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Sleight of Hand

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It's early in the year, but I feel confident in predicting that the biggest political train wreck in Philadelphia in 2012 will be the AVI, the city's plan to reassess all properties to more closely reflect market value.

AVI stands for the Actual Value Initiative and it is due to be rolled out sometime in the fall.  It will replace the old fashioned method of assessing real estate, a function done for years by the Board of Revision of Taxes.

Mayor Nutter stripped the BRT of the power to assess and handed it to city government.

AVI will be a mind blower for property owners even if it all goes well.

Under the current system, the city determines the market value of a home and multiplies that by 32 percent to come up with the assessed value.  It then applies a 9.8 percent tax on that assessed value.

In short, we have become used to low assessment numbers in Philadelphia -- numbers that often bear little relationship to the real value of a home, even before the 32 percent is applied. 

Now, imagine this fall when you get a letter from the city telling you that your home, which previously had been assessed at, say, $100,000 will henceforth be assessed at $400,000.  That's called sticker shock.

The $400,000 is supposed to reflect the market value of your home. i.e., the price it would fetch it you put out a "For Sale" sign tomorrow.

Re-assessing every home in the city -- along with all commercial properties -- is a gigantic undertaking, even with the use of computer programs and statistical analysis based on actual real estate sales.

But, wait, it gets trickier.

Coming up with a new assessed value is Part One of the process. Changing the tax rate is Part Two.

When AVI was first announced the administration said it wanted it to be revenue neutral. In other words, while individual tax bills may change, at the end of the day the city wanted to raise $1.1 billion in real estate taxes, the same total as under the old system.

(Sixty percent of real estate tax revenue goes to the school district, 40 percent goes to city government.)

Since then, the Nutter administration has admitted that the goal is not to be revenue neutral. It wants a higher yield from the real estate tax. How high, no one is saying.

To repeat, here is how the process is supposed to work:

The city does this massive re-assessment and releases the new numbers in the fall.

Then, based on the new total values, it will change the tax rate.

One figure I have heard mentioned is a 1 percent tax rate. So, if your home is assessed at $400,0000 under AVI, your real estate tax will be $4,000 a year.

Even with a revenue neutral AVI, there will be winners and losers. If your real estate values have risen above the city average in recent years, you will get socked with much higher taxes because of your market value.

Now comes a new twist. As Troy Graham reported in the Inquirer, Council and the Nutter administration have decided they can't wait until the AVI is completed before changing the tax rate. They want to lock it in this spring, as part of the new budget.

You've heard of putting the cart before the horse. This is putting the cart before the horse before the horse is born.

Any rate determined in the spring will be purely speculative because Council and the administration will lack fundamental data: the new figure of the actual cumulative value of real estate in Philadelphia.

Why engage in this loopy exercise of flawed math and bad public policy?

For one thing, council members want to get past AVI this year. They realize it will be unpopular. They know people will be screaming. Best to inflict pain now, in the first year of their four-year terms, than later.

For another, the Nutter administration wants the money. It wants the additional revenue AVI will yield and it apparently isn't ready to wait another year to get it.

The talk in Council that if the rate turns out to be too high, it can be adjusted before tax bills go out next December. But, who is kidding whom?

The bottom line: many thousands of taxpayers are going to be paying high real estate taxes next year, ready or not, because of an increase in the value of their homes. And, on top of that, there will be a tax increase -- my guess is somewhere around 20 percent -- that all homeowners will have to pay.

And it will all be done by slight of hand.

-- Tom Ferrick

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