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How Local Government Works: A Key Factor in Determining Property Taxes Varies Wildly Across Pennsylvania

How much 1 mil in taxes brings a municipality differs widely all over the state. That has serious implications for municipalities’ budgets.

Dec 08, 2023

by Min Xian of Spotlight PA State College

Photo courtesy of Dan Nott / For Spotlight PA

This story first appeared in The Investigator, a weekly newsletter by Spotlight PA featuring the best investigative and accountability journalism from across Pennsylvania. Sign up for free here.

How Local Government Works is a series that focuses on issues and trends in Pennsylvania local governments and provides tools for readers to hold their local officials accountable.

Property taxes are the lifeblood of municipal revenue and services in Pennsylvania, but depending on when a county last assessed its property values, local governments can overflow with cash or be strapped for it.

To calculate property taxes, municipalities use a unit called a “mil” — one dollar for every $1,000 of the assessed value of a property. If a municipality has a property tax rate of 1 mil and the assessed value of a house is $100,000, the owner will pay $100 in property taxes.

But the assessed value of properties does not always reflect their true market value, and how reliable that figure is heavily depends on how recently a county performed a reassessment.

A county that last updated its property values 60 years ago will have much lower property values than a county that performed a reassessment in the past five years. While 1 mil will always mean $1 of every $1,000 in assessed property value, the worth of that 1 mil can be quite different all over the state as a result.

A chart explaining different values of a mil across Pennsylvania. Photo courtesy of Sam Wiser

Consider a stark contrast: In Montgomery County’s Lower Merion Township, 1 mil nets more than $7.7 million in revenue, while in Shippensburg Borough, which straddles the line between Franklin and Cumberland Counties, 1 mil amounts to just below $14,000 in revenue. That’s according to figures compiled by Jeffrey Stonehill, manager for the Borough of Chambersburg.

Sam Wiser, a municipal lawyer for the firm Salzmann Hughes, recently spoke with Spotlight PA about what causes this disparity and what potential fixes exist.

What role does the mil play in local government?

Each municipal code ties a municipality’s ability to tax real estate to millage values, and there are different millage limits.

For boroughs and first-class townships, the limit is 30 mils. If the municipality has a police department, the police department normally consumes all or the vast majority of the general millage rate. “It’s a mission-critical revenue source for emergency services,” Wiser told Spotlight PA.

There are other sources of revenue in a municipality. Local governments are authorized to impose an earned income tax, and they also receive a realty transfer tax. The latter is levied when a property is sold: 1% goes to the commonwealth, and 1% goes to the municipality. Most governmental functions, like fire response, code enforcement, and community development, are funded through these two taxes — which becomes an enormous challenge when the economy is not healthy, Wiser said.

Fire service funding is especially challenged because it is limited to 3 mils of tax under the borough code and both township codes. There’s also a cap of half a mil for ambulance, rescue, and other emergency services.

What’s in a mil?

The jarring difference in the monetary value of a mil across municipalities stems from the mil being based on the county-assessed value of a property.

“Those county assessments are not uniform across the commonwealth,” Wiser said. “They actually vary tremendously.”

Wiser pointed to Franklin County. It has one of the oldest assessments in the commonwealth, using property values from 1961. Meanwhile, neighboring Cumberland County last conducted an assessment in 2011. As a result, Shippensburg Borough’s general millage rate is almost 27 mils in Franklin County but just over 2 mils in Cumberland County.

While the Pennsylvania Constitution requires taxes to be uniform and assessments to be uniform, it doesn’t mandate when assessments must be done. Wiser said a number of legal challenges brought against several counties whose assessments were out of date were “generally successful.”

A 2022 report by the Pennsylvania Economy League shows when each county last conducted a reassessment. Screenshot via Pennsylvania Economy League

What consequences and potential fixes are there?

The real consequences come when municipalities have reached their millage limits, Wiser said, and there are many municipalities that are approaching them.

“Local governments are very frustrated. … This is not something they control,” he said.

While state law permits municipalities to petition the court to increase the millage rate, Wiser said that would not be necessary if counties are up to date with property assessment. And he doesn’t believe there should be “an arbitrary rate” on how much local governments can spend on fire or ambulance services.

The Pennsylvania Economy League, a think tank that researches local government policies, suggested removing the millage limits in a 2022 report as well. Wiser noted that in the municipal codes, there is no cap on the amount of taxes assessed for recreation or to fund debt service.

Wiser said one possible remedy relates to the state realty transfer tax, which is not based on the assessed value but rather the market value of a property. The market value is established by an equation that involves what the state Department of Revenue calls common level ratios.

“It is one way to bridge the difference between outdated assessment and the real actual market value of property,” he said. “Why can’t we do the same for the millage rate?”

The state legislature would have to amend the municipal codes for any potential changes to happen. An October op-ed by the Allegheny Institute for Public Policy, a Pittsburgh-based research organization, called for lawmakers to require a better system to ensure that assessed values actually reflect the market.

There are some “creative concepts,” as Wiser put it, that some municipalities have undertaken. One municipality is assessing a fire service fee (and not calling it a tax), and there are some communities that have formed ambulance authorities that bill residents for emergency services — much like a water or sewer charge.

The challenge with these is that they’re not legally tested, he said. A lot of municipalities — which tend to be risk-averse — are therefore hesitant to go in those directions.

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