Friday, August 01, 2008

And While We're At It...

Back to the subject of Counterproductive Taxation.

If the folks at F.A.C.T. really and I mean, *really* wanted to go after a tax that was counterproductive to the economic vitality of the City, they might consider reintroducing the progressive real estate tax system that the neanderthals on City Council pushed out in the early 2000s.

[Dear Reader: this is the point at which yours truly descends into his yearly rant about the abolition of the land/building split in City property assessments and how the current system is actually and impediment to growth. I believe there are exactly two people, myself included, that care about this nuance of public policy in the Blurghosphere, so if you want to skip to the next post, please go ahead. Or you can read a previous rant on it.]

If you remember, back in the day when the County Assessment debacle first hit, the geniuses on City Council headed by the late Bob O'Connor spearheaded a switch from a split valuation system (in which land was taxed at a higher rate than the building on the land) to a single valuation system (where the building & land was assessed together).

Under the current system, the City & School District taxes property owners at 2.472%. If I have a $1,000 piece of land, my taxes are $24.72 per year. If I have a $100,000 house on that property my taxes are $2,496.72 per year. If the value of my house goes up to $200,000, my taxes go up to $4,968.72 (an increase of $2,472). If the value of my house plummets to $50,000, my taxes go down to $1,260.72. So, the logical course of action for me as a homeowner is to push the value of my home down and not make any substantial repairs that would cause the assessments to go up.

Now, under the old system, the land is assessed at a higher rate and the building is assessed at a lower rate. Let's assume that the $1,000 piece of land is taxes at 100% of its value for a tax of $1,000, but the $100,000 home is taxed at a rate of 1.496%. My taxes, under this scenario are still $2,496. If the value of the house jumps, however, my taxes are only $3,992 (an increase of $1,496.00). If the value of my home drops to $50,000, I'm still paying $1,748.00.

So, what does this mean? Well, under the old system, property owners were not excessively penalized for improvements to their properties. Your tax amount on the land was not going to fluctuate as much as the tax on the home, so from year to year you would see a more predictable tax bill. Also, it did not reward people for demolishing buildings (thereby undercutting their taxable basis to the City). The net effect of the old system encouraged people to return vacant land to productive use and did not discourage owners from improving the buildings they already had.

Is it any wonder, therefore, why legitimate businessman Sal Williams is so interested in demolishing buildings and providing surface parking in Uptown? If Mr. Williams was taxed at a higher rate on his land and a lower rate on the buildings, he might reconsider his plan.

So seriously, this was once one of those "progressive" things that Pittsburgh was lauded for. Of course, we got rid of it.

Just wanted to set the FACT straight.

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