Nutter’s finance chief concedes tax plan would shift burden to homeowners

City finance director Rob Dubow said late Monday it’s “a real possibility” that City Councilman Bill Green is right in his assertion that Mayor Nutter’s property tax plan will increase residential taxpayers burden while giving a tax cut to businesses.

“I think that the effect he’s talking about is a real effect, and it’s worth having conversations with Council about how to manage it,” Dubow said in a phone interview.

Green made his case a week ago in City Council, and in a news conference today he released detailed calculations suggesting that residential property tax payments could rise 25 percent or more under Nutter’s plan to go to a property tax system based on market values.

Green proposes to nearly double the city’s use and occupancy tax, a special levy on businesses, to cover the $94 million the mayor wants to get to the school district. That, Green notes, would partially offset the tax shift from commercial to residential taxpayers under Nutter’s so called Actual Value Initiative.

Green today released a more detailed – and I mean very detailed – set of calculations designed to show how the tax burden will shift depending on several factors, including which policy choices Council and the mayor make.

A couple of headlines from his stuff:

– In the scenario Green cites as “most likely,” the amount residential taxpayers fork over under the Nutter plan would increase from $680 million a year to $904 million, a 25 percent increase.

– At the same time commercial and industrial property tax payments would decline from $469 million to $365 million, a 22 percent decrease.

The basic problem is that if it’s true today that commercial properties values are more accurately assessed than residential properties, when the city goes to a tax system based on accurate market values, the tax burden will shift more to residential homeowners. If this is confusing, read this post from last week.

There’s an argument to be made (and I’m sure we’ll hear it when the business community gets mobilized) that the only reason the transition to real market values would have this affect is because business owners have been paying more than their share for years.

Dubow said the city has to weigh the impact on homeowners against the importance of having a fair and uniform tax assessment system.

In any case, Green has done an impressive spreadsheet in which various outcomes are examined, and in the first one, you can plug in your own property to see how you’ll fare in the various scenarios. To use it, you need an estimate of what you think your property is worth, and the value as currently listed by the city’s Office of Property Assessment, available on its website. You can find the spreadsheet on Green’s campaign website (he said it would take too long to get it up on the City Council site), or access it directly  here.. To plug in your property, go to the first tab marked, “Go Here First – Residential.”

It isn’t exactly user friendly if you haven’t followed the debate closely, but here are a couple of terms that will make it easier to understand:

– “Smoothing” refers to a part of the Nutter administration plan in which big tax increases or decreases will be phased in over three years. The Green analysis notes that this actually makes the tax bill bigger for a lot of taxpayers, since the city loses money when it phases in a tax increase, and that loss is made up by setting rates higher.

– “Homestead” refers to another measure to ease the pain which will require approval in the state legislature. It allows the city to exempt the first $15,000 (or more) of assessed value of every property from taxation. That helps owners of expensive properties a little, but owners of cheaper properties more – since $15,000 is a larger percentage of a less expensive house. Green has proposed to increase the homestead exemption to $40,000 per property.

Having stared at the Green spreadsheet awhile, I have to say his work on the details of this issue are an important contribution a really important policy discussion.

And it’s pretty amazing that if he hadn’t brought up the issue of the shift of tax burden to residential property owners, it could have passed without anybody noticing until the bills came.

I asked Dubow if his team was aware of this impact when they proposed their plan. He said there was a general sense that commerical properties were more accurately assessed, so, “I think we had some sense that you would see some shift from commercial to residential,” he said.

When I asked if a $200 million shift of the tax burden from businesses to residential property owners was acceptable, he said, “that’s something we really want to talk through with Council.”

Dubow said the administration hasn’t adopted a position on Green’s proposal to increase the use and occupancy tax.

Council is supposed to enact a budget by the end of May.