Property Reassessment

REASSESSMENT: Education funding

August 10, 2008

The Property Tax Puzzle

In Luzerne County, who will pay a “fair share” of school property tax?

By Mark Guydish mguydish@timesleader.com
Education Reporter
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It costs close to $200 million a year countywide, yet how much of it you pay hinges heavily on a host of interlinked issues: where you live, who shares the bill (and who gets out of sharing), how much money people plunk into slot machines, and now, how property reassessment ultimately shakes out in your town.

“It” is school district property taxes, 66 percent of all property taxes paid in Luzerne County. Once a fairly simple – and reliable source of grumbling and focus of anger -- school taxes have morphed into a complex, confounding puzzle.

The Times Leader sifted through data from a variety of sources in an effort to isolate the pieces of that puzzle and show how each affects you, particularly as the changes of reassessment approach.

Commercial Property Piece

Theoretically, the more commercial or industrial property situated within a school district, the smaller the burden on private homeowners should be.

A look at the data from 21st Century Appraisals, Inc., the company doing reassessment, shows that factor varies greatly from district to district.

Looking at total assessed value, Wilkes-Barre Area School District has nearly 45 percent of taxable assessed value in properties designated commercial or industrial, while Hanover Area – a relatively small district sporting a large industrial park – is a close second at nearly 44 percent.

The county’s two most rural districts have the least commercial/industrial property. In Northwest Area, about 7 percent of total assessed value has those designations, while in Lake-Lehman, the amount doesn’t even hit 5 percent.

While reassessment is far from finalized, with numerous hearings and formal appeals under way or expected, the raw data shows an unmistakable trend: Every district in the county (including Berwick School District, which stretches across the Columbia County border into four Luzerne County municipalities) will see the percentage of commercial/industrial property value shrink.

As things stand now, Pittston Area will suffer the biggest loss, with the percent of commercial/industrial assessed value dropping from about 37 percent to 30 percent. Crestwood is facing a drop from about 19 percent to 14 percent, and Wyoming Area could drop from 22.4 percent to about 17 percent.

It’s far too early to be sure, if the money districts get from commercial/industrial properties shrinks, that likely will translate into an increase in overall tax burden for residential properties.

That tax shift is, in fact, calculated into 21st Century’s numbers. The entire process ultimately must result in the new tax rates raising the same amount as each taxing body (municipality, county and school district) raised under the old system.

The Tax-Exempt Piece

Similar to commercial/industrial land, the more tax-exempt property a district has, the more likely it is that other property owners may have to pick up the tab.

A look at data from 21st Century shows the percentage of total assessed value that is tax-exempt ranges from about 2 percent in Hazleton Area School District to nearly 19 percent in Greater Nanticoke Area. Hanover Area and Wyoming Valley West are at about 9 percent.

While reassessment will change those percentages, the difference is negligible.

Greater Nanticoke is typical, with current figures showing the percentage of tax-exempt value nudging to about 19 percent. But after more than 40 years without reassessment, we’re talking about a huge change in the actual dollar figures, from about $6.2 million of tax-exempt property in Greater Nanticoke to closer to $177 million.

There isn’t any more tax-exempt property; the assessed value of the existing property has simply been updated by four decades.

Incidentally, if you’re wondering why Greater Nanticoke has such a high percentage of tax exempt property, the answer is simple math. It’s not a particularly large district, but it does cover much of the property for two large tax-exempt entities: Luzerne County Community College and The Earth Conservancy.

The Act 1 Piece

This is probably the most complicated part of the puzzle.

When the law known as Act 1 was passed during a special legislative session in 2006, the promise was to use money from legalized slot machines to lower property taxes. But only part of the available money was earmarked for tax reduction, and a minimum amount of money had to be available before any tax relief was provided.

This coming school year will be the first time enough money is available for tax relief.

The state used a complicated formula to determine how much each district will get, and each district must divvy that allocation equally among all qualified homeowners. The amount you get has absolutely nothing to do with how much your house is worth or how high your taxes are. Everyone in a district gets the same dollar figure.

To give a clearer view of how much Act 1 tax relief money is worth, the Times Leader calculated the total allocation for each district as a percentage of the total tax money that district collects in property taxes, as provided by 21st Century Appraisals Inc.

Put another way, we looked at how much of the total property tax income is covered by Act 1 money.

For example, Dallas School District garners about $15.2 million in property taxes, and received $319,086 in Act 1 tax relief money. That $319,086 is a scant 2.1 percent of the $15.2 million – not much tax relief at all (and the lowest in the county).

On the other end of the spectrum, Northwest Area takes in about $4.5 million in property taxes and is getting $489,634 in Act 1 money, nearly 11 percent of the $4.5 million.

Greater Nanticoke Area also received the equivalent of about 10 percent of its total property tax income as Act 1 tax relief. The other districts ranged between about 3 percent and 8 percent.

The amount of tax relief a district gets can and almost certainly will change every year, because it hinges on the amount of money generated by casinos. The money is available only to eligible homeowners who must apply to get it. And while reassessment will play a part in future allocations, the part it plays is complex. For a fuller explanation, see the related Act 1 story.

“Other” property taxes piece

School district property taxes are not the only property taxes. The county levies its own tax on property, though it is the same for everyone and does not vary from district to district. Each municipality also levies a much-smaller property tax rate.

So the amount of total property tax you pay doesn’t simply depend on what school district you live in, it depends on the municipality as well.

And while school district taxes are invariably the largest piece of the total property tax pie, the size of the piece can vary substantially.

Property taxes are calculated in mills. One mill is a $1 tax for every $1,000 of assessed property value.

The municipalities where school taxes make up the smallest percent of total property taxes are in Hazleton Area School District, which has the lowest property tax millage in the county. In Hazleton city, school taxes make up about 56 percent of all property taxes. In Freeland and West Hazleton, they make up about 57 percent.

Bear Creek Township residents, on the other hand, pay nearly 76 percent of all their property taxes to Wilkes-Barre Area School District, which has the highest millage rate among Luzerne County school districts. Buck Township and Bear Creek Village, also part of Wilkes-Barre Area, pay about 75 percent of total property taxes to the school district.

Reassessment may change those percentages slightly, but it will be a result of the total assessed value increasing by a multiple of 20 or more -- not because the tax rates themselves will change (remember, 21st Century’s calculations are specifically made to keep the amount of actual money each municipality gets from property taxes the same before and after reassessment).

But reassessment will change the percentage of your district’s tax bill paid by your municipality.

That’s because the total assessed property value in each municipality will change at a different rate.

Take Hanover Area School District, for example, comprised of four municipalities. Currently, nearly 84 percent of the district’s property tax comes from Hanover Township (where the industrial park is). About 8 percent comes from Ashley, 4.1 percent from Sugar Notch, and 3.8 percent from Warrior Run.

Early projections from 21st Century show Hanover Township’s share will likely drop to almost 81 percent (the probable cause is the drop in commercial/industrial property issue discussed earlier), while Ashley will climb to 9.7 percent , Sugar Notch will bump up to 4.9 percent, and Warrior Run to 4 percent.

The vast majority of municipalities will see their share of total school district taxes shift by similarly small amounts – 72 of 76 municipalities will see their share of district taxes shift by less than 3 percentage points either way.

The big winner currently is Wright Township, which could see its share of Crestwood School District taxes drop from 40 percent to 33 percent. The big loser would be Harveys Lake, which would see its share of Lake-Lehman School District taxes jump from 20.6 percent to 32.8 percent.

The Caveat Piece

It cannot be stressed too strongly: All these calculations, and all the data in tables published here and on the Web, are based primarily on raw data provided by 21st Century Appraisals Inc., and that data does not include any assessment changes resulting from informal hearings or formal appeals since July 1.

Tim Barr of 21st Century has said the final total assessed value of all properties in the county could and probably will drop as mistakes are corrected.

His “worst case scenario” is a countywide drop of 20 percent from the July 1 total assessed property value of $21.6 billion. That would, in turn, push the new estimated tax rates up. Again, in the end the taxes generated after reassessment must equal the taxes generated before it. Lower total assessed property value means a higher tax rate.

Which is the other big caveat: All of these pieces are related. Decrease the commercial/industrial values and you increase the tax rate on other properties. Increase the tax exempt values and you increase the tax rate on other properties. Lower the assessed value in one municipality and school district tax rates must rise in all its municipalities to compensate. Only the Act 1 money is set in stone, and that’s only for this school year.

It is a particularly tangled topic in a place like Luzerne County, where on top of the county’s property tax, you have 76 municipalities levying their own rates and 12 school districts taking the biggest chunk of all. It gets more complicated in the school districts that cross county lines.

To see detailed spreadsheets, visit www.timesleader.com

Mark Guydish, a Times Leader staff writer, may be reached at 829-7161

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