Philadelphia Metropolis

Metropolis Report


Backgrounder: All About AVI

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Who:   The city of Philadelphia

What:  Is reassessing the value of every property

When: The process is underway and will be completed in February.

Where:Within city limits.

Why:   See the article below

How:   Read this article to find out how it is being done.


To understand the why of the citywide real estate reassessment, let us turn to the state Constitution and open the page to Article 8, section 1. It a 30-word sentence which states: "All taxes shall be uniform, upon the same class of subjects, within the territorial limits of the authority levying the tax, and shall be levied and collected under general laws."

This is known as the uniformity clause and its strictures explain why Pennsylvania, unlike most of its neighbors, does not have a graduated income tax. It is a flat 3.07 percent rate regardless of your income. It also explains why we levy the same sales tax on all items -- from luxury sedans to rubber bands. 

Taxes in Pennsylvania must be flat.

In Philadelphia, we have no problem with the rate of our property tax.  It is a flat 9.432 percent on the adjusted value of a home. (More on that adjusted part later.) 

Our problem comes not from the rate, but from the values assigned properties by the city.  Those values vary widely and often have no relation to real market value.

Here is the way Brett Mandel, the civic tax activist, explains it:

"Right now, from house to house, neighborhood to neighborhood, block to block, the value is different for everyone -- and in a bad way. Some people with valuable properties have them assessed at much less, compared to other similar properties, which is many cases are valued much more.

"If my wife and I have jobs that pay $50,000 a year we are going to pay the same wage tax to the penny. If we go to a store we pay the same sales tax.  We get the same Phillies seat and we pay the same amusement tax to the penny.

"But, if you have a $100,000 house and I have a $100,000 house, we might be paying dramatically different taxes."

To test that assertion, I looked at records on the 25 homes sold in the first six months of this year for a sale price of exactly $100,000.  The real estate taxes on these properties varied from $193 a year to a high of $2,632.

There are external reasons for such variations -- the size, location and condition of the house to name just three -- but even among similar houses the difference was striking.

To be more concrete, take the three-story rowhouse on the 1900-block of South 17th Street, just off Passyunk Avenue in South Philadelphia.  This 1,900-square foot house sold for $100,000 in January.  Its annual tax: $905.

Three months later, a smaller (1,440-square-foot, two-story) house in Rhawnhurst sold for $100,000.  Its annual tax: $2,632.

Let's take another step back:

60K-homes_400_final.jpgAccording data compiled by the Pennsylvania Public Interest Information Network, there were 187 homes sold for $60,000 in Philadelphia between Jan 1, 2011 and May 31, 2012

Assuming a plus-or-minus 10 percent variation in assessed value, real estate taxes should have ranged from $1,640 and $2,010 a year.

Of the 188 properties, only seven were taxed within this range; five were taxes higher, 175 were taxed lower.

How could this happen?

The short answer is this: while real estate values change every year, the city only reassesses sporadically.  It has not done a citywide reassessment since 2002. It has not done any residential reassessment since 2010.

The value of your house, at least in the eyes of the city, is frozen somewhere in time -- possibly a decade ago or more -- while in reality your market value has changed.

Mandel again: "If you are not going to regularly revalue the city over time you are going to get some real big differences."

This has led to inequalities, which in turn have led to law suits challenging the fairness of the city's system -- on the grounds it violated the uniformity clause -- which has led the Nutter administration, in effect, to say: Let's wipe the slate clean. We will do a new citywide assessment to bring values up to date.

That reassessment, called the Actual Value Initiative, is underway. The goal is to have values reflect the market in your area (i.e., reflect what your home would bring if you sold it on the open market). The new values will be mailed out sometime in February, according to the city's Office of Property Assessment, the newly created agency in charge of the reassessment process.

To complicate matters, at the same time the city is reassessing, it is also changing the formula for taxation.  Under the current system, your home is taxes at only a fraction of its market value -- at 32 percent to be exact.  So, if your home is assessed at having a value of $100,000, then multiply that by 32 percent to come up with its taxable value: $32,000.

The 9.432 percent real estate tax is then applied to get your tax bill:

$32,000 x .09432 = $2,982.

With AVI, the city is abandoning this pro-rated system and going to full value.  So, if your market value is determined to be $100,000, you will be taxed on that amount.

This means City Council is going to have to lower the rate of the tax -- and lower it significantly -- once the new AVI assessment numbers are available.  Council debated that tax rate last spring, but decided to punt on the issue until next year -- when the assessment is due to be completed -- before setting the final rate.

One (of many) figures bandied about was a tax rate of 1.25 percent.  See the map at the end of this story to see what neighborhoods likely to get hit hardest by the AVI process if the rate ends up at 1.25 percent.

Here are questions to ask yourself as events advance:

-- Is my new assessment fair? The key date is February, when the assessments are due to be mailed out by the Office of Property Assessment (OPA).  When you get your new value ask yourself this question: Within a margin of plus-or-minus 10 percent, does this number accurately reflect the price I would get if I sold this house on the open market within the next several months?   If it is much higher, you should appeal the assessment.  Appeals are being heard by the Board of Revision of Taxes.  If the number is lower, best to keep quiet.

-- Will the city keep the real estate tax revenue neutral? The city's property tax brings in about $1.1 billion a year, with 60 percent of the money going to the school district and 40 percent to the city.  Under AVI originally, while individual taxes may change dramatically, the overall goal was to bring in the same $1.1 billion. But, the Nutter administration changed its tune in the middle of the budget debate.  It decided it wanted the property tax to yield $92 million more in order to provide money for the schools.Council rejected this idea, but Nutter may try again next year.

-- What will the multiplier be?  The equation is simple: A tax rate of 1.25 percent will raise nearly $1.1 billion.  But, the rate must change for every exemption or exception you add -- those who do not get the breaks will have to subsidize those who do.  In the Council debate earlier this year, the rate fluctuated between 1.25 and 1.78 percent, depending on the exemptions and exceptions included.


Bottom Line: It is likely that most homeowners in the city will be paying a higher real estate taxes, some of them significantly higher.  How many homeowners is hard to say. In 2002, the last time a city assessment was done, out of the 500,000-plus residential properties in the city, 300,000 had their taxes changed: 28,000 had them lowered; the rest saw increases ranging from slight to severe.

That reassessment resulted in 15,000 appeals -- a huge number, but one that is likely to be dwarfed by the number of appeals next year.

-- Tom Ferrick


Thumbnail image for 125 percent nabes.jpg


For more information about AVI and its effect on Philadelphia neighborhoods see our June story on the program.  It includes data by neighborhood as defined by zip codes. You can read the story here.





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