If a local government wants to increase taxes, it will increase tax rates, right? Generally, yes. However, with respect to real estate taxes, the local government can actually reassess the values of real property in its jurisdiction and, if property values have increased, tax revenue will go up without any change in the tax rate. This essentially produces a backdoor tax increase effected by the executive branch of government, which assesses property values, rather than the legislative branch, usually a city council that votes on tax rates.
In Pennsylvania, the taxing authorities of every county are subject to laws that limit their ability to increase taxes indirectly like this by requiring them the adjust tax rates when a countywide reassessment is undertaken. Every county except Philadelphia County.
After a countywide property value reassessment has taken place, most taxing districts in Pennsylvania are required to reduce their tax rates following a countywide reassessment so that the reassessment is revenue neutral. 53 Pa.C.S. § 8823(b) (school districts are restricted by a separate statute). After first voting to reduce the real estate tax rate to make a countywide reassessment revenue neutral, most Pennsylvania taxing districts can then vote separately to raise the tax rate to allow for a maximum 10% increase over the prior year's revenue. 53 Pa.C.S. § 8823(c). This tax increase ceiling is even lower in Allegheny County, which limits backdoor tax increases to only 5% of the prior year’s revenue. 16 P.S. § 4980.2. Moreover, in most counties it is only with court approval, on good cause shown, that a taxing district can generate revenue over and above the ceiling on indirect tax increases. 53 Pa.C.S. § 8823(e).
This process, applicable to most counties by virtue of the Consolidated County Assessment Law (i.e., the statute cited above in Title 53 of Pennsylvania’s Consolidated Statutes, beginning at Section 8801), is commonly known as an “anti-windfall provision.” The Consolidated County Assessment Law does not apply to counties of the first and second class (Philadelphia County and Allegheny County, respectively), but, as set forth above, taxing districts in Allegheny County are limited by the anti-windfall provisions contained in the Second Class County Code.
This sort of anti-windfall provisions can also be found in the General County Assessment Law ("GCAL"), which applies to Philadelphia County (and which used to apply to all Pennsylvania counties). 72 P.S. § 5020-402(b). Philadelphians also have recent experience with the anti-windfall procedure, because that is exactly what happened to make the 2014 Actual Value Initiative revenue neutral. However, what happened during AVI was totally voluntary, because the GCAL’s anti-windfall provision exempts Philadelphia from limitations on backdoor tax increases. Id. In 2002, Philadelphia City Council enacted an ordinance that would have implemented anti-windfall protections for Philadelphia taxpayers, which can be found in Chapter 19 of the Philadelphia Code. Phila. Code § 19-1306 ("Cap on Tax Increases"). However, this ordinance was to be made effective "upon enactment of authorizing legislation by the General Assembly." Id. No such authorizing legislation has yet been passed.
Thus, Philadelphia County is the only county in the entire Commonwealth of Pennsylvania where the county government can generate unlimited tax increases from property reassessments, which are unchecked by any representative body, rather than by tax rate adjustments voted on by City Council.
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