City’s tax delinquency epidemic deepens

Philadelphia property tax delinquents piled up an additional $43.8 million in new debt over the last year, increasing the total amount owed to the city and financially desperate School District to $515.4 million, an increase of 9.3 percent in a single year, city records show.

There are now about 103,000 tax delinquent properties in Philadelphia. About 18 percent of all parcels in the city are in arrears. As documented in a PlanPhilly/Inquirer series last August, no other big city in the nation approaches that level of property tax delinquency.

Past due property taxes have long been a contentious issue in Philadelphia, but the growing pot of delinquent cash has attracted even more attention than usual in recent months.

And for good reason. City Council and Mayor Michael Nutter have enacted two straight property tax hikes, and are close to approving a citywide property reassessment that would collect as much as $94 million in additional property taxes. Meanwhile, the School District of Philadelphia – which relies on property taxes for 80 percent of its local funding – is in the midst of perhaps the worst financial crisis in its history.

Which explains why the School Reform Commission, council members, state legislators, activists and average residents alike have been clamoring for the city to do a better job at collecting delinquent property taxes, both to throw a lifeline to the schools and to limit tax hikes on the majority of property owners who pay their share.

“The numbers speak for themselves. It’s ludicrous: half a billion in revenue still on the table, and more of it every day,” said State Sen. Michael Stack (D., Philadelphia), who wants the city to dramatically improve collections before asking tax-compliant property owners to pay more.

The Nutter administration has heard the complaints.

“The Revenue Department is not insensitive to the shortcomings of the present real estate tax collection system, and over the past few years, we have taken steps to improve that system,” said revenue commissioner Keith Richardson during testimony last week in City Council.

By some measures, the situation is improving. The city is on track to meet or exceed past due collection budget goals. And the administration has reduced the number of delinquent property accounts by more than 8,000 in a single year.

But by the most critical and basic standard – the total amount owed the city and schools – the delinquency epidemic continues to grow at an alarming rate, as it has throughout Mayor Nutter’s administration. A PlanPhilly/Inquirer analysis of city records shows that, between 2009 and April 30, 2012, the debt owed by property tax deadbeats – including principal, interest and penalties – has increased by 21.3 percent, from $425 million to $515.4 million.

“They’re not even treading water. They’re falling behind,” said Councilman Bill Green, who has proposed a bill that would overhaul the city’s delinquent property tax collection system. “It’s astonishing that there’s not a recognition that this is a serious problem, that their answer is that they have this under control.”

An examination of city property records through April 2012 shows that Philadelphia property tax delinquents piled up an additional $43.8 million in new debt over the last year, increasing the total amount owed to the city and financially desperate School District to $515.4 million, an increase of 9.3 percent in a single year. Click the image above to enter an interactive map of delinquent properties in Philadelphia. Zoom in to any block, or search by name or address.

The Problem

Mass property tax delinquency has been the norm in Philadelphia for at least 20 years. And in their more candid moments, long-serving city officials suggest that will always be the case.

“This is a very poor city, and there are a lot of areas with a lot of tax delinquencies,” said Frances R. Beckley, a 28-year veteran of city government who serves as chief counsel to the Revenue Department. “There’s a chunk of this, that, if you were to be realistic, you’re never going to do anything with.”

Philadelphia stands alone among major U.S. cities in its tolerance of mass property tax delinquency. No other big city – including communities with far worse poverty rates, such as Detroit and Cleveland – has a delinquency rate as high as Philadelphia’s.
Elsewhere, delinquent property owners are given a hard deadline – typically no more than a year or two – to settle their accounts. If the deadline passes, delinquent property owners automatically lose their land, either at sheriff’s auction, where the parcel is sold to the highest bidder, or to a government-run land bank. Some cities, such as Baltimore, sell liens on tax delinquent land to private investors, who are then empowered by law to foreclose on property owners.

But Philadelphia doesn’t have a land bank. The city has only sold liens once before, and it has no plans to do so again. And Philadelphia auctions off tax delinquent properties at a remarkably slow pace: on average, 202 tax delinquent parcels per month were offered at sheriff sale between July 2011 and February 2012, far below the city’s stated goal of 600 properties a month.

And so, in many cases, tax delinquent properties in Philadelphia are left to languish for years, even decades, without being subjected to meaningful enforcement action. In all, the city’s past due parcels are 720,411 years in arrears. The average tax delinquent property owes $5,000, and is seven years past due. More than 13,000 properties are 15 or more years behind, including more than 2,100 parcels that are at least 30 years delinquent.

The effects of so many long-term delinquencies go well beyond lost revenue. Tax delinquent properties are at least 4.5 times as likely to be vacant as properties that are current on their taxes, a recent PlanPhilly/Inquirer analysis of public data found. And vacant properties are the source of many urban ills, spreading blight, depressing property values and costing the city millions annually in maintenance expense.

As this zoomed in view of the delinquency map shows, past due accounts are heavily concentrated in low income neighborhoods, fueling decay and abandonment.
Potential Fixes

Both Harrisburg and City Council are considering bills that would reinvent the city’s delinquent tax collection system.

The prospects for each are uncertain, and neither will come up for a vote before fall at the earliest. The Nutter administration opposes the proposed local ordinance, and has declined to take a position on the state legislation.

The proposed reforms would compel the city to foreclose on tax delinquent properties after one year of non-payment. The parcels could either be sold at sheriff’s auction, or put in a land bank (which would require additional legislation also under consideration both at the city and state levels). The locally-drafted ordinance would also make it easier for tax delinquents to come into compliance through payment plans.

Councilman Green, who has co-sponsored the tax delinquency overhaul with Councilwoman Maria Quiñones Sánchez, said the system needs dates certain and hard and fast rules.

“The Nutter administration doesn’t like it because it takes away their discretion. The problem with that is it’s discretion that has gotten us where we are,” Green said. “Choices have been made for years that have put us in this spot.”

In the administration’s view, Green’s bill combines a too-lenient payment plan with an overly harsh crackdown on those who can’t or won’t pay. City officials are also worried about the legal exposure to the city if it were forced to land bank tens of thousands of tax delinquent properties – many of which are vacant – that nobody wanted to buy at sheriff’s auction.

This reasoning aggravates land bank supporters, who contend that the city owns the problems delinquent parcels create, regardless of who formally holds title.

“When people look at a vacant house, they see it as the city’s problem. And they’re right. The city has to clean and seal the property. We might have to demolish a dangerous building,” said Sánchez said.

And neither should the city be content to wait decades for the private market to improve on its own, she said.

“In areas where there’s not a market, the city should be acquiring these abandoned delinquent properties, clearing titles, and creating an assemblage that could lead to faster development,” Sánchez said.

This redevelopment-centered approach to tax delinquency enforcement runs counter to the Nutter administration’s view.

“We’re not against the concept of a land bank. But we don’t think being the largest owner of delinquent property should be the goal,” said city Finance Director Rob Dubow, noting that the city already owns more vacant land then it can manage. “Our goal here is to get paid.”

To that end, the administration has a number of new initiatives underway and in the works, Dubow and other officials said, including:

• A bureaucratic reshuffling designed to give one department – Revenue – clear responsibility for delinquent collections.
• The hiring of a second private collection agency to pursue tax delinquent properties.
• Targeting large landlords with multiple delinquencies for aggressive enforcement.
• Prioritizing nuisance properties for sheriff sale and denying problem landlords the convenience of payment agreements.
• Dunning property owners earlier than in the past, starting with a phone call shortly after payment is due (March 31) instead of waiting until November to send a letter, as is current practice.
• Ramping up sheriff sales of tax delinquent property. The city is well short of its goal of 600 a month, but the 202 averaged over most of the past year is more than double the administration’s old pace.

Collectively, these efforts have kept the city from reaching its target of 600 sheriff sales a month, Richardson said.

“We’d rather have people pay or settle than take their properties, and that’s what’s happening,” Richardson said.

But the city’s claims of progress are difficult to reconcile with the fast-growing debt ($43.8 million in a single year) owed by property tax delinquents.

When asked what was preventing the city from doing more, Richardson said that the pool of delinquents the city can go after is not so large as it might seem. For instance, more than 10,000 properties – which owe about $90 million – are caught up in bankruptcy proceedings, and thus cannot be foreclosed upon, Richardson said. Another 11,000 are in payment plans.

Even so, when those properties are factored out, the city still has more 80,000 properties that could be targeted for stiffer enforcement.

Some Good News Amid the Bad

The one clear and objective sign of real progress in the city’s fight against the delinquency epidemic is the decline in the number of tax delinquent accounts over the last year.

In all, there were about 21,800 property tax delinquents who paid up over the last year, while 13,600 new delinquents were added to the rolls, for a total decline in delinquent accounts of about 8,200.

Although there were some big ticket exceptions, the past due property owners who paid up were generally the delinquency equivalent of low-hanging fruit. They owed, on average only about $1,890, more than $3,000 less than the average tax delinquent. And, on average, the owners who made good on their debts were behind by only 1.95 years, compared to a seven year average for the total cohort of delinquents.

Still, fewer delinquents is unquestionably a good thing. But if the city is cutting down on delinquent accounts, why is the total amount owed by delinquents growing so rapidly?

Partly because property taxes have gone up. Bills are higher for everyone, including for those who don’t pay. But that represents only a small percentage of the increase. The bigger problem is that for every year that goes by, a new round of principal, penalties and interest is added to the tab of long-time delinquents. The relentless growth in these accounts outpaces the progress the city has made in bringing shorter-term delinquents back into compliance.

In other words, until the city begins to whittle down the huge numbers of chronic delinquents, the overall numbers are not likely to improve.

“It’s moving in a direction where they’re pathologizing tax delinquency,” said Helen Gym, a Philadelphia public schools activist. “And that’s a very dangerous thing to do, when the school district funding is where it is.”

About This Series
This story is the result of a continuing collaborative effort between The Inquirer and PlanPhilly.com. In August 2011, a two-day series on the tax-delinquency crisis in Philadelphia was published in both The Inquirer and PlanPhilly.com. Find it here.
 

PlanPhilly.com is a five-year-old independent news-gathering entity covering the built environment. It is affiliated with Penn Praxis, the clinical arm of the School of Design of the University of Pennsylvania.

Contact Patrick Kerkstra at pkerkstra@planphilly.com or follow on Twitter @pkerkstra.

View PNG

View PNG

View Http-planphilly-com-sites-planphilly-com-files-mapdetail3-png PNG

View Http-planphilly-com-sites-planphilly-com-files-richardson_testimony_on_bill_number_120054-pdf PDF

View Http-planphilly-com-sites-planphilly-com-files-screen_shot_2012-06-09_at_10-18-56_am-png PNG