Commissioners debate tax abatement for residential construction
Since neighboring Greene County has offered a three-year real estate tax abatement on new residential construction since the early 1990s, Fayette County Commissioner Sean M. Cavanagh believes his county can offer the same break for a two-year period. Cavanagh stands alone, however, in his support for expanding the LERTA program to include new residential construction such as building a house, a shed or a garage, or otherwise sprucing up a property through a room addition or major renovation.
Commissioner Ronald M. Nehls favors granting residential LERTA, which stands for Local Economic Revitalization Tax Act, only if it starts at the municipal level and works its way up to the commissioners, a process that also would require school districts to waive their taxes.
And the Cavanagh initiative has no support from Commission Chairman Vincent A. Vicites, who stands firmly against the concept of residential LERTA, on the grounds that it creates unfairness by shifting the tax burden to other homeowners.
But to Cavanagh, the idea has merit in the form of offering an inducement to spur residential construction. He reasons that expanding LERTA would benefit “the little guy” and those employed in the construction trades, such as carpenters, plumbers and electricians.
Cavanagh said he is ready to propose the tax-abatement program at the next commissioners’ meeting.
“Let’s give (people) an incentive to build a new home,” said Cavanagh, who noted that he has tried unsuccessfully to approve residential LERTA for 71/2 years. “My main reason for this is to stimulate the economy. And let’s give ordinary people a tax break. How can you justify only giving tax breaks to businesses (through LERTA) and not the common, ordinary person?
To Vicites the entire issue boils down to fairness. While admitting that he has approved LERTA requests for commercial and industrial development as a means to create jobs, Vicites sees a fundamentally unfair tax shift as a consequence of residential LERTA.
Vicites predicts that 99 percent of residential property owners wouldn’t benefit from residential LERTA, but they would end up paying extra taxes to cover for the 1 percent who would. This shift is unacceptable to Vicites, who notes that there is no guarantee that the “little guy,” as touted by Cavanagh, would be the only beneficiary of such a program.
“The burden of those (uncollected LERTA) taxes would be shifted to the people who wouldn’t be eligible for that (program) and would have to pay the difference. I don’t think that’s fair,” said Vicites. “This year, the school taxes went up in at least half of the districts. The burden keeps going up on property owners. We need real property tax reform, not shifting of tax responsibility.”
Nehls said he has supported every commercial/industrial LERTA request that has come the commissioners’ way in the past four years. If the concept expands to residential construction, Nehls said, he probably would keep his pro-LERTA voting record intact, but only if the municipalities and school districts involved first approve the tax abatement.
“I think any kind of LERTA deal, whether it’s commercial or residential, needs to start at the lower municipality level and then kind of filter up to the county,” said Nehls. “I don’t know that we’ve ever turned down a LERTA request. And if we had a residential request from a municipality, I would be inclined to approve that, just as we have (approved) commercial requests in the past.”
As for Cavanagh’s proposal to implement LERTA on a countywide basis, which would involve getting all municipalities and school districts to climb on board, Nehls sees potential problems cobbling together such a massive coalition.
“I don’t see how we can generate a countywide thing, when we have 42 municipalities that need to approve it. Maybe we need to talk with them,” said Nehls.
But that’s exactly what has happened in Greene County, where chief assessor John Frazier said a three-year residential LERTA, including mobile homes attached to the ground, has been on the books since the early 1990s. Greene also offers a countywide five-year LERTA on commercial, industrial and agricultural construction.
“We’ve been doing it for years,” said Frazier, who notes that the program has helped boost all types of construction. “It’s a big selling point, it really is. We’ve had a couple of companies that have located their building here instead of other counties because they got a tax break on it.
“I’d say the county commissioners are the biggest pushers of this thing. It works to bring in new businesses and housing construction. It just seems like we do a lot of new housing constructions since we’ve done this.”
Frazier said that under LERTA, land remains taxable. The tax break applies only to new construction, which in the vernacular of assessments also is known as “improvements” to the property. After the LERTA expires, the property goes on the tax rolls and is taxed at full value.
Greene adds $5 million to $6 million per year in residential value to its total real estate tax base of $1.5 billion, said Frazier, noting that the growth is needed to help offset the annual loss of $10 million in assessed value due to coal depletions.
The residential LERTA is a big contributor to filling that gap, according to Frazier, who describes the tax break as a powerful incentive to build a new house, particularly for younger couples.
“It’s helped a lot of people, especially younger couples just getting a start. When you tell them they can save $1,500 or $2,000 a year for the first three years, they look at it that they’re going to save about $6,000,” said Frazier. “If a piece of land costs $10,000, you might be able to recoup those costs (through LERTA).”
Frazier said he knows of one contractor who has built three successive new homes for his personal use, staying one step ahead of the LERTA curve. While the builder may be finding a creative but legal way to avoid paying real estate taxes, Frazier said the fact remains that his method has created three new homes for the Greene tax rolls, and someone eventually ends up paying those taxes.
In Fayette, chief assessor James A. Hercik estimates that the county would have lost approximately $120,000 in real estate tax revenue last year if it adopted LERTA for residential construction. He bases that figure on a 2002 “rough estimate” of $9.75 million being added to the tax rolls via residential construction, in the last year of the old assessment system.
While admitting that the amount of money the county would lose is comparative “pocket change” in a budget of $16 million to $18 million, Hercik said that school districts would take a much harder hit based on their higher millage rates. “Typically, the new revenue that we add (each year through new construction) keeps the taxing bodies up with inflation. That’s the way that some of your township supervisors have not had a millage increase in 10 or 20 years,” Hercik said.
In 2003, with the county millage rate plunging and assessed values rising due to implementation of the reassessment, Hercik estimates that the county would lose approximately $138,000 if it offered residential LERTA.
LERTA for commercial development has been approved in recent years for Uniontown and Connellsville cities, and in Wharton, Bullskin, Perry and Franklin townships, said Hercik, who adds, “Some of these were the whole township, and others were only in certain areas.”
Cavanagh sees little difference between the commissioners, school districts and municipalities offering a tax break to businesses while shutting homeowners out of the process. One segment is just as important and worthy of help as another, he believes.
“I call it LERTA for the little guy. I just find that Vince Vicites, being a Democrat who’s supposed to represent blue-collar people, he’s only willing to give a tax break to a Duke Energy or a Nemacolin Woodlands. He’s willing to give it to businesses, but he’s not willing to give it to the blue-collar rank-and-file,” said Cavanagh. “I would ask both my colleagues … why not give the common men and women of Fayette County a tax break? Why not give them the opportunity?”
Cavanagh also believes that if the commissioners take the lead on this issue, public pressure might force the school districts and municipalities to go along.
“If the people of this county hear of a program like this, and then their elected representatives (at other levels) do not support it, then they may have to reconsider voting for those people,” he said.
Vicites said there’s no guarantee that residential LERTA would help only the blue-collar segment portrayed by Cavanagh. Since the program would apply to everyone, regardless of income or station in life, Vicites said the only known variable is that property owners who don’t qualify for LERTA would pay more taxes to cover for those fortunate enough to get the tax break.
“It wouldn’t necessarily be blue-collar people (who benefit); it could be wealthy people who are doing an addition (to their home),” said Vicites. “My support for KOZ (Keystone Opportunity Zones) and for LERTA for industrial purposes only is to create jobs for people who need employment.
“If people can get jobs, they don’t mind paying their fair share of taxes. Just because you’re doing an addition (to your house) – that can be people from all walks of life, wealthy people as well – so I don’t feel that (same) way. My focus is to do these incentive programs to create jobs, not for abatement of residential taxes. I want to be fair and equal across the board with that.”
Vicites predicted that under residential LERTA, 99 percent of property owners “would still have to pay the taxes that they’re paying currently,” and it’s not fair to give a LERTA tax break to someone who, for example, could afford to build a new house worth up to $1 million.
“It might work for Greene County, but every situation’s different. We just did a countywide reassessment, to make things fair and equal, and we should stick to that,” said Vicites. “I think the people who are going to (build) are going to do that anyway. There’s been a lot of new construction in the county in the last several years, without that (LERTA) program.”