Court ruling sets off property-tax 'dynamite' in Delco. Will other counties feel heat?

Jamie Ridge, head of Suburban Realtors Alliance: For some politicians, property taxes are "too hot to touch."

When Peter and Ellen Bodenheimer bought a new home in the upscale Haverford Reserve development of Haverford Township in 2014, they paid $731,000 to live in what developers advertised as a “picture-perfect Main Line neighborhood” on a 120-acre nature reserve.

They found nothing “picture perfect” about their tax bill.

Its assessment — the legal market/property value established by the county — was so high that the annual property-tax bill was more than $6,000 higher than it should have been legally, and higher than the bill on another township house that sold the same year for more than $1 million, tax records show.

The Bodenheimers appealed and, along with a Rose Valley couple, filed a suit that caused a Delaware County Court judge to order the county to reassess all 200,000 of its properties for the first time in 20 years. If history holds, the effects could ripple into neighboring counties.

“We found … there was a tremendous variation among property owners in the county in terms of their taxes compared to their fair market value of their homes,” said John J. Murphy, the Bodenheimers’ lawyer.

An Inquirer analysis of the most recently available state tax data showed that only about 30 percent of county properties are assessed reasonably accurately, based on legal standards.

Under law, the county is responsible for assessments, which determine a property’s tax bill. Reassessments distribute tax burdens more equally — and create vast classes of winners and losers. Towns and schools can’t use the process to get more money, but it will change most property owners’ tax bills, for better or worse.

A generation ago, a similar suit filed in Chester County was followed months later by one in Delaware County. Judges ordered reassessments in both cases, and Montgomery County undertook one voluntarily. Bucks County hasn’t done one since 1972.

New Jersey’s system, while not beloved by residents of the Garden State, is less unwieldy, since assessments are municipal responsibilities and generally performed more frequently.

Countywide reassessments are expensive, labor-intensive, and likely to set off mass appeals, so counties historically have been reluctant to undertake them.

Another reason? “It’s political dynamite,” said Randy Varner, chair of the state and local tax practice at the law firm McNees Wallace & Nurick.

Because reassessments are often unpopular among residents who fear they are a ploy to raise their taxes, county commissioners are loath to push for them.

“I guess you would call it a third rail,” said Jamie Ridge, president of the Suburban Realtors Alliance, which represents about 11,000 Realtors in the region. “Property taxes are seen by some elected officials as being too hot to touch. … That’s why no county really is jumping up and down in excitement trying to reassess properties.”

But, experts say, reassessments generally shake out like this: About one-third of properties get higher bills; one-third, about the same; and one-third end up with lower taxes.

“Ultimately,” said Varner, “it should be an exercise in fairness.”

The state constitution requires that all property owners in a given county pay taxes based on the same percentage of market value. The state calculates that percentage using annual assessment and sales figures. For this fiscal year, it has determined that in Delaware County, on average the assessments represent 65 percent of market value: A house valued at $100,000 should be assessed at $65,000. But in the latest state survey, fewer than 0.05 percent of the assessments were right at 65.

The real ratios can vary wildly from town to town, and from neighborhood to neighborhood, and on age of construction. The greater the appreciation, the lower the ratio. Thus older homes that have increased in value can get generous tax breaks. Newer homes carry fresher assessments often with higher ratios.

“We found that new construction was being taxed at a much higher percentage of fair market value than older homes,” said Murphy, a partner with the Stradley Ronon law firm.

Delaware County, home to some of the region’s highest- and lowest-price real estate, from the Main Line to the river towns, has an especially complex property-tax landscape.

Haverford Township is a case study: In 2014, according to state records, township houses that sold for $150,000 were paying taxes on 95 percent of market value; for houses that sold between $400,000 and $500,000, the figure was 49 percent.

Delaware County and Property Tax ‘Dynamite’

Haverford Township, the source of the Delaware County property-tax suit, is a microcosm of the problems with the Pennsylvania assessment system. The majority of property owners are either over- or underassessed and would get significantly different bills in reassessment.
Hard hit in Haverford would be owners of properties in the $250,000-to-$500,000 value range, since many currently are underassessed.
Here is the breakdown, based on the most recent state sales-assessment report and current millages for the township and school district:

SOURCES: State Tax Equalization Division; Inquirer analysis
Staff Graphic

Peter Bodenheimer, who works as a financial adviser for Boenning & Scattergood Inc., and his wife, Ellen, declined through their lawyer to comment. James and Lenore Kaufman of Rose Valley also declined comment through Murphy, who represented both couples.

Delaware County spent $7.8 million on its last reassessment, which began in 1998 and was also court-ordered, said Marianne Grace, the county’s executive director. The values took effect in 2000.

Today, Allegheny, Blair, Lancaster, Monroe, and Washington Counties are also reassessing.

Independent and legislative reports in recent years have made recommendations to change Pennsylvania’s quirky system, such as repealing the existing property-tax assessment laws and replacing them with one uniform law, requiring counties to reassess properties every few years, and adopting clear standards for collecting data and assessing values.

A legislative task force is looking at property assessment reform and will hold its next meeting this month. Doug Hill, executive director of the County Commissioners Association of Pennsylvania, said he is working with it on ideas such as creating guidelines for helping counties determine when they need reassessments.

“Ultimately that might find its way into legislation that would require it if we hit those trigger points,” Hill said.

There have also been discussions about finding funding sources for the reassessment process, Hill said.

Other legislative efforts have included attempts to eliminate the property tax altogether, or reduce reliance on it.

As for Delaware County, Grace said the county will contract with a company and private assessors to complete the work, which will be a combination of computer-generated assessments, flyover pictometry, and property visits. The process will begin in July.

Property owners will receive notice of their new assessments in early 2020, a year before they take effect.

“I don’t want people to be concerned, but I’m sure any time we’re talking about taxes people are,” Grace said.

“This is certainly going to be a very intense process where we’re going to have to make extreme efforts to get it right.”