A new report highlights the difficulties faced by public officials worried about the impact of property tax reform on gentrifying neighborhoods, which are likely to bear the brunt of the city’s planned Actual Value Initiative.
“Gentrification is a big concern in a lot of neighborhoods,” said Emily Dowdall, one of the report’s authors. The report noted that “some of the most dramatic tax increases … are likely to come in neighborhoods where wealthier residents have been moving into new or rehabilitated properties.”
In those neighborhoods, property values have been pushed up by rising prices — which will probably mean higher taxes for long-time residents.
Other cities, most notably Chicago, have avoided the same problem with tax exemptions or caps for long-time residents. In Chicago legislators created an exemption for long-time homeowners — those who owned their property for more than 10 years — with an income of less than $75,000.
But, according to Dowdall, Pennsylvania law prohibits the same sort of thing here because it does not allow local lawmakers to create an exemption tied to income. The report notes that the state legislature has made an exception to the state law in Allegheny County, so there is a precedent for a similar exemption in Philadelphia.
Other cities — like Baltimore, Md., and Washington, D.C., — have implemented what are called circuit breakers, programs that trigger certain tax breaks below an income threshold. Philadelphia already has a program for low-income seniors, which freezes their tax bills. Expanding those kinds of program in Philadelphia would be difficult until state law is changed.
One of the most common ways other cities have dealt with reform is to enact a homestead exemption.
Plans in Philadelphia already include a $30,000 exemption that would allow property owners to subtract $30,000 from the value of their home for tax purposes.
The report, released Wednesday by the Pew Charitable Trust’s Philadelphia Research Initiative, reviewed the history of the Actual Value Initiative in Philadelphia, the city’s difficulty in reform and how other cities have handled similar reform measures.
It did not include predictions about the overall impact on property tax bills.
“The bill will depend on the new rates,” Dowdall said. “And city council will have to set a new rate. The rate will be affected by the total amount of the budget, and any relief programs that council enacts.”
That uncertainty has fueled opposition to reform.
Administration officials declined to estimate how overall property taxes would be affected when Mayor Michael Nutter unveiled the plan in March. They would say only that taxes for some would go up and for some would go down. That uncertainty remains. It is part of the reason the shift to AVI has faced such fierce opposition in city council.
However, council has promised to implement AVI in time for the next budget.
Property taxes in Philadelphia are lower than property taxes in other cities, with an average per capita of $726 a year, compared to $970 in Los Angeles, Calif., $1,181 for Chicago, $1,191 for Pittsburgh and $1,631 for Baltimore.
Of those cities, Philadelphia has the highest rate of homeowners –at 54 percent.
By way of comparison, only 34 percent of Angelinos own their own homes, 44 percent in Chicago, 48 percent in Baltimore and 49 percent in Pittsburgh.
According to the report, property taxes generate about 14 percent of the city’s revenue compared to the wage and net profits tax, which generates about 42 percent of city revenue. Of that total, 56 percent of property tax revenue comes from residential property.