PA Anti-Windfall Provisions
If a local government wants to increase taxes, it will raise the tax rate, right? Generally, yes.
With respect to real estate taxes, though, local governments can achieve the same outcome by reassessing real property values. If property values have generally increased since the last reassessment, tax revenue will go up due to the increased values, alone, notwithstanding the steady tax rate. This practice is essentially a backdoor tax increase effected by the executive branch of government, which assesses property values, rather than the legislative branch, usually an elected city council which must vote on tax rates. In Pennsylvania, every county’s taxing authority is subject to laws that limit its ability to increase taxes indirectly like this by requiring that tax rates be adjusted following a countywide reassessment. There is one exception: Philadelphia.
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, 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 and Allegheny Counties, 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. There is a similar provision in a statute that does apply to Philadelphia, the General County Assessment Law ("GCAL"). 72 P.S. § 5020-402(b). However, the GCAL’s provision expressly exempts Philadelphia from limitations on backdoor tax increases. Id.
Even though the Anti-Windfall Provision doesn’t apply to Philadelphia, Philadelphians have experienced the anti-windfall procedure. During the 2014 Actual Value Initiative (AVI) reassessment, at which time Philadelphia’s real estate tax procedures were also revamped, City Council took measures to ensure the reassessment was revenue neutral. Moreover, in 2005, 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. Such authorizing legislation has not 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 revaluations, which are unchecked by any representative body, as opposed to property tax rate adjustments voted on by City Council. In fact, reassessments subsequent to AVI largely resulted in backdoor tax increases that produced public outcry. The City has limited reassessments in the wake of COVID so that there is not a reassessment every year. The most recent reassessment took place in 2022, to effect new values for 2023, but there was no reassessment in 2024. However, as I just wrote about in my latest blog post, the City plans to reassess property values against for tax year 2025.
(NOTE: the foregoing article has been edited and updated from the original which was published in February of 2018 by the same author in a different blog that was discontinued.)