Mayor Nutter and City Council are being lauded for their effort to overhaul the outmoded property tax system. While the stated goal of making property taxes fair and equitable makes sense, be careful what you wish for. It is entirely possible that the property tax overhaul could take things from bad to worse.
That’s because no one at City Hall has taken the time to examine the policy ramifications of such a sweeping change. Forget that Nutter has slipped yet another property tax hike into the overhaul. Put aside that Council is getting ready to approve the overhaul without knowing key details, including the total value of all the property in the city.
The total value is only needed to set the millage rate, which will determine everyone’s tax bill. But the value isn’t known because the city hasn’t completed all of the property assessments. Details, details. Since Nutter and Council don’t know such basic answers, it is difficult to have much confidence that they have thought through the broader impact of the overhaul.
Serious questions abound: Will the property tax overhaul cause homeowners on the receiving end of big hikes to move out of the city, thus creating a housing glut and further driving down home prices? Will the overhaul stop the gentrification in many burgeoning neighborhoods? Could it force longtime residents and those on fixed incomes to have to sell their homes? Will higher bills mean fewer people pay their property taxes, resulting in less revenue for city coffers?
This much is certain: For every action, there is always an equal and opposite reaction.
For years, the city has practically taxed itself out of business, most notably the job-killing wage tax that was initially supposed to be a temporary measure. Years of steady tax hikes and sweetheart public sector union contracts brought the city to the brink of bankruptcy under former Mayor Wilson Goode. Mayor Ed Rendell’s reforms and tax cuts helped balance the books and revitalize the city. Nutter ended the tax cuts and has raised taxes every year he has been in office.
As it stands, Philadelphia’s overall tax burden remains one of the highest in the country. But through all of the ups and downs, the city’s one competitive advantage has long been that its property taxes are lower than the surrounding suburbs.
That has been a big selling feature for many young families and empty-nesters who have been lured to the city in recent years. Of course, the low property taxes come with a big caveat: The city’s schools suck and are unusable, except for a few quality magnate schools like Masterman. (The argument that more money will fix the schools is a joke. The district received huge budget increases when Rendell was governor and is now essentially bankrupt. Even today, the district spends more than $2 billion and produces mostly violence and failure.)
However, the unwritten deal has been that the city maintains lower property taxes than its neighbors, but many residents must pay for private school tuition. But under the proposed move to the Actual Value Initiative, many city residents are going to get socked with huge property tax hikes of 100 percent or more. The argument is that those homeowners have been getting a good deal and now it is time to pay up. Perhaps, but that misses the larger point.
For starters, it is not the homeowners’ fault. Indeed, homeowners should not be penalized for the city’s uneven tax system. In City Hall’s drive to make property taxes “fair,” how fair is it to stick thousands of homeowners with steep property tax hikes? Especially in a sluggish economy with stagnant wages and declining home values.
More to the point, how will AVI impact the city’s housing market? It is safe to say that not many families will pay Lower Merion property taxes for Philadelphia schools. If that is the case, might as well move to Lower Merion.
As such, look for lots of homes in stable neighborhoods to go up for sale. That will create an oversupply, which will further depress prices. In fact, the higher property tax bills will automatically make homes less valuable.
In short, the move to AVI could make owning a home in Philadelphia akin to living in the Hotel California: “You can check out anytime you like but you can never leave.”