City Picking Up the Pace on Tax Collection

Photo | Jeff Fusco

For the first time since Mayor Nutter took office, the City of Philadelphia made significant, measurable progress over the past 18 months in its long-running fight against the property tax delinquency epidemic.

The total debt owed the city and School District of Philadelphia in unpaid property taxes fell over the past year, edging down $10 million between April 2013 and April 2014, according to a Philadelphia magazine and PlanPhilly analysis of city tax data. The total number of property tax deadbeats declined as well, dipping about 1,400 over the same period.

To be sure, the gains are modest given the massive scale of property tax delinquency in Philadelphia; nearly 96,000 delinquent parcels and $512 million owed, figures that dwarf those in all other big cities except Detroit.

But it’s notable nonetheless that the city managed to stop — for a time at least — the spread of tax delinquency (the epidemic has grown quickly in most years of the Nutter administration), and more notable still that the city is now reducing the total amount owed.

The property tax collection gains are nowhere near as impressive as the Daily News suggested in a problematic story this May, which reported that the total number of delinquent properties had declined by 25 percent between the end of last year and April. Property tax delinquency is cyclical by nature, and valid comparisons can only be made by looking at the same months in different years. The true year-to-year decline in the delinquency rolls is actually just 1.4 percent. Still, a slowly shrinking delinquency epidemic is better than a fast-growing one. And it will take time to reverse the city’s longstanding tolerance of delinquency, which goes back decades. As documented in a pair of series on the delinquency crisis published by PlanPhilly and the Inquirer, property tax enforcement in Philadelphia has historically been unusually lax compared to other cities. City Revenue Commissioner Clarena Tolson — who has been on the job for a little over a year — said she was encouraged by the progress the city has made. “Our primary drive has been to change the culture,” Tolson said. “We’ve tried to create a predictable set of consequences for those who don’t pay, consequences that are certain and sure to occur.” The most permanent consequence is the auctioning off of tax-delinquent property at a sheriff sale. In the early years of the Nutter administration, sheriff sales plunged to some of the lowest levels of the last 20 years, and no new properties were taken to sale for an entire year, during a tax amnesty. At the same time, delinquency spiked (that growth was probably due to the recession, in addition to the relaxed enforcement). Following the PlanPhilly/Inquirer series published last April, the city adopted new enforcement tactics, overhauled local tax delinquency law, replaced top personnel in the Revenue Department, and dramatically ramped up sheriff sale activity, as the chart below shows.

Why Does the Delinquency Epidemic Matter?

There’s the money, for one. The half-billion plus in uncollected property taxes and associated penalties and interest would be a welcome assist for the nearly bankrupt School District of Philadelphia (which gets about 55 cents of every property tax dollar collected) and the city’s always-stretched general fund (which gets the rest).

The problem is, as a practical matter, a lot of that money is unlikely to ever be collected. For a short-term financial boost, the city is probably best off targeting relatively fresh delinquencies and preventing as many owners as possible from becoming delinquents.

But there are huge long-term benefits to cutting down the delinquency rolls. Tax delinquent properties are, more often than not, owned by speculators, slumlords, and out-of-town interests. The properties they own drag down property values, and make for miserable neighbors.

Cutting back the supply of tax delinquent properties, be it through voluntary compliance, sheriff sales or the newly formed Land Bank (likely the best option for low-value properties where market-rate interest is minimal), will, in time, increase property values and improve neighborhood quality of life.

Backsliding?

Now the bad news. After meeting ambitious new collection targets most of last year, the city fell $8.8 million behind budget in the first few months of 2014. That’s significant because those are the months when the city collects the vast majority of its property tax dollars.

A good chunk of that is probably attributable to a big backlog in assessment appeals at the Board of Revision of Taxes that developed after last year’s citywide property reassessment (aka the Actual Value Initiative). But not all. Through the first three months of the year, the city was behind on collection not just on current-year taxes (which are those impacted by the appeal backlog), but on delinquent taxes as well. More recent figures are not yet available.

The city made a respectable start on scaling back the delinquency epidemic over the last year. But it’s only a start.

This story is being jointly published with PlanPhilly, an online news outlet covering Philadelphia’s built environment.