Focus: Real Estate Tax Reform

FOCUS ON REAL ESTATE TAX REFORM

While the city has adopted the Tax Reform Commission’s recommendation to dramatically reduce the oppressive Wage Tax in future years, improvements to make real estate taxation in Philadelphia fair and understandable remain elusive.  This city cannot thrive if its system of real estate taxation exists as a barrier to growth. 

Consider the facts:

• Philadelphia's property assessments do not meet industry standards for accuracy and Philadelphia assessments are less accurate than comparable cities.
• The assessment inaccuracy is highly regressive as homeowners in low-income neighborhoods pay more than their fair share while homeowners in upper-income neighborhoods pay less than their fair share.
• Philadelphia property values have not increased at the same rate of the regional or national average so purchasing a home in Philadelphia is a less attractive investment.
• Property values in Philadelphia lag behind those in lesser cities like Baltimore, Hartford, Newark, and New Haven.
• In Philadelphia, those who improve their properties face higher tax bills, while those who allow their buildings to deteriorate receive reduced assessments. 

A crucial part of the Commission’s blueprint for change is the reform of the real estate tax system.  Today, real estate taxation is unfair and inaccessible: 

• Unfamiliar concepts and complex formulas involved with real estate taxation make it hard for the average homeowner to understand how their tax bill is calculated. 
• An agency that is not appointed by the Mayor or City Council is responsible for determining the value of properties and listing to appeals by homeowners who disagree. 
• Increases in a property’s value for tax purposes in a single given year may be outrageous, but, because the value is set after the tax rate, the city’s elected officials can do nothing to address the resulting tax burden until the following year. 

Thanks to policy changes that adopt certain Tax Reform Commission recommendations, the Board of Revision of Taxes (the agency that assesses city properties for tax purposes) will make major strides toward assessing all city properties accurately and fairly.  But, we must still work to enact many complementary recommendations designed to improve the overall fairness and workings of the Real Estate Tax system. 

The Tax Reform Commission proposed a series of recommendations to create an equitable and understandable tax structure:

• Phase in land-value taxation to decrease tax rates on structures and increase tax rates on land so that the City provides an incentive for economic development and a disincentive to blight creation and speculation. 
• Separate the property assessment and appeals process so the assessing agency does not judge its own work. 
• Establish a taxpayers’ advocate to represent taxpayers in matters regarding real estate assessment and appeals.
• Implement a property tax buffering program so that assessments are based on a rolling, three-year average to prevent one-time spikes in Real Estate Tax bills. 
• Implement a system of budget-based property taxation so that City Council sets tax rates after it knows the true assessed value of the city; currently, Council sets tax rates before assessments are performed so increases in assessments can result in increasing tax bills and fiscal windfalls for the city. 
• Implement a quarterly payment plan so taxpayers who do not pay taxes through their mortgage companies do not have to assemble the cash to make their tax payment on one date.
• Apply tax payments to the current year’s tax liability so that delinquent taxpayers who are making tax payments can qualify for state assistance. 

The time for study is over.  The time for action is now.