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Revenue Neutral, My Ass

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Rob Dubow.jpgIf you live in Philadelphia, get ready for sticker shock on your real estate tax bill.  Within the next two years, real estate taxes on several hundred thousand homes are likely to double. Some will go even higher.

Part of the reason is that the Nutter administration is going to be working hard this year to institute the Actual Value Initiative (AVI), a citywide reassessment of property to bring it in line with actual market values.

The other reason emerged this week during City Council hearings on the budget.  City Finance Director Rob Dubow admitted, under questioning by Councilman Bill Green, that on top of reassessment, the city is going to try to extract an additional $200 million,  in real estate taxes, presumably by fiddling with tax rate itself. Click to read Jeff Shield's piece on it.

This huge AVI reassessment was supposed to be revenue neutral.  The city takes in about $1.1 billion a year in real estate taxes (the school district gets 55% of the revenue, the city 45%), Now, Nutter wants it to yield about $200 million more.

So, it won't be revenue neutral at all.  It will include a backdoor tax increase.

The Nutter administration already has a 10-percent increase on the real estate tax rate this year (2011.)  It was supposed to be temporary and, in a way, it will be.  The 10-percent increase will expire, to be replaced by a 20-percent increase.

My experience has been that if you talk about real estate assessment methodology for more than 20 minutes your teeth will ache. To use an old journalism phrase, it's a MEGO story -- as in My Eyes Glaze Over.

So, let's step through it quickly by using an example of a nice, hard-working couple who own a rowhouse in South Philadelphia. Me and my wife.

Right now, we pay $2,918 in real estate taxes -- a figure that includes Nutter's 10 percent 'temporary' increase.

The city arrives at this rate thusly:  It determines the market value of my home and multiplies that by 32% to come up with the assessed value.  It then levies a 9.8 percent tax on that assessed value.  For you math freaks, the formula is: Market Value x .32 = Assessed Value x .0982 percent = $2,918.

The city uses the same formula for all taxpayers.

Under this system, it means that the city has determined that my home has a market value of about $93,000.  Which is ridiculous.  It was worth that once -- but that was 25 years ago, when I bought it.

Recently, as part of a loan application, I had a professional appraisal done and its market value was put at $415,000.

The goal of AVI is to have the city's assessed market values mirror real market values, do away with that 32% multiplier, and tax homes at their full value.

If they did that -- and kept the same tax rate (of 9.8%) -- my tax bill would rise to from $2,918 a year to $40,700 a year.  Of course, I would not have to pay it because I would drop dead of a heart attack when I opened the bill.

It was always envisioned, as part of AVI, that once the new market values were determined, City Council would lower the rate to keep the results 'revenue neutral."  If it raised $1.1 billion before AVI, it should raise $1.1 billion after AVI.

That doesn't mean I would still be paying $2,918.  My taxes will go up to reflect the increase in market value over the years.  One figure bandied about is to tax property at one percent of its new full AVI value.  This would bring my yearly tax rate to $4,105 a year.

Not everyone's value has risen as much as mine.  One expert I talked to estimated that one-third of the properties in the city will go up significantly under AVI, one-third will stay the same, and one-third will go down. (There are a number of houses whose market value has declined over the years and their tax bills have not been adjusted to reflect that.)

If you want to imagine which areas will get hit the hardest, just look at the zip codes where the price of homes have risen the most in the last 10 years.  You know who you are.

What the Nutter administration is saying is that on top of this AVI increase, they are going to patch on another 20 percent.  How? Easy. You still lower the tax rate, but not as much.  Instead of taxing me at 1 percent, make the rate, say, 1.2 percent.  And I will pay $800 more.  My tax bill will be close to $5,000. 

And it will happen all in one year.  Gulp.

By trying to extract more money from the real estate tax by this method, the mayor has managed to screw the pooch when it comes to AVI.

It was going to be a tough sell to begin with -- people don't like nor do they trust this finagling with their property values -- now they are inserting a guaranteed 20 percent tax increase on top whatever damage AVI alone would do to my tax bill.

By the way, some of these numbers -- such as the tax rate, the market value of my home as determined under AVI, etc -- are subject to change.

But, I'm still screwed. And so are you and you and you....

 

-- Tom Ferrick

 

 

Photo: City Finance Director Rob Dubow 

 

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