The coming tax tsunami explained – more from Bill Green

As Philadelphia City Council appears headed toward a major re-structuring of property taxes for the city, Councilman Bill Green has produced another detailed analysis of the potential impact of the transition to a tax system based on real market values.

 

For a good summary of Council’s action so far, check out Jan Ransom and Catherine Lucey’s piece in the Daily News here.

Green has a new interactive spreadsheet where you can see exactly how your taxes may rise or fall under likely scenarios, if you have your current assessment from the city and a rough idea of what your property would sell for.

And he has a separate analysis on how taxes are likely to rise or fall in particular neighborhoods, which updates an  analysis given to Council members in April by officials from Mayor Nutter’s administration. The Green analysis is updated to reflect the steps City Council is likely to take next week, as well as an updated assessment of how much assessed property values will rise when the assessments are complete this fall.

You may have to stare at this a while, but it’s useful information. Green’s press release accompanying the information is reprinted below. If the whole subject of the Actual Value Initiative is new to you, you might start with a basic explainer I wrote here.

You can get a basic explanation from Green on his chart and the administration’s earlier analysis here. The Nutter administration analysis from April is here, and Green’s updated analysis is here.

For a shorter, informative look at how taxes might change, check out this piece by the Daily News’ Catherine Lucey.

Green’s neighborhood analyses are interesting, and it’s striking to see how the effects have changed since the initial administration analysis was done. East Falls, (see the tab on the fourth councilmanic district) for example appeared to be in for a moderate tax increase or decrease under the original analysis. The new look suggests property owners there might be paying from $1,000 to $1,200 more. Looks like they’ll be paying more in the Northeast, too – see the tenth Councilmanic district tab.

Green has done some original thinking and numbers-crunching in the course of this mind-numbing debate, and has influenced the likely outcome by suggesting an increase in the use and occupancy tax on businesses to offset the impact of the change on residential property owners.

Here’s the press release that accompanied Green’s new analysis:

COUNCILMAN BILL GREEN RELEASES UPDATED TAX ESTIMATOR AND RELATED SPREADSHEETS SHOWING POTENTIAL IMPACT OF AVI ON PROPERTY OWNERS

What:                Spreadsheets containing the latest assumptions about tax rates and         likely potential relief measures. Why:                So members of the public can estimate their potential tax bills and provide feedback to the administration and City Council. Where:        www.greenforphiladelphia.com/AVI The spreadsheet allows residents and businesses to estimate their potential tax bills in the event City Council implements the Actual Value Initiative (AVI).  It is important to note that these are estimates.  The spreadsheet shows potential tax liability under various scenarios tied to two different revenue proposals:  (a) the administration’s proposal to raise $94M in additional revenue for the School District from the real estate tax; and (b) an alternative proposal to raise $40M in additional revenue for the School District from the real estate tax and $45M for the District from the “use and occupancy tax,” which is paid on occupied commercial/industrial real estate.  The scenarios are presented with and without a $30,000 homestead exemption and gentrification relief (described below). Additionally, the spreadsheet shows the average impact of the proposals for 46 neighborhoods previously chosen for analysis by the administration.  “The average neighborhood results provide the big picture, but for your own tax estimate you can enter data on the first tab,” Councilman Green explained.   “It is clear that the move to actual value without knowing the assessed values in advance is putting the manure before the horse – it stinks,” said Councilman Bill Green.

BACKGROUND

Original AVI Analysis from Administration In April 2012, the administration provided an analysis of 46 neighborhoods (called Geographical Market Areas or “GMAs”) showing how property taxes on an average current market value and average sales price would change under the proposed Actual Value Initiative (AVI).  This initial GMA analysis including the following assumptions:

The use of “smoothing” such that property taxes would not be 100% based on the new accurate values until 2015;

a homestead exemption of $15,000 (meaning that homeowners who live in their houses would not pay taxes on the first $15K of value of their homes); and

an eventual tax rate, after smoothing ends, of 1.25%.

The eventual tax rate would be 1.25% if the total taxable value of real estate in the city is approximately $100B and a $15,000 homestead exemption is in place.  The taxable value of real estate now on the city’s books is approximately $36.6B. The administration’s analysis showed that some neighborhoods would have tax increases under AVI and some would have tax decreases.  Whether or not a particular property will have a tax increase or a tax decrease under AVI depends on two things:  (1) the property’s new assessed value; and (2) the new tax rate. In general, the more a property is “under-assessed” now, the more likely it will have a tax increase under AVI. An analysis indicated that “smoothing” resulted in some taxpayers paying even higher taxes in the first two years of AVI due to the higher tax rates needed to pay for smoothing relief.  The administration later testified in City Council that “smoothing” would hurt more taxpayers than it would help; as a result, it is being removed from the AVI proposal. Updated AVI Analysis This week during a City Council hearing, the administration indicated that the total taxable value in the city may be closer to $80B than $100B.   With this new, lowered total value estimate, the likely tax rate is not 1.25% but somewhere between 1.6% and 1.81%, depending on what relief measures are in place.  (The lower the total taxable value, the higher the tax rate needed to generate the amount of revenue the administration is seeking.) The relief measures under discussion in City Council include a $30K homestead exemption and gentrification relief, which would cap the market value of homes in which the owner has lived for at least 10 years at three times the current market value on the city’s books.   Also being discussed by Council is a proposal to raise $40M in additional revenue for the School District from the real estate tax and $45M for the District from the “use and occupancy” tax, which is paid on occupied commercial/industrial real estate. The updated AVI analysis uses the same average current market value and average sales price information from the administration’s April 2012 presentation.  Using this same information, it shows the impact on the 46 neighborhoods of the proposals/tax rates now under discussion:

Scenario 1:  a 1.61% tax rate with no homestead exemption or gentrification relief, raising $94M in additional School District funding via AVI/real estate tax;

Scenario 2:  a 1.71% tax rate with a $30K homestead exemption, raising $40M in additional School District funding via AVI/real estate tax;

Scenario 3:  a 1.75% tax rate with a $30K homestead exemption plus gentrification relief, raising $40M in additional School District funding via AVI/real estate tax;

Scenario 4:  a 1.77% rate with a $30K homestead exemption, raising $94M in additional School District funding via AVI/real estate tax; and

Scenario 5:  a 1.81% rate with a $30K homestead exemption plus gentrification relief, raising $94M in additional School District funding via AVI/real estate tax.

The first tab of this updated AVI analysis allows property owners to enter three data points – (1) the current market value of the property on the city’s books (available at: http://opa.phila.gov/opa.apps/Search/SearchForm.aspx); (2) the owner’s estimate of the actual market value of the property; and, homeowners only, (3) how long the homeowner has lived in his/her house – and see how the tax bill on the property would change under the five scenarios above.   Gentrification relief – available to homeowners who have lived in the same home for ten years or more – will permit the new millage to apply only to the first 200% of increase in market value (in other words, to a tripling of current market value).  Eligibility for gentrification relief is not based on income.  As proposed, gentrification relief will be available whether or not a homeowner can afford to pay the taxes avoided through such relief.