Property taxes: what you don’t know might just be good for you

In a post yesterday, I wrote that Mayor Nutter is embarking on a needed property tax assessment overhaul that’s complicated to grasp and thus vulnerable to demagoguery by politicians who will denounce it as a back-door tax increase.

Since then, I’ve endured a lengthy briefing from Mayor Nutter’s finance director and spoken to one of the potential demagogues, and I have this to report:

1. This thing is even more hopelessly complicated than I realized, and

2. Both the mayor’s people and the politician, City Councilman Bill Green, have reasonable points of view.

Sorry. I know, government reporting is more fun when we dish up somebody to loathe. And maybe I’ll get there on this issue at some point. But if you’ve got the nerve, bear with me.

The city has assessed property for taxes badly. Besides the traditions of political favoritism and patronage, the system itself was based on a ridiculous two-step process, by which properties were assigned a market value, which was then multiplied by 32 percent to get an “assessed value” to which a rate was applied to get your tax bill.

Cumbersome. Stupid. Hard to understand.

The solution, termed AVI – for Actual Value Initiative is to reassess every property in the city and give it one value, something like its real market price, and tax that value. It means the new assessed values will be maybe four times the current assessed values, (since we leave out the ‘multiply by 32 percent’ thing) so at the same time you have to really lower the rates a lot to get about the same revenue you did before.

That’s a little complicated, but you get it, right? Well here’s what makes doing this in Philadelphia, right now, messy:

1. Because property values are screwed up everywhere, everybody’s property is likely to move a bit, maybe than a bit – some up, some down.

2. The reassessments won’t be finished until the fall, but the mayor and Council have to enact tax rates this spring, before they know what property values will be.

3. There are actually two property tax rates here, one for the city, the other for the school district, and they’re different. The schools get a bigger bite.

4. Both the city and the school district rates are now subject to “temporary” increases which expire June 30th. And the temporary increases aren’t uniform. The city had a big increase, over 20 percent, the school district’s was smaller.

5. When reassessment occurs, to soften the shock of big changes in value, the city plans to ease them in for affected taxpayers over three years – that’s both increases and decreases.

So what Mayor Nutter plans to do in this budget, is to propose that Council pass tax bills that don’t have a rate. Instead, the bills would describe a plan to calculate a rate later in the year after the new assessments are done, and the rate would essentially give the city the revenue it would get if the old rates (before the temporary increases) were applied to the real, higher values. The result will be that the city will get about what it gets this year, the school district will get about $90 million more, and overall property tax revenues should go up around eight percent.

Why does the school district get more when city stays the same? It’s essentially because the new system will capture the revenue from property values having risen something like 25 percent over the past eight years, and the city will give most of that back when it loses its large temporary rate increase, but the school district will give less back, because its temporary rate hike was smaller.

I know. I have a headache at this point, too.

I’ll just say that City Finance Director Rob Dubow made a good case for doing all this is an extended briefing yesterday.

And Councilman Green also made a compelling case that the city should not try and do this this year.

If the city proceeds with this plan, he argued, the debate will occur and tax bills will pass while nobody understands what their assessments will be, and citizens will assume that the mayor and Council are putting one over on them.

“It’s not demagoguery,” Green said to me at one point. And he had a point, because he acknowledged that the alternative to Nutter’s plan is for Council re-enact the temporary tax hikes this spring, and re-do the rates next spring after the reassessment is complete.

Green isn’t ruling out going for a reassessment plan this year, but he has questions.

Enough for now. I’ll get a fresh bottle of Advil, and I’ll be back.