Last spring, as City Council debated how to handle the 2013 rollout of a citywide reassessment of property values known as the Actual Value Initiative, or AVI, one councilman dug in his heels.
While proposals for various tax rates and relief measures ricocheted around City Hall, Mark Squilla decided passing the measure without assessment data in hand was too risky, and convinced his colleagues to delay AVI until 2014. “They wanted us to pass this last year, and it’s amazing — knowing that if we passed it … what would have happened,” Squilla says. “Thank God we didn’t.” Today, that expression of gratitude is a common refrain. After all, before Squilla (and, some say, common sense) prevailed, Council had been considering a 1.8 percent tax rate. The large tax increases resulting from that high rate would have been “disastrous for the city,” says Squilla.
But the fact that it took a freshman councilman standing up to an adamant administration and an uncertain City Council to put the brakes on that “disaster” might be taken as an indication of just how problematic the city’s property-tax-reform process has been.
Talk of AVI overshadowed the last budget season; now, with another one looming, a great deal of uncertainty remains. While Council scrambles to patch together ways to make the tax reform palatable, and property owners struggle to make sense of the assessments they’ve received in the mail over the past week (and, in many cases, start preparing their appeals), critics say both the politics of AVI and its execution have been fraught with miscalculations.
To start, there’s the appearance that Mayor Michael Nutter — whom Squilla says viewed AVI as “a legacy thing” — simply didn’t count on pushback from Council. He told Council in his 2011 budget address to get AVI done by 2012: “It’s time to finish the job.”
This pressure gave some Council members the sense that the administration was attempting to force their hands. Councilman Jim Kenney, for one, suspects the administration of withholding assessment information from Council. “The administration has had these numbers for a while longer than they admitted,” he said last week. “We could have taken some actions, and now the horse is out of the gate and it’s just, like, ‘Tough.’” Council President Darrell Clarke, meanwhile, complained that the administration’s publicizing of a rock-bottom tax rate of around 1.25 percent, without relief measures, put him in a bind. After all, if he votes for relief measures, “it will appear that Council is increasing the rate” in order to meet the $1.2 billion revenue goal. “All of a sudden, Council’s the bad guy.”
It seemed similarly telling that one of the most dramatic side effects of AVI — that it would shift an estimated $200 million of the tax burden from commercial properties onto residential ones — wasn’t made public until Councilman Bill Green sat down with some spreadsheets and figured it out. After Green dropped this bomb last spring, the administration conceded it was an issue. But the most direct fix, changing the state constitution’s “uniformity clause” requiring equitable taxation, has only lately come into play in the General Assembly and is still considered a long shot.
For anticipated mayoral candidates like Green and Kenney, taking a stand on AVI may be a political no-brainer. Likewise for City Controller Alan Butkovitz, who claims he proposed six years ago to “defer the AVI discussion and concentrate on changing the uniformity clause.”
But that doesn’t void the perception that, as Butkovitz puts it, AVI “has been backed into — without real modeling, without a real understanding of its impact on real people. It’s not the best planning to build this structure and then feed in the numbers, and then say the computer is going to tell us who is going to get driven out of their homes.”
Instead of a comprehensive, policy-driven plan, he adds, “there’s been a series of surprises,” such as the differing impacts on various neighborhoods and demographic classes, the shift of the tax burden onto residential owners — and even the total value of all 579,000 city properties, announced in December as a better-than-anticipated $96.5 billion.
Of course, Nutter did have a plan, as he outlined in his 2012 budget address: Assess properties fairly, give owner-occupants a $15,000 “homestead exemption” tax break, initiate “smoothing measures” to phase in the change over time, and help low-income seniors with tax freezes.
But that plan has been wracked with hiccups and delays. In 2011, Nutter promised to mail new assessments by fall 2012; by the end of last budget season, Council members said, they were told to expect data by December. Instead, assessments were released to Council in February, just days before they were mailed to homeowners. (By the way, chief assessment officer Richie McKeithen says the time frame “was what I expected. It takes time to attempt to do any kind of quality reassessment.”)
NOW THAT assessments have been mailed, the political outlook has not improved.
Some Council members are making the rounds of community meetings partly to answer questions and partly to stir property owners to action. Kenney, for one, says he is organizing a “military” response and will bus whole blocks of residents in to appeal if necessary. Squilla is telling residents he’s convinced that the valuations are “flawed.”
While the administration has repeatedly stated that the assessments are fair, some property owners don’t see it that way. Queen Village resident Karen Joslin, for one, says her house was assessed at 65 percent more than what it was appraised for in 2011. “I’m a real estate agent, and I can’t sell my house for that,” she says of the $675,000 valuation. “If they can sell it for that, they can have it.”
McKeithen acknowledges that gentrifying areas are tough to appraise. “To nail something like that down perfectly in a year [is difficult]. It will take more than likely more tweaking and more analysis. … We came from a system where the values weren’t even remotely reflective of what the property would sell for. We feel like the first year we got a pretty good indication of at least landing closer to the market value.”
Still, some realtors are concerned about the uncertainty created by mailing out assessments without a tax rate. “People feel helpless,” says Michael Esposito Jr. of South Philly’s Alpha Realty Group. “If you could afford a house where your payment was $1,200 but now it’s $1,500, you can get less of a house. … If you’re selling, it’s going to be detrimental.”
He says some of the assessments make sense to him, but not all. Take a property he has listed for sale at $89,000 on the 600 block of Mountain Street. Even he admits that, “with the amount of repairs it needs, it’s probably worth more like $70,000.” The appraisal? $149,000. “If you bought it for $70,000, and you made $79,000 worth of improvements, which is about what it needs, then you would be right there,” he says with a laugh.
Separate from tax fairness, but equally important, is whether AVI will, in the end, be affordable for homeowners. An analysis by the Controller’s office found that the top 10 census tracts for seniors living alone will all see tax increases. Taxes will also rise in some low-income areas: Philly’s poorest neighborhood, Fairhill, will see an average tax increase of 118.7 percent.
Over recent weeks, alarmed Council members have unleashed a slew of bills and resolutions to address those issues, including relief for low-income homeowners whose taxes will rise 250 percent; the elimination of a $30,000 homestead exemption in order to reduce the overall tax rate; and the generation of revenue by targeting tax delinquents, collecting taxes from nonprofits and creating an outdoor-advertising program. There are more ideas to come: Squilla wants to phase in AVI over four years, while Kenney is considering a “reverse tax abatement” for longtime residents.
“If that [hodgepodge of proposals] feels like panic, I think it’s because they’re panicky,” says Zach Stalberg of the good-government watchdog Committee of Seventy. He calls it a symptom of poor planning and the punting of budget issues from one March to the next. “People are suddenly grasping for ideas, and it can seem really unorganized.”
And as politicians hear from angry constituents, some small-business owners worry the politics of AVI could hurt them further. The property category “stores with dwellings” saw the largest average valuation increase citywide, a 251 percent bump; and an analysis by AxisPhilly found a homestead exemption would adversely affect small commercial properties even further. Since Council increased the commercial Use and Occupancy tax last year, some businesses are already on the ropes, says Jane Lipton of the Manayunk Development Corporation. “These businesses are not suddenly going to increase their revenue because AVI finds they have a higher property value.” She fears they are “easy targets, generally speaking, because the people that own commercial properties do not live or vote in the districts.”
Meanwhile City Council, which already approved AVI last year with a $30,000 homestead exemption, will need 12 votes to chart a different (and veto-proof) course, if the mayor doesn’t agree.
Whatever happens, the administration expects appeals to increase by 50 percent, at a potential cost of $30 million. If Squilla and Kenney are right, though, it could be even more.
All this promises, at the least, to ring in another messy budget season. Stalberg is urging Council to address AVI at once, with hearings and expert analysis, and not let it dominate budget talks again. But he admits this idea hasn’t gotten traction.
“Politics and personality have an inordinate effect on situations like this. Everyone’s got their own political agenda,” he says. “Then, on top of that … you have the pure problem of bad human dynamics.”
