Commercial tax appeals pose danger to some Allegheny County municipalities

Lloyd Cunningham has lived in Homestead for decades — from when “everything was humming at full speed” at the steel mills through redeveloping that land into The Waterfront, a massive entertainment complex. He’s now bracing for how a wave of property tax appeals could affect the budgets of boroughs like his.

“We planned in our budget for this year that this could happen, so we projected a fund for refunds,” said Cunningham, the president of Homestead Borough Council. “It’s a cloud. We have no real direction of where it’s going to go.”

Homestead and other municipalities in Allegheny County could soon find themselves facing financial headwinds as part of changing conditions in the commercial real estate market and ongoing fallout from a court ruling issued last fall that significantly altered the way a property’s current market value gets converted into the “base year” value used to calculate taxes.

Thousands of suburban homeowners, as well as the companies that hold some of the county’s most valuable properties, are seeking changes to their property tax bills by appealing their land’s tax value for 2022, 2023 or both. Among the municipalities with the highest percentage of their tax base now under appeal are Frazer at 26.6%; Homestead, 23.3%; Braddock, 22.2%; and West Homestead, 21.7%.

The county’s Board of Property Assessment Appeals and Review will conduct hearings for each appealed property, during which the owner and taxing bodies can present evidence as to what its fair market value should be. The board’s decision is appealable to the county Board of Viewers and then to the state courts.

Chris Briem, a regional economist at the University of Pittsburgh’s Center for Social & Urban Research, told the Union Progress that much of the pain in property tax appeals for both property owners and taxing bodies is because there is a fundamental disconnect between most land in the county last getting its value reassessed in 2012, even as real estate market conditions are always changing.

“There would be no need for most appeals if we had an assessment,” he said. “… The longer you wait to do a mass reassessment, these disparities creep in, and there’s no way to get around it.”

Homestead has long used its perch on the Monongahela River, at one of the last curves before reaching Pittsburgh, to power its economy. First it was the steel mills that churned for decades before they went quiet in the 1980s, then redevelopment around the turn of the century, which led to The Waterfront.

Operated as a joint venture between M&J Wilkow and BIG Shopping Centers, the entertainment center has a large AMC Theatres venue and dozens of shops and restaurants. But despite a low vacancy rate, and business that appears strong even as other shopping plazas have struggled since the COVID-19 pandemic started, the owners appealed their tax bill.

The land owned by the joint venture is valued at about $94 million on the tax rolls, with three-quarters of it now under appeal. M&J Wilkow and BIG Shopping Centers did not respond to multiple requests for comment.

Cunningham said property taxes are the “foundation” of the borough’s funding. Once the appeal process is finished, he said, “we just have to adjust and compensate for it, and we will.”

“The other side of it is, they are business people, and they don’t want to pay any dollars out that they don’t have to,” he said. “They didn’t create the system that’s allowing them to appeal; they’re taking advantage of it.”

West Homestead, the borough next door, also contains a large chunk of The Waterfront. Borough Manager William Etherington didn’t respond to a request for comment about the center’s owners appealing essentially all of their properties there.

Upriver on the Mon, where some of the county’s last steel plants are still whirring in Braddock and Clairton, mill town finances rely in part on industry and could face another big blow.

U.S. Steel has appealed the taxes for most of the facilities that compose its Mon Valley Works, some of which have been part of its empire for so long that the owner is still listed as the Carnegie-Illinois Steel Corp.

Company spokesperson Andrew Fulton told the Union Progress that the appeals were filed to bring property values “back into proper alignment.” He added that though the company was appealing its tax bills for 2022 and 2023, it will send back any tax refunds it receives for those years and only seek a lower bill from here on out.

“U.S. Steel is committed to ensuring that the school districts and municipalities near our Mon Valley Works plant locations will not be impacted for the years under appeal,” Fulton said. “U.S. Steel will forgo significant refunds for these years, as to not impact existing operating budgets.”

Clairton is home to one of the largest U.S. Steel facilities in the region — a plant that turns coal into coke, a key ingredient for the more old-fashioned method of steelmaking still taking place locally. But three of the plant’s 10 coke ovens were shut down earlier this year, and larger improvement plans ultimately were canceled, foreboding signs that U.S. Steel could mention during a hearing on its tax appeal.

The city has faced severe financial problems in the past and was under Act 47 for almost 30 years before it left the program in 2015. Asked about the tax appeals, Mayor Rich Lattanzi said, “The process is starting soon and fingers crossed,” declining to comment further on the situation.

Braddock entered Act 47 around the same time as Clairton and expects to depart the program this summer. The borough of about 1,700 people contains U.S. Steel’s Edgar Thomson Works, the legendary mill that produces steel slabs.

Aside from appeals on properties owned by U.S. Steel, a specialty gas facility owned by Messer LLC is also seeking a change to its tax bill. A company spokesperson declined to comment.

George Dougherty Jr., an assistant professor at the University of Pittsburgh who also serves as the Act 47 coordinator for Braddock, told the Union Progress that he doesn’t think the appeals are severe enough to put the borough back into Act 47 again. But he noted a drop in revenue could create problems and potentially lead to a tax hike.

“A lot of these municipalities are just stuck with the tax base, and nothing ever breaks in such a way that they get more flexibility or more ability to charge for the services they need,” he said. “So it’s cut, cut, cut, cut.”

Braddock is down to three full-time employees — a borough manager, a police chief and a public works director. It has been able to build up a substantial reserve fund, enough for six to nine months of expenses, thanks to what Dougherty said have been wise decisions.

“They’re striving to do the best they can with the resources that they have, and I really think they need to be commended for that,” he said.

The tax appeals in the Mon Valley are part of the longer-term story of declining heavy industry, according to Briem. He told the Union Progress that the decline has led to a “cataclysmic collapse” in the budgets of municipalities and school districts.

“The local governments have been dealing with this for, if not the last 30 or 40 years, the last 50 or 60 years, even,” he said. “It’s caused tremendous issues.”

Briem added many affected communities haven’t built new revenue streams to maintain services as they once were.

“I’m not saying they’re running deficits, but they operate at a much lower capacity because they don’t have the revenue to support the type of public expenditures you would expect of a typical municipality,” he said.