Property Tax Reassessments

OK, I'm fashionably late to the party as ever, but just my two cents as to Onorato's reassessment plan.

First, read this article from CMU's Finance Professor and Murphy gadfly Bob Strauss.

I want to focus, specifically on this quote:

A comparison of the assessed value (A) prior to its sale, with the price of the property (S) that sold within a period provides evidence on how accurate the initial assessment was, and can be summarized across properties that transacted through the use of various statistical measures of relative dispersion. If the resulting ratio, A/S, is constant across many properties in an assessing area, then assessment quality is thought to be high, and if A/S is quite variable, then assessment quality is thought to be low.

Bob goes on to say that a dispersion ratio of 15% between the sales price of properties and price of the properties is generally held to be the target for a "good" assessment. Allegheny County was at 29.5% in 2002.

Now, read this, specifically the lines that say:

The county considers assessments to be acceptable if they average 90 percent of actual sales prices across the county. For 2002, the figure was 94 percent.

OK...there is room for statistical shenanigans as we're looking at "average across the county." I can't tell you whether housing prices are normally distributed, but I would wager the answer is no. Notice that the 2004 "dispersion ratio" (i.e., a measure of the variability of the assessment accuracy) of 29.5% seems to contradict the 2004 "assessment ratio" (i.e., a measure of overall accuracy of the assessments) of 94%. Again, I'll wager that housing prices are not normally distributed.

The results of the study quoted in the PG showed that

15 wards were, on average, below 80 percent of the actual sale prices. That means assessments for those properties, which averaged as low as 64 percent in the 6th Ward -- Strip District, Polish Hill and Lawrenceville -- were substantially too low and owners likely are paying less than they should in property taxes.

In the other 17 wards and Mount Oliver, assessments were above 80 percent of the sales price. In the 12th Ward -- Lincoln, Lemington and Larimer -- sales averaged 104 percent of the county's assessed values, which means residents there probably will pay more than they should in taxes.

OK, what does this all mean?

I would argue, perhaps nothing. Having not seen the numbers, or the actual calculations involved, we should not be so quick to assume that the assessments are definitely out of whack. There is no evidence in the PG article that these assessments are varying wildly, just that they are over all higher or lower than the average of the surrounding area, which would mean that they are locally consistent. Clearly more research needs to be done, I need to get my hands on the calculations, or, perhaps, assessments need to be done more often.

The cynic in me believes that Onorato is forcing a 4% cap in the assessment increase in order to further certain political ambitions, or at least preserve and grow his political capital.

Anyway, Fester has a looong post on why assessments may increase and some of the political motivations to keep them low. I would argue that additionally, Onorato wants to keep his donors (i.e., the wealthy) happy with low property tax rates.

Pending further review, however, the immediate need to cap assessments this year might not just be short sighted, it may also be an illusion.

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UPDATE My hyptertext skillz suck a little less ass, thanks to Fester.