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O'Connor urges dropping 2-tiered tax system

Single rate would help hard-hit areas, he says

Thursday, January 18, 2001

By Timothy McNulty and Mark Belko, Post-Gazette Staff Writers

Seeking to stem the furor over skyrocketing land values in the city, City Council President Bob O'Connor yesterday moved to scrap the city's two-tiered tax system in favor of a single rate.

O'Connor said the net effect would be to shift the tax burden from some city neighborhoods hit hard by the countywide reassessment onto the Downtown business corridor and other corporate centers.

A spokesman for Mayor Tom Murphy said the administration would work with council to study O'Connor's proposal but warned that a unified rate would benefit some homeowners at the expense of others.

He said the administration today will seek to schedule a meeting with City Council to "detail the various options available and to have a full, open public discussion about this important issue."

While O'Connor sought to ease the tax burden, Murphy kept the pressure on Sabre Systems and Service, the Ohio firm paid $23.9 million to do the Allegheny County reassessment. Murphy has accused Sabre of botching the job.

Assistant City Solicitor Ronald Pferdehirt said the city planned to file a court petition within the next few days asking Allegheny County Common Pleas Judge R. Stanton Wettick Jr. to force Sabre to re-examine the land and building values assigned to city properties.

Pferdehirt said the city would try to make the case "that the methodology employed by Sabre in allocating land and building values was arbitrary, capricious, and it was fatally flawed."

He tried to force the issue during a hearing yesterday before Wettick, who ordered the countywide reassessment. But Wettick said he would not consider the request unless the city filed a formal petition. At that point, he said, he would determine whether it was "appropriate or not."

The city taxes land at 31.37 mills, almost six times more than the buildings rate of 5.44 mills. The two-tiered tax system was inspired by 19th-century economist Henry George, who thought taxing land separately would engender efficient land use and discourage speculation by the wealthy.

But George's 19th-century theories produced real life shock waves in 21st-century Pittsburgh. Because of the reassessment, which dramatically increased land values in many parts of the city, residents were confronted with the prospect of much higher tax bills -- even for properties whose overall value rose modestly or not at all.

That led to the furor this week by city taxpayers and politicians over the revaluations and a war of words between city and county officials.

Murphy and most City Council members have focused their ire on Sabre.

But O'Connor said the best way to address the tax increases is to scrap the two-tiered rate in favor of one overall rate that taxes properties on their total values, not separately on land and buildings.

The single rate would likely be about 10.8 mills.

A unified rate would be easier for residents to understand and to appeal, and it would also force Downtown property owners to pay a greater share of the tax burden, he said. That's because the 10.8-mill rate would apply to both land and buildings, so owners of the biggest buildings, who would have been paying the 5.44-mill rate on their structures, would instead see a near doubling in the rate.

"Large property owners have learned how to manipulate Henry George's two-tiered system to the detriment of the poor and middle class of this city," O'Connor said.

"Maybe years ago this system might have been able to work. But the only reason I can think of anyone fighting [a single-rate system] is only to protect the big boys" Downtown, he added.

O'Connor, who is running for mayor against Murphy, said he would introduce his tax plan to council Tuesday.

Murphy spokesman Craig Kwiecinski said council members were briefed on the option of going to a unified rate in October, but they felt then the city should stay with the two-tiered system. Kwiecinski said a single rate could penalize those in lower-income neighborhoods.

"It's not as simple as just shifting the burden to commercial users. It's a very complicated issue," he said.

According to the city's most recent study, the biggest winners under a unified rate would be in Squirrel Hill and Shadyside, both hit hard by the reassessment, where tax collections would drop about 15 percent neighborhoodwide.

The city's property tax collections in those communities would fall by $3.7 million and $1.5 million respectively.

Among others, residents of Carrick, the South Side, Mount Washington, Bloomfield, Stanton Heights, Morningside, upper Lawrenceville, East Liberty, Highland Park, Hazelwood, Greenfield, Beechview and Brookline as a whole also would see lower taxes with a single rate.

And while it is true that some lower-income areas, such as Homewood, East Hills and the Hill District, would see their overall tax burden increase as Murphy suggested, Lincoln-Lemington would see a decrease.

As O'Connor indicated, the biggest losers in a unified system would be property owners in the most commercial parts of the city: Downtown, Oakland and the North Shore.

In the 2nd Ward, including part of the Downtown business district and the Strip, tax collections would jump $5.2 million (25.5 percent) with a single millage rate. In the 1st Ward, which includes part of the Downtown business district and the Bluff, collections would jump $1.3 million (14.7 percent).

In Oakland's 4th Ward, taxes would jump $557,000 (9.3 percent) and in the 22nd Ward, including the North Shore and Allegheny West, taxes would jump $373,000 (10.6 percent).

While Murphy, city and county council members, and city Controller Tom Flaherty have blamed Sabre for the flap over land values, Sabre Operations Manager George Donatello vigorously defended the firm's work, saying the problem was not the assessments but the city's two-tiered tax rate.

"Folks should be talking to their representatives who have kept this system alive for I don't know how many years. But it's a bad system and the taxpayers are going to pay for it," he said yesterday.

Donatello said he briefed city officials "at least 10 times over the years" and has sent them memos alerting them that the two-tiered rate was going to be a problem because of escalating land values, which Sabre found to be "extremely low" under the old assessment system.

A Pennsylvania Economy League study found that land assessments in the city dropped every year from 1940 to the mid 1980s despite two development booms.

Told that the city planned to petition Wettick for a review of Sabre's methodology, Donatello snapped, "That's good. I'll give them a textbook on the appraisal of real estate and they can read that until their heart's content. We used absolute standard methodology."

Murphy and some council members have complained about faulty land values and a lack of uniformity in applying them. One of the leading critics, Councilman Dan Cohen, who represents Squirrel Hill and Shadyside, said the values are "outrageously high."

He cited one example of two seemingly identical townhouse properties having wildly different land values even though the square footage difference in the plots was only four feet. Other property owners have come forward with their own studies of wildly fluctuating land values.

Donatello has said that a variety of factors go into calculating land assessments, including topography, parking, lot size, how extensively the lot is used, trees, contamination and view, particularly in the case of some Mount Washington properties.

In court, Wettick did not act on demands by the city and county Controller Dan Onorato to order Sabre to offer more informal reviews for city residents who are upset about their new land values.

A breakdown of land and building values was not included in preliminary notices mailed to city residents last fall. They did not find out the values until the information started appearing on the county's Web page earlier this month or in formal reassessment notices.

The county -- not Sabre -- decided to send out preliminary notices with one overall value for simplicity's sake, but Onorato has been withholding a $1.8 million retainer to Sabre until it agrees to more informal reviews. Sabre petitioned Wettick to order the money released.

When Wettick asked yesterday whether any city officials had complained to the county or Sabre about the lack of a breakdown after receiving notices last fall, Pferdehirt replied, "I can't say for a fact that happened."

Wettick did not rule yesterday, deciding instead to meet with the parties Jan. 30 to discuss the issue once again after they filed briefs.



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