When Mayor Michael Nutter presented his annual budget in May, accompanied by his Five-Year Financial and Strategic Plan which covers FY 2014-18, it received relatively little blowback, save for outcries regarding education funding and the arbitrator-award settlement with the Philadelphia Fire Department.
Among those to break ranks is City Controller Alan Butkovitz, who this week released a comprehensive response to the Nutter’s two financial plans. While noting that Butkovitz is generally pleased with the plan overall, the controller did find some points that either require clarification or official attention.
Nutter has five distinct goals for his five-year plan. They include: transforming Philadelphia into one of the nation’s safest cities, improving the health and education of residents, evolving the city into more of a destination city, continuing and improving upon the city’s “greening” initiatives and, finally, improving the efficiency and transparency of city government. Tellingly, real estate tax reform was not among the goals.
Butkovitz’ main issues revolve around the assumption the city will realize $536.6 million in property tax revenues for FY2014 and an additional $2.3 billion over the duration of Nutter’s plan. That the city will depend on the controversial Actual Value Initiative — AVI, the new formula the city and Office of Property Assessment are using to value residential properties — is a mistake to Butkovitz, especially considering that “revenues may not be fully realized” because it’s difficult to estimate the extent of tax appeals.
“While our independent report indicates that the city’s presentation of the plan is reasonable, the plan includes particularly sensitive assumptions which the Pennsylvania Intergovernmental Cooperation Agency should consider when assessing the plan,” said Butkovitz, who also took issue with exclusion of $90 million in “fringe benefit costs” related to the four-year interest on the arbitration award to the fire department, nor for the city’s apparently escalating offers to labor unions District Council 33 and District Council 47. “I strongly urge PICA to be vigilant in analyzing and evaluating the impact of these assumptions on the plan.”
When reached, the Nutter Administration declined an opportunity to comment for this article. However, Nutter made clear his real estate taxing scheme in the five-year plan.
“The Administration is proposing to collect the same amount of current year revenue in FY14 as was collected in FY13; therefore a lower tax rate needs to be set to collect the same amount of revenue. The Administration is proposing a combined city/school district property tax rate for FY14 of 1.3204 percent, down from 9.7710 percent in FY13 in order to generate the same current year revenue in FY14 as in FY13. The city portion of the tax is proposed to be 0.6029 percent (down from 4.4620 percent in FY13) and the school district portion is proposed to be 0.7175 percent (down from 5.3090 percent in FY13),” read a portion of Nutter’s plan. “The proposed rate is set to ensure that AVI collects the same amount of current year revenue in FY14 and FY14. Nonetheless, there will be changes in property taxes for many individual property owners.
“Under the old assessment system, some properties were valued closer to their actual value than other properties. Properties that had been valued closed to their actual value will see smaller increases in assessments and when those assessment changes are coupled with the much lower proposed property tax rate, they will produce tax decreases. On the other hand, properties that were relatively undervalued will see increases, a small percent of which could be substantial,” the plan continued. “In order to mitigate the hardship that could be created by those large increases, the Administration is proposing a homestead exemption of $15,000 for all property owners and relief measures equal to $30 million. The proposed new property tax rates take into account these relief measures. The estimated current property tax revenue for the city is projected to be $500.1 million in FY14 (excluding delinquent collections), the same amount as in FY13.”
Nutter’s plan did address funding for the School District of Philadelphia, noting that the city, under Act 46, has to maintain an annual contribution, which is set at $69 million.
“FY12 and FY13 were challenging years for the School District of Philadelphia. Federal stimulus money, which had provided much needed support to local schools in FY10 and FY11, has ended. Pennsylvania decreased its basic education and other funding to local school districts, including Philadelphia, which saw its revenues decrease by the hundreds of millions of dollars. The district was forced to make significant budget cuts and closed down eight schools in the summer of 2012 in order to begin to right-size the district, which has approximately 70,000 few children enrolled now than it did a decades ago. Earlier [in March], the School Reform Commission voted to close an additional 23 schools. The District’s financial challenges are so large that it had to borrow $300 million from the bond market to cover operating expenses in FY13.The commonwealth has continued to cut funding, including significant cuts to adult literacy funding. The district is projecting to receive $839 million in FY13 in local tax revenue, up from $828 million in FY12 and $768 million in FY11,” read Nutter’s plan. “In addition, in FY13, the city contributed $69 million to the district, a $20 million increase over the FY12 contribution as a result of an increase in the real estate tax rate from 4.12 percent to 4.46 percent. This tax increase was applied only to the city’s portion of the real estate tax, and the funds generated by the increase were transferred to the district. Funding for the Community College in FY13 was almost $1 million higher than FY08’s level. The proposed FY14 budget includes an additional $1 million to help offset tuition increases to keep higher education affordable to citizens of this city.”
Butkovitz remained uneasy with the Nutter’s administration’s take on AVI and the budget in general, so much so that the controller sent a letter to PICA outlining these very concerns. Butkovitz also placed at least some of the blame with Harrisburg.
“Anticipated funding from the Commonwealth of Pennsylvania has fallen short of the amount requested and negotiations with the school district labor unions are still ongoing. Additionally, expected funding from the city has fallen short because it is contingent upon the commonwealth’s approval of an increase in the cigarette tax,” read Butkovitz’ letter. “I urge PICA to be cautious when reviewing the plan because of the unpredictability of the assumptions and uncertainties, and because as with any forecast, events and circumstances frequently do not occur as expected.”
Contact staff writer Damon C. Williams at (215) 893-5745 or email@example.com.