‘Perfect storm’: Property tax crisis threatens suburban Allegheny County school districts

Throughout Allegheny County, waves of mall owners, hoteliers, office park operators and big-box retailers are stampeding to slash taxes by challenging their property assessments.

But as property owners keep winning big breaks, they’re also creating big headaches.

The more the owners succeed, the more they’re choking off critical revenue for suburban school districts, all of which heavily rely on property taxes to fund everything from books to programming to teacher salaries to new gyms.

The numbers are stark.

Over the past two years, aggressive tax appeals have obliterated more than $105 million of commercial property value in communities that make up the West Allegheny School District.

In the Montour School District covering Robinson and surrounding communities, property values have plunged by more than $89 million thanks to assessment challenges.

The value of land and buildings in the Gateway School District, which encompasses Monroeville and Pitcairn, has tumbled by nearly $69 million.

And in the Moon Area School District, a landowner is pushing to lower the value of a single property by $30 million. Success would force the district to shell out more than $700,000 in tax refunds.

Anna Borsos, Montour’s finance director, views the refunds facing the district as a historic challenge.

“It is unprecedented,” Borsos said.

While Pittsburgh has generated headlines for months about an unceasing stream of successful property tax appeals that have devastated the Downtown tax base and thrown Pittsburgh Public Schools into panic, a silent crisis — one no less dire — has been brewing outside city limits.

From one end of Allegheny County to the other, property tax challenges are ramping up intense pressure on many of the 42 suburban school districts.

More than half are facing multimillion-dollar declines in property value because of the flurry of appeals from commercial property owners, according to a TribLive analysis.

School district leaders say they’re facing painful choices to cut programs, raise taxes or deplete rainy day funds, as costs rise due to inflation and increasing staff salaries.

While commercial property owners celebrate, some districts are grappling with an increasingly grim outlook.

Edward Hirshberg, an attorney at Ryan Law in Pittsburgh who has represented commercial clients and schools, sees tough times ahead.

“Every single school district is facing some hard decisions,” Hirsh­berg said.

Lost value

Through the end of March, Allegheny County lost $1.4 billion in commercial, residential and agricultural property value after appeals of assessments in 2022 and 2023, according to data compiled by TribLive from the Western Pennsylvania Regional Data Center. Commercial properties represented about 11% of appeals in 2022 and 2023.

The majority of the losses are in Pittsburgh, which is the county’s largest municipality by size and population and boasts a concentration of skyscrapers whose values are nosediving.

But the worth of commercial real estate in the suburbs also is tanking.

Municipalities outside of Pittsburgh have lost nearly $570 million in property value because of 2022 and 2023 appeals.

Some of the biggest drops have happened in Robinson, Findlay, Monroeville and Sewickley, each of which has seen tens of millions of dollars in property values vanish. More drops are likely on the way.

Five properties have each experienced declines in assessed value of more than $10 million:

• An Amazon fulfillment center in Findlay, $21 million.

• Monroeville’s Miracle Mile strip mall, nearly $17 million.

• The Industrial Scientific office building in Robinson, $14 million.

• Heritage Valley Hospital in Sewickley, more than $12 million.

• A senior living community in Whitehall, more than $11 million.

Bleak situation

Chartiers Valley School District — which includes Bridgeville, Collier, Heidelberg and Scott — has been hard hit.

Patricia Connolly, the district’s finance director, said Chartiers Valley has seen its taxable property value plunge by 20% through appeals for the 2022 and 2023 tax years.

As a result, she said, the district likely will have to dole out significant refunds to property owners.

Connolly said the district’s rainy day fund is below the state recommended level, making it difficult to dip into reserves to pay refunds and cover lost revenue. The state recommends that school district rainy day funds be above 8% of their total budget. Chartiers Valley’s rainy day fund is at about 6.5%.

Chartiers Valley already has raised property taxes each of the past six years, she said, and can’t hike them any faster because of state law that limits tax increases.

That has made it challenging to cover rising teacher pay and other bills increased by inflation, Connolly said.

Without major changes to state or federal funding sources, she warned, the district’s budget situation is bleak.

“It is coming from all sides,” she said. “Nothing is working in our favor.”

One-two punch

Hirshberg pointed to two main reasons property owners are flooding the county’s Board of Property Assessment Appeals and Review with challenges.

The first is the change in something called the county’s common level ratio, an esoteric formula used during appeals to value properties for tax purposes.

In 2021, Allegheny County was using a common level ratio of 87.5%. A property that won an appeal would have its assessment changed to about 87% of its new fair market value, the price at which it might change hands on the open market.

So, for example, an owner who proves to the appeals board a property’s fair market value should be lowered to $100,000 would see its assessed value set at $87,500 for tax purposes.

A lower value means less taxes. And the common level ratio keeps sliding.

After a successful lawsuit brought by homeowners, Allegheny County Common Pleas Judge Alan Hertzberg ruled in 2022 that the ratio had to be reduced to 63.5% for 2022 and 2023 taxing years.

That has encouraged scores of property owners, particularly those with large and expensive commercial property, to seek appeals, Hirshberg said.

“If you drop that on a $10 million property, just changing the common level ratio and nothing else, it decreases your real estate value by a few million dollars,” Hirshberg said.

Owners of big-box stores took note. A Target in West Mifflin won a $1.6 million cut last month. Walmart stores in several places also have seen big drops, including one in West Mifflin for $6.5 million and another in Harrison for $5.5 million.

For the 2024 taxing year, the ratio will drop again, to 54.5%.

That will further erode schools’ revenue stream, said Ira Weiss, the solicitor for Pittsburgh Public Schools and some suburban districts.

Marybeth Dodd, Fox Chapel Area School Board president, said the decrease in the ratio will impact her district for years. She said that while Fox Chapel Area School District can likely cover the nearly $35 million total decline in value for properties that make up its communities, many other districts don’t have the wherewithal.

The district covers Aspinwall, Blawnox, Indiana Township, Fox Chapel, O’Hara and Sharpsburg.

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Biggest losers

These five properties saw the biggest drops in value for commercial property in Allegheny County outside Pittsburgh thanks to successful assessment appeals by their owners in 2022 and 2023.

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‘Perfect storm’

The second factor encouraging assessment challenges is a decrease in the value of commercial properties caused by pandemic pressures.

Office vacancies are up because people began working from home. That change made office buildings less valuable. Online shopping soared as a desire for added convenience mixed with worries about covid-19 that kept people from patronizing stores in person. Brick-and-mortar retailers lost business, cutting into their value.

Barry Balaski, Moon Area’s superintendent, is closely tracking the deluge of property tax appeals.

He knows that Moon is filled with commercial properties under assault by owners and their lawyers eager to knock down their tax bills.

“It is a perfect storm for schools,” Balaski said.

Districts are especially vulnerable when appeals are successful because of their outsize reliance on property taxes for funding.

While Moon has allocated $4 million for appeal-related refunds, the scale of swooning property values is growing beyond the district’s control and making managing a budget difficult, Balaski said.

“We predicted some of these things would occur and put some money aside, but we are looking at $5 (million) to $6 million in refunds,” Balaski said. “And that is just the refunds, not the total amount of decline in future revenue we have to account for.”

Taking action

Hirshberg called the situation “an absolute mess” driven by the lack of a countywide reassessment since 2012.

Pittsburgh Public Schools is trying to tidy things up.

After Weiss, its solicitor, beseeched the school board to take action, its members unanimously passed a resolution demanding that Allegheny County enact a countywide reassessment or face a lawsuit. The county didn’t budge, and the district sued this month.

A similar lawsuit triggered the last reassessment.

“All the school districts and municipalities are in the same boat here,” Weiss said after the board approved the resolution. “They are all suffering because of this system. And, frankly, many taxpayers are, too, because they are paying more than they should. A broken system doesn’t help anybody.”

Litigation is the typical path to reassessment in Southwestern Pennsylvania. Lawsuits are brought by school districts, property owners or others challenging a county’s common level ratio. Then a judge rules if the ratio is constitutional, and if it is not, the county is forced to complete a reassessment.

Beaver County completed a court-ordered reassessment last year for the first time in more than 40 years. That kind of stagnation is not unusual. Westmoreland and Butler counties haven’t reassessed in decades.

The push to reassess is growing beyond Pittsburgh. Joining the chorus are suburban school districts such as Moon Area, Fox Chapel Area, Gateway, Montour and Quaker Valley.

Robin Mungo, Gateway’s board president, supports a reassessment and said conversations about the necessity of one should be spreading to all school districts in Allegheny County.

She acknowledged that a reassessment might not be popular with homeowners.

“I like paying what I paid in 2012, but in order to keep the quality that we can produce, we need to do something,” Mungo said.

Scott Antoline, the director of finance for the Quaker Valley School District, which is bracing for a $20 million drop in property value, agrees it’s time for a countywide reassessment to “ensure fair and equitable property assessed values.”

Democratic Allegheny County Councilwoman at-large Bethany Hallam believes it is long past time for a reassessment. She introduced a bill Wednesday that would move the county to regular reassessments, triggered anytime the common level ratio dips below 85%.

Hallam dismissed fears that taxes would surge, noting that windfall provisions would cap any increase in millage rates and limit any tax hikes.

Hallam added that County Council would work to add provisions to protect longtime, low-income homeowners. She said a reassessment would bring equity to a system that is experiencing stark inequalities with large commercial property owners benefiting.

“It is important for the financial stability of every municipality and school district,” Hallam said. “We need to do a reassessment immediately.”

Council President Pat Catena, D-Carnegie, agreed.

He called trying to fix the property tax debacle without a reassessment a “fool’s challenge.”

“If we took our medicine in regular fashion, it wouldn’t be the sticker shock it looks like it is now,” Catena said.

Losses outpace gains

To combat dwindling revenues, taxing bodies — mainly school districts — have pursued their own appeals, primarily of residential properties.

A key target: homes bought in the last several years.

Some schools and municipalities have enjoyed success. In Bethel Park, for instance, the school district won a $7.5 million increase for an apartment complex. And Harmar, which is part of the Allegheny Valley School District, triggered a $3.5 million jump in the value of a large, vacant commercial lot near Route 28.

So far, though, property value declines have far outpaced gains.

In 2022, for example, commercial property appeals led to a decline of nearly $340 million in property value in the suburbs. Meanwhile, other appeals pumped up the value of residential properties by $91 million.

For Allegheny County’s coffers, that residential boost brought $430,000 more in taxes. But the commercial declines lopped off more than $1.6 million in tax revenue, according to the county controller.

The net result: a drop in property tax revenue for the county of roughly $1.2 million.

Those losses, however, represent only a minuscule fraction of the county’s budget of more than $3 billion. What’s more, the county can lean on other revenue sources such as sales tax, unlike school districts, which get most of their money from property taxes.

Some districts hold out hope that they have enough open property to attract future residential development to help expand their tax base and stave off future losses.

Gateway and West Allegheny have significant rainy day funds to cover these losses, according to the state Department of Education. But not every community is in the same position, said Chartiers Valley’s Connolly.

“The only place we have to grow in the district is the Collier Township area, but in the older boroughs, there is not a lot of new housing going in,” she said.

Even in school districts like Moon Area’s that are seeing fast residential growth, the pace still isn’t enough to totally offset losses, said Balaski, the school superintendent. Countering the expanding tax base: higher education costs due to a growing student population.

Besides, Balaski noted, commercial properties are the real money makers for school districts.

“Homes generally do not help to sustain the tax revenue,” Balaski said. “Let’s say a new large home pays $15,000 in taxes a year. Well, that is less than it costs to educate a single child on average.”

Educating a public school student in Pennsylvania costs about $20,000 a year on average, according to the U.S. Census.

Not one penny more

Mike Suley, a member of the Board of Property Assessment Appeals and Review, said the rate of the court-ordered drop in the common level ratio was shocking.

The current system benefits wealthy owners of commercial properties, Suley said, because they understand the ratio and have the resources to take cases to court.

When the common level ratio dropped, appeals exploded in Allegheny County — nearly 27,000 total for 2022 and 2023. That’s nearly double compared to the two-year span of 2018-19.

This year, the county is on track to grant nearly 12,000 appeals.

Commercial property owners “want to pay their fair share in taxes, not one penny more, and they will hire a lawyer and an expert appraiser, and then it is just math,” Suley said.

Most properties in Allegheny County still are paying taxes based on their value in 2012. The common level ratio is meant to factor in this discrepancy between assessments that are more than a decade old and properties that change value through appeals.

Why the county hasn’t already triggered a countywide reassessment is mostly political, according to Hirshberg, the Pittsburgh-based lawyer.

“It gets everyone in the county to think about their property taxes, and no one wants to do that,” he said.

Finger on the trigger

Allegheny County Executive Sara Innamorato acknowledged that the county’s assessment system has been long broken.

In an interview with TribLive, she said suburban property value declines show how the issue goes beyond the Downtown Pittsburgh boundaries.

“We have 130 municipalities. We have 43 school districts. This impacts all of them,” she said.

Innamorato, who initially campaigned last year on supporting a countywide reassessment, said her office is gathering data and working to ensure that longtime homeowners, especially in gentrifying areas like Pittsburgh’s Lawrenceville neighborhood, are protected from severe property tax changes that might force them to move.

She acknowledged a reassessment is likely on the horizon. One challenge, she said, is ensuring that one is “predictable, mundane and revenue neutral.” She said her office is investigating whether Allegheny County can pass a law requiring regular reassessments — likely somewhere between three and five years — which is how Philadelphia functions. It’s unclear whether the county legally has the power to do so because it functions under different state regulations than Philadelphia, according to Innamorato.

She said she understands the urgency pressuring Pittsburgh Public Schools. But she stressed the importance of a measured approach.

“They have budgets to pass and students to care for,” Innamorato said. “We just have to continue to be methodical and intentional. We can’t rush into anything because we want to get it as close to right as possible.”

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