Should Philadelphia keep its tax break for homeowners, even though it will drive up the property-tax rate? Or should it have the lowest tax rate possible?
That’s one of the questions City Council must wrestle with as it works out the details of Mayor Michael Nutter’s property-tax overhaul, known as the Actual Value Initiative.
Councilman Bill Green introduced a bill last week to toss out the homestead exemption, which excuses homeowners from paying property taxes on a portion of their home’s value.
He’s worried about its effect on businesses and property owners in trendy neighborhoods.
“It gives a whole lot of people, a couple hundred thousand people, a teeny tax break that everybody else has to pay for with a much higher rate,” Green says. “The increase in taxes is passed through to commercial tenants, and people whose leases are coming up look for excuses to leave.”
Councilman W. Wilson Goode Jr., on the other hand, supports the homestead exemption.
He points out that AVI is expected to shift the property-tax burden from business and industrial property owners to homeowners. A homestead exemption would help move part of the burden back to businesses, since they don’t qualify for the break.
“The average taxpayer with a home with average or median value would gain from a homestead exemption,” Goode says. “If you’re not trying to benefit the average taxpayer, who are you trying to benefit?”
Council has already passed a homestead exemption. It is worth $30,000 or less, depending on the median assessment of homes that get the break.
But the Council President’s office says this amount was a “placeholder” that will now be reexamined.
That could make a big difference for homeowners.
For instance, say the city had a $30,000 exemption. Then a $150,000 house would only be taxed at a value of $120,000. Under a 1.4 percent rate, that means the homeowner would get a tax bill of $1,680. But with a $15,000 exemption, that same homeowner would get a bill of $1,890.
City officials estimate that the tax rate would be about 1.25 percent under a revenue-neutral package. With a $30,000 homestead exemption, they say it would be about 1.4 percent.
Mayoral spokesman Mark McDonald says Nutter will discuss whether he wants any tax-relief measures when he releases his proposed budget for next fiscal year.
At this point, Green’s bill doesn’t appear to be popular among Council members.
Councilman Jim Kenney — Green’s lone co-sponsor on the bill last week — has since withdrawn support.
Council President Darrell Clarke also doesn’t back the bill. He says it’s premature to repeal any tax relief now, before the new reassessments have been released.
“Homestead could potentially be a very significant tool,” Clarke says. “I am supportive of having that tool in our box.”
This article has been updated to include more information about the homestead exemption.