Crumbling foundation
County property assessment system places public finances in peril
Another wave of Downtown property re assessments has only increased the urgency for policymakers and the general public to understand just how broken Allegheny County’s system of property assessment and taxation really is.
This time, it’s two of Pittsburgh’s most iconic structures: PPG Place and the Union Trust Building, whose appealed assessments have taken about $39 million retroactively off the 2022 tax rolls, and another $12 million off the next year’s. The total refunds owed by Allegheny County, the City of Pittsburgh and Pittsburgh Public Schools on these buildings, plus the first three already announced (U.S. Steel, PNC Tower and Three Gateway) are nearly $11 million.
This is due to the collapse of the inflated common level ratio (CLR), and of occupancy in Downtown offices. Despite its predictability, none of the three taxing bodies have adequately planned for this crisis in their budgets.
And it’s only going to get worse. There are dozens more skyscraper appeals still working through the system. And commercial property owners are already filing appeals for the current tax year, which will be adjudicated months from now, and will trigger another round of refund checks.
Meanwhile, the people responsible for managing this crisis are squabbling over who’s at fault, with PPS sniping at the county for extending appeal filing deadlines and County Council President Pat Catena firing back, claiming the district is “forcing taxpayers into paying more than they should.” None of this gets at the root of the problem: a system that makes no sense, and pits residential owners against commercial owners; all owners against municipalities and school districts; and the county against everybody.
Only a countywide reassessment combined with a radical reform of the system — ideally also accompanied by consistent statewide reassessments — can salvage it.
Keeping up
Everything comes back to the CLR.
The CLR exists because counties need a way to estimate how properties should be valued in the years between full reassessments. It’s calculated by gathering sales data for select real estate transactions in the county, and sending it to the State Tax Equalization Board in Harrisburg. There, number crunchers determine the median amount properties have appreciated (or depreciated) during the year. then they spit out a simple percentage that should be applied to market value to bring it into line with the assessed value of the base year — in this case, 2012.
So if your house is appraised at $300,000, but the CLR is 50%, your assessed value would be $150,000.
That part’s simple enough. It’s how the CLR is applied in practice that skews taxation and the marketplace.
Skewed taxation
In between broad-based reassessments, the CLR privileges people who live in neighborhoods with rising housing prices over those in neighborhoods with stagnant prices, and commercial property owners over residential property owners. That’s because, under state law, the ratio is only applied on appeal.
Because only about 2% of residential owners appeal each year, the vast majority of assessments remain unchanged. But that means market values in high-growth areas deviate more rapidly from the base year than those in low-growth areas.
Take two home buyers who each buy a house assessed at $200,000 in 2012, one in Pine, the other in Pitcairn. Today, the Pine homebuyer might be able to sell for $400,000, and the Pitcairn one for $250,000. But they’re both paying taxes on a $200,000 base. As a matter of the percent of market value, the tax burden has shifted onto Pitcairn and off of Pine.
A full reassessment resets the base year, and therefore fairness, for everybody.
Applying the CLR on appeal is also the genesis of the so-called “newcomers tax,” when municipalities and school districts file appeals on newly sold real estate. This was another side effect of the county’s inflated CLR in 2022 and 2023: The sale price — which sets a new market price — multiplied by the inflated CLR was very often well above the assessed value, incentivizing taxing bodies to take advantage. It was a way of raising revenues without raising taxes, but resulted in absurd variations in assessed values on the same block.
Repair the foundation
The even more insidious way the CLR skews taxation, however, is between residential and commercial real estate. While homeowners appeal their assessments at a 2% annual clip, corporations have teams of lawyers ready to appeal every year they expect their assessed value to decrease. That means when the CLR goes down without a parallel increase in commercial market values — determined in part by income generated by the properties — those owners get a tax cut.
But residential owners generally don’t, because their values are determined entirely by the fickle housing market, and because appealing is an expensive and timeconsuming process most people don’t want to bother with (if they’re even aware they stand to gain, which most do not).
The extraordinary convergence of a collapse in CLR and commercial market value will result, in the short term, in massive shortfalls for the taxing bodies, with some estimates as high as 20% of property tax revenue. When they respond by raising taxes, as they must, it will then result in a massive shift of the tax burden from commercial to residential real estate.
A countrywide reassessment will not stop this from happening. But it will reset the system so a shock like this doesn’t happen again, at least for a while.
The only way to prevent it from happening permanently, however, is to schedule regular, independent, predictable countywide reassessments. It’s how nearly every other property taxing jurisdiction in America does it.
The Allegheny County real estate assessment system is the financial foundation for the county itself, and for each of 130 municipalities and 43 school districts within the county. That foundation is riddled with cracks and crevices. Fixing it must be one of county leadership’s top priorities.