If you still don’t know what the hell to make of the Actual Value Initiative (known by the ominous, vaguely pandemic-sounding initials “AVI”), you’re not alone, but we’re not going to say “don’t worry.” AVI will likely impact more residents of Philly (even if not very much, in some cases) than any city plan in a long, long time.
AVI in a nutshell: The city’s property assessments are a mess, and have been for years. Some people are paying too much in property taxes, and many others — including many wealthier residents — are paying profoundly less than they ought to be. Under AVI, the city is reassessing every property in the city according to its “actual” (see?) market value. Then, the tax itself will be rejigged to make the whole endeavor almost revenue-neutral — almost, because Mayor Michael Nutter has built into his proposal a means to maintain the revenues until now collected via two years of “temporary” tax hikes, plus another property-tax hike and $94 million extra for schools.
Yet it’s likely that many Philadelphians haven’t heard of the city’s ambitious, far-reaching overhaul of its property-tax system, and many won’t have heard of it until after it’s gone into effect. But — and here’s where things get a little crazy — even those who know all about it, from the engaged citizen through City Council on up to the mayor, don’t know exactly how it will all go down.
That’s largely because, after at least 10 years of buck-passing when it came to fixing the city’s broken assessments, Nutter is suddenly in quite the rush to implement AVI. He’s asking Council to approve the measure before the city finishes its reassessments, and before the city itself knows what the numbers are going to be.
Weeks of grilling by City Council and prodding by citizen activists have opened up all sorts of questions about how the city’s new tax system is going to work: Questions like how much the city’s property is actually worth, what tax rate residents will pay (estimates quietly grew by 50 percent over the last couple of weeks), which neighborhoods will be most affected and how many people will figure out what the hell is going on in time to apply for a so-called “homestead exemption” for resident-homeowners. This week, the Daily News commended Council for doing the “heavy lifting” in raising these and many, many other questions about the administration’s plan.
Here’s the catch: Having raised all those questions, Council doesn’t appear willing to wait for the answers. On Thursday (the day this issue gets published), the legislative body will likely pass AVI, more or less as Nutter wants it, giant gaping unanswereds and all.
The reason for this is a complicated convergence of political factors. For one thing, there seems to be a consensus within Council that AVI is, in fact, a much fairer system. While the rush to implement it might be distasteful to many, all the confusion — and the public’s lack of understanding — also gives Council a certain amount of political cover: If Council members wait a year, they’ll undoubtedly spend that year facing new opposition to the changes.
What’s more, there are just enough Council members with districts that stand to benefit from the shifting burden of property taxes to make the change politically feasible. Add to that the mayor’s proposal to fold extra money for the schools into AVI — which several Council members believe will allow Council increased leverage over how the School District spends that money — and you’ve got, it sure looks like, the nine votes needed to get AVI approved.
Increasingly, it appears as if the remaining questions on AVI won’t be answered until well after it’s a done deal. So, for posterity if nothing else, here are a few of them.
How much is the city worth? In a presentation to the Pennsylvania Intergovernmental Cooperation Authority some weeks ago, the Nutter administration estimated the city’s total property value will have increased by a factor of three or four, to $110 billion or more. But in subsequent Council hearings, that number began to drop — eventually to a possible $80 billion. The lower that number goes, the more everyone has to chip in to make the city’s revenue target.
Another thorny issue: How will the so-called “homestead exemption” play out? The administration had suggested resident-homeowners receive relief equal to the first $15,000 of their property value. Council doubled that number, which means a greater burden will fall on everyone else. (Non-exempt landlords could pass along their higher taxes to their renters, 75 percent of whom are low income.)
Meanwhile, Councilman James Kenney, along with Council leadership, has pushed a “gentrification” relief measure that exempts 10-year homeowners whose property values have more than tripled from paying taxes on any assessment above that for 10 years. The measure will be a game-changer for residents of rapidly gentrifying neighborhoods. But because state law doesn’t allow the city to apply a “means test” to weed out the wealthy, it will also exempt at least some affluent property owners. What’s more, there may be many residents deserving of relief whose properties have not quite tripled in value, or who’ve owned their houses not quite 10 years.
Wrapped up in the above three questions is another, more fundamental one: What will the tax be? Because the administration doesn’t actually have the numbers yet, the bill before Council would allow the tax rate to be determined algebraically, in order to meet the city’s target revenue. But as the total assessment value goes down, and as exemptions go up, the estimated tax itself has gone up, too, from an estimated 1.2 percent to an estimated 1.8 percent, a 50 percent increase in just a few weeks.
Finally, there’s the unanswered question of what, exactly, Nutter has been up to with the numbers — especially that $94 million for the schools. Where did it come from? The administration has claimed all along that it represents extra value that’d be “captured” as property values rose. But there are contradictions, as Councilman Bill Green and Council President Darrell Clarke revealed when they asked why that number remained the same even as the administration lowered its estimates of the city’s property value. Green has asserted that the figure represents merely the flipside of a back-door tax hike built into the bill. Because the city splits its real-estate proceeds roughly 40 to 60 with the School District, the $94 million, according to this theory, correlates to the district’s 60 percent share of a revenue increase that gives the city about $70 million.
These and other questions clearly rankled members of Council — but not enough, it seems as of press time, to stop the AVI train from leaving the station. The next big question is what that will mean — for us, and for Philly politicians — just down the track.