Budget-makers deal in risky business

Some officials in various municipalities have been a bit apprehensive about setting their property-tax millage rates for next year, given that the results of upcoming property-tax appeals could lower their town’s tax base and reduce the amount of tax revenue they can expect in 2009.

“We don’t know where the appeals are going to come in. … It’s a risk because it could leave us with a budget shortfall for 2009,” Laflin councilman Carl Yastremski said of setting millage rates before thousands of appeals in the county have been decided.

Reductions in property value achieved through appeals result in the reduction of a municipality’s tax base – the dollar amount of the total value of all properties in that municipality.

Each time a municipality’s tax base changes, the millage rate needed to bring in the same amount of revenue also changes proportionately. If the tax base decreases, the millage rate must increase for the municipality to break even.

Despite the potential for a significant number of property-tax appeals to reduce municipal tax bases next year, other municipal leaders didn’t seem worried at all.

“We don’t have any concerns,” Pringle Council President Kenneth Gustave said.

But what if there are significant reductions in value through those appeals and a reduced tax base puts a dent in revenue next year?

State law requires municipalities to adopt a balanced budget by midnight Dec. 31, state Department of Community and Economic Development Deputy Press Secretary Janel Miller said.

Also by the end of each year, municipal officials must adopt ordinances that set millage rates for property taxes and other tax rates and fees that back up the revenue projected in those budgets. A mill is a $1 tax on every $1,000 in assessed property value.

Because municipal budgets can be reopened only “in certain limited circumstances” in the year after they are adopted, Miller said, those property-tax ordinances should reflect accurate millage rates.

Miller could not provide examples of those circumstances and would say only that they are determined on a case-by-case basis. Neither could she identify the person or agency responsible for making the determination of whether a budget could be reopened because the DCED is “not a regulatory agency.”

Tim Barr, of 21st Century Appraisals, the firm conducting the county’s reassessment, said the county is in a unique situation.

“This is the first time I’ve ever had a reassessment when the formal appeals went past Oct. 31,” Barr said.

Oct. 31 is the date by which county boards of assessment appeals are required by law to certify new property values during the year of a reassessment.

A potential problem for municipal officials is the fact that nearly half of the property owners who appealed their new assessed values to the county Board of Assessment Appeals won’t receive determinations on their appeals until later this month or in January.

A mailing of about 3,000 formal appeal determinations is scheduled for Jan. 5, Barr said. A mailing of about 9,000 determinations was made on Nov. 5, and another 4,835 went out Wednesday.

The first batch of appeal determinations ended up reducing the value of Luzerne County’s tax base by about $27.3 million.

It seems likely that smaller municipalities with smaller budgets have more to worry about than larger ones when it comes to appeals-driven tax base reductions next year.

“There’s no question about it. We would be affected more,” Yastremski said of Laflin, where the annual budget is about $800,000 and the owners of about 17 percent of the town’s 733 taxable properties appealed the reassessed values to the county tax appeals board.

Adjustments made to borough property values between Oct. 31 and Dec. 5 reduced the borough’s tax base by nearly $6 million. If new millage rates already had been set in stone for next year, the borough would have seen its property-tax revenue decrease by about $8,000, or 1 percent of the borough’s annual budget.

Municipalities with more appeals might see even more significant tax-base reductions. For example, at Harveys Lake, formal appeals were filed on more than 30 percent of the borough’s 2,689 taxable parcels.

County assessment director Tony Alu said he doesn’t expect tax-base reductions brought about by the remainder of the appeals to be significant.

Still, he and Barr sympathize with municipal officials who have to deal with budget preparation.

“It’s an unfortunate byproduct of extension (of the county’s reassessment). It makes it more difficult for municipalities to set their budgets and not go backwards in revenue, because reassessments are meant to be revenue-neutral for municipalities,” Barr said.

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Property Reassessment

Pending property-value appeals can mean a big municipal question mark, but some not fretting.

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