Wrecking ball A tax-lien sale from years ago comes back to haunt antiblight plan.

Posted: July 19, 2001

During a lazy July, try arousing public interest in a flawed sale of city tax liens launched by the Rendell administration. Riveting, eh?

Maybe the Casey for Governor campaign cares. Anybody else?

Well, maybe you should. Here's why: These thousands of tough-to-collect tax liens might sidetrack Philadelphia's long-awaited, urgently needed antiblight program.

Those are high stakes for the entire region, given how much it depends on the city's livability. The short list of issues in play includes saving the public schools, halting the exodus of taxpaying city residents to sprawl-frazzled suburbs, and securing City Hall's fiscal stability so it can keep trimming the hated wage tax.

So the latest troubling assessment of the tax-lien program warrants a collective groan.

Not too much background is needed, or even wise. (Hey, it's summer.) In short, the city reaped a $70 million windfall in mid-'97 by selling bonds backed by $106 million in past-due real estate taxes. All the city's collection agents had to do to pay off the bonds was collect on those taxes.

Turns out it wasn't so easy to replicate the success of Jersey City Mayor Bret D. Schundler and others who pioneered this notion of bundling tax liens into a money-raising asset.

Problem one: Millions remain uncollected, with the real prospect the city could default on its bonds.

Philadelphia needs such a body blow to its Wall Street credit rating like, say, it needs its $216 million school budget deficit. (Given how Mayor Street and Gov. Ridge are chatting today about the latest school funding mess, it's ironic that more than half the tax-lien proceeds went to the schools as part of a previous baling-wire-and-chewing-gum fix of the school deficit.)

Problem two: Team Street's anti-blight crusade anticipates leveling entire blocks of vacant houses to prepare parcels for development. But many of those blighted properties are the same ones that have unpaid taxes.

That presents the absurd prospect of city taxpayers having to pay off city tax liens that they've already sold - so that they can tear down the properties on which the taxes are owed. This could sap the already limited resources for the blight plan.

Some lessons seem clear, at least in hindsight. While this program received broad initial support - including from this Editorial Board - it turns out that not every new flavor of the month in urban financial rescues travels well. The refusal of then-Councilman Street to include properties in his North Philly district in the sale looks prescient now.

What went wrong? With every good intention, the city stampeded many tax-delinquent property owners to settle up under a one-time amnesty program just prior to the tax-lien bond sale. That brought in money, but it meant the sale's pool of liens was heavy on hard-core tax deadbeats.

Sure, someone should be held accountable for this miscalculation. But former Rendell chief of staff David L. Cohen contends the blame would be widely shared. Says Mr. Cohen, "The rating agencies missed it, the underwriters missed it, the insurer missed it, and the city missed it."

Now the city's best hope is to swap tax liens from elsewhere in the city for those of properties that lie in the path of the blight-removal effort. Beyond that, the insurer of this deal should help craft its rescue. And for the city's next financial fix, no more long shots.

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