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to promote civic engagement in the Philadelphia region.What’s The Way Out?
Monday, February 9th, 2009 at 5:00 am - by Tom Ferrick. Filed under: Budget, Economy, Education, Politics.
By Tom Ferrick
Talk about mixed emotions.
Imagine you are Mayor Michael Nutter reading the results of the public opinion poll released last week.
First, there’s good news. Your approval rating is 71%, despite the bumps and bruises you have taken over the budget cutting done so far.
Now, some bad news: Most folks hate the steps you’ve taken to close libraries, pools and cut other city services - two-thirds of the respondents in a poll done for the Pew Trust’s Philadelphia Research Initiative either oppose or strongly oppose them.
And here’s one to make your head spin:
When it comes to what to do next to cure the city’s financial ills, Philadelphians are split down the middle - 44% said they would prefer more city services even if it means higher taxes; 45% would prefer lower taxes even if it means fewer services.
So, if you cut services you tick off nearly half the people and if you raise taxes you tick nearly another half.
And therein lies the mayor’s great dilemma.
Because my hunch is that his people are crafting a budget for the upcoming fiscal year that reduces services and raises taxes.
In other words, we’re going to get the worst of both worlds.
Let me add I have no inside information on what the mayor’s budget people are considering, but there’s been enough chatter around the issue to surmise these options are on the table.
Let’s take the tax side. If the city was going to raise a tax which one would you pick?
Myself, I would choose business taxes — for the simple reason that I don’t pay any business taxes. In this regard, I subscribe to that saying coined by Sen. Russell Long: Don’t tax you, don’t tax me .Tax that fellow behind the tree.
The mayor’s options in this category are limited. We already have among the highest business and personal taxes in the nation (Should we go for the world title?) so there’s not much ‘give’ on them.
There is one tax Philly has that is lower than average if you compare it to surrounding counties - the real estate tax.
The tax yields about $1 billion a year. Raise it 15% and it will yield $825 million over 5 years, which would go a long way towards erasing that estimated $2 billion deficit.
Hold on, though, before you turn up that dial.
The city splits the money the property tax yields with the school district. The district gets 60% of the revenue (about $640 million) and the city gets 40% ($395 million).
One possible solution would be to change the formula so the city gets a higher percentage of the tax or pass a law that gives the city the total sum of any increase it makes in the tax. The formula under which the tax is split is set by City Council, let them change the law.
Hold on, again. I hear an alarm going off.
What the city can or cannot do with the tax is limited by state law.
The way I read that law is the amount of taxes “levied, collected and transmitted” to the school district cannot be altered by the city.
The language quoted is from Act 46 of 1998, the “distressed district’ takeover law.
It was put in by the legislature to assure that the city did not shortchange the district whenever it felt it needed extra cash - a great temptation in tough times. The provision was triggered when the state took over the school district in December. 2001 and it remains in effect today.
In short, for every dollar in increased real estate taxes, the school district will have to get 60 cents.
Of course, the mayor could go to the legislature and ask them to change the law so the city can get more for itself from the tax. Hmmm. I wonder what the odds of that happening are? I would think about the same as Terrell Owens returning to the Eagles.
The whole infernal contraption that constitutes the city’s spending and taxing policies has similar circumscriptions - set by law, federal and state requirements, union contracts, past practices, court opinions, etc.
Think of it as being in a room with 30 doors - and you are desperate to find a way out. You go to one and it is locked. Go to another and the door knob comes off in your hand. Open the third and there is a brick wall behind it. Behind another you hear ominous growling. Another is hot to the touch.
So, you are in this room and you are wondering: How do I get out of this mess?
Welcome to Michael Nutter’s world.
February 9th, 2009 at 2:11 pm
I am not sure that the city cannot act independently of the School District. This PICA report [http://www.picapa.org/docs/Whitepapers/REASSESSMENT%20final.pdf] from 2005 examines the fiscal impact on the full-value idea, but the same issue arises about Act 46 on the school tax rate.
It seems clear that there is no municipal tie-in to the SD’s tax rates so the city may, it appears, act independently on its own taxes.
I agree that the law says that the SD may not have its revenue reduced, but it does not appear to hold the city to a 40% share.
So, what’s wrong with changing the millage rate that goes to the city? If Act 46 controls the “amount” of revenue that goes to the schools that may then remain unchanged. We should also acknowledge that revenues from the real estate tax are stable, unlike our other terrible taxes.
The School District’s finances are currently sounder, and they get nearly 80% of tax revenue from the real estate tax.
For argument’s sake if the the ratio cannot be changed, have the school district reimburse the city for added revenue garnered.
We all have to face the reality that the real estate tax is the tax that most normal cities use. We need to face up to it as a “go to” in place of the corrosive and regressive taxes we use now.
If we move to a real estate tax, then we have to consider a reformed real estate tax, one which exempts most property (i.e. buildings) from the tax. That requires a land value tax, which many of the most successful large cities
(Copenhagen, Sydney, Hong Kong) use in varying ways.
We need to do that because the current real estate tax structure would hammer most homeowners and productive business. As our website shows, a land value tax can be introduced that reduce the relative tax burden for that vast majority neighborhoods.
There is a way out; but it has to be fair, ethical, rational and pro-neighborhood. The land value tax meets those criteria.
February 10th, 2009 at 5:05 pm
Joshua is absolutely right. Each year the School District assesses its own millage rate based on their budget needs. That is what City Council is supposed to do as well. They are supposed to look at all of the properties in the City and the assessments for same and calculate how much they will need the millage to be for the General Fund in order to fulfill budget needs. Instead, each year, they rubberstamp the SD assessment and agree not to raise the total millage for the General Fund, but to absorb it. This is because none of them want to be held accountable for raising taxes at election time even though poll after poll has shown that the citizens don’t really mind a small increase if it’s for the schools. So, as the SD increase their millage each year, the money for the General Fund goes down. There is no courage in council to correct this.