Monroe Township sewer fee collection

Pennlive reports that Monroe Township has been successful recently in collecting tens of thousands of dollars of past due sewer charges from residents. Monroe Township is not the only municipality that has accumulated thousands of dollars of unpaid sewer charges. But it may be one of the few that has made an effort to collect the charges instead of simply waiting for the homeowners to sell the real estate.

Numerous municipalities are strapped for revenue and have resorted to imposing or increasing fees of dubious legitimacy in recent years (inspection fees, fines, occupational taxes, etc.). But how many municipalities have made efforts similar to Monroe Township to collect on delinquent, legitimate, pre-existing sewer charges instead? How many have even seriously considered this option?

Detroit debt default and impact on solvent municipalities

From Bloomberg comes the story of how Detroit's recovery plan may impact the municipal bond market throughout Michigan:

Emergency Manager Kevyn Orr’s plan to suspend payments on $2 billion of Detroit’s debt threatens a basic tenet of the $3.7 trillion municipal market: that states and cities will raise taxes as high as needed to avoid default.

Investors have viewed municipal bonds as "safe" for decades because municipal governments could always raise taxes to pay back the principal and interest.  Should local governments lose that power, local debt would be no more safe than corporate debt (probably less so - as corporations are constrained by the profit motive in their daily operations). 

Should investors lose confidence that cities can or will raise taxes no matter how much debt they acccumulate, the bond market will suffer far beyond Michigan.  Cities have incurred debt and expenses that today's economy cannot support.  Cities and other municipalities have been looking to other sources of revenue for years, as they turn their police and code officials into little more than bridge trolls. Muncipal employees (more and more) now demand money in exchange for safe passage (or permission to conduct business) instead of acting for purposes related to legitimate public safety concerns.  This trend will continue if municipalities have a harder time selling bonds.

Impairment of the bond market will also impact local officials' operation of school districts, sewer plants and public water - with resulting changes in school taxes, sewer rates and water rates.

It will take more than default by Detroit to affect local governments and local taxes in Pennsylvania.  But Detroit is not the only city that is facing or has faced these choices.  Even the federal government cannot print enough dollars to bail out every city in the country. 

Harrisburg is only a little further from the brink than Detroit.  Maybe Harrisburg can count on a massive bailout by the federal government.  Maybe it can't.  But it would be wise for local governments across Pennsylvania to consider scaling back operations and ambitious plans for sewer expansion and other adventures before they face a choice between (1) borrowing in a hostile bond market or (2) raising taxes and fees on already overextended residents. Whether a township is solvent or not, the ability to raise funds through the bond market may be seriously compromised by a municipal default by any city in Pennsylvania.

Harrisburg Ordinances 13 and 14 tabled by City Council

Click here for previous descriptions and discussions of Harrisburg's proposed Ordinances 13 and 14. [These Ordinances would impose vicarious liability on landlords for the actions of their tenants, impose a residency requirement on property management and ownership and modify the inspection program.]

Last evening, the Harrisburg City Council voted 4-3 to table both proposed Ordinances after a fair amount of discussion.

Numerous investors (and others) spoke out against the proposed ordinances at the beginning of the meeting. Investor and Realtor organizations such as CARPOA, GHAR and AACP participated in the public comment section of the meeting. We listed pending litigation in Allegheny County and Columbia County relating to similar legislation as bases for the Council to withold action at this time, especially since City officials have previously stated that these measures would constitute a source of revenue for the city (which is illegal under state law).

Council members stated that they wanted to explore the issues further and rework the Ordinances. Council invited investors and others to participate in committee meetings during the new year.

It is my hope that in these committee meetings we can address some of the more basic issues keeping city properties from being improved - such as the large volume of properties that suffer from title defects due to having been sold at tax sale at some point in the past.

Harrisburg Ordinances 13 and 14 scheduled for December 30 vote.

I have written previously about Harrisburg Ordinances 13 and 14. These ordinances would impose vicarious liability upon landlords for the actions of tenants, would impose a residency requirement for Harrisburg real estate investment or management and would attempt to raise revenue for the City by enforcing the inspection program that has existed for fifteen years.

These ordinances were on the agenda on September 28th, but were tabled. They are scheduled for a vote on December 30th at the next City Council meeting.

Harrisburg Ordinances ## 13 and 14

I have written earlier about Harrisburg Ordinances ## 13 and 14 and the City's illegal attempts to profit from investment property licensure and inspection as well as new residency requirements for owning investment properties within the City.

These ordinances are currently scheduled for a vote by Harrisburg City Council on Tuesday, September 28, 2010 at 6:00 PM at the King Center downtown. Public comment will be allowed and may alter the outcome.

Highspire Borough proposes rental inspection ordinance; Ordinance 582

The Borough of Highspire in Dauphin County is poised to enact a rental inspection ordinance (Ordinance 582 of 2010).

It appears that under the ordinance investors would be billed "Tri-annually" for "the total program costs." (Section 9. A.).

Owners could hire their own inspectors from a list of qualified inspectors maintained by the Borough. The cost of these inspectors would be in addition to the amounts billed by the Borough. Otherwise, the investors would have to use Borough inspectors.

This Ordinance is set for a vote on August 17, 2010.

update - Ordinance 582 and real estate values.

Harrisburg property tax increase; declining values and increasing costs

I wrote earlier this week about recommendations from consultants to the City of Harrisburg that the city raise property taxes by 117%. These recommendations also included large increases in water, sewer and trash fees. I wrote yesterday about the negative effect of these increases on the bottom line for investment properties within the city and, ultimately, on the assessed values of such properties.

This proposal (or anything remotely similar) would have far reaching consequences beyond the assessments and the tax revenues generated therefrom. Major property tax increases depress real estate prices. A sudden decrease in values resulting from a tax increase would trap owners in their properties. Properties with cash flow insufficient to support the new taxes (as well as the prior expenses and the mortgages) will be harder to sell for an amount sufficient to payoff the mortgages. This will be especially true if some city investors manage to sell their properties in order to avoid the new expenses, thus driving down prices in general.

Owners of investment properties might actually be trapped in their city properties. Situations like this often end up being resolved through foreclosure and/or bankruptcy. We could very well be entering a period of general decline in the city, characterized by falling values, higher taxes, abandoned and foreclosed properties, and deferred maintenance.

Harrisburg; Real estate taxes; Municipal charges; market valuation; assessment appeals

Two days ago, I linked to a story about the possibility that Pennsylvania's capital city would more than double property taxes, while raising fees for municipal services like trash, sewer and water. I speculated on the effect such increases would have on real estate values and prices.

Harrisburg quadrupled the trash rates only two years ago. Doubling those rates now (as the current recommendations suggest) would amount to an eight fold increase since the end of 2007. Raising property taxes by 117% on top of the trash increase (together with 20% increases in the already-high sewer and water rates) would seriously affect the bottom line of investment properties within the city. An adverse affect on the profitability of investment properties is more than a mere academic or political matter. Operating revenue is a major component in valuation of investment properties. When net revenue declines, market value declines also.

Harrisburg skyline (city-data.com) - the battleground for upcoming assessment wars




A reduction in the market value of investment properties will result in applications by owners for a corresponding reduction in the assessed value of those properties. While local tax authorities will be reluctant to approve such reductions, the courts are the final arbiters of such matters. Declining real estate values (with the resulting loss of tax revenue) will offset many of the gains the city hopes to realize by raising taxes.

Assessment litigation, already common in Harrisburg and Dauphin County, PA, will become even more common for many years to come if the latest tax recommendations are enacted.

Harrisburg City; Increased property taxes, sewer, water and trash

The City of Harrisburg is considering multiple tax increases in order to avoid bankruptcy, according to the Patriot-News today:

Buried in the 25-page report is a list of "potential deficit reduction actions" the city could take. They were not mentioned in the news conference nor fully explained in the report.

Those potential actions include doubling the parking tax, increasing water rates by 20 percent, increasing sewer rates by 20 percent, doubling sanitation fees, doubling parking violation fines, instituting five furlough days a year for employees, increasing property taxes by 117 percent in 2011, and selling the city’s parking garages.

All of these items are considered high already by local residents and investors. Increasing these items would create an negative impact on property values, especially for investment properties. All of these items would reduce NOI (net operating income), which is a major component of valuation.

As a silver lining, once the new taxes take effect, property owners could apply for a reduction in their assessment. Assessment reduction is a difficult process and involves many variables. These new taxes are only recommendations at this point, so it is impossible at this point to know exactly what will take place or how much it will affect real estate values.
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Update - click here for more discussion of how this proposal would affect assessments.
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Update - click here for a discussion of the effects on valuation and sales.
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Update - click here for a discussion of the potential for increased tax sales and related problems.