Are Allegheny County municipalities cheating taxpayers by setting their tax rates too high following a year of property reassessments?
The best answer is that it's hard -- and maybe too early -- to say.
Under state law, municipalities are barred from earning more than 5 percent in additional tax revenue the year after property reassessments, including the one that has dogged this county for several years.
That's to make sure unscrupulous officials can't accept a backdoor tax increase by collecting a windfall of extra tax money from increased assessments.
But a look at the county's 130 municipalities shows that the rapidly changing tax rolls have made it difficult to determine whether towns have actually met the state requirement -- or if they'll end up owing taxpayers.
In many cases, officials admit they are only taking their best shot at setting a tax rate while hundreds of assessment appeals are still pending.
"We made our best estimate," said Steve Morus, borough manager of Forest Hills, which is seeing a 27 percent increase in revenue despite lowering taxes. "Or maybe guesstimate."
The ways municipalities get to their final budget figure and tax rate vary greatly. Five municipalities sought and received court approval to increase revenue above 5 percent. A total of 23 others appear to have gone above the 5 percent threshold -- for now -- without going to court.
Still others have yet to set their 2013 tax rate, waiting until the last minute before mailing tax bills to adjust for any late assessment appeals.
The remainder have set their tax rates without increasing revenue above 5 percent and are holding their collective breath that they don't lose a large assessment appeal to blow a hole in their annual budget.
West Mifflin is an extreme example of the difficulty municipalities are facing. On paper, the 2013 budget approved by the borough shows an increase in revenue of more than 51 percent, well above the 5 percent windfall allowed in the year after a countywide reassessment. That includes council's decision to increase taxes from 7.27 mills to 8.02 mills.
Two factors are at work in borough, said manager Brian Kamauf, both the result of declining commercial property values.
For years, the borough has been losing revenue as major commercial operations successfully challenge their assessments. As a result, the borough reduced its police force by six and its public works department by 10 in 2012.
Because residents complained about the reduced service, Mr. Kamauf said, council plans this year to hire three more police officers and six employees in public works.
Secondly, Century III Mall, among other property owners, has a major assessment appeal pending. After an appeal last year, the mall's assessment was set at about $27 million. This year, mall owners are challenging the county's new assessed value of $135 million, and Mr. Kamauf said the borough expects that figure to be reduced dramatically.
In all, the borough still had about 500 appeals pending at the end of 2012 on property valued at $300 million.
As a result, Mr. Kamauf said, the borough believes the huge revenue increase is only a paper figure that will shrink by the end of the year. If the borough doesn't plan ahead, he said, it could reach the end of the year without enough money to pay employees and provide services.
"When we did the calculations, we think we will be within the 5 percent by the end of the year," he said. "We think we will be OK, but we will make adjustments at the end of the year if we have to because we don't want to charge too much and have a windfall."
Ira Weiss, a veteran municipal attorney and former Allegheny County solicitor, said there is no formal oversight of the anti-windfall provision other than a lawsuit from an individual taxpayer. Municipalities aren't required to go to court for approval of revenue above 5 percent, he said, as long as they can defend their tax rate with math.
Mr. Weiss said he advises municipalities to earmark funds expected to be paid out as a result of successful appeals and be prepared to make adjustments the next year if too much has been set aside.
"It's a challenge," Mr. Weiss said. "It isn't exactly a black-and-white process, but it should be a transparent process. If you have a verifiable process for how you arrived at the tax rate, we believe it is permissible to go above 5 percent."
That's exactly what happened in Forest Hills, Mr. Morus said. The budget shows an increase in revenue of more than 27 percent despite reducing taxes from 8.35 mills to 8 mills, but he said he expects pending assessment appeals to reduce that substantially.
He's set aside most of that extra money in an escrow account to be returned to taxpayers if any is left over.
Rankin, which has been on the state's list of financially distressed communities for more than 20 years, reduced its tax rate from 13.8 to 9.6928 mills. Still, it looks on paper as if it is getting additional revenue of more than 16 percent.
Jean Martin, project manager for state-appointed oversight manager Resource Development & Management Inc., said the firm is estimating a 65 percent reduction in property values on remaining appeals. "You're making your best guess," she said.
Some communities just need a little nudge. In Kennedy, they're set to receive an 8 percent windfall, about $30,000 or so. A reduction of just $200,000 in its combined assessed value of $605 million would put it within the 5 percent limit.
"I think our treasurer did the best he could under the circumstances," township manager Gerald Orsini said. "If anything needs to be readjusted, he will do it."
The issue has drawn the attention of Allegheny County Controller Chelsa Wagner, who is launching a "Windfall Watch" website to track local tax rates. While she can't take action herself beyond issuing a subpoena for further documentation, Ms. Wagner plans to help local residents challenge illegal tax rates, spokesman J.J. Abbott said.
Ms. Wagner already has questioned the county's millage rate, which she says will overcharge residents by an average of $50 each. The county reduced taxes from 5.69 mills to 4.73 mills, but Ms. Wagner said it could shave another 0.5 mills.
"My No. 1 priority is to bring accountability to this process," Ms. Wagner said in a statement issued by her office. "My Windfall Watch program will put property tax millage information in one central location, providing a level of transparency currently unavailable to taxpayers. I will work with taxing bodies and taxpayers to ensure the law is followed. This reassessment process has already been incredibly difficult for taxpayers, and my goal is to ensure that they are protected as we move forward."
County Executive Rich Fitzgerald has said Ms. Wagner's calculations are inaccurate.
For his part, Mr. Fitzgerald can understand the towns' frustration. Most of the upcoming assessment appeals are big-ticket items, he said -- office buildings, commercial complexes and more. As soon as officials think they have a number nailed down, it slips away.
"It's very difficult for them to come up with a final figure," Mr. Fitzgerald said. "We see our valuations go down on a daily basis."