The Challengers: Allan Domb Thinks He Can Wipe Out Tax Delinquency
All week, Citified is featuring Q&As with leading at-large City Council Democratic challengers on topics of their choosing. The prompt was simple: if elected, what’s a problem you would you prioritize, and how would you address it? To keep the conversation substantive and on-point, we asked the candidates to focus on a relatively narrow question (i.e., not “schools,” or “crime.”)
Allan Domb — real estate magnate, developer, part owner of Starr Restaurants — seems an unlikely candidate for City Council. But he’s running, and he’s running to win: Domb has already spent $560,000 of his own money on the campaign. Domb’s business experience is unmatched by any of the council candidates, incumbents included. But he’s never served in government or worked in the non-profit sector. Nonetheless, Domb considers himself a policy wonk, and when asked what he wanted to talk about with Citified, he picked a subject as wonky as they get — property tax delinquency.
Citified: Let’s talk about property taxes. Why is this such an abiding interest of yours?
Domb: … A lot of people say, “Oh, it’s uncollectible. It’s uncollectible.” I’m in the real estate business. What they don’t realize is that real estate is like wine if you’re in a good area. The longer you keep it, the more valuable it becomes.
Philadelphia has done well. We have a booming economy in most of Philadelphia — not all — but most. We have $8 billion of construction underway right now. We have 15,000 potential new jobs between two large entities, Comcast and Hospital University of Pennsylvania, Children’s Hospital. Good paying jobs. We’re in a good cycle right now.
Why we don’t collect $820 million in delinquent taxes is beyond my imagination when it’s tied to real estate (Domb is referring not just to delinquent property taxes, but unpaid water and gas bills as well).
Citified: Why is it different when it’s tied to real estate?
Domb: Because you have an asset that you can go after… 19103, the zip code we are sitting in right now, Rittenhouse Square: there are 224 properties that are delinquent. The AVI value (the city’s assessed value) for those properties is $165 million. The delinquent taxes are $6 million. That’s collectible. Here’s why: Real estate taxes, water, sewer and gas liens are a first lien on property. They come before the mortgage company.
There are 30 states right now that we do what we call tax lien sales. In these 30 states, the documentation that we’ve read up on shows that once you sent out a tax lien notice to your entire constituency who owes money, 50 percent, half the people, pay — because it’s a hammer. And it’s a big hammer. Then when you start selling the lines, the other half pay.
… So 30 states do tax lien sales — 29 states sell them to third parties. I don’t recommend that.
Citified: Why not?
Domb: I recommend what New York City is doing … In the ’90s, they collected 85 percent of their taxes, similar to Philadelphia. Records were a mess. Today they collect 99.8 percent.
Why? … They instituted a tax lien sale in New York City, where they set up two securitized trusts, securitized by Wall Street. The city puts all of their delinquencies into the trust. They get a check overnight from Wall Street for 65 percent of the debt. They hired two separate servicers. Each one services a separate trust. They work on collecting the money. It takes two years. City collects the money, pays the investors their return. Pays the servicers their one or two percent, then the city gets the rest of the money. So what they set up in New York City is brilliant…
Citified: Rewind a second. How is what you’re proposing different from what Ed Rendell did? (In the 1990s, the city bundled 33,000 tax liens on delinquent properties and issued bonds on the debt, collecting $106 million. But the city defaulted on its bond payments in 2004. It was, in short, a fiasco.)
Domb: Very different.
Domb: I don’t know all of the details of what Ed Rendell did. I’m not suggesting a third party sale. I’m suggesting the city do what New York City did. … (The 1990s) was like the primitive stage of tax lien sales. (Rendell) was way ahead of the curve.
Citified: In terms of the actual collection mechanism though, the actual getting-the-property-owner-to-pay-up, you’re suggesting outsourcing that to some sort of third party?
Domb: No. No. The city sets up the trust. The city hires two separate servicers. Each one has their own trust and works on behalf of the city as their agent, collecting the money on behalf of the city.
Citified: How is that different than say, the city’s arrangement with Linebarger (which is one of three debt collection companies the city has used in recent years to go after delinquent real estate taxes)?
Domb: The first difference is the city gets a check upfront of 65 percent …
Citified: I guess I wonder if part of New York’s success might not be attributable to the fact that as a real estate market, it’s so much bigger and stronger than Philadelphia’s.
Domb: I don’t think so.
Citified: How come? I mean it’s obviously a stronger real estate market. Prices bear that out.
Domb: There’s more leverage in New York of debt on properties than in Philadelphia. We have a lot of properties that are free and clear. … I think it is the will to collect. I really do. …
Citified: There are a lot of properties in the city where the value of the taxes owed exceeds the value of the parcel itself. What would you do in those cases?
Domb: … In those cases, I would sell them for the highest price we could get. Clear the debt, and then get them down back on the tax payrolls, because right now we’re not getting any money …
Right now, you have close to 100,000 properties not paying taxes. Even if we didn’t get a dime from any of them, if we just cleared out the debts and put the properties in the hands of people that are going to pay, we’re going to get 100,000 new properties (on the tax rolls).
Citified: Why do you think servicers are better to collect this debt than city staff?
Domb: Look, the collection process is not working. … You need professionals. I always believe in hiring in the best people to bring them into the job. This is found money for us. We’re running our books without this money.
… My goal is to collect the money and to clear the books. We’re not going to get all of this money. If we get $600 million, I’d consider it a win, or $500 million. We’re getting nothing right now … We’ve used the existing systems. Have they worked?
Citified: Not well. …
Domb: A lot of people have said to me on the campaign trail, “Oh, you’re not going to get any money. Maybe you’ll get $30 or $40 million out of that.” I don’t agree with that.
Citified: What do you think is reasonable?
Domb: I think we could get $300 to $400 million.
Citified: Let’s talk about eviction — the old woman who can’t pay her taxes.
Domb: This is not about that.
Citified: Well, let’s talk about that for a second. How do you deal with that? You’ve got some percentage—
Domb: There’s like five different programs they can enter into.
Citified: About 55 percent of delinquent properties look to be owner occupied. A lot of those debts are decades old. You’ve got parents who passed on and didn’t leave a will. You’ve got their grown children living there who owe 25 years worth of accumulated property taxes, and they are not even technically the owners of the house. How does this approach effect them and what’s the answer for dealing with those problems?
Domb: I’m not in favor of throwing anyone like that out on the street. That’s nuts, stupid. There are payment plans… You probably know this from your research, it can be as little as $50 or $75 a month, or $40 a month.
Whatever it is, if you show willingness to enter into a payment plan and come forward, God bless you, and we’ll work it out. We’re not interested in taking your property. We’re interested in you having a good property.
This is going after those abandoned properties that are sitting there vacant, or investors from out of the area who’ve dominated the northeast section of our city, who are disregarding paying real estate taxes …
Citified: At the risk of going even further into the weeds here, there is some big percentage of these properties that have tangled titles, where ownership isn’t really clear.
Domb: We need to clean all that up. We also need to look at New York’s record keeping system. We need better record keeping in the city …
Sooner or later, we need to bite the bullet and deal with it. Sooner is better than later. Nobody wants to deal with it. I have a feeling it will take us a year or two to clean through the mess…
Citified: What about the Land Bank? It has the power, of course, to take tax delinquent properties before they go to sheriff’s sale. What role do you think the Land Bank should play?
Domb: The Land Bank’s great. I think there’s a potential of 40,000 properties going into the land bank. Look, I don’t care how it gets cleaned up. I don’t care if we do it through the securitized liens through the trust, or if we do it through the Land Bank. I don’t really care about the mechanism. All I want to do is to clean it up.