As reported in the Trib (Jan. 17), the assessed value of Allegheny County real estate for 2002 increased 9 percent over 2001 (11 percent if you include new construction). Given the fact that 2001 was a recession year, property owners should have expected no increase at all on the average. Coupled with the fact that the county Administrative Services Director Norm Mekkelsen stated that his office has not determined how many of the 27,525 homeowners who won appeals last year had higher 2002 assessments warrant the conclusion that Allegheny County’s 2002 assessments are worse – not better – than the 2001 assessments, and that those in charge of the assessment process have learned nothing from the Sabre experience. As I have written on a number of occasions, the real estate tax is a pretty good tax even when it isn’t administered well. Now I may have to rethink my position. The county-wide reassessment that Sabre Systems & Service Inc. conducted that resulted in the 2001 assessments left a lot to be desired. But the 2002 assessments are worse. The process is irretrievably flawed and the 2002 changes should be nullified. BAD METHODOLOGY As I pointed out in several articles in the Trib last year, Sabre was using a flawed methodology. For the 2002 assessments, the county bought and applied an alternative system from a Cole Layer Trumble Inc., which employs the same basic methodology. How employing the same flawed methodology could result in improved assessments escapes me. The crucial defect of that methodology is that it employs a statistical technique to identify comparable properties. Except in new and fairly recent housing developments, that technique results only in helping assessors to identify a possible comparable property and does not, without further study, justify the conclusion that it actually is a comparable property. In any neighborhood where the average age of a house is, say, 30 years or more – the average in Pittsburgh is more than 70 years – the assessor has to determine whether the property provisionally identified as a comparable has the same quality plumbing and electrical facilities, the same physical configuration of bathrooms, kitchen, bedrooms, basement, floor and wall coverings, etc., facts which can only be determined by entering and making a visual inspection. No appraiser would put a value on a property without making such a visual inspection. None of the statistical data employed by Sabre or Cole Layer Trumble identifies these characteristics. Every parcel of property in the county is unique. The differences are greater the older the properties. On appeal, these differences can be brought out and real comparables established. Therefore, when an assessment official says his methodology did not take into consideration the results of last year’s appeals, I submit that he is not doing his job properly. The results of the appeals are far more likely to be valid that any value placed on the appealed property determined by a flawed statistical methodology. ESTABLISHING ‘VALUE’ There is a place for statistics in real estate tax administration. I described how statistics could be employed in determining trends in property values in an assessment handbook I prepared for the commonwealth in 1970. I have no objection to using statistics in identifying possible comparable properties. But they have to be used carefully and under no conditions do they, by themselves, establish the value of any particular property. Yet this is what the county is doing. If I calculate the average age of a person in Pittsburgh, that statistic does not establish the age of any single person. Sabre and Cole Layer Trumble and others who employ statistics to determine the assessed value of any particular property are making the same misuse of statistics. X Statistics are a tool to help determine the market value of a property; they do not by themselves establish the value. X Another egregious failing which is apparent from the new 2002 assessment roll are statements that: Officials used sales from Jan 1, 1998, to June 30, 2001, in determining the 2002 assessments; That “the average comparable sale used in determining 2002 values is an April 1, 2001, sale”; And that Sabre used 1996 through 1999 sales so that their average comparable sale was a Jan. 1, 1998, sale, and that the 9 percent increase in total assessed value reflects increases in value during that period. The truth is that determining trends in property values requires the statistical analysis of sales over a long period of time. For some classes of property in some locations, you don’t have enough sales between January 1998 and April 1999 to establish any trend with any significant degree of probability that there is a trend. Only about 3 percent of properties are sold during the average year. And activity is much greater in some municipalities and neighborhoods than in other. This looks to me to be statistics being used by people who obviously are not statisticians; they aren’t even real estate professionals. The law states that the assessor is to value the property as of the last day of the preceding year. Every sale of a really comparable property over the last 10 years is applicable to determining the value of any given property at the end of last year. REPEATING THE MISTAKE Another announcement that accompanied the 2002 assessments that was very disturbing was that officers hearing appeals from the 2002 assessments were to be instructed in the methodology that was used and they were to apply that methodology themselves. In other words, they were not to use traditional appraisal methods but the flawed methodology the assessors are using. For decades the Board of Property Tax Appeals and Review was criticized for having both the responsibility for assessing properties and hearing the appeals, that having assessments and appeals made by the same body amounted to a conflict of interest. Actually it is not unusual for the body supervising the assessment process to hear the appeals. They are not the same persons who do the assessing. And the board considered independent appraisals. Now, independent appraisals are not to be considered, only the board’s flawed methodology! The most important determinant of the market value of any particular property is the price that was actually paid for it in an arms-length sale. In an editorial titled “Troubling silence” (Feb. 2, 2001), the Trib pointed out correctly, “The market value of a property, strictly speaking, is determined at a moment in time when a buyer and seller, typically operating at arm’s length, decide in a private transaction what the property is worth. Appraisals are, at best, estimates. As that point of time recedes, other factors will intercede, certainly affecting what a latter-day buyer and seller might decide.” What these factors are and the effect that they are having on property values is revealed by analysis of sales prices. It is the key to good assessment. There are upwards of 15,000 property sales in Allegheny County in any one year. By analyzing those sales, assessors can determine where and to what extent property values are changing in every part of the county for every class of property. Applying those trends to the actual price paid for a given property is an appropriate use of statistics. Assessment is a continuous process. As properties are sold and each sale is validated as an arms-length sale, the assessment officials are alerted to possible changes in property values in the neighborhood and for each class of property. The kind of statistical analysis required is similar to the statistical quality control techniques that are used to monitor manufacturing processes. The level of sophistication required to analyze sales is roughly what is taught in a college level course in economic statistics. RATIO STUDY QUESTION Mike Suley, a former vice-chairman of the Board of Property Assessment Appeals and Review, asserts that the county’s contract with Sabre provided for an assessment ratio study to be made by an outside consultant. Such a consultant was hired but made no ratio study. To its credit, County Council came to that realization and asked for bids to make an assessment ratio study. As an indication of how inexpensive such studies can be, council received an informal bid of $34,000 from a Pittsburgh firm, RealStat. To my knowledge no such study was made and if made was ever published. A professionally conducted assessment ratio study would reveal whether or not Sabre Systems achieved uniformity among municipalities, between neighborhoods, between classes of property (residential, apartments, commercial, industrial, etc.), and between value classes (e.g., for market values less that $50,000, $50,000 to $100,000, and so on.). What’s the big secret• Why hasn’t this been done? Again, the 2002 assessments are irretrievably flawed; the 2001 assessments, with the changes made on appeal, should be retained. It is clearly evident that the county is employing a flawed assessment methodology. The writer is professor emeritus of public and international affairs at the University of Pittsburgh. He has written extensively on real estate taxation and has been a real estate tax consultant to the City of Philadelphia and other public bodies and major corporations. He lives in Shadyside.

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