Pa.'s reverse tax-appeal tangle

When William Lammers received a notice to appear at his tax-appeal hearing, he had only one question.

What tax appeal?

Lammers had never contested the property taxes on his 185-acre Berks County farm, and he had no intention of ever doing so.

Yet an appeal had indeed been filed last summer - by the Kutztown Area School District, arguing that Lammers was not paying enough.

The district took its case to the county tax board and won. Lammers' annual bill jumped from $9,100 to $65,000, though he managed to get it knocked down to $29,600 - still, a 225 percent increase.

"This is incredible," he said, "and completely unjust."

Nearly all local tax appeals originate with property owners fighting what they believe are overassessments. But in Pennsylvania, the courts have held that school districts and towns have a right to dispute what they consider an underassessment on anyone's property in their bailiwicks.

While no exact figures are available, these "reverse appeals" could mean as much as $1 billion in tax revenues for Pennsylvania school districts in the next decade, according to Keystone Realty Advisors, a national tax-consulting firm. For individual districts such as Springfield Township in Delaware County, the payoff can be hundreds of thousands of dollars.

Pennsylvania is one of only a few states where the practice is relatively common, according to the American Property Tax Counsel, a national association of tax attorneys. In New Jersey, reverse appeals are legal, but rare, said Gregory Lotz, a member from Montclair, Essex County.

They might have become nonexistent in Pennsylvania if lawmakers had their way this month. On July 14, the House and Senate passed bills outlawing reverse appeals, which critics say violate the state constitution. Rep. Tim Seip (D., Berks, Schuylkill), a prime sponsor, called the practice a "money grab" that unfairly targets some property owners.

Gov. Rendell vetoed the bills last week, saying they would have had deleterious effects on school budgets.

He challenged the legislature to instead "tackle the long-term solution" for Pennsylvania's seriously flawed assessment system, which virtually assures that some taxpayers end up paying too much and others too little.

Most of Pennsylvania's 501 school districts do not engage in reverse appeals, tax experts say. But some do it enthusiastically - most notably districts in Schuylkill County, where more than 3,000 reverse appeals were filed last year.

In neighboring Luzerne County, the Wilkes-Barre Area School District filed an appeal on the Mohegan Sun Casino property. Recently, the operators agreed to pay the district $21 million in an out-of-court settlement.

In the Philadelphia suburbs, some appeals have produced large sums for schools.

This year, the assessment on a portion of the Springfield Mall was raised from $34.5 million to $51.9 million - a roughly $545,000 annual increase in county, school district and township taxes.

After the Lionville Shopping Center in Chester County was sold for $10.4 million several years ago, the Downingtown Area School District filed a reverse appeal. An assessment of $6.5 million grew to $7.2 million, boosting the bill by about $20,000.

While the Downingtown district hasn't filed any reverse appeals in the past two years, its budget has taken big hits as a result of conventional appeals by property owners, said chief financial officer Rich Fazio. The district estimates that reduced assessments cost it $2.5 million last year.

The Springfield, Marple Newtown and Southeast Delco School Districts typically file a total of 10 to 15 such appeals a year, according to their solicitor, Mark Sereni.

School officials say that raising money isn't the prime motive for reverse appeals. They argue that a dysfunctional tax system forces them to go after owners of underassessed properties to hold down everyone else's taxes.

"If this right is destroyed, any property owner that is significantly underassessed will escape responsibility for paying a fair share of taxes," said Sereni, "making all the rest of the taxpayers shoulder that extra tax load."

But on one point, school officials agree with the critics of reverse appeals: The state must change the way property is assessed.

Pennsylvania law requires counties to assess all real estate parcels at the same time and at the same percentage of market value. Between assessments, evaluators may not put new values on homes unless they undergo major renovations or are newly built. That would be "spot assessment," a violation of the state constitution's "uniformity" clause that all properties be assessed equitably.

However, properties can appreciate at wildly different rates in a county. The gaps grow the longer the county waits to reassess. Some, such as Bucks, haven't reassessed for 30 years. Luzerne hasn't done so since 1965.

State courts have held that while counties may not spot-assess, school districts and towns are within their rights to challenge assessments.

"It is exactly the kind of practice that is meant to be prohibited by the uniformity clause," said Joseph Bright, a Philadelphia tax lawyer. He said that the counties are, in fact, doing spot-assessing, since their tax boards approve the new values.

Seip said he would push to override Rendell's veto in the fall. He described Bill Lammers' case as "one of the most egregious abuses" of a reverse appeal.

Lammers and his wife paid $2 million for a Greenwich Township property assessed at $270,000. The Kutztown district sought to raise the assessment to $2 million, upping the tax bill to about $65,000.

Last fall, Lammers made his case to the tax board.

"They heard us, but didn't listen to a word we said," recalled Lammers, who argues that neighbors who own comparable properties pay less than a third of what he does.

He was granted some relief under the state's farmland program, but his bill still more than tripled.

The Kutztown district, which files about three reverse appeals a year, had to act on Lammers' assessment "to be equitable and fair to all the other taxpayers in the district," said business manager Joseph Pugliese.

That reasoning doesn't fly with Lammers. "I have no problem with paying taxes," he said, but "that's spot assessment."

How does your tax bill compare? Find an interactive tax calculator and read a recent series on property taxes at http://go.philly.com/property

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