Property Assessments Loom as a Key Issue In Education Finance
Computer records in Laszlow Garay's real-estate office in Media, Pa., show that a four-bedroom Colonial house on Bishop low Road sold in August for $200,000.
According to Delaware County's property-tax assessors, though, the house in the affluent Philadelphia suburb is worth only $6,000. About five miles away on Grandview Drive, another house sold recently for $200,000 is recorded on tax rolls at $6,500.
Indeed, it is difficult to find a house officially valued at $200,000 on the property-matter in much of Pennsylvania. In Delaware County, where the last countywide property assessment was conducted in the late 1950's, the average home is assessed at about 3.5 percent of its market value. Even in the Pennsylvania counties with the most up-to-date assessment practices, tax rolls reflect about a third of market value.
Depending on county assessment practices, a $6,000 notation on a Pennsylvania tax roll could describe a house worth anywhere from $18,000 to $200,000.
To compensate for such drastically undervalued assessments, officials in Delaware County levy property taxes on the Bishop Hollow Road house at a nominally astronomical rate--$450 per $1,000 of assessed value, thus producing annual revenues of $2,700 on the dwelling.
But while such strategies have yielded adequate revenues for local schools in the past, a county judge recently ruled that officials could legally impose only a small fraction of that rate.
And a group of 126 school districts that filed a school-finance lawsuit last week cites variations in property-assessment practices throughout the state as a major source of funding inequities.
Pennsylvania is one of a growing number of states that are beginning to examine and find serious weaknesses in their property-assessment systems. For the public schools, which derive nearly a third of their revenues from property taxes, the issue is a crucial one.
In states where property assessments vary widely, experts say, county tax rolls are a fertile breeding ground for school-finance inequities. Moreover, the variations frequently cloud efforts to evaluate local wealth and a district's tax effort and divert state school aid in unintended ways.
"It's hard to say what is at the root" of school-funding inequities, said David C. Thompson, co-director of the University Council for Educational Administration's Center for Education Finance at Kansas State University. "But [the problem of assessments] gets awfully close."
Analysts blame political pressures for encouraging many local assessors to cling to obsolete property prices. But observers also cite a lack of state oversight, and assessment officials point out that it is inconsistent practices within states, not low assessments per se, that create disparities. In Florida, where the assessment issue has also moved to the front burner, school officials are suing the state revenue department over its administration of local property-tax assessors. A state grand jury found this fall that there were significant dis parities and that the state's school-aid formula provides more relief to counties that have the worst assessment practices.
A little-noticed component of Kentucky's landmark school reforms, meanwhile, will provide $10 million over two years to revamp about half of the state's county assessment offices.
Educators involved in school-finance lawsuits in a number of states said they see a clear link between inadequate property assessments and funding disparities.
Mr. Thompson, who is advising low-wealth school districts in Kansas and West Virginia, said inconsistent assessments are "a major culprit" in both cases.
"These inequities are rooted very squarely in the property-appraisal issue," he said, adding that efforts to compensate for inadequate assessments can lead to incorrect perceptions about local circumstances.
"Some would argue that it's a function of local control and the level at which districts choose to spend," Mr. Thompson observed. "But when you strip that away, it's just not true."
Kansas property assessments range from 4 percent to 28 percent of market value, he noted.
"There's not much way of getting a true appraisal because, to be blunt, it's too political," Mr. Thompson said. "Those people are under tremendous pressure to make sure property-tax bills don't shift that much."
Variations and inaccuracies in assessments also greatly complicate attempts to use state aid to provide a more equal education to children throughout a state, experts add.
"You cannot determine the wealth of a locality without knowing what the property value is, and therefore, you cannot determine if a child's education is a function of wealth if you can't determine what wealth is," said Kern Alexander, a professor at Virginia Polytechnic Institute and State University and a frequent expert witness in state-funding lawsuits.
That may be the case in Alabama, he said, where out-of-date assessments are making it harder for districts currently suing the state to provide evidence of the contrast be tween affluent and poor districts. "Where states have not taken the lead in having a central office to check on property values you certainly tend to have greater variations," Mr. Alexander said. "It's an important and integral part of the funding problems of education."
Assessors also argue that the root of the current problems lies at the state level. Joseph E. Hunt, a lecturer at the University of North Carolina Institute on Government and president of the International Association of Assessing Officers, said educators should not blur the roles of local assessors, who are responsible for maintaining an even scale within counties and other localities, and state officials, who are supposed to ensure a level statewide standard.
Local assessors cannot be blamed for statewide inequities or problems associated with tax rates, which are set by other governmental entities, he maintained.
"Their job is to make sure every one is assessed by the same yard stick," Mr. Hunt said.
The assessing officers' association urges its members to meet the prescribed state levels for assessments. But even if property is assessed as low as 5 percent of its market value, Mr. Hunt argued, equity would still prevail as long as that percentage is held throughout the state. Assessment reform is an issue that lands squarely in the lap of state policymakers, Mr. Alexander said. "It's a problem that states are going to have to deal with if they're go ing to use property tax to fund education," he said. "And you have to use property taxes." Pennsylvania traditionally has had "one of the worst track records in terms of quality of assessments," according to Thomas J. Gentzel, director of government relations for the Pennsylvania School Boards Association.
Over the years, districts there have found ways to cope, usually by imposing extremely high tax rates on the low assessments, such as the $450 per $1,000 charged on the Bishop Hollow Road house in Media.
But while such manipulation of tax rates does provide funding for the schools, the cost is that it presents an unrealistic picture of the district. The Delaware County example creates the impression of a neighborhood with low property values but an unusually intensive level of tax effort.
If the house were assessed at 85 percent of its sale price--the general standard for fair-market value--the same $2,700 in revenue could be produced by a rate of $15.90 per $1,000. That would offer a totally different snapshot of the area, and one much closer to the truth: an affluent neighborhood with a reasonable tax effort.
And although such tax-rate contortions have become second nature for many Pennsylvania school administrators, they soon may be forced to find another answer.
Last month, a Delaware County judge upheld a long-ignored state law limiting property taxes to $25 per $1,000 of assessed valuation, with increases permitted to pay for base salaries and debt service.
While those two categories make up a large slice of most school budgets, Mr. Gentzel argued that many districts could face huge problems unless assessment reforms are undertaken.
Under the decision, property taxes on the house could quickly drop to $150, plus a surcharge for salaries and debt.
"For years nobody worried about the 25-mill limit," Mr. Gentzel said. "It's going to hit differently across the state, but it's going to hit based on the assessment practices of each county."
Mr. Gentzel lays much of the blame for Pennsylvania's property-assessment woes at the feet of state officials, who have allowed county assessors to function independently. The result, he argues, has been to provide acceptable county systems but wide variances across the state.
"The legislature has avoided assessment reform because it's political dynamite, and they don't want to get caught up in it," Mr. Gentzel said. "When you allow assessments to be on the books for 20 or 25 years, market rates go up but you are not reflecting any of that."
"This problem has consequences nobody ever dreamed about before," he said.
Property assessments in Florida counties run considerably closer than Pennsylvania's to actual prices--from 40 percent to 85 percent of market value. Even so, the range of assessments was wide enough to lead the state grand jury in September to label the system "broken."
"While it would be unrealistic to expect total uniformity among appraisers, it is certainly reasonable to expect property appraisals statewide to fall within some acceptable range," the grand jury concluded.
The grand jury also found that officials in the state revenue department had largely ignored their over sight responsibilities. Laws providing state officials with "potent" enforcement tools against in adequate county tax rolls were seldom used, the panel found. Between 1981 and 1989, no tax rolls were dis approved by the state.
The revenue department "had a de facto policy of approving all county tax rolls irrespective of their quality," according to the grand-jury report.
When the state has used its powers, it has done so with a partisan bias, argues State Senator Bob Johnson, a longtime critic of the property-assessment system.
Mr. Johnson, a Republican, said that the state's traditionally Democratic officials wielded property-tax oversight as a political weapon, focusing greater scrutiny on tax rolls from heavily Republican counties.
The combination of widely varying assessments and a school-aid formula that grants more state assistance to low-wealth counties has created a situation in which "the counties that have been forced to fairly assess their property have paid the school taxes of the other counties," Mr. Johnson maintained.
"The state has just never done its job," he added.
To force assessment reforms, the Florida School Boards Association has filed suit against the revenue department, and has been joined by the state superintendents' association and 18 school districts.
Wayne Blanton, executive director of the school-boards group, said that a favorable ruling could produce more revenue for schools. More importantly, he argued, it also would leave all of the state's coun ties with an equal funding burden.
"The main point is to require the department of revenue to collect and assess property taxes on an equal basis around the state so that some are not paying more while others get a free ride," Mr. Blanton said.
Although a previous lawsuit and attempt to push an assessment-re form bill through the legislature were unsuccessful, Mr. Johnson said was confident the latest effort would produce results.
"I don't have any question that something is going to happen, and if it doesn't, we'll be in the federal Supreme Court because this is affecting all segments of society," Mr. Johnson said. "It's not just a 'small potatoes' game anymore."
Efforts to improve the property- assessment system are further along in Kentucky, where the state Revenue Cabinet is in the early stages of a two-year, $6-million effort to provide "emergency reassessments" for 25 counties whose tax rolls were in hopeless disarray.
When the effort reaches its peak, half of the state's property-tax field staff and about 250 data collectors will be assigned to the counties to update basic information such as maps and the size and characteristics of homes and property.
Jim Coffman, commissioner of the state department of property taxation, said chronic problems in county assessment offices led to "terrible" inequities.
"They just went off the sales price and would periodically update it," he said. "A lot of it was tradition. They never had the basic records."
"I guess it's never been done right in those counties since 1792, when we became a state," Mr. Coffman added.
In addition to the emergency reassessments--which were funded separately from Kentucky's sweeping education-reform law but are seen as a vital part of efforts to improve the / schools--the state plans to appropriate another million for improved 1 data systems in 65 other counties, officials said. The 1990 education-reform act will require countywide assessments reflecting 100 percent of 5 market value by 1994.
"This was sort of a catch-up step that had to be taken," Mr. Coffman said of the assessment reforms, which have been undertaken with : assistance from county officials. "We want to get everybody up to an acceptable level and then keep it that way."
He said much of the fault for the poor performance of the system lies with the state, which rarely monitored assessments and had seen only occasional successes in its recent efforts to upgrade county tax rolls.
"Over the years, they've been kicked back and squabbled over, and we've gone on," Mr. Coffman said. "But in the end, what we were doing was certifying inequities."