Philadelphia faces a true Rubicon: the time for reassessment is now.
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Incentive Taxation

Philadelphia faces a true Rubicon: the time for reassessment is now.

Philadelphia Pennsylvania like most cities, counties and states have had to deal with tight budgets for nearly half a decade.  For many reasons, not least of which are legacy expenses, revenue requirements will be increasing even as economies at the local and regional level still  react sluggishly as the great recession of 2008 begins its ebb tide.
 
 
A complicating factor in Philadelphia's fiscal struggle is the reality that it's tax system is nearly unique in United States as the Washington DC Department of Finance annual tax comparison report so clearly demonstrates.  Since the 1930s, Philadelphia depended on mobile subjects of taxation such as retail sales, wages and business.  At the time it made sense, as business and citizens were tied much more closely to the urban center then today. Of course, those planes, trains, and automobiles have literally left their stations.
 
 
For decades Philadelphia has been trying to get out from under this terrible tax system which is generally acknowledged to have cost the city billions in wealth and hundreds of thousands of jobs and citizens.
 
 
After much debate, dozens of reports and commissions and studies, Philadelphia is still approximately the second highest taxed city in the United States. Interestingly, the higher the income in Philadelphia the tax burden jobs a bit lower. That puts Philadelphia and the company of cities like Bridgeport, Detroit, Louisville and Birmingham. That's a problem in a city that has far more gifts and attractions than its peers.
 
 
It has long been known that the best alternative to Philadelphia's tax system is to rely more heavily on property taxes with a corresponding reduction in other taxes. The problem getting from here to there is that real estate values have been hideously inaccurate for decades.
 
 
There is no consistency to values, and therefore no consistency the tax bills. The past half decade has seen efforts to reassess the entire city based on 100% of market value (as opposed to fractional assessments).
 
 
Unlike nearly every other jurisdiction in the US and across the world, Philadelphia has had an administratively and politically difficult time getting values and to place. This year's budget season is no different.
 
 
The administration under Mayor Michael Nutter is proposing applying something called the actual value initiative (AVI)  which would have a revaluation in place by September 2012. But there's a rub. A budget must be set by July 1, 2012. The Nutter administration wishes to have instead of a property tax ordinance a revenue target goal for both the city and the school district (providing an extra $90 million for the Philadelphia school district in the process). Of course, that's usually not the way things are done.
 
 
This is standard practice, which is simplicity itself:
Budget Revenue Need ÷ Values = Tax Rate
 Tax Rate X Values = Revenue
Will it be possible for AVI to be implemented? Even with some of the practical difficulties, the answer must be yes. Some call a reassessment without a tax rate in place a backdoor tax increase. It is entirely possible the more revenue will be raised with a revaluation down the line. Yet, the city government has raised property taxes officially in the past few years twice, along with the sales tax increase. Either way, tax bills went up.
 
 
AVI is meant to provide a fair, equitable and above all accurate system of values. Without accurate values, the City of Philadelphia will continue to stumble along in the long-term dependent on economy killing and job killing taxes. The property tax – made more efficient and fair by a land value tax – is the only alternative.  
 
 
The Center for the Study of Economics has studied the Philadelphia property tax and the assessments upon which they are based for more than a decade.  Last week, on May 2, 2012, we provided the following testimony acknowledging the technical issues arising from AVI. The bumps in the road will be no different than a reassessment where the values are provided long in advance of the budget season (witness Allegheny County earlier this year).  All told, individual deficiencies in property values can be fixed down the road. AVI as a whole must be given a chance to get off the ground.

6 Comments to Philadelphia faces a true Rubicon: the time for reassessment is now.:

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Tom on Tuesday, May 08, 2012 3:52 PM
Disgusting - funding the horrible, incompetent, expensive disgraces that pass for Philadelphia public schools by pricing people out of their homes. Nice...keep it up and Philadelphia will get a lot emptier.
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Joshua Vincent on Thursday, May 10, 2012 4:53 PM
Tom, thank you for writing. I agree with you in many ways: the school system is very expensive and it is sometimes very frustrating to pay for it. But, I'd assert that a property tax is a better way to fund a city instead of sales, wage and business taxes. I think Philadelphia got emptier, and studies support the contention, because of THOSE taxes. We do need tax revenues, but where they come from is just as important. A good assessment system can help the city reduce the rates on what people earn or produce, which can be done, and is long overdue.
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Reassessment of Property Taxes on Wednesday, May 16, 2012 6:08 AM
This information is magnificent. I am impressed with your writing style and how well you express your thoughts.
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Mark Koerner on Thursday, June 14, 2012 9:16 AM
I've never understood why everyone in the United States seems to have to valuations on their houses: the "assessed" price and the "market" price. Why can't they be the same? Why can't local lawmakers just draft a law that makes the estimated market price of your house and land into the "assessment." The system outlined above is the system we use for figuring capital gains on securities; there isn't a separate "assessed" price figured by an army of "assessors." This has nothing to do with land-value taxation per se, of course; this is a problem that both the current tax regime and a land-value-tax regime would face. --Mark Koerner
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Joshua Vincent on Thursday, June 14, 2012 11:50 AM
Dear Mark - Thank you for writing. I am in full agreement with you, and there is NO good reason to confuse or have divergence between "assessed" and market value. Different ratios confuse taxpayers, and can make the property tax opaque and upsetting. Apples to apples is the only way to go. Further exploration of such tools as self-assessment, and "real-time" assessment like Clark County, Nevada can bring the valuation process into the modern era.


www.urbantoolsconsult.org on Tuesday, March 05, 2013 5:28 PM
the traditional middle class in particular. 2013 may turn out to be the year that Philadelphia turned itself around. A new system of property values to be revisited on an annual basis could lead Philadelphia in
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