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AVI and the $94 Million Switcheroo
Is the Actual Value Initiative actually motivated by a revenue grab for the city?
AVI and the $94 Million Switcheroo
After weeks of budget hearings, hours of complex testimony by administration officials and often-frustrated questioning by City Council members, a single figure has emerged at the center of the political showdown coming to a head in Council today: $94 million.
That's the amount of extra money the mayor wants the School District to have this year, as a result of the city's anticipated switch to the Actual Value Initiative (AVI) — and there appears to be unanimous consent within Council that the schools should indeed get more money.
But why $94 million? There are two answers. One is the administration's: that $94 million simply represents extra money that the city hadn't captured over the past few years, while reassessments were frozen.
The other answer, offered up by critics of the mayor (including Councilman and possible mayoral contender Bill Green) is that $94 simply represents the number the mayor had to come up with to make it look like he's not raising property taxes -- which, they say, is exactly what he's doing.
According to the Nutter administration, the $94 million — which represents about a 25 percent extra from what the city gave the School District last year — reflects a 25 percent increase in property values citywide since the last reasessments. The switch to AVI would "capture" that newly created value.
What the administration has been less vocal about is the flip-side of that figure: the amount of money to be "captured" by the city itself, which shares property tax revenues with the School District in a roughly 60/40 split, with the larger portion going to the District.
In raising $94 million extra for the District, the city would in fact also be raising money for itself — almost exactly the same amount of money it takes to replace the two-year "temporary" hike in the city's portion of the property tax passed in 2010, set to expire this year.
Instead of losing about $80 million in revenue from the expiration of the temporary tax, the city will keep almost exactly the same amount it did this year, plus have $94 million for the District.
To put it another way, the mayor's plan gives the appearance that he pulled $94 million for schools almost from thin air, simply "capturing" extra value that was already out there; but another take on the situation might be that the administration made a calculation to keep the temporary tax increase effectively alive first, and are simply offering to pay their state-obligated dues to the District second.
It would be hard to imagine the mayor, who explicitly promised not to raise taxes this year, and Council, which has raised them three years in a row, doing it again now -- except that with AVI, property tax rates are about to become unrecognizable to most residents anyway.
Because assessments are expected to increase radically, the tax rate will radically decrease. Add to that numerous complicated exemptions, and anyone who can separate out a modest increase in their own real estate tax bill from that mess has commendable math skills.
Which brings us back to the odd $94 million figure, which now appears to be under scrutiny by Council.
Several Council members indicated in passing to day a willingness to look at different, likely smaller numbers -- and why wouldn't they? It's not a giant leap to ask whether the $94 million figure was calculated not out of any specific need by the School District, which intends to borrow most of the money it will need to plug this year's budget gap anyway, but so as to perfectly allow the “temporary” tax increases of hte last two years to remain – and whether the particular needs of the District came second to that calculation.
But it's not clear that many on Council are interested in calling the mayor out: most Council members want to get more money to the school anyway, AVI or not, and as long as their vote isn't called a tax increase, that's better for them, too.
Those, anyway, who aren't about to run for mayor.
This whole discussion is interesting but in some ways besides the point. We need to do AVI because it’s the right and fair thing to do and because the courts will demand it. And we need money for schools. It’s unfortunate that this happening at the same time. But that’s life.
You can look at what the Mayor and Council are going to do as a back door tax increase and a way to keep the temporary tax increases. Or you can look it as capturing increasing values that our screwed up tax system have not captured and that would have made the temporary tax increases of the last two years unnecessary. And, by the way, some of the folks who are criticizing the second claim—such as Brett Mandel and Tom Ferrick—supported the tax reform plan which explicitly said that cutting business and wage taxes would lead to higher real estate values and taxes. Now they are shocked (shocked!!!) to find out that this is what is happening.
There is some virtue in either perspective but this is one time I think the Mayor is right, although I warned some time ago that the argument was a bit too subtle to be all that helpful politically.
Ultimately—and here this article is basically correct—the way you look on it mostly depends on whether you want to attack the Mayor and / or Council—because you are running for office or you are a newspaperman who knows what a good story looks like or you are a politico in the first district which is going to deal with higher taxes—or not.
The underlying truths are (1) AVI is necessary and right and (2) the schools need money, far more than the city can provide. We should, but probably won’t, be grateful when Council takes the lead and finds a decent compromise that addresses these truths.
— Marc Stier- The city pols have contrived a crisis to push through a massive tax increase.
There is tens of millions of new revenue coming online in the next few years from expiring abatements on pre 2008 development.
The idea is to jack up the rate to the highest possible now- righ under 2 pct.
Property taxes were the only tax in philly that was tolerable. Now that's gone.
There will be a lot more than 100mm coming in. Of course city council will spend it on things like drop, paying off unions and giving money away to their cronies.— samac - Before throwing more good money after bad at the PSD we need to fix that rat hole to get more than 13% of schools meeting AYP goals and a graduation rate above 55%. We already spend more than $14,000 per ppublic school pupil while most of the rest of the country gets by with less than $10,000 per pupil.— lmurdah
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