Conference of the Council of Georgist Organizations
Pittsburgh, Pennsylvania

Nadine Stoner

[Reprinted from GroundSwell, 2001]

(Editor's note: The following article was put together from three panel presentations on 8-31-01 at the Council of Georgist Organizations conference held in Pittsburgh, PA.)

Pittsburgh's City Council had to switch from the 2-rate tax rate back to a unified tax rate, at least for a couple of years. This was because Sabre, a private appraisal company, had botched assessments so badly that if taxes had been imposed for year 2001 based on Sabre System's valuation, there would have been barricades thrown up in middle class and upper class neighborhoods like Squirrel Hill. According to Kevin Forsythe of the City Controller's office, the botched Sabre valuations came out during the heightened atmosphere of the mayoral campaign for Pittsburgh.

The 2-rate proponents tried to alert Sabre and the Allegheny County officials who hired Sabre, of the importance under the 2-rate tax of paying special attention to land values. Yet the resulting land valuations were so inequitable that Sabre now is being sued, and a new firm has been hired to repair the damage.

When the Sabre assessments were first made public, past president Dr. Steven Cord and current president Joshua Vincent of the Henry George Foundation of America and of the Center for The Study of Economics, went in to talk to the staff of the Pittsburgh Mayor and to some of the top brass at the Controller's office. Mayor Murphy wanted to keep the 2-rate tax, but the City Council overturned the differential tax rate in his preliminary budget.

Mayor Murphy's mayoral opponent in the 2001 Democratic primary election seized upon the reassessment issue and attacked the land tax, announcing that doing away with the 2-rate tax would make downtown office buildings crowding into Pittsburgh for the past 30 years pay "through the nose." Never mind that Pittsburgh's traditional business-friendly land tax had kept rents low for tenants and productive businesses. Mayor Murphy also found himself in a bind, having extended himself fighting for new sports stadiums, and in need of support from Allegheny County Chief Executive Jim Roddey.

According to the Center for The Study of Economics, Roddey disparaged the tax policies of the four 2-rate tax cities in Allegheny County (Pittsburgh, Duquesne, Clairton, and McKeesport). He essentially demanded they stop using the system that has seen lowered taxes for most and economic development without costly giveaways or sweetheart deals. It was the Republican County Chief Executive and previous County officials who had hired Ohio-based Sabre Systems.

Dan Sullivan of the Center for Local Tax Research had been calling Sabre and asking them what they were doing on land assessments and he had been assured everything was fine. CSE also opened a correspondence with George Donatello of Sabre, who also promised that land valuations would be given strict attention. The valuations defied common sense, Sullivan said, upon finally getting to see the Sabre's figures.

The assessments are run by Allegheny County, and only about a fourth of the county's population is in the City of Pittsburgh. The campaign contributions for Republican candidates to county officials primarily come from people who own property in the city but live in the suburbs. The county has always been our obstacle, said Sullivan.

Josh Vincent, current president of HGFA and of CSE, and Steve Cord had talked to Sabre Systems and pointed out that four municipalities (Pittsburgh, Clairton, McKeesport, Duquesne) use the 2-rate property tax to levy millage on land and buildings. There are 130 municipalities in Allegheny County.

The new Republican county Commissioners, Dunn and Crammer, who took office at the beginning of 1996, over the course of their first year in office, fired 85 county assessors who were apprenticed and qualified and familiar with the territory. Sabre, a former computer data base company, brought in their tax techies and hired people who weren't qualified or trained. Sullivan said a Sabre staffer was measuring his back yard with no equipment, until Sullivan went and got a tape measurer to help him. Since Sabre is being sued, its executives aren't admitting what methodology they used. Tax lawyer Frank Peddle of Ontario observed that Sabre apparently didn't care about the split between the land and buildings. Rather, they presented property values for each parcel that they thought they could defend in court. Usually it is in the depreciation tables that things get screwed up, which will result in land for commercial or residential properties being thrown off.

Sabre tried to assign land as a residual value, noted Sullivan. The law requires assessing land value exclusive of buildings, then assessing the buildings. Sabre instead came up with its total value and then arbitrarily assigned a value to land. Since they had no land basis they didn't know if the building was appropriate to the location or not. They used a replacement cost formula for assessing buildings, which may make sense when replacing a building with a similar upgraded building in the same type of category, i.e., Residence 1. But in downtown Pittsburgh, for example, some people hold these little buildings thinking that some day they will replace them with sky scrapers, so the buildings have little or no replacement value. In such cases, building values are much lower and land values are much higher.

The office of the Pittsburgh City Controller, Tom Flaherty, first saw the Sabre valuation figures and recognized that it had resulted in systematic overassessment of homes in low and moderate income neighborhoods and underassessment in more affluent neighborhoods. Sabre's computer model leaned too heavily toward replacement cost and away from market values. The Controller's office brought this to the attention of others. Four subsequent independent reviews essentially said the same thing. One was by the County Controller's office, a second one was by a consultant hired by the County Comptroller's office to evaluate their review, a third was by the Pittsburgh Post Gazette, and another independent review was commissioned by the County Council.

Pittsburgh had not had a reassessment in more than 20 years. The Pittsburgh land assessments had been going bad for a long time. Essentially the land assessments were the same as when Pittsburgh Chief City Assessor Percy Williams, a Georgist and outstanding professional, evaluated them in the 1940s. Neighborhoods had changed, and the land valuations were out of date.

Dr. Herbert Barry, Professor Emeritus at the University of Pittsburgh, phoned the Pittsburgh Finance Office to inquire about the valuation. He found that Allegheny County recently has been assessing property at about 20% of market value. In the year 2000 overall, land in Pittsburgh represented 18% of citywide property values, with buildings therefore representing 82%. In 2001, assessed value of land in the city increased only slightly, to 21%, and therefore buildings were 79%. Generally, the reassessment increased the land value for homeowners and decreased the land values for commercial property. According to the 4-22-01 Pittsburgh Post Gazette, the value of land in the recent reassessment went up to where it now represents 25.54 percent of Allegheny county's total real estate value, up from 17.57 percent in 2000.

According to the 4-22-01 Pittsburgh Post Gazette, the irony of Pittsburgh's recent struggles with land and values is that the old tax system may have been partly responsible for creating the recent controversy about the changes in land values. The value of land skyrocketed in the recent reassessment of many Allegheny County properties. Hardest hit were Pittsburgh homeowners in Shadyside, Squirrel Hill, and other city neighborhoods. Citywide, land values nearly doubled to $2.8 billion. Property owners and politicians reacted with indignation, arguing that Sabre's land values were outrageously high or varied wildly on properties that appeared to be identical. Most people agree that land values were low before the reassessment. One theory is that assessors previously may have felt a need to compensate for the high taxes on the land by keeping the value of the land low.

Kevin Forsythe, an attorney in the City Controller's office, demonstrated the lack of consistency of Sabre's land assessments with a map of properties in three blocks of Walnut Street in the prominent Shadyside business district. Each rectangle on the map is a lot, and the land per square foot in the business district of Shadyside should be roughly the same from one property to another. In the second block, bounded by Copeland and Bellefont St., two lots are the exact same size and adjacent to each other, but one is at $67.51 per sq. ft., and it is right next to one at $110.47 per sq. ft. In the next block bounded by Bellefont and Filbert Sts., of the first two properties, one is $191 per sq. ft., and the lot next to it is $14.71 per sq. ft.

Sabre didn't take into account frontage; on the middle street bounded by Copeland and Bellefont, on the right hand side are lots that have a lot of frontage on Walnut St. The ones across the street are less valuable because they are very narrow--part of the rectangular lot fronting on Walnut St. and the rest being common walls with other commercial buildings. However, the one with a lot of front footage has a square footage of $79.50 per sq. ft., whereas several of the ones across the street are higher than that. None of that appears to have been taken into account. The lowest dollar per square footage figures on the entire three blocks lot map is one at $50.28 per sq. ft. Yet that property not only has a sizable amount of frontage on Walnut St., it is on a corner, and the whole corner of the lot fronts S. Aiken which is also part of that Shadyside commercial business district. This shows some of the common sense type things that people immediately began to discover were wrong on land valuations that Sabre had given.

Attackers of Land Value Taxation say people don't understand how to deal with land values, said Sullivan. Yet the disparities in land values were what everybody saw immediately. Nobody said my building is assessed lower than my neighbor's building, but they knew their neighbor's land ought to be assessed about the same as their land.

Sabre did not define neighborhood boundaries carefully and they did not define gradients. Between the mansion end of Shadyside and the row house end of Shadyside there should be a gradient for a middle section, which is right behind that business district shown on the three blocks map. Even though properties are similar, the closer you are to the mansion end of Shadyside, the more valuable your property and the land value is higher. Next to Shadyside is Friendship and then next to that is a poor neighborhood called Garfield.

All the land in Friendship is assessed as if it were the same. Sullivan said he used to live in that neighborhood, and the closer you were to Garfield the more likely you were to get robbed. Gradations within neighborhoods are needed to reflect how close you are to the next neighborhood that is more or less valuable.

Sabre incorrectly assumed that the variance needed before rebuilding on vacant lots attached to the land and not to the building, said Sullivan. Sabre said that the vacant lot next door to his house was grandfathered in, so a house can be built on the lot, making the lot worth $8,000, even though the lot next door with a house on it is only worth $800. Wrong! The lot is not grandfathered in. The buildings were grandfathered. To rebuild on the vacant lot would require getting a variance. When the building that was on that vacant lot was torn down, the variance disappeared on the vacant lot. Vacant lots in most residential neighborhoods are assessed at tiny fraction of lots with buildings on them, noted Sullivan. Because Sabre did that, they had no base for land value, putting the vacant lots in a whole separate category. Sabre has no uniformity on land.

Most of the housing in Pittsburgh is old and it was planned housing even in the 1800s. Some houses were torn down and the problem is some of these houses were replaced. So there is an old neighborhood with 20 old houses and one new house. The new house is similar to new houses in other neighborhoods, but the land value is different from the others in the same neighborhood. If Sabre had done land separately, the assessed value of land would have been comparable to the neighbor's land. And the building has to be comparable to any building in a neighborhood that is appropriate to that building. Basically people aren't building brand new houses in older neighborhoods unless a tax subsidy is involved.

Sullivan pointed out that until this year Pittsburgh had a really bad zoning system, and the system was such there could be 20 identical lots and 19 of them have houses on them and one vacant, and on the one that is a vacant lot you are not allowed to build a house. Somebody came along and said you have to have twice as much square footage on that lot to build a house as anybody else on that block has. If a house had been torn down, and if wasn't replaced right away, you had to appeal and get a variance and go through hassle to rebuild.

Joseph Sabino Mistick, head of Pittsburgh's zoning board under Mayor Richard Caliguiri in the 1970s and executive director under Mayor Sophie Masloff in the 1980s, commented on the conflict between zoning, variances, and assessments. Mistick said he is not sure how Allegheny County factored it in given 130 different municipalities' game plans. Once a Variance has been granted you can factor in the value of the structure that has been built pursuant to that variance, but you find yourself with a difficult burden of proof. Variances are only to be granted in the event there is some hardship that runs with the land. Suddenly the land is worth less; now you must have a proposal in order to get your relief.

You go in with your proposal and if you can demonstrate this is a hardship that runs with the land, you are supposed to get your variance. Assuming you get the variance, you can build, and then suddenly the land is worth more because you got some relief from the zoning board. But each of these 130 municipalities in Allegheny County has a different approach to variances. Some municipalities decide we will have a particularly restrictive zoning ordinance -- make everybody come in to us and we decide what we want. How does the assessor take that into consideration? Some towns don't give variances, and don't care what the law says. Some give many variances.

After the Pittsburgh Controller's staff had spotted and documented the botched Sabre valuation results, that office became the city department to take the lead in dealing with the problem. A lawsuit, on behalf of City Controller and on behalf of a number of named plaintiffs, addresses the issue of systematic over and under assessment. Attorney Kevin Forsythe has been with the Controller's office for 15 years, and is working with a law firm which is actually the lead counsel for the litigation that has forced Allegheny County to do a better job in the 2002 assessment. The plaintiffs are working with attorney Don Driscoll who represents the Mon Valley Unemployed Committee and a number of separately named plaintiffs who are in those overassessed lower value homes. The two lawsuits filed have been consolidated,

Forsythe presented a graph and attached description of the points about each of 56 properties on Walnut St. and some on the adjacent intersecting streets, which showed an unbelievable amount of disparity between properties going down the same street in Shadyside. The graph and the map were two handouts that were part of the Controller's Office traveling road show, when trying to get anyone who would listen to realize what had happened.

The third way the Controller's office is involved is that the Pittsburgh City Council asked the Controller to do something about the assessment mess, and gave him $150,000 to go out and try to help 40,000-50,000 homeowners so they would have a better chance of prevailing in their individual property appeals. Working off a base of 400,000 residential properties in Pittsburgh, in an average year, there may be 4,000-5,000 appeals filed. There are 90,000 appeals filed this year, a sizable number of which are city residents. Many of them don't have the first idea of how to proceed. The Controller's office put together ten mass public meetings, a couple of ad hoc TV shows that went out on the government station, did a mass mailing, and is also offering through a private professional appraisal firm, appraisals for $100 each for owner occupied city residences, and is offering free legal assistance (which at the moment means Forsythe, the City Controller, and one other colleague in the City Controller's office.) They will continue going with these people for assessment appeals to fight the 2001 assessments, at least until May 2002.

Attorney Don Driscoll said the appeal process is being used to try to fix this mess. We have learned that is not going to work. We need to take this problem and get it corrected and not go on appealing. The preliminary information indicated that the average assessed value of properties that are the subject of appeals is $187,000, twice the actual medium property value in Allegheny County. Using the appeals process to fix bad assessments is not working, and will further skew results so that they may become worse.

Paul Levico is the attorney with the Mon Valley Unemployed Committee, which has members in Pittsburgh, Allegheny County, and throughout Southwest Pennsylvania. They got involved because a lot of their members were concerned. A lot of low income people aren't appealing because it costs money to hire an appraiser if you want any serious chance of prevailing in the appeals. It costs hundreds of dollars to hire an appraiser, unless you are in city of Pittsburgh and can get help through the Controller's office. Having to take off work to win only a small amount is another of those stacked decks against low income people, he said. Any massive reappraisal or mass reassessment has its political component.

The Mon Valley Unemployed Committee is trying to connect with low income homeowners and have them put forward their position and their arguments, and that will take education. Though land values were a major part of assessments and got redone in Pittsburgh, a lot of people didn't understand why land value was taxed so much higher. Land value tax education was done years ago but the job of public education wasn't kept up. To do any kind of land tax now there will have to be a large education job to large numbers of folks and not just at the top.

Herb Barry commented that reprints were available of the three-page article about Pittsburgh that he wrote for the Jan.-Feb. 2001 GroundSwell.

A member of the audience asked whether the Pittsburgh shift was revenue neutral. Sullivan responded that the mayor was accused by his opponent of padding the shift. It was not supposed to go up more than 5%.

Pittsburgh's incumbent mayor and the City Council passed a $10,000 exemption on homestead properties, but the homeowner had to go down to the county building, and many didn't apply because they work from 9 AM to 5 PM. Educated people signed up for the protection that was meant to help the poor. Renters, though, according to the Center for The Study of Economics, will see their taxes climb with no relief in sight.

Ontario, Canada, tax attorney Frank Peddle has expertise with land values research and last year alone his law firm did 60 tax assessments trials, mostly on commercial property. Reassessments are necessary, he said, but the problem is Allegheny County waited 20 years or more to do this. In Ontario some municipalities are fairly up to date, though Toronto was 40 years out of date and had huge tax shifts like those in Pittsburgh. The government, for political purposes, tried to put in tax mitigation measures along with reassessments. Politicians will back off and put measures in place that are going to be contrary to what you achieve with the reassessment, and so there is tension between the two of them.

Pittsburgh's mistake was trying to mitigate the effects of the assessment by going from two-rate back to a uniform tax rate, Peddle said. Pittsburgh could have used a gradual phase in and other tax mitigation measures, which was done in Ontario. The tax mitigation measures, though, reintroduced inequities into the system. Tax mitigation measures are necessarily a part of a long overdue assessment. From our perspective, the shift from two-rate to uniform was not a good way to go.

You need a proper appeals system and procedures in place so you can at least say to people, if the assessments are botched you can go into court. Peddle said there were 600,000 appeals in Ontario in 1998, out of 1.2 million reassessed properties. They are mostly cleared out now, though, because there was a lot of reform in the assessment review board that handles this. Mass assessments will contain significant errors. What is a homogeneous neighborhood for a comparable is often an issue for appeal. You can't have huge broad neighborhoods, so we use the phrase "similar properties in vicinity." Another issue that comes up with these reassessments is that they are generally underfunded.

County Councilor-elect Brenda Fraser asked, "how do you train your appeal processors?" Peddle responded that the Assessment Review Board has courses and endeavors to get qualified people, but it is still a political process. In Ontario, the assessors generally defend their assessments at the Review Board, though at times they are represented by a lawyer. The Assessment Review Board's decisions are annotated and published and put on the internet. The property owner can demand that written reasons be given for the assessment at the hearing, and the board has a legal obligation to produce them. That procedure gives disclosure and takes the process away from being a star chamber operation. We have got to preserve legal rights for people.

That is not happening in Allegheny County, commented Forsythe. When the taxpayer goes into Appeals, there is hearing officer and another officer and another called an assessor, just someone to punch numbers into a computer. That assessor has not seen the subject property. The home owner should be able to talk to and cross examine the person that came to his home and set a value on it. With the computer model that is not always possible. The owner should be able to correct the data collector, but Sabre is gone now. There is no opportunity to cross examine a certified property evaluator who reviewed that value set on your home. That is part of the Sabre contract, which was breached because there hasn't been that certified property evaluator review. A licensed appraiser never took a second look.

They draw these hearings officers from a qualified pool, appraisers and some real estate attorneys, to form a qualified board, Forsythe said. But three or four sources say they are rating the people on the number of reductions they allow, the people holding faster to Sabre values are asked to come back at $200 per diem and the people not holding to Sabre value are not asked to come back or not asked to come back as frequently. There should be nothing that resembles that kind of rating process for the person supposed to be an independent fact finder.

On 8-29-01 the Pittsburgh Post-Gazette announced that "County officials are turning to a chief rival of reassessment contractor Sabre Systems and Service to help set property values next year and are scrapping the computer software used by Sabre to calculate assessments. The county has awarded a $175,000 contract to Cole Layer Trumble Co. of Dayton, Ohio, to help the Office of Property Assessment in validating property sales from 1998 through part of 2001 and in redrawing some neighborhood boundaries, both key elements in determing values for 2002.

"As part of the contract, Cole Layer Trumble will supply the county with new computer software to replace that installed by Sabre last year in calculating values in the controversial reassessment. The software is important because it evaluates property characteristics, neighborhoods, sales and other factors in order to arrive at a value for a house.

"County Manager Bob Webb said one big advantage of the new program is that it will give homeowners more precise examples of the comparable properties used in determining real estate values. The switch is aimed at addressing one of the chief criticisms of reassessment -- that the properties selected for comparison and available over the county's assessment Web site were not comparable at all and in some cases were blocks, neighborhoods, or even municipalities away. Webb said the Sabre comparables were intended to be more general in nature. The new software, on the other hand, is expected to produce the exact comparables used in setting values, Cole Layer Trumble Pres. and CEO Bruce Nagel said.

"Nagel said the firm's software program, which uses multiple regression analysis, is up to the task. Under its contract, Cole Layer Trumble will utilize county employees in helping to validate sales, redefine neighborhoods and perform other tasks. It will also train county employees to do those jobs in the future. The two are to work closely so that county assessors will be able to defend 2002 values at appeal hearings."

According to the 12-22-00 Pittsburgh Post Gazette, in 2000, the respective mills on land and buildings of Allegheny County's two-rate cities were: in Clairton, 100 and 21.05; in Duquesne, 80 and 38; and in McKeesport, 100 and 19. In Pittsburgh the 2000 tax was 184.5 mills on land 32 mills on buildings.

About ten years ago, the UTNE Reader, a noted progressive journal, called Pittsburgh the "affordable San Francisco". The article cited the "unique tax system inspired by 19th century economic theorist Henry George, [which] assessed land at a higher rate than buildings, thus encouraging historic preservation, discouraging downtown parking lots, and reducing sprawl." The tragedy, said Vincent, is that I don't think anybody in Pittsburgh took the time to look at the actual parcel numbers.

Sullivan noted it was the progressivity of the 2-rate tax that initially interested former Pittsburgh councilman, now U.S. Representative, Bill Coyne in the two-rate tax in the first place. John Weaver brought in assessment totals for each ward to Coyne, who saw that the five richest wards paid half of the total land value tax for all 32 wards, and the biggest savers were dense working class wards. Then Coyne got the Council to pass ordinances raising the land-to-buildings millage from the 2-to-1 it had been since 1913-14.

Peddle said in an ideal Georgist world, we would just use pure land value and not assess buildings at all, just the market value of land and not the residual value of the building, though there will be differences like lots on corners. Equity will recognize those differences. We believe that the building residual method in assessments is a better technique. The International Association of Assessing Officers, which sets the standard, says land residual method is the way to go. You should make a huge fight at the professional level in the tax assessment industry over this land residual technique. Peddle often fights over land residual assessments because too often they depend on depreciation tables on buildings. If they are not fairly assessed, people are going to say chuck the whole system.

A caucus is forming to try to bring in more sales and income tax to help local revenue sources, warned Forsythe. The local income tax is not a true income tax, it is a wage tax, and the local taxing bodies will never go after passive income, stocks and dividends that the wealthy have. Many wealthy people have no wages. It would be a shame to lose almost a century of experience with the 2-rate tax, and this could be an opportunity for making the case to return to the split rate tax and perhaps even to adopt a true land only tax.

Clairton, one of the four 2-rate cities in Allegheny County, took the time to analyze the numbers and to explore all the options, spoke up Josh Vincent of the Center for The Study of Economics. He had six meetings lasting 8-9 hours total with Clairton officials where he walked them through it. Clairton's elected and appointed officials did what the Alleghney county-level appointed and elected officials could not conceive or imagine: they dropped the building tax down to almost nothing: 1.22 mills. They rocketed the Clairton land tax up to 28 mills. A study indicated that by reducing the building tax, 96% of homeowners saw a reduction in property tax. Clairton's elected and appointed officials checked the facts before they made a move.

In McKeesport they decided to keep the old ratio and do an exploration parcel by parcel. For Duquesne, CSE will do a parcel by parcel study but the city officials did promise to maintain the tax rate.