The Credit Monkey lives in Pennsylvania, a state with some of the highest real estate taxes in the country.
As part of his mission to help consumers improve their credit score and manage their debt shows people how to better use their money. One way to accomplish that is to explain how his friends and neighbors can save money on taxes so they can use their savings to reduce their debt or save it or invest it.
This year the Credit Monkey is taking his message to the streets by offering free real estate tax workshops throughout southeastern Pennsylvania. The next few blog posts are a taste of the content for those workshops.
Real estate taxes in Pennsylvania are confusing and often onerous. That is to be expected when three different local government bodies tax real estate. Each one bill completely different dollar amounts at two separate times during the year. When a homeowner attempts to determine if his tax bill is appropriate, the taxing bodies employees toss around governmental, legal and real estate jargon like assessment, mils, common level ratio (CLR), fair market value (FMV), comps, assessment appeal, preferential taxing, appraisal, competitive market analysis and arms length transactions without a thought that the average homeowner has little or no idea about what it all that really means. Unless you are a lawyer or tax professional, it’s not surprising that people are confused by the Commonwealth’s messy real estate tax system.
Rather than get sucked deep into the tax explanation quagmire, let’s see if the Monkey can make some sense of the tax mess. Under Pennsylvania law, real estate taxes are the only revenue source that can be levied by every class of municipality statewide. How that law is applied varies from county to county, municipality to municipality and school district to school district depending on the class of the county and/or municipality. Commonwealth law also limits the upper limits on the amounts that can be charged by a taxing authority. The same law, however, permits exceptions to those limits. It is not surprisingly that a large amount of municipalities take advantage of the exception to milk every possible penny from the local taxpayer.
Property taxes affect the affordability of residential real estate. Long time homeowners, especially those who are the most financially vulnerable, are an example of how real estate taxes affect affordability. Too often seniors and the disabled discover that after years of faithfully making mortgage payments, they can no longer afford their homes because their real estate taxes increase to become their single biggest expense, even more than food or heat. The government sometimes jumps in to help those on fixed incomes with food stamps and cash supplements for heating, but there is no such program as government assistance to pay real estate taxes. To those of modest means, retirement means that the struggle to pay for the family home transforms to a different kind of struggle, the struggle to keep the family home in the face of ever rising real estate taxes.
Real estate taxes also affect how much of a home a buyer can purchase. Since 2008, every payment of a newly originated government regulated mortgage, and that’s the lion’s share, allocates money to four things: principal, interest, taxes and insurance (called “PITI”). Generally, that was the accepted banking practice since the 1960’s but it was not mandatory until Congress passed a series of laws during the Great Recession with the intent to protect Americans from predatory lending practices. For the most part the laws worked, but as with any law, there were unintended consequences. The new laws aided in tightening the mortgage market making homes far more difficult to purchase and just as difficult to sell.
If you are interested in attending the FREE WORKSHOP, please email the Monkey at firstname.lastname@example.org. In the Monkey’s next post we will discuss how reducing real estate taxes help solve the home affordability problem.