I’m one of the suckers who fell for Philly’s property tax bait and switch

When I received my 2017 valuation from the Office of Property Assessment, I couldn’t help but think of the classic shell games I’ve seen played on the Broad Street Line since I moved to Philadelphia six years ago. A real master can get anyone to part with a $20 bill. After I deciphered the fine print on the OPA letter, I realized that I was one of the suckers who fell victim to the City of Philadelphia’s own far more lucrative bait-and-switch sleight of hand.

The city lured people like me with promises of 10-year tax abatements. It made home ownership affordable because I pay property tax only on the land, not the house. They must have seen me coming a mile away. A wide-eyed, young fool. Now the city is targeting those homeowners. And it is sure going to cost me and my neighbors.

Overnight, the city had managed to strip away most of my abatement value by claiming that the 383-square-foot piece of land my house sits on had increased in value by 1,245 percent.

That is not a typo: 1,245 percent.

Somehow, the OPA believes that, in less than two years, the value of my house decreased by $93,390 and magically leaked, dollar for dollar, into the land.

Yet the empty lot two doors down is still valued at $7,300.

All things being equal

To make matters more confusing, the price per square foot of the properties near me varies wildly. Mine is now priced at $263 per square foot. The house across the alley is $249 per square foot. Next door is $303 per square foot. All three are nearly identical, from the same builder.

The home behind mine is valued at only $134 per square foot, and a much larger property fronting Christian Street and touching my side wall is only $25 per square foot.

Why such outlandish discrepancies? Because the methods used to assess the more than 520,000 properties receiving new notices this year are painfully flawed.

“The OPA has a very challenging job to do, and it is hard to get right, but this was simply not executed correctly,” said Ruokai Chen, a 27-year-old actuary whose Fishtown home on the 2100 block of E. Norris Street saw a spike in land value of nearly 600 percent. “They have derived the value of the land as a function of the improvement above the land. This extraction methodology is much harder to apply, because it is impossible to properly calculate depreciation without assessing both the interior and exterior of a property.”

More simply, the OPA did not use common sense — something city government has never had a surplus of.

This raises a fundamental question: How can the OPA derive land value solely from the structure sitting on it? If I tear down my house, will the land value plummet to the original $7,500? What if my home were an empty shell, but the one next door with crumbling bricks is lined in gold and marble on the inside?

Michael Piper, the OPA’s chief assessor, explained the logic to PlanPhilly.com. “Picture two properties on the same street, side by side. One is a brand-new structure, the other is one that’s older and in bad shape,” he said. “The value of the property with the new structure, in most cases, is going to tend to be more about the improvement itself. Whereas for the older property, the contributory value is going to shift toward land over time.”

This, however, is patently absurd.

Just look at my neighbors a few doors down. Two adjacent properties on South Schell Street are identical. They were built by the same builder at the exact same time, yet the land value jumped 1,102 percent for one, from $7,700 to $92,625, and only 765 percent for the other, from $7,628 to $66,006. Why is there such a discrepancy for identical homes?

The answer is simple: The one that jumped higher has a 10-year tax abatement like mine. The other one doesn’t.

“We are not allowed to treat abated properties differently,” Piper told me. “I have to treat everybody the same.”

But did you, really?

‘It did impact people with abatements differently.’

Of the 13 homes on my small alley, seven have abatements. Under the OPA’s new valuation, those homes have an average land value of $98,157. Yet the six homes without abatements have land values averaging $61,924. There are also three empty lots of the same size with an average value of only $7,700.

If the OPA is not targeting homeowners with abatements, please explain how it is remotely possible for two side-by-side parcels of land of the same size to have a difference in value of nearly $30,000.

“I don’t know what to tell you. We treated everyone the same,” Piper said. “Admittedly, it did impact people with abatements differently.”

No kidding. In fact, in a May 2 press release, City Controller Alan Butkovitz admitted that abated properties were disproportionately impacted. “Of the total 15,000 properties currently under abatement, almost 12,000 will realize tax increases under the new assessment due to an increase in the land portion of the total assessment.”

The funny thing about disparate impacts, though, is that they are unconstitutional.

“When you are dealing with people’s money, do not fool around,” said Ted Savage, a retired lawyer and current head of the Dickinson Square West Civic Association, who saw his land value triple. Savage, who lives on the 1500 block of South 5th Street, is bewildered as to how his lot is now valued at $47 per square foot while the corner property of the same size next door is only at $17 per square foot.  

“This is simply not right,” Savage said.”I really hope Mayor Kenney does something. It is discriminatory and unreasonable. It is arbitrary and capricious. I can’t emphasize that enough. If you are going to revalue property, you must do it consistently. This is insanity.”

The city is having sellers’ remorse about offering abatements. Although it is well-proven that every $1 in abatement brings in $2 in additional revenue from other sources over the life of the abatement, the city is attempting to water down abatements since it knows it cannot outright take them away.

“The city did not do their land values correctly to begin with,” first-year At-Large City Councilman and real estate magnate Allan Domb said. “So for many years properties were undervalued, and people were receiving larger abatements than they should have.”

It’s that shell game again, all dressed up in a nice suit with the OPA’s seal of approval.

If taxes must rise, raise them fairly

In 2013 I researched close to 100 properties in hopes of finding one I could call my home. I checked land values, comparable sales, and builder credentials, and I double-checked what my taxes would be and set a budget.

But now, raising the land value strips my abatement value and increases my annual taxes nearly $1,500. That is about two months of student loan payments for me. Or in terms the city cares about, that’s a lot of dinners out, a lot of theater tickets, a few splurges in the Italian Market, some fun at SugarHouse, or hiring a local painter to redo a few rooms.

But guess what? The city thinks I should be thankful for the increase in my taxes.

“We messed up for a lot of years,” Piper admitted. “It is not your fault we messed up earlier, but we are not penalizing you. If we wanted to penalize you, we would ask for the amount you have underpaid for years. Correcting the values moving forward is a good thing.”

I guess I should thank my lucky stars that the OPA doesn’t attempt to do something completely illegal and make me back pay their years of incompetence. Oh how merciful!

It is that arrogance that makes the new valuations all the more egregious. Maybe I would not be so upset about paying 14 times more in taxes next year if that money were not going to pay the salaries of no-show commissioners, corrupt judges, a dysfunctional city mail room, and a retirement system that is slowly bankrupting the city.

Let’s be honest, though. Unless you are related to a ward leader or the head of a union, the city does not care about you.

Check out this cold response from my own councilman’s office:

“OPA has informed us that, in 2016, they are correcting the 2017 assessment of residential land values that were inaccurate during the transition to AVI,” Anne Kelly, Mark Squilla’s chief of staff wrote in an email. “We knew this was a problem when AVI was implemented and Councilman Squilla suggested a phase-in of the implementation, but he did not have support from the administration at that time. We sympathize with our constituents who seem to be receiving real estate tax increases every year.”

Thanks for the sympathy, but don’t bother sending a card. I get the message. The city does not want a young, working couple to stay here. Why else would they target the homes with abatements?

“Of course, some people are going to have to pay more in any tax system. That’s just the nature of adjusting taxes,” said prospective home buyer and millennial activist Ben Stango, a 27-year-old JD/MBA candidate at Penn.

“However, we need to recognize as a city that this valuation is hitting the people we are working to attract and retain the hardest,” Stango continued. “If we want to be a city where people plan a life and build a family, but then we make it impossible for them to plan a budget, we are working against ourselves. That is what I’m most concerned about. It’s not the fact that people are going to be paying more. They should pay more, but it is about being able to budget and plan for the future. We need the city to be a partner. So getting a dramatic increase and being shocked and surprised by a single letter is not the way that new homeowners should be introduced to the city. […] We want a city who embraces people who want to plan a life here, not a city that just throws a problem in their face to deal with.”

Unfortunately, that is exactly what the city has done here. They send letters without warning to half a million homes that do not fully explain how tinkering with land values can impact a homeowner’s taxes.

“When I got the letter in the mail, I was mystified,” said Jesse Krohn, an attorney with three Ivy League degrees from the 500 block of Titan Street who saw her land value rise about 300 percent. “How was that decision made, and why, and by who? The question is also, of course, what to do? The letter states that you should take action if you believe the valuation is erroneous, which of course it is. But I’m sure that’s the rule, not the exception. […] How are seniors supposed to respond? What about people with limited English proficiency or limited literacy skills? It’s very tempting to just shove the letter in a drawer because they put the total market value in large bold font across the top and buried the meaningful detail at the bottom.”

Violating the uniformity clause

The mayor’s office declined to comment, and my own councilman’s office is telling residents that the only thing they can do is appeal. And we should all trust that the appeals process won’t devolve into a kangaroo court, right? Like I said, I’m a sucker for a good con game.

At least there is one politician with a plan to fix this mess.

“My position is that land values should be a flat 20 percent of the market value,” Domb explained. “I have even suggested to make all homes up to five stories high have a land value of 20 percent and all larger buildings would be 10 percent. This makes it simple, transparent, and easy to understand. Everyone would know going in what they are dealing with, and we wouldn’t have surprises like this.”

Unfortunately for the city, until a reasonable plan like Domb’s proposal is implemented, its attorneys are going to be plenty busy defending this unequal and arbitrary tax scheme.

Just ask Pittsburgh.

In 2009, the Pennsylvania Supreme Court found in Clifton v. Allegheny County that the county’s property tax assessments violated the part of the state constuitution known as the “uniformity clause.” The uniformity clause provides that “All taxes shall be uniform, upon the same class of subjects, within the territorial limits of the authority levying the tax.” As the Supreme Court explained, a method of computing a tax that produces discriminatory results, regardless of intent, violates the uniformity requirement.

I’m not a real estate or tax attorney, but it would certainly seem like the OPA’s valuations did not treat homeowners uniformly since this new scheme disproportionately impacts homes with abatements.

“The process must be consistent. You can’t simply pick and choose which properties to change,” Savage, said. He was also the former condemnation commissioner in Huntingdon Valley. “I do believe this is unconstitutional. There is no other way to explain the differences between land values on the same block.”

Between the higher sales tax, the higher city-wage tax for residents, the proposed soda tax, and now this assassination of abatements where my tax spikes 1,245 percent, I can see the writing on the wall. Philadelphia either wants a city filled with vacant lots or one where only the super-rich can afford to live.

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Silver is a former Las Vegas Sun reporter who is now a lawyer in Center City specializing in premises liability defense and sports law. You can follow him on Twitter @thelegalblitz.