The city’s move to base property taxes on the actual value of a property rather than a millage based assessment will hit gentrifying neighborhoods the hardest, the head of the Office of Property Assessment told members of City Council this week.
“When you have neighborhoods that are evolving, some of the younger, yuppie individuals will buy the most basic house, almost literally in shell condition, just because they want to get in,” Richie McKeithen, head of the assessment office told Council members during budget hearings on Wednesday. “That’s how neighborhoods increase in desirability and increase in valuation.”
The price new buyers pay for their home will ultimately serve as part of the basis for their neighbors’ tax bills. Under the new system, called the Actual Value Initiative, property taxes will be driven by recent sales of comparable properties and demand in individual neighborhoods. Other factors, like size and condition, will also affect tax bills.
But, with sales value playing a larger role in determining property taxes, longtime residents could face large increases in their tax bills.
“We’re going to really hurt some folks who have not moved out of the city, not moved to southern New Jersey, not moved to Delaware County,” said Councilman Jim Kenney. “They’re going to get this bill in the mail that it is going to knock them off their kitchen chair.”
Politically, the issue is complicated by the fact that many new homeowners can avoid paying property taxes for 10 years under the city’s tax abatement rules — pitting new residents against old.
“I don’t want to chase folks out of town because certain neighborhoods are doing better than they have done in the past 20 years,” Kenney said.
It is a scenario that has many Council members, some of whom have agreed to tax increases in each of the last three years, worried as they face their confused and angry constituents. Council members are also frustrated by the fact that they have so little information for their constituents.
City officials have repeatedly said they hope to have assessments on paper and mailed to residents by October, with new bills out by December.
But, Council has to approve a budget based on revenue figures linked to new assessments by May, long before the administration hopes to have a handle on just which direction property taxes are moving.
“There is significant concern about wrapping up this process, from Council’s perspective, without a real sense of the actual values and what we’ll ultimately be voting on,” said Council President Darrell Clarke.
Council members have been pressing the administration for new assessment numbers as soon as possible. McKeithen said this week he hoped to be able to provide data snapshots of certain neighborhoods by May, then added, “That depends on what happens. I oftentimes run into roadblocks, so it’s hard to commit.”
Most sources expect a rise in values, despite the recession.
In putting together the fiscal 2013 budget, the administration assumed, overall, a 25 percent increase in values since assessments were frozen in early 2010. That rise in value translates roughly to an 8 percent increase in taxes for the average homeowner. Administration officials have stressed that some residents could see their taxes go down.
Finance Director Rob Dubow said the administration would put together numbers that reflect market values and average assessed values for neighborhoods across the city, which can serve as an indicator of what residents might expect.
“That won’t be exactly what happens with assessments, but it will give you some general idea,” he said.
The administration has taken steps to try and ease the pain of new tax bills, Dubow said, noting that it plans to implement a “smoothing process” which will allow taxpayers to stretch payments on their new tax bills out over the next three years. Administration officials are also hoping to enact a homestead exemption that would allow residents to cut $15,000 off their property tax bill for their primary residence. There is some uncertainty as to whether or not that will happen, as it requires the approval of the state legislature. A bill is pending in Harrisburg, but it’s unclear whether it will pass.
“We’re happy to talk about other possibilities that could help with these issues,” Dubow told Council members.
Though there seems to uniform agreement among council members, Mayor Michael Nutter and members of the administration that an overhaul of the property tax system is necessary, Council and the mayor have been sparring over when and how to implement a new system.
Administration officials want to have the new system in place by the end of the year. As Nutter put it recently to reporters: “It’s time to bite the bullet.”
Some Council members want to wait until next year to move on actual value, putting off any decisions until Council has time to see and digest all the information relating to the new values.
“There has been no analysis done in terms of what the impact might be in Philadelphia,” said Council President Darrell Clarke. “I’d be interested to know that.”