Philly vows to fight commercial property owners over $48 million reassessment ruling

This article originally appeared on PlanPhilly.

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Philadelphia officials are pushing back against a Thursday Common Pleas Court ruling that would require the city and the School District to pay $48 million to major commercial property owners.

Judge Gene D. Cohen ruled that the city’s 2018 assessment of commercial properties, but not residential ones, was unconstitutional and the result of political interference in the process.  City Hall disagrees.

“It was clear that those properties were undervalued,” City Council President Darrell Clarke told WHYY. “This notion that somehow the commercial real estate assessments were done purely for political purposes, it was clearly not the case.”

Mike Dunn, a spokesman for Mayor Jim Kenney, said the city is “very likely” to appeal the ruling.

The ruling only names one Councilmember: Allan Domb. In his decision, Cohen cites a 2016 email from Domb to Director of Finance Rob Dubow in which the Councilmember stated that commercial values “needed to be adjusted.”

“There is ample evidence of such political pressure,”  Cohen writes in the ruling. “The Court therefore concludes the desire and demand of City Council for revenue from a targeted reassessment of commercial properties was a substantial motivating factor.”

Domb said in an interview that the email was an expression of concern that commercial properties were being substantially under-assessed based on their actual sale prices.

“Does this mean everything council does is political interference,” asked Domb, who is also a prominent real estate broker and a major Center City property owner.

“I can’t bring up commercial properties that sold for $7 or $8 million and were assessed for $1 or $2 million?” Domb asked. “Are you saying its undue political pressure when we are asking the executive branch to do their job accurately? Does that mean I can’t say the prison budget is too high? Or that there are other inefficiencies?”

Cohen ruled that the commercial reassessment violated the uniformity clause of the Pennsylvania Constitution, which Cohen interprets to mean that all properties must be taxed at the same rate.

“The uniform and equal treatment of all taxpayers takes precedence overvaluing individual properties at market value,” writes Cohen.

The city’s assessed values of Philadelphia real estate haven’t kept pace with the market.

Former mayor Michael Nutter tried to address the problem with a major citywide reappraisal in 2013 followed by promised annual appraisals. But the process remains fraught, and property owners of all kinds have argued that the assessments are consistently uneven.

But this challenge from major commercial owners is unprecedented in terms of the large number of challengers and the amount of tax relief they won.

“There are other times assessments have been challenged, just not on a constitutional claim of this magnitude,” said Peter Kelsen, a lawyer with Blank Rome who represented hundreds of property owners in the suit, including the owners of prominent addresses such as Centre Square and the Bellevue Hotel.

“It’s an important decision for all taxpayers in Philadelphia because it’s really informing the city that when you do reassessment they are intended to provide transparency and fairness,” said Kelsen.

“I hope the city, from this order, recognizes that assessments should be done across the board,” Kelsen added.

Dunn said that the precise financial impact of the ruling is hard to gauge because the number of plaintiffs has changed since the trial began and interest has not yet been calculated. In addition, some of the properties aren’t subject to the Use and Occupancy Tax, which hits office buildings but not, say, condominium towers.

Those caveats notwithstanding, the administration estimates that the ruling could cost the city $14 million in revenue, and the school district,  $34 million, without interest.

“Please note that, if, in fact, we appeal (which, again, is likely), the ruling is stayed pending resolution of the appeal,” said Dunn in an email message.