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Auditor General Jack Wagner Finds Significant Flaws In State Tax Equalization Board’s Property Market Values
Says corrective action must be taken immediately, or work should be privatized
HARRISBURG (Feb. 10, 2011) – Auditor General Jack Wagner said today that his auditors found so many errors in the State Tax Equalization Board’s revised property market values for 2008 that it has raised questions about the accuracy of the 2009 report and the coming 2010 property report, which is scheduled for release in July.
Property market values certified by STEB are used by the Department of Education and other state agencies to calculate and distribute over $9 billion in state aid to school districts, local libraries, volunteer firefighter relief associations, community colleges and other programs.
STEB, which was established in 1947 to balance disparities in county property market values, revised 2008 property market values in 424 of Pennsylvania’s 501 school districts after widespread complaints about sudden fluctuations between 2007 and 2008 market values. However, Wagner said, his auditors found a 65-percent error rate in a review of records from 70 municipalities. Among the significant errors found in the 70 sampled municipalities were:
Wagner’s report, which is available to the public at www.auditorgen.state.pa.us, attributed most of the errors to a flawed computer system and human error, and it recommended that they be addressed immediately. While STEB has attempted to fix the problems that occurred in 2008, including revamping the existing computer system, Wagner said he did not believe that all of the mistakes had been corrected. The errors are significant enough that they could result in unnecessary tax increases in some school districts and municipalities, he added.
In a cover letter to his audit, Wagner recommended that Gov. Corbett and the General Assembly review how property values are established and whether alternatives to the State Tax Equalization Board should be considered. He said that corrective measures must be implemented immediately; if not, the board should be abolished and incorporated into the Department of Revenue, or the work should be privatized.
“Property taxes are the primary funding source for local government in Pennsylvania, and so it’s vital that the market value information used in the subsidy formula is accurate and reliable and ensures that some taxpayers are not being shortchanged while others are receiving more state aid than they deserve.” Wagner said. “The burden falls on the State Tax Equalization Board to reassure taxpayers that it is fulfilling its duties. The time has come for the Board to lead or get out of the way.”
The State Tax Equalization Board is composed of three members, each appointed by the governor of the commonwealth for a term of four years. The board’s organizational structure consists of an executive director, who oversees the everyday operations, a director of certifications, who is responsible for the calculation of market values, and approximately 10 field and clerical staff.
Wagner’s office was asked by several members of the General Assembly to review the board’s process for annually calculating and certifying market values of taxable property after concerns were raised by school districts, the Department of Education, and taxpayers because of large variances between 2007 and 2008 market values.
News reports last summer documented some of the errors:
News reports also reported that on June 26 school directors of the Hazleton Area School District approved a budget that contained a 2.75-percent property tax increase for residents in Schuylkill County, a 1.89-percent property tax increase for residents in Luzerne County, and a 2.9-percent property tax decrease for residents in Carbon County, as a result of inaccurate market values.
Wagner’s audit covered the market value report for calendar year 2008, with follow-up activities that concluded Nov. 24, 2010. It resulted in two findings: that the Revised 2008 Market Value Report was incorrect and could adversely affect the recently published 2009 report; and that the lack of management oversight and lack of controls resulted in STEB’s certifying and publishing inaccurate 2008 market values.
“It is absolutely critical to Pennsylvania taxpayers that the State Tax Equalization Board tightens its oversight of the accuracy of market value calculations because the errors contained in prior reports not only affect the current year’s calculations and aid to school districts and other local governments, but also can have a long-term effect on future years calculations,” Wagner said.
The State Tax Equalization Board, which originally released the 2008 market value report on June 30, 2009, subsequently reissued a revised report on Aug, 17, 2010.
In a letter dated Oct.15, 2010, Wagner’s office suggested to the board that it consider conducting a 100-percent review of the 2008 revised market values to ensure accuracy prior to releasing the 2009 market value report. However, in a letter dated Nov. 24, 2010, Chairman James A. Zurick indicated that, after careful review, that the board went forward with release of the 2009 market value report
Key deficiencies noted by Wagner’s audit include:
Wagner made 12 recommendations to correct operational deficiencies, including:
Auditor General Jack Wagner is responsible for ensuring that all state money is spent legally and properly. He is the commonwealth’s elected independent fiscal watchdog, conducting financial audits, performance audits and special investigations. The Department of the Auditor General conducts thousands of audits each year. To learn more about the Department of the Auditor General, taxpayers are encouraged to visit the department’s website at www.auditorgen.state.pa.us.
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