there's no reason, basically, for somebody to not try to maneuver and one-up the system, because there's no penalty."
One of the bigger revelations in the audit came at the very end.
In a meeting in December with the OPA's senior staff -- Mr. Tyskiewicz, chief assessment officer Wesley Graham and Steve Pilarski, now a deputy county manager -- Ms. Wagner wanted to hear the OPA's response to the audit's findings.
Instead, she said, she was stunned when Mr. Pilarski told her that the OPA considered the recent reassessment process to have also been a review of all the county's exempt properties, as required by the county administrative code.
When asked why, then, the county had not removed any property exemptions, she said Mr. Pilarski told her and her staff that removal of exemptions is only done after a challenge by some other government, such as a school district or municipality, not the county.
"A number of us on our team were visibly taken aback when they made that argument that other taxing bodies need to challenge the exemptions," Ms. Wagner said, "when I believe Allegheny County is a taxing body."
That did not appear to be Mr. Fitzgerald's understanding of the county administrative code's intent, though.
When asked in September about the code, he told the Post-Gazette he planned to take a hard look and challenge nonprofits' tax exemptions.
"My desire would be to be aggressive in that regard," Mr. Fitzgerald said. 'From a policy standpoint, I think it is something we, representing all the other taxpayers, should be pushing towards in [terms of] a fairness issue of trying to provide equity to all the taxpayers who pay for all the services that we all enjoy."
Ms. Wagner said she hopes Mr. Fitzgerald's view holds with the county.
"I find it absurd that the county would basically try to wash its hands of doing any challenges," she said. "That's part of its job."