Pennsylvania School District Embraces Land Value Taxation Reform

Published December 1, 2006

The Clairton, Pennsylvania school district has adopted land value taxation (LVT) as the basis for its property tax revenue, a reform that has stabilized school district income while dropping the tax bill for most property owners.

Land that had been vacant for decades is being developed, adding to the tax base, thanks to the incentives LVT provides for making good use of property. The changes are all the more remarkable considering they have been in place only since July 1 of this year.

Under LVT, property tax bills show two values, one for land and the other for buildings. Ninety percent of the tax in the Clairton school district is based on land, and the remaining 10 percent on buildings.

Clairton is a town of about 8,000 people in Allegheny County on the west side of the state. The Clairton city government adopted LVT in 1988. Each taxing district decides for itself whether to use LVT or a traditional property tax system.

Most Saw Tax Cut

Most homeowners have seen a decrease in their property taxes as a result of the reform, with reductions of about $200 off the school portion of property tax bills. A typical homeowner had been paying about $500 to the school district.

William Boucher, a certified public accountant and business administrator for the Clairton school district, explained the district’s decision to do away with the conventional property tax system and embrace LVT:

“The incentive to do this came about because of US Steel,” Boucher said. “US Steel has a big coke plant in Clairton. We [the Clairton school district] have $2 million in tax revenue, and $500,000 of it is from US Steel. They appealed their property tax assessment and used a profits sort of approach to argue their tax bill. They were a 900 pound gorilla. It would have cost us $200,000 just for an appraisal and legal fees to challenge them. We couldn’t afford that, and they won.

“We have a school board member who worked for the city [government of Clairton] when the city went the LVT route in 1988,” continued Boucher. “He said we needed to stabilize our tax base and provide incentives for vacant land to be developed. We listened, talked, listened, talked, and then USX did this appeal. The appeal wouldn’t have happened if we had had LVT, because their profit analysis didn’t tie to the land, the way LVT does.”

Prior System Porous “A second thing happened where a developer came in, a for-profit builder, and he built new townhouses and duplexes and tore down a whole section of town,” Boucher said. “It was public housing that looked like private housing. He appealed his tax assessment based on the value of the subsidized mortgages and profit. We thought to ourselves, ‘If he wins this one, we’re out another bunch of money.’

“Third, there were a number of taxpayers who were appealing their taxes because it’s Clairton,” Boucher noted. “Everyone who appeals gets something knocked off because [county officials] feel sorry that people live in Clairton.”

Developers Interested

The LVT made an immediate difference. “Right now there are four properties going up for sheriff’s sale,” Boucher noted. “They’re all vacant land but have industrial zoning. These buyers are going to put industrial buildings on them. Now they are looking at property next to them, and another parcel is about to be developed.

“We’re seeing five properties that are being turned over because of this LVT,” Boucher added. “It’s an incentive to develop the vacant land.

“Last, but not least, LVT is more fair. Here in Clairton, assessments are all out of whack,” Boucher said. “I don’t know how many buildings sit side by side and one is valued at $10,000 and the other is valued at $40,000.”

With LVT, Boucher noted, “There is less variation with land values. When you do an assessment on buildings you have condition of the building and other variables that affect values. That’s one of the problems with the property tax. It’s a bunch of estimates. I believe the fairest system is based on [this type of] sales and use tax on land.”

Joshua Vincent ([email protected]) is executive director of the Center for the Study of Economics, based in Philadelphia.