At the same time, a cottage industry of lawyers and appraisers has solicited commercial and industrial landowners in efforts to have county boards reduce their property taxes. The payment for their services is often a commission ranging from 40 to 75 percent on one year's tax reduction. That is routinely in the thousands of dollars per case.
Because of the large number of tax reductions granted to businesses in the last five years, hundreds of millions of dollars have quietly dropped from the tax base in Bucks, Chester, Montgomery and Delaware Counties in Pennsylvania and portions of New Jersey.
As a result of the appeals, suburban school districts have lost large chunks of revenue. To offset the losses, many school districts have increased tax millage for all property owners - which means the burden falls more heavily on homeowners, the largest class of suburban landowners.
``It's tax redistribution to the people who can afford it least,'' said John Vignone, business manager with the Bristol Township School District. ``[To] the homeowner and the elderly. I don't think it's a good redistribution - from businesses to people.''
Many suburban homeowners also have sought, and won, lower property taxes. But records show that commercial and industrial landowners have won much larger reductions and captured, as a group, a disproportionately large share of the tax savings from the assessment appeals.
Business property owners in Delaware and Chester Counties, for example, received far larger tax reductions in the last five years than did homeowners, according to an Inquirer analysis. This is largely because businesses are represented by lawyers and appraisers, while homeowners represent themselves.
In Chester County, commercial and industrial property accounted for 18 percent of property values at year-end 1990. Between 1990 and year-end 1994, assessment decreases on those commercial and industrial properties resulted in $507 million dropping off the rolls. That represented 42 percent of lost taxable value over the four years in the county.
Homeowners in Chester County accounted for 74 percent of the taxable land, but assessment decreases on their property represented only 47 percent of the lost value.
A similar scenario played out in Delaware County.
There, commercial and industrial property accounted for 16 percent in market value carried on the books at year-end 1990. Four years later, $606.9 million had been chopped off that total - with commercial and industrial properties accounting for 63 percent of the lost value. Homeowners represented 54 percent of the $26.4 billion total real estate market value in 1990, but accounted for only 30 percent of the lost value.
SIMILAR SITUATION IN N.J.
In Burlington, Camden and Gloucester Counties in New Jersey, about 80 percent of the 925 tax-assessment appeals filed in 1995 were brought by commercial and other business property owners, according to records.
Competition for new clients is fierce among lawyers and appraisers in New Jersey. ``Every Tom, Dick and Harry is out soliciting [new clients],'' said John Garippa, a Montclair attorney who has a practice filing tax appeals for business in New Jersey and Pennsylvania.
All Pennsylvania suburbs in the region are reassessing property values countywide, except Bucks County, which hasn't done a reassessment since the early 1970s. In New Jersey, state tax officials say that municipalities generally reassess property every 10 years, or less, depending on fluctuations in the economy.
It was the drop in property values during the recession in the early 1990s, coupled with outdated county assessments, that opened the floodgates to assessment appeals. Lawyers and appraisers continue to solicit new clients, and school districts are fighting the lower assessments in county courts.
``It's now powered by greed,'' said Joseph Paradise, business manager for the Neshaminy School District. He said companies that solicit appeals were ``popping up all over.''
Part-time board members who sit on three-person county panels that hear assessment appeals express frustration. These people are generally local residents - businessmen, retirees, farmers, others - who say they feel overwhelmed and outgunned in the process.
These part-time boards are asked to make judgments on thousands of complex appeals a year in a process driven by the self-interest of the business owner and professionals filing the appeal.
``Some of them come in with an attitude that `If you don't lower [the assessment], we'll take you to court,' '' said Thomas Donze, vice chairman of the Board of Assessment Appeals in Bucks County.
Bensalem is one of the largest suburban towns in Bucks County. It also has been one of the hardest-hit communities with assessment appeals.
County records show 66 commercial property owners in Bensalem won appeals of their real estate assessments in 1994. Those tax reductions for businesses represented 82 percent of the total $2.1 million in lost assessments, records show.
Hotels, major corporations, bank branches, gas stations, strip malls, trucking companies, offices and factories are listed in the county's Board of Assessment as winning lower assessments on appeals in 1994 or 1995 with the county board or through the courts.
* The Holiday Inn on Street Road, a 215-room hotel built in the mid-1980s, which had its assessment cut by 49 percent. With its 1993 assessment, Holiday Inn would have paid $88,097 in county and local taxes this year. With its new assessment, it will pay $45,795.
* Campbells Storage Co. Inc., an office and warehouse on the 2400 block of Trevose Road, which had its assessment cut by 48 percent. With its pre-court-order assessment, the company would have paid $15,083 in county and local taxes this year. Now, it will pay $7,795.
* Overnite Transportation, a trucking subsidiary of the Union Pacific railroad company, which had its assessment cut by 59 percent on a trucking terminal in the Liberty Bell Industrial Park. With its old assessment, the company would have paid $76,118 in local and county taxes on the 4.9-acre property this year. Now, it will pay $30,400. Overnite also appealed the assessment on an adjacent 5.2-acre parcel of vacant land in 1995. That was reduced to $14,300 from $26,050 - a 45 percent reduction.
``Commercial properties are beating us up,'' said Michael Braun, business manager for the Bensalem School District. Bensalem, unlike other suburban towns, has almost no vacant land for development, so tax revenue lost through appeal is not replaced by assessments on new construction.
The Bensalem School District has lost $4.5 million in tax revenue, or 32.3 mills, since 1992 because of successful tax-assessment appeals. (A mill equals $1 in taxes for every $1,000 of assessed property value.) Over the same period, the district has increased the school-tax millage on all property owners in the township by 30.4 mills, or $167.20 for the owner of a home assessed at the township average of $5,500.
Thus, the cumulative millage increases for all property owners for schools since 1992 have gone solely to replace tax revenue lost through appeals, Braun said.
APPEALS IN TULLYTOWN
In 1994, Peter Tranotti was the only homeowner to file an appeal in Tullytown Borough in Bucks County.
Tranotti said he didn't ``ask for the moon.'' He had researched his neighborhood and found recent home sales indicating that the county's assessment was too high.
The county Board of Assessment agreed and, after a hearing that lasted a few minutes, reduced his assessment by 7.4 percent, saving him about $150 in local taxes in 1995. ``I would have liked more,'' Tranotti said. ``I took a half-day off and drove all the way up there, but that's what I got.''
The local newspaper, the Bucks County Courier Times, also filed an appeal in 1994 on property it owns in Tullytown Borough.
To help with the appeal, the Courier Times hired a professional appraisal firm. The firm, Chartwell Realty Advisers Inc. of King of Prussia, submitted a 56-page study of the Courier Times property to the Board of Assessment in August 1994.
The report estimated how much money the newspaper could expect to earn from the building if it leased the space to another company and the costs to operate the building.
It also cited the sale price of comparable properties - ``comps'' - hoping to give the members of the board an idea of what the owner might gain by selling.
The Board of Assessment's decision to lower the assessment on the 9.6-acre property by 56 percent saved the newspaper company about $60,000 in local taxes in 1995, much of which would have been paid to the Pennsbury School District.
In Montgomery County, meanwhile, Philadelphia Newspapers Inc., the publisher of The Inquirer and the Philadelphia Daily News, won in late 1995 a 36 percent reduction in the assessment on its Schuykill printing plant and 46-acre site in Upper Merion Township after appealing to the county Board of Assessment Appeals.
In granting the appeal, the county board lowered the market value on the plant, 800 Schuylkill Rd., to $32 million from $50 million, a drop of $18 million.
Based on 1995 millage rates, property taxes for PNI to the local municipality, school district and county will drop to $384,144 from about $600,000, which is what the company would pay with the higher assessment.
The Upper Merion AreaSchool District has filed suit in Montgomery County Court protesting the PNI assessment reduction.
Elsewhere in Montgomery County, the American Olean Tile Co. Inc., the largest taxpayer in the North Penn School District, was refunded nearly $990,572, according to a court agreement reached in 1995 between company attorneys and local officials.
The agreement with American Olean reduced the assessment on company property in Hatfield and Lansdale Boroughs by 43 percent, according to a court document.
Court records in Norristown show that other companies also reached agreements with taxing officials on assessments:
* Ford Motor Co., which operates an electronics factory on 56.5 acres of land straddling Lansdale and Upper Gwynedd, had its assessment reduced by 55.8 percent, according to three court stipulations signed in February 1995. Because of the stipulations, the North Penn School District refunded Ford $163,916.
* First Valley Bank had the assessment on its branch on Main Street in North Wales reduced by 46 percent. North Penn refunded $6,233 to the bank, which is headquartered in Bethlehem.
* R.H. Macy, the New York-based department-store chain, which leases space in the Montgomery Mall in Montgomery Township, successfully appealed the assessment on the entire mall. A stipulation reached last year between local officials and the store reduced the assessment on the mall by 47 percent. North Penn refunded Macy's $605,576.
``It's nuts,'' said Dennis Kelly, director of financial services at the North Penn School District. ``I feel totally helpless. You have two lawyers going at each other - that's how the appeal process works.''
Officials say the trends in the real estate market and the fact that there's no law mandating reassessment of property in Pennsylvania, coupled with lucrative commissions tied to tax savings, drove the massive filings of assessment appeals in the suburbs.
Large oil or chemical refineries and large retail stores have appealed their assessments for years, saying county officials assess their properties at unfair levels.
But since the last recession, small and medium-sized business also have filed appeals on their assessments in droves. Experts say businesses are looking for any way possible to cut costs and view property taxes as overhead - like electricity, maintenance or personnel.
``What happened in the last six or seven years is the people who never filed appeals are filing appeals,'' said Garippa, the New Jersey attorney. ``Big business always did it; small business drove this trend.''
Donald Reiff, corporate manager for property taxes at Union Pacific, said the company sought to reduce taxes in Bucks County as part of a nationwide audit of costs associated with its terminals and other property.
Union Pacific expected to save about $500,000 in local taxes across the United States in 1995 - with more than $100,000 in savings coming from Pennsylvania, Reiff said. In addition to a terminal in Bensalem, Overnite appealed the taxes on a truck terminal in Harrisburg.
Appraisers and lawyers, some of whom identify prospects for appeals through computer-generated mailings, have wooed new clients.
Commissions for assessment appeals range from 40 to 75 percent of one year's savings from lower real estate taxes. Thus, if an appeal results in a lower tax bill of $10,000 on an individual property, the lawyer or appraiser may pocket $4,000 to $7,500. A lawyer also may negotiate a compensation in which he or she would be paid a percentage of the tax savings over several years.
Basically, a lawyer or appraiser looks at a land parcel like this: The larger the property, the greater potential reduction in assessment, the greater potential tax savings for the owner, and the larger the potential fee. County and real estate officials say the largest property owners in communities - typically businesses - have been the most heavily solicited for having their assessments appealed.
Even if these solicitations do not directly result in an appeal, they many times plant a seed in a business owner's mind to have an in-house property manager or corporate attorney explore an appeal.
Ed Westlake, president of the 75-employee Crystal-X Corp. in Colwyn Borough, said lawyers soliciting his property ``put a bee in our bonnet'' to file an appeal through the company attorney.
On Jan. 1, 1995, the company's assessment was reduced to $20,000 from $48,000 - a 58 percent drop.
No one has tracked how much money lawyers and appraisers have earned by representing commercial property owners in successful appeals over the last several years, but county officials say it runs into the millions of dollars.
One lawyer, Donald Weiss of Media, Delaware County, said that in the last five years he had filed about 7,000 appeals - most of them in the Philadelpia area - on about $1.5 billion in real estate.
He estimates that he has saved his clients, who include businesses and homeowners alike, about $5 million a year in taxes.
Weiss has a two-tier fee structure. He charges business clients 75 percent of the first-year savings in lower real estate taxes. Homeowners are charged 90 percent of the first-year savings from an assessment appeal. In both instances, Weiss pays for the appraiser.
Weiss advertises his tax-appeal services on talk radio. He also has purchased computers, software, and digitized real estate data to comb through tens of thousands of land parcels, seeking those that might be overvalued and good candidates for appeals.
``I have a computer, and I don't want to say it's running around the clock, but it's constantly looking for areas that are overassessed,'' Weiss said.
Only a few blocks from Weiss' rambling brick office in Media is the office of another attorney, Joseph O'Brien. He also is known for computer-generated mailings to solicit clients.
In 1989, his first year, O'Brien mailed 600 letters to commercial and industrial landowners in Delaware County seeking clients. Satisfied with the response, he expanded his computer analysis of real estate records and mail solicitation to Chester County in 1990.
Since then, O'Brien has added Philadelphia, Bucks, Montgomery, Luzerne, Lackawanna and Dauphin Counties to his territory. Last year, O'Brien mailed 30,000 letters to property owners, telling them he believes the taxes on their properties are calculated at inflated market values.
LOOKING FOR CLIENTS
He said he employed three full-time paralegals, a law clerk, and an outside computer expert on the solicitation campaign.
The solicitation letters result in his filing about 500 tax appeals to county assessment boards, O'Brien said. He said he attracted potential clients in the letters with ``magic words.''
One O'Brien letter, dated early June last year to a company in Plymouth Meeting, began: ``You are paying unlawfully excessive real estate taxes if your real estate is worth less than the value indicated above, which is the value presumed by the county based upon the 1995 real estate assessment.''
The words unlawfully excessive and presumed are underlined. The letter also lists the address of the property, the assessment, and the market value based on the county assessment.
Along with the letter, O'Brien sends a 20-page pamphlet on local real estate taxes and the appeal process. A table on pages 6 and 7 of the pamphlet lists disparities in the tax bills on hypothetical million-dollar properties in communities throughout the Philadelphia region.
``I figured out a way to bring this to the attention of people, and they can make their own choice,'' O'Brien said in an interview. ``There are many ways to do marketing, and that does not mean that you get in their face or misstate facts.''
O'Brien charges clients 50 percent of the first-year savings in property taxes, if those taxes are lower after the assessment appeal. The client pays for an appraiser, who places a value on the property.
If the client opts not to pay for an appraiser, O'Brien charges 50 percent of the first-year savings in taxes and 40 percent of the second-year savings. In that case, O'Brien pays the appraiser fee. He said this second option was financially ``risk-free'' for the client.
Appraisers - who place values on properties used in the actual appeal before a county board - work by themselves, or in conjunction with an attorney. In the latter case, they are usually paid a straight fee for an appraisal report.
Appraisers produce reports placing a value on a property. The reports are then submitted, either by the appraisers or by lawyers, as evidence to the county boards. Critics say appraisers who work alone and are paid commission could have a conflict of interest.
In other words, their judgment on the value of the property has a direct influence on their commission.
By ``lowballing'' a property, or making it seem less valuable than it may be, an appraiser or lawyer may convince a board to reduce the assessment on a property. This may result in a steep reduction in the assessment, an equally steep cut in real estate taxes for the property owner - and a large commission.
Richard L. Brosius, chief assessor for Bucks County, has criticized commissions because he believes it's difficult for an appraiser to decide on a fair value for a property when the appraiser's own income is a factor.
``It's pretty hard to be unbiased when your fee is based on the outcome,'' he said.
The standards board of the Washington-based Appraisal Foundation, the trade organization for appraisers, has expressed concern with commission-based fees.
Laurie Van Court, a member of the Appraisal Standards Board, said a recent nationwide study showed that commission-based appraisals for assessment appeals were widespread.
``We are very uncomfortable with this,'' she said.
Van Court said the public expected appraisers' reports to be ``sacrosanct'' - which is nearly impossible to accomplish with commission-based fees.
``We are threatening the foundation that the appraisal industry stands on,'' she said.
And there is little, or no, oversight.
In Pennsylvania, there are about 1,000 licensed appraisers, state records show. The Board of Certified Real Estate Appraisers in Harrisburg, which was established in the early 1990s as a result of federal laws relating to the savings-and-loan bailout, approves licenses for appraisers.
The board's regulatory powers, however, stop short of oversight for appraisers who contract for tax-protest work, or assessment-appeal cases, said Jackie Lutz, the board's counsel. She said the state board was restricted to regulating appraisers who evaluate property for federally guaranteed bank loans - for which it is unethical to charge commission-based fees.
Thus, oversight of appraisers involved in assessment appeals falls to the Real Estate Commission, which regulates real estate brokers, state officials say.
Before the savings-and-loan crisis in the late 1980s, which was partially blamed on inflated values placed on properties that were then used as collateral for bank loans, the Real Estate Commission regulated both real estate brokers and appraisers.
Steven Wennberg, counsel for the Real Estate Commission, said the commission had not acted on complaints regarding commission-based fees, partially because ``the commissioners feel they have no authority to stick their nose in real estate assessment cases.''
Paul Shoup Sr., a senior vice president and part-owner of Strategis Asset Valuation and Management in Plymouth Meeting, began appraising properties in the Philadelphia area in 1969.
He's one of the best-known appraisers in the assessment-appeal field in the Philadelphia region.
Shoup said he believed that placing values on commercial and industrial properties was ``not a science'' but ``still an art.'' He said he had gone to school to continue his education in the field.
Shoup said contingency fees - which he charges clients - were a legitimate method of charging for appraisal services because some of the companies he represents didn't have the money to pay a flat fee.
``We're making money, but we're not making tons of money,'' Shoup said. ``Our standard fee is 50 percent.''
Shoup said appraisers have entered the field in recent years with the intent to make money. ``The war stories you heard are true,'' Shoup said. ``There are a lot of unscrupulous people out there. There's no real regulation of tax consultants, and that's the problem. We need regulation. I'd be the first to admit it. It's obvious.''