Council puts off property tax headache; Drama in Harrisburg threatens Nutter proposal

 

In closed door meetings and hushed conversations, members of Philadelphia City Council are inching toward a vote that could simultaneously give the city a far more equitable property tax system, and send sticker shock to thousands of middle-class homeowners who’ve moved into improving neighborhoods.

But the whole thing could be derailed by Philadelphia’s representatives in Harrisburg. If this were an Indiana Jones movie, at this point we’d see Mayor Nutter bound to a rope, hanging upside down and being lowered into a pit of vipers. He could still get out of this, but it will be exciting.

A tough sell gets tougher

At issue is Mayor Nutter’s Actual Value Initiative (basic explainer here), which would shift the city to a property tax system based on market values of properties, and in the process raise an extra $94 million for the school district.

Council members were scheduled to meet on the proposal at 1 p.m. Wednesday, but put that off until next Tuesday (and could put it off then) because it’s clear there’s no consensus about what to do.

The whole thing was too complicated for most people to grasp to begin with, and has since been beset with a serious of troubling issues, including the discovery by Councilman Bill Green that an unintended impact of the bill will be to dramatically lower businesses property taxes while shifting some of that burden to homeowners.

In fact it appears that overall, the bill paid by homeowners could grow 25 percent when the new system is implemented. Many lower-value property owners will see their tax bills decrease, but those will be more than offset by some big increases for property owners in gentrifying areas where assessments are way out of date.

City reps in Harrisburg put a choke-hold on

In some respects, the most remarkable thing is that, according Green at least, a majority of Council seems willing to approve some form of the Actual Value Initiative, if companion legislation in Harrisburg is approved.

For technical reasons, the state legislature must approve a bill permitting the city to tamper with its property tax rates as part of the shift to actual value assessments. And the great irony of the situation is that Republican leaders in the legislature were probably inclined to support the bill, in part because Nutter has nurtured a relationship with leaders in the capitol.

But Democrats in the Philadelphia delegation have been raising objections to AVI, which have made Republicans gun-shy about backing it.

I spoke late yesterday with Erik Arneson, the communications and policy director for State Senate Majority Leader Dominic Pileggi. He noted that members of the Philadelphia delegation have been emphasizing the extra $94 million the new system will generate, and calling it a tax increase.

The Nutter administration of course says that revenue isn’t a tax increase, but the result of the same old tax rates applied to increased property values.

“Whether you call it a tax increase or call it capturing the value, the net result is a potential $90 million-plus that wouldn’t be there if the law isn’t changed,” Arneson said. “The semantics of it are much less relevant in the Senate of Pennsylvania than is the view of the members who represent the city.”

In other words, why on earth would upstate Republicans risk pissing Grover Norquist off by voting a tax hike for Philadelphia if Philadelphia’s own reps aren’t asking for it?

Meanwhile new ideas keep springing up. You can read about Philadelphia State Rep. Mike O’Brien’s claim that the Nuter proposal is illegal in this story by our It’s Our Money ace Holly Otterbein.

It may still happen, and to some it will hurt

There’s still a chance this can all be worked out. After all, the State Senators and Representatives who are balking in Harrisburg represent the same constituents that Council members do. So a global arrangement to move forward with AVI isn’t impossible.

A lot of people, including Sam Katz, who chairs the state board overseeing Philadelphia’s finances, think Council needs to act now to fix the city’s increasingly outdated property assessment system. He said yesterday waiting a year will only make the politics more difficult.

I think that’s right. But I think it’s also the case that people have no idea what they’re in for once the change to market value assessment is made.

I spoke to one person today who owns a rowhouse in an area south of Graduate Hospital. She’s followed the debate over AVI and has run the numbers on her property.

The city currently assigns her home a market value of $44,000, so she plays about $1,200 a year in property taxes. She knows she’s way under-assessed, and that she’s getting off cheap.

Comparable houses in her neighborhood are selling for around $300,000. When AVI is implemented, she estimates her taxes will more than triple, to something between $4,000 and $5,000 a year.

You can argue the increase is fair. But the truth is that many people have made decisions to buy homes in the city based on an assessment system that has been very broken for a very long time, and some will face tax bills that make them reconsider their committment to the city.

The Nutter team proposes a “smoothing”provision that will phase the increases in over three years, but that isn’t free. Because it costs the city revenue, it means the tax rates will be bumped up a bit for everybody to cover the difference.

These are tough decisions. After Council members adjourned without action yesterday, Councilman Curtis Jones, who represents Nutter’s old district, was chatting with reporters about what happens next.

“People are going to have to put their grown-up pants on,” he said, “and make some grown-up decisions.”