PROPERTY TAX 101
by Joel Sears

Introduction

Based on conversations with a number of people around the county, there seems to be a lot of confusion concening the impact of the recent county-wide reassessment on our property taxes. Even though budgets for all of the taxing authorities are on the rise, some property owners will actually pay less tax as a result of the reassessment. The following story was designed to help everyone understand just how this can happen.

One day, a couple of years ago, two houses were built in a far away corner of York County. They were identical and cost $150,000 each. The new owners were concerned about fire and police protection, so they contracted with the nearest township for services and agreed to split the cost, since their houses were worth the same amount of money.

They put together a set of "spreadsheets" to document their understanding. They even decided to set a "tax rate" to make their agreement work like others based on property value. Here they are:
Property Tax Agreement - 2004
Owner Assessment Tax
Smith 150,000 2,250
Jones 150,000 2,250
Total 300,000 4,500
Police and Fire Costs
Department Cost
Police 2,800
Fire 1,700
Total 4,500
Tax Rate Calculation
Cost of Services 4,500  
Total Assessment 300,000  
Tax Rate in Percent 1.5
Tax Rate in Mils 15
 
One Year Later ...

Since the county did not plan to "reassess" properties until 2006, Smith and Jones assessments remained as they were. However, the police and fire departments negotiated new contracts with their officers and were forced to pass the increases on to everyone who used their services. This, of course, caused a slight increase in Smith and Jones tax rates as shown in their new agreement:
Property Tax Agreement - 2005
Owner Assessment Tax
Smith 150,000 2,500
Jones 150,000 2,500
Total 300,000 5,000
Police and Fire Costs
Department Cost
Police 3,000
Fire 2,000
Total 5,000
Tax Rate Calculation
Cost of Services 5,000  
Total Assessment 300,000  
Tax Rate in Percent 1.67
Tax Rate in Mils 16.7
 
Then in 2006 ...

The county completed its reassessment and to everyone's surprise, Smith's house actually went down in value while Jones went up. Apparently, the new garage that he built didn't slip under the radar after all. Since they got pay raises last year, there was no increase in the cost of fire and police protection. Smith and Jones updated their agreement to reflect the fact that their homes were no longer worth the same value. They also noticed that the tax rate actually went down a little, even though the total dollar amount of taxes remained the same:
Property Tax Agreement - 2006
Owner Assessment Tax
Smith 140,000 2,258
Jones 170,000 2,742
Total 310,000 5,000
Police and Fire Costs
Department Cost
Police 3,000
Fire 2,000
Total 5,000
Tax Rate Calculation
Cost of Services 5,000  
Total Assessment 310,000  
Tax Rate in Percent 1.61
Tax Rate in Mils 16.1
 
And Finally, in 2007 ...

Mr. and Mrs. Brown bought the lot next to Jones and built a house like his (with a garage of course). Naturally, the Browns were concerned about fire and police services. When they learned about the agreement between Smith and Jones, they asked if they could join in. Everyone agreed that it would be a great idea and expanded their agreement to include Brown's house, using the county's assessed value of $180,000. As expected, the police and fire departments had to increase their costs to compensate for the risk of protecting another family. However, since their rate of increase was smaller than the rate of increase in the total assessment, the tax rate actually went down:
Property Tax Agreement - 2007
Owner Assessment Tax
Smith 140,000 2,000
Jones 170,000 2,429
Brown 180,000 2,571
Total 490,000 7,000
Police and Fire Costs
Department Cost
Police 4,000
Fire 3,000
Total 7,000
Tax Rate Calculation
Cost of Services 7,000  
Total Assessment 490,000  
Tax Rate in Percent 1.43
Tax Rate in Mils 14.3
 
The Moral of the Story ...

Property taxes are like many other complicated issues - lots of misunderstanding that can be explained with some fairly straightforward examples. The real question, however, is not how to compute them, but why we should use them in the first place.

Property taxes are based on arbitrary assessments that bear little resemblence to market values. They differ widely even in communities like Smith and Jones where the homes are essentially the same.

Property taxes have ballooned to the point that for many of us, they are the largest single tax we pay in absolute terms as well as a percentage of our income. There are thousands of families in York County who own their homes outright, but continue to pay property taxes that exceed the mortgage payments they once made. With total property tax rates in excess of 40 mils in some York County jurisdictions, it has become virtually impossible to truly own our property .

Putting them to the "YCTC test," we find that property taxes violate all three of our principles. There is no transparency - no clear, objective explanation of the basis for the tax or an open explanation of how it's to be spent. There is no accountability - no one is actually responsible for the accuracy of the assessments or veracity of the budgets they support to the point that someone's job is actually on the line. There is no test of value - we can't evaluate the services purchased with our property taxes and say "no thanks - we can do better on our own."

Fortunately, the Commonwealth Caucus, under the leadership of Rep. Sam Rohrer (R-Berks) has sponsored legislation with the express intent of totally abolishing school property taxes in Pennsylvania. Please take the time to study the legislation, attend town meetings, and support the School Property Tax Elimination Act of 2007 (SPTEA) wherever and whenever you can. There are links on the Front Page to all of the resources you'll need to learn about SPTEA.