Economist: Sound Philadelphia tax policy depends on AVI

Following a commentary on Tuesday’s NewsWorks Tonight from a Germantown homeowner about a big property tax hike thanks to AVI, host Dave Heller spoke with urban economist Kevin Gillen, who says, while he favors a debate about tax rates, there’s no good argument for not having accurate property assessments.

A new independent report contends Philadelphia’s new property tax assessments under the Acutal Value Initiative, or AVI, are even more inaccurate than the current ones. Whether or not that’s true, homeowners across the city have been complaining about the new valuations.

On Tuesday’s NewsWorks Tonight, Germantown homeowner L.T. Woody shared his thoughts about being on the receiving end of a big property tax hike thanks to AVI. His commentary elicited much response.

NewsWorks Tonight Host Dave Heller spoke on Wednesday with urban economist Kevin Gillen, senior researcher at Penn’s Fels Institute of Government. He argues that, while he supports debate over the tax rate, there’s no good argument for not having accurate assessments.

Is AVI shifting the property tax burden off of businesses and on to homeowners?

Gillen responded that under the current assessments, “lower-priced neighborhoods are paying a relatively higher fraction of their property values than higher-priced neighborhoods.” Residents in the north, west and southwest regions of the city are relatively overtaxed and stand to get some tax relief with the new calculations under AVI, he said.

Because commercial property assessments have kept up with market values and residential assessments have not, and because AVI does not raise additional revenue but rather corrects the distribution of the tax burden, there will be a natural redistribution of the tax burden from businesses to residents.

“It’s fine if you don’t like that,” he said, “but that’s something you’d have to take up with Harrisburg, not City Hall.” 

Could large increases in taxes from AVI be stretched out over a period of time instead of hitting homeowners all at once?

Gillen said that may be possible, but the trade-off is that, because AVI is revenue-neutral, neighborhoods that are overpaying will continue to overpay as long as full implementation of the new assessments is delayed.

Are the AVI assessments accurate and uniform?

Gillen said the Office of Property Assessment welcomes citizens to file an appeal. Housing stock in the city is old, and data on those houses has not been updated in many cases. AVI assessors were not allowed inside homes, and had to make guesses about their conditions in some cases. Recalculating AVI assessments will allow OPA to get more-accurate data on housing stock.

Should the city focus instead on other sources of revenue, like going after tax delinquents?

No matter how upset you are about the city’s delinquency rate — and it is a problem — said Gillen, it doesn’t change the arguments in favor of getting accurate assessments. If the city improves its collection rate, it might be able to lower the property tax rate, but that’s a different issue.

How does Philadelphia compare with other major metropolitan areas?

Philadelphia recently passed Detroit to become the largest city with the highest tax delinquency rate in the country, said Gillen.

For most municipalities, the No. 1 source of revenue is property taxes — not so in Philadelphia, where it is only about 15% to 17% of the mix. Most revenue in Philadelphia comes from wage and business taxes.

How have assessments been so wrong for so long?

Because property taxes form such a small portion of Philadelphia’s revenue source, there was little incentive to keep up with assessments, Gillen continued. AVI is not only a good thing in the short-term, it could also be a step toward broader tax reform. Gillen says many economists, himself included, would like to see a rebalancing of the tax burden toward property and away from people and businesses — which can’t be done if property assessments are not accurate.

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