Philadelphia still in a pickle that could cost millions

At the request of a Newsworks reader, I wanted to come back to an issue I wrote about six months ago which could blow a multi-million dollar hole in the city budget.

It involves a finding last July by an obscure state agency that could dramatically cut real estate tax bills for commercial property owners in Philadelphia.

The agency is the State Tax Equalization Board, which released its annual evaluation of how accurately each of Pennsylvania’s 67 counties assesses property values for real estate tax purposes.

The board found Philadelphia’s assessments to be way, way off, which won’t surprise a lot of people who follow the issue around here. The scary impact for the city is rooted in the way property tax bills are calculated.

The city gives each property a market value, then uses a set ratio of 32 percent to determine its assessed value, to which property tax rates are applied.

So a house the city decides has a market value of $100,000 will have an assessed value of $32,000, and the city’s tax rate will yield a real estate tax of about $2,900.

When the State Tax Equalization Board looked at actual sales data this year, it concluded the market values assigned by Philadelphia were so far off the mark that the city was effectively assessing its properties not at 32 percent, but 18 percent of market value.

When there’s a discrepancy that large, state law provides that any taxpayer who appeals his bill will be evaluated by the state standard of 18 percent assessment, which could lower a taxpayer’s bill by more than 40 percent.

This was all reported in my August blog post.

What’s happened since?

The city appealed the state’s finding in a letter I would summarize as, “Holy crap, this will cost us a ton of money — you have to change this. We’re overhauling our assessment system, and it will be terrific, honest. But please, undo this!”

Since then, city finance director Rob Dubow tells me his folks have been “going back and forth” with the state board staff, exchanging data and analysis.

It’s become clear in the meantime that most residential property owners aren’t appealing their assessments due to take advantage of this snafu. If they did, it’s just as likely that in the process they’d end up paying more, since so many properties are under-assessed by the city.

But commercial properties are different. The city assessments are closer to their real values, and if they appeal and get an 18 percent assessment, they will save money.

Last month the Inquirer‘s Harold Brubaker wrote about a parking lot owner that appealed and got a $30,000 reduction in his tax bill. How much could the city lose if everybody appeals and gets the same deal? Dubow estimates about $35 million.

“That would not be good at all,” he added.

Two attorneys for commercial property owners have intervened in the city’s appeal. It’s not clear exactly what that means in an administrative dispute like this. But it may give them standing to go to court at some point.

So it will be interesting to see how the state handles the issue. I hear is the state board has quietly adjusted its findings in the past to avoid harming the city. But that won’t be so easy this time, now that the issue has hit the media and drawn opposing lawyers into the stew.

Hearings on appeals are supposed to begin next month, and something will have to happen soon. We’ll keep at eye on it.

For another day: What’s ahead as the city proceeds to do away with its convoluted assessment system once and for all. For an early audio peek, check out the podcast from our friends Doron Taussig and Holly Otterbein at It’s Our Money.