Philadelphia’s Tax Delinquency Epidemic Rages On

Nearly 100,000 properties owe past due taxes, and more than 9,000 are two decades or more in arrears.

Photo by Morgan Burke, Creative Commons license.

Delinquency hangs over Philadelphia like clouds that won’t blow away. | Photo by Morgan Burke, Creative Commons license.

Property tax delinquency was — once again — on the rise in Philadelphia between April 2014 and April 2015.

In spite of the Nutter administration’s long and varied efforts to control what is one of the nation’s worst delinquency epidemics, the total number of past-due properties grew to nearly 100,000 in April, up from 96,000 in the same month the year before.

These figures represent a step backwards for the city. Last year, for the first time since Mayor Nutter took office, the city managed to put a small dent in both the total number of delinquent properties and the total debt owed. The progress was modest, given the scale of the problem, but it raised hopes that the delinquency crisis had peaked.

Apparently not.

Nearly every indicator shows that the tax delinquency scourge was as bad or worse in April 2015 as it was the year before. A Citified analysis of city tax data over that period shows that:

  • The total amount owed the city and School District of Philadelphia in unpaid taxes, penalties and interest increased from $512 million to $523 million.
  • Philadelphia tax delinquents are a mind-boggling 740,734 years in arrears on their tax payments. That’s 3,257 more years worth of payments than were recorded in 2014.
  • Of the nearly 100,000 delinquent property owners, 16,735 are in payment agreements. That’s just 279 more than last year.
  • Long-term delinquents remain a huge problem. There are 9,049 properties in the city that haven’t paid taxes in 20 years or more. That’s just 10 fewer properties than met the same criteria last year.

Is the city’s recent handling of the delinquency crisis really as bad as those numbers suggest? Yes and no.

It’s a simple fact that most big U.S. cities simply don’t have widespread, long-term property tax delinquency. That’s strong evidence that this is not an insurmountable problem.

But it is a very old problem in Philadelphia, and that’s important context to remember when judging City Hall’s recent handling of this mess. For a long list of complicated reasons — entrenched political, cultural, economic, legal and bureaucratic forces all at work here — property tax delinquency has been distressingly commonplace in Philadelphia for years and years. There’s serious inertia around this problem, and it’s confounded a lot of smart and dedicated people who’ve tried to solve it. In other words, this problem predates Mayor Nutter. By generations.

Second, the April 2015 delinquency numbers are at least somewhat inflated by an unusual number of high-value property assessment appeals; part of the ongoing fallout from the Actual Value Initiative, which reassessed properties citywide. A full explanation of why that’s the case would require a long detour into deep weeds, so suffice to that the administration has a point on this score. It’s clear that property assessment appeals have driven the delinquency numbers upward, at least in the short term.

To drive that point home, City Revenue Commissioner Clarena Tolson wrote in an email that of the 10 properties with the largest outstanding balances, six are appealing their assessments, while the rest are all in one stage or another of the city’s enforcement process.

And enforcement clearly has become more robust in the years since the revenue demands of the school district grew acute and public scrutiny of the delinquency crisis intensified. In the beginning of the Nutter administration, there were often fewer than 100 tax delinquent properties a month offered up for auction at sheriff sale (sheriff sales are the enforcement mechanism of last resort, transferring the delinquent property to the highest bidder free and clear of all debts — at least in theory).

Now, the city is listing an average of 1,075 properties a month for auction, Tolson says in an email. That checks out, and it’s a big change. Indeed, that’s roughly three times as many properties as were offered in even the highest-volume months dating back to 2000, Citified’s records show.

And yet, in spite of those measures and others, the numbers show the city has failed to meaningfully reduce the overall prevalence of delinquency. There’s clearly still a perception — though it’s not actually an accurate one any longer — that the city won’t get tough with tax delinquents. And so for many property owners, the tax bill is one that gets paid last, if at all.

Last month, the city tried something new: auctioning off the liens on more than 200 tax delinquent parcels. What does that mean? Essentially, the city sold its ability to foreclose on those tax delinquent properties to third party investors, in exchange for upfront cash. The sale generated $2 million.

More promising than the lien sale itself, however, were the payments the city got from delinquents who were warned that liens on their properties would be sold. That threat really worked. Of the 4,000 or so properties targeted, 1,414 paid in full, and another 645 paid part of their bill. Delinquent property owners who feared that the city would outsource enforcement — which is what a lien sale essentially is — coughed up $5.4 million in payments, and signed onto payment agreements that could provide another $2 million. There are community development activists that have serious concerns about lien sales, but the administration clearly considers this trial run a success.

In her email, Tolson said that a snapshot taken in June, instead of in April, would have shown that the delinquency figures are actually slightly improved over last year. Citified could not independently verify that claim (I use April snapshots because I’ve been collecting delinquency data for seven years, and it’s important to take the snapshot from the same month each year in order to make valid annual comparisons).

Why does this matter?

A lot of readers will fixate on the money owed, and understandably so. There’s the outrage factor, for one. Why should I pay if my neighbor doesn’t? And a half-billion dollars is a nice round number that captures the imagination; just think of what the School District could do with that kind of cash.

But the truth is, a big chunk of that $512 million is probably uncollectible. And dwelling on the amount owed risks overlooking bigger problems that delinquency generates. A majority of tax delinquent properties are owned either by speculators, slumlords or — no kidding — the dead. Consequently, as a group, tax delinquent properties are massive generators of blight that badly degrade the property values of their neighbors.

The core problem with widespread long-term delinquency isn’t the unpaid taxes. It’s the damage done to communities by these properties; properties that the city is empowered to sell off at auction or to seize through the new Land Bank. For too long, that hasn’t happened as often as it should, and the vast stockpile of blighted, delinquent parcels have been left to rot.

How can the problem be fixed?

There are an array of possible solutions, ranging from expanded use of lien sales, to having the new Land Bank seize tax delinquent properties, to simply making it easier for tax delinquents to make their payments.

We’ll explore those possibilities and try to explain more about the basics of property tax delinquency in an upcoming guide.