With the Actual Value Initiative pushed back until 2013, we can take our time to make real estate assessments fair and accurate in a careful and considered manner. Happily, we already have an action plan and we can make it work without taxing Philadelphians out of their homes.
After years of debate, there should be no question that, right now, real estate taxation in Philadelphia is unfair and haphazard. Examples of the consequences of this unfairness are striking. Consider two homes that sold recently for dramatically different amounts—a house in Southwest Center City sold for $480,000; a house in Northeast Philadelphia sold for $88,500. The home that sold for $88,500 actually faced a $1,494 tax bill while the home that sold for $480,000 only paid $1,311.
This situation forces some to pay more than their fair share and shifts development and growth toward neighborhoods where the assessments are lower than they should be because buyers can afford more house in areas where tax bills are relatively low. So, residents of the Northeast and Northwest Philadelphia are paying too much effectively to subsidize growth in and around Center City.
So how do we get property valuation right and how do we protect taxpayers from unreasonable changes in their tax bills during a transition from the current unfair system?
In 2003, I served on the City’s charter-mandated and voter-established Tax Reform Commission where I chaired the Real Estate Tax working group. The Tax Reform Commission drafted a compelling plan to make Philadelphia taxes more fair and less burdensome and that prescription remains the blueprint for fixing what’s wrong with city taxation today.
Show Me the Values
The entire point of the Actual Value Initiative is to produce “actual value,” so before we move forward at all, we must see the values and ensure that they are accurate. Any attempt to move forward without seeing and vetting the new assessments contradicts the whole point of the “actual value” in the Actual Value Initiative.
Make the Change Revenue Neutral
Fixing what is wrong with real estate taxation in Philadelphia is about fairness, not about generating more money for the city. Therefore, the Actual Value Initiative must be revenue neutral when implemented—so that real estate tax brings in no more or less in tax dollars than it currently generates. Of course, in the future, as values rise and fall, City Council and the Mayor can set tax rates so that the city generates the same amount or more or less from real estate taxation. If the city tries to use AVI to raise taxes, it destroys the fundamental argument that the change is about fairness.
Protect Property Owners From Unreasonable Tax Increases
Nobody should have to face a ridiculous tax increase just because the city has failed for decades to fix what is wrong with assessments. Other jurisdictions have gone through similar transitions without serious shocks to the system and the Tax Reform Commission outlined policies that can protect property owners such as:
1. Use a real estate tax relief program to “buffer” changes in assessed values to eliminate the most dramatic one-year changes in tax burden.
2. Implement land-value taxation to increase tax rates on land while reducing tax rates on structures to reduce tax burdens for most homeowners, encourage development, and discourage speculation.
3. Advocate for the Commonwealth of Pennsylvania to enact a state circuit-breaker property tax relief program to hold down real estate tax increases for those on fixed incomes; and to expand existing state-funded, low-income property tax relief for truly needy taxpayers.
4. Allow taxpayers to pay real estate tax bills in quarterly payments to help families spread costs throughout the year—as a bonus, this measure would save the city and school district millions in borrowing costs.
5. Establish a taxpayers’ advocate to educate citizens about real estate taxation and help residents get informed and appeal unreasonable assessments.
6. Create a system of real estate tax deferments to allow homeowners to live in their homes today and pay their tax burden in the future (when they sell and realize the “gain” from increased property value).
Consider the Larger Context of Tax Reform
Philadelphia’s tax problems certainly do not end with the real estate tax. The Tax Reform Commission and so many others have long advocated for much more to be done to reduce the high tax burden that chases so many firms and families out of Philadelphia. We must get back to the business of slowly but surely reducing the wage tax and job-killing business taxes to make Philadelphia more competitive. We must make sure that those who owe pay their back taxes so that the rest of us are not forced to pay higher taxes to support those who don’t pay their share. Of course, we must implement tax reform in a way that does not compromise the city’s ability to deliver and improve the services we count on in neighborhoods across Philadelphia.
Fair and accurate real estate taxation is a critical component of the Tax Reform Commission’s plan for tax reform. If we make Philadelphia a more competitive place—especially for employers—commercial real estate values will rise and generate higher revenues, which will allow us to maintain the city services we rely on to make Philadelphia a preferred place to live, work and visit.
Do It Well; Do It Right
When it comes to the Actual Value Initiative, we must not only worry about making it happen, we must also insist that we do it right. I have been pleased to work with city leaders in the decade since the Tax Reform Commission and look forward to working with them in the coming year to make the Actual Value Initiative—and tax reform in general—work for Philadelphia and all Philadelphians.
Editor’s note: Brett Mandel plans to run for Philadelphia city controller in 2013.