“Temporary” Tax Increase Is Not Temporary, Not Fair
This week, Mayor Nutter and City Council impose upon Philadelphia a “temporary” real-estate tax increase for the second year in a row. On top of last year’s 10 percent increase, this year’s hike is another of almost four percent. But, make no mistake: They intend for the tax increase to be permanent, and they enact this increase knowing that it will fall disproportionately harder on middle- and lower-income Philadelphians than on upper-income Philadelphians.
The Mayor and Council know that under the law that allowed for the state takeover of Philadelphia’s schools and the creation of the School Reform Commission, the City is compelled to maintain its financial contributions to the School District into the future. The City cannot just give more money to the schools for one year.
So how can our leaders enact a “temporary” tax increase—the legislation calls for rates to be lowered back to pre-tax hike levels for 2013—and still abide by the law that mandates the City’s support? The Mayor and Council plan to use the effort to fix Philadelphia’s unfair and illegal real-estate assessments to make these “temporary” tax increases permanent.
Last year, the Mayor and City Council raised real estate taxes and told us it would only be for two years. But, I called them out, noting that the city’s Five-Year Financial Plan counted on the increased tax revenues for years after the tax rate was supposed to retreat to pre-tax-hike levels. Administration officials then admitted that they planned to use the Actual Value Initiative—the absolutely necessary effort to accurately value city properties and end decades of inequitable valuation of properties—as a way to increase tax revenues for the City and School District.
The fundamental understanding about getting assessments right had previously been that the effort would be revenue-neutral, not generating more or less money for the City and School District. Ironically, Mayor Nutter articulated this idea quite clearly when campaigning in 2007, saying: “I will support a revenue-neutral move toward Full Value Assessment … matched by a proportional reduction in the millage rate by City Council.”
Now, looking for cash, the Mayor is leading the charge to use fixing real estate tax fairness as a revenue raiser. This is a betrayal of his campaign promise and a shady move, but—knowing that the unfairness in Philadelphia real estate assessment forces many owners of modest row homes to pay more in taxes than many owners of expensive town houses—the move to raise the real estate tax itself is a serious transgression.
After last year’s 10 percent tax increase and this year’s nearly four percent increase, tax rates will be increased by a total of about 14 percent for Philadelphia homeowners. The increases fall harder on over-assessed homes, which tend to be located in working-class neighborhoods, than on under-assessed homeowners. This is because the effective tax rate, which takes into account whether a property is over-assessed or under-assessed, varies from house to house. For example, a property assessed for tax purposes at 50 percent of its true value sees an effective tax increase of 2.5 times the effective tax rate increase for a property assessed at 20 percent of its true value.
Philadelphia’s system of real estate taxation is broken and illegal so the move by the Mayor and City Council to increase real estate taxes hurts row-house Philadelphia much more than town-house Philadelphia. Even worse, we know the Mayor and City Council plan to use the “fix” of this broken system to make these tax increases permanent so that when we do fix the system, those of us who have been paying too little for too long will be asked to pay more than our fair share in the future and those of us who have been paying too much will never see the reductions we deserve.