City Council adopts delinquent tax collection overhaul

Philadelphia’s City Council approved a top-to-bottom overhaul of the city’s troubled property tax collection system Thursday, the latest in a series of state and local reforms designed to curb Philadelphia’s worst-in-the-nation delinquency crisis.

Mayor Michael Nutter is expected to sign the ordinance, which allows tax-delinquent homeowners to enter into income-based repayment plans with the Department of Revenue, and compels the Department to pursue foreclosure on any delinquent owner who doesn’t enter into such a plan within one year. The bill was introduced in the wake of PlanPhilly/Inquirer reports on the city’s struggle to combat property tax delinquency and the vacancy and blight associated with it.

Those reports found that nearly a fifth of all property in Philadelphia is tax delinquent, a rate higher than any other big city in the country, besides Detroit. Delinquent property owners owe the city and schools a debt of $515 million, and their properties were found to reduce the total value of single-family homes in Philadelphia by $9.5 billion.

Starting next year, homeowners who fall behind on paying their property taxes will have a much greater incentive to begin paying them back, and a much easier time actually doing so–provided the ordinance adopted Thursday works as intended.

The city’s current system, riddled with problems, has been criticized for inadequately advertising the availability of payment plans for delinquent tax bills. Struggling homeowners have had to use a magic word—“hardship,” according to Councilwoman María Quiñones-Sánchez, a co-sponsor of the bill—in order for the Revenue Dept. to offer a payment plan.

At the same time, the city has moved slowly to foreclose on property owners who are not struggling financially, but rather sitting on dilapidated buildings and letting tax penalties accumulate in hopes that, one day, a buyer will come along and offer a handsome price. The PlanPhilly/Inquirer investigation showed that 40,000 properties in Philadelphia have been delinquent for six years or more, and more than 57,000 delinquent properties are owned by investors, rather than homeowner-occupants.

The bill adopted on Thursday aims to change all of that.

Under the new law, Revenue will be required to send all property owners with delinquent tax bills notices explaining, in clear terms, the threat of losing their property if they don’t pay their debts as well as the right to enter into a repayment plan based on their monthly household income. The notices must also provide taxpayers with the total amount required to pay off the debt, information about other types of municipal debt they may owe, and lists of housing counseling services available.

The bill breaks taxpayers up into four tiers. The top tier, those with household income greater than 70 percent of Area Median Income (AMI), are not necessarily entitled to payment plans; the Revenue Dept. may offer those taxpayers plans at their discretion. The three lower-income tiers would be required to pay at least 10, 8, and 5 percent of their monthly income, respectively, toward the tax debt. The minimum monthly payment would be $25, and for the lowest-income delinquents, all penalties and interest would be waived when the principal is paid off. All delinquents participating in a payment plan would be required to maintain their current-year tax bills in good stead as a condition of the payment plan.

One clause in the bill also requires the city to “timely take all available steps” toward enforcement and foreclosure against taxpayers who breach their payment plans or fail to enter into them at all. An earlier version contained an explicit requirement for Revenue to pursue foreclosure on properties more than one year delinquent, but the phrase was removed in favor of one that simply refers to a state law that includes the same requirement.

Montgomery Wilson, an attorney for Community Legal Services, which worked with Council and the Nutter Administration to create the bill, said that it “strikes a fair balance between the City’s interest in collecting revenue and the City’s interest in allowing Philadelphia families to preserve their homes while paying.”

“Tax delinquency and neighborhood destabilization go hand in hand,” said Beth McConnell, policy director for the Philadelphia Association of Community Development Corporations, in an email to PlanPhilly. “Irresponsible property owners who refuse to pay their fair share often leave a blighting influence in our communities.  But we need to do all we can to ensure that low income homeowners who are tax delinquent can remain in their homes, and a payment plan is one important part of that strategy.”

In order to implement the new law effectively, the Revenue Department will need to begin notifying delinquent homeowners that payment plans are available, and also develop a strategy to deal with the thousands upon thousands of properties that are already delinquent. Representatives of the Department did not return phone calls from PlanPhilly Wednesday or Thursday.

“I would hope that they would do a marketing campaign and I think both Councilman Green and I will push them to do a campaign to target what we already have identified as owner-occupied delinquents so that we can begin that process to get those folks in and in compliance,” said Councilwoman Sánchez. “There’s a lot of low-hanging fruit as part of this. Having a campaign and training of their staff is essential.”

“The beauty of this for the city is not just in collection of your past-due taxes …” said Councilman Green, “but in order to maintain compliance with that agreement and not lose your house, you’re required to be current in all future years’ taxes. So what this means is that, if they do a really good campaign this year, the percentage of people who are delinquent next year should seriously go down.”

The law takes effect in October of this year. Read a press release from Green and Sánchez here, and check PlanPhilly tomorrow for an update on state legislation aimed at attacking the tax delinquency problem.

Patrick Kerkstra contributed to this report.