Steven Silver’s recent NewsWorks essay claims the city is pulling a “bait and switch” because it’sraising property taxes on the land beneath his house. He also claims this land-based tax hike will ruin the city by driving out middle-class homebuyers. While some parts of Silver’s essay are on target, his main argument is dead wrong.
Steven Silver’s recent NewsWorks essay (“I’m one of the suckers who fell for Philly’s property tax bait and switch“) claims the city is pulling a “bait and switch” because it’s raising taxes on the land beneath his house, even though he has an abatement that’s supposed to prevent tax increases. He also claims this land-based tax hike will ruin the city by driving out middle-class homebuyers.
His article has touched a nerve with other abated homeowners who feel the city is cheating them too, and it’s gotten many people worried about the fate of our middle class. But while some parts of Silver’s essay are on target, his main argument is dead wrong. The city is not acting dishonestly, and it’s not threatening middle-class homeownership. In fact, raising the value of land is essential to the health and future of Philadelphia.
What the heck is a land value assessment?
The city assigns every property a value for tax purposes. This total assessment gets divided into a land value and an improvement value. “Improvement” just means “house,” or whatever else happens to be built on the land.
For most of us, this land/improvement division doesn’t matter: We owe taxes on the total assessed value of our property, regardless of how much value is assigned to the land versus the improvement.
But it matters for Silver and about 30,000 others, because they have tax abatements. If you buy a newly built (or majorly renovated) house, the abatement exempts you from paying taxes on the improvement: For the first 10 years, you pay tax only on the land value.
That’s why Silver is angry: His total assessment will remain unchanged next year, but the improvement portion will go down, and the land portion will go up, thereby increasing his tax bill. He accuses the city of doing this for underhanded reasons. In his view, they want to undo the tax abatement, and sneakily jacking up land value assessments is the only way they can do that.
There’s no bait-and-switch
But the facts don’t support Silver’s claim of bad faith. To the contrary, the city honestly is trying to correct past mistakes. And there’s nothing unsavory in trying to right a wrong and make things more accurate.
The fact is that land prices have increased massively in redeveloping neighborhoods like Silver’s and mine for 10-15 years now, but city assessors have not kept up. Instead, land assessments have remained scandalously low.
How low? Silver uses his own property as his main example, so let’s follow his lead. His current total assessment — land plus house — is about $350,000.
Assessment industry standards say land should be valued at about 20 percent of the total assessment, which means that if the property is abated, the owner would pay taxes only on that 20 percent. In Silver’s case, that would be about $70,000. But Silver’s land has been valued at just $7,500 — only 2 percent of the total assessment. So while an abatement is supposed to provide an 80 percent tax discount, Silver’s been getting a 98 percent discount.
This is not what any rational tax-abatement policy should or would intend, and unfortunately it has happened all over the city, with thousands of properties’ land values set well under 10 percent of their total assessment.
But Silver would have you think that by changing an owner’s property tax discount from an incorrect and obscene 98 percent to a correct and still very generous 80 percent, the city is “cheating.” This is absurd. (In fairness to Silver, his new $100k land assessment is too high, and in my view he’s justified in appealing and arguing for a $70k assessment. But that would still be way more than his current $7,500, and doesn’t change the main points of his or my argument.)
No, this won’t destroy the middle class
Now that we’ve seen that accuracy dictates land valuations should go up, it becomes clear that Silver is mistaken when he claims this tax hike will drive out middle-class homeowners.
Once again, his own example shows he’s wrong. Silver’s current, inaccurately low land valuation translates into just under $9 a month in property tax. If the city’s new land valuation of $100k goes into effect, then his taxes would increase to $117 a month.
Of course most of us would prefer not to pay $108 more a month. But it’s not credible to argue that such an increase would destroy homeownership in the city. The typical monthly mortgage payment for a $350,000 home is about $1,400. (I have no idea what Silver pays.) With the above property tax amounts, that’s $1,409 a month now, and $1,517 a month next year. With all due respect, if someone can afford to buy and maintain a $350,000 home, it is unlikely they would be thrown into hardship and have to move because their monthly payment went up 7.5 percent. Not to mention that if you plan to put down roots in Philadelphia, you’ll have to be prepared to pay a lot more than either figure — about $1,800 a month in this example — once your 10-year abatement ends.
Higher land valuations are essential to our future
Perhaps most importantly, Silver’s argument glosses over the urgent need to get land values right.
Under-assessed land values hurt us all, because they deprive the city of tens of millions of dollars of deserved, much-needed tax revenue from abated homes and vacant land. If you think our schools need textbooks, nurses, and working furnaces; or that we need street-cleaning, or more police, or better lighting, or improvements to our rec centers, or more L&I inspectors, or lower wage taxes, then you must support raising land assessments to an accurate level. And before you say, “Well, they should collect all the back taxes the city is owed,” yes they should. But they should do so in addition to, not instead of, collecting the missing land-value revenue.
The low taxes that go with low land values also make it easier for owners of vacant lots and abandoned buildings to hold on to properties for years or decades on end. This kind of landbanking creates blight and stymies development, harming safety, quality of life, property values, and tax revenue throughout the surrounding area. Correcting land values raises taxes on such parcels while creating no ill effects for owners of non-abated homes. It makes speculators shoulder the true cost of sitting on land, and spurs them to develop or to sell to someone who will.
This only works if the city raises all land values in a neighborhood, fairly and uniformly. And here Silver is 100 percent right: The city’s current land-value increases are partial, inconsistent, and unfair, and must be corrected, especially when it comes to vacant land.
So should we be concerned about the city raising land values in an inconsistent manner? Absolutely.
Should we feel frustrated that land values have been so low for so long up until now? Definitely.
Should the city consider gradually phasing in land valuation increases over time? Possibly. But make no mistake: The city is pursuing the right goal in raising land assessments, and it’s a goal we all should support.
Matt Ruben lives in Northern Liberties.