When city tax hike ends, reassessments will keep the cash rolling in

Posted: March 22, 2011

Even after the city's two-year property-tax increase expires next year, city officials expect property owners to keep giving just as generously as now.

It's all there in Mayor Nutter's five-year financial plan, which shows how the temporary 9.9 percent boost in the tax rate will end - and how a citywide property reassessment will keep the taxes coming in at the same rate.

What some critics are calling a "backdoor" tax hike is being defended by the mayor and City Council as a way to capture increases in real estate values.

It is almost certain to be a subject at Council budget hearings, beginning Tuesday with a hearing on the 2012-16 plan. The Pennsylvania Intergovernmental Cooperation Authority, the state-appointed agency that oversees city finances and approves or rejects the five-year plan, is also interested.

"I thought it was a little surprising to see it, and I'm sure we'll get at it," said PICA member Sam Katz, a former Republican mayoral candidate who recently was appointed to the board by Gov. Corbett. "It's just one of those red flags."

What's clear is that the Nutter administration and Council leaders quietly came to an agreement last year on how they would balance the five-year plan, even though Council members would not vote for more than the two-year tax increase at 9.9 percent.

After Council approved the increase in May, following a fierce budget battle, Nutter's finance gurus adjusted their revenue projections in the 2011-15 five-year plan.

The new plan showed an average of $86 million more in property taxes coming in - not for two years, but for five.

Last year's five-year plan, prepared before the increase, projected that the city would take in about $400 million each year through 2015. This current plan projects $487 million this year, with the total rising to $507 million in 2015-16.

The city overall raises about $1.1 billion in property taxes, splitting it with the school district, which gets 55 percent of revenues. All the temporary increase goes to the city; none to the schools.

Tax-policy activist Brett Mandel, who has sued the city to fix its broken property-tax system, accuses the Nutter administration of deception.

"Perhaps, then, the best accusation to level at our mayor and his 'budget' is that it puts forth a number of assertions that he wishes were true," Mandel wrote on his website March 8.

But Finance Director Rob Dubow says the city is simply accounting for the natural rise in the market value of properties.

"We're in the middle of a multiyear assessment freeze, and we haven't done a full reassessment since the middle of the last decade," Dubow said. "It's reasonable to assume that we'll have some growth when the freeze is lifted."

Council Majority Whip Darrell L. Clarke said the city was missing out on rising values under the freeze.

"It was anticipated that revenue growth in real estate value was comparable to the 9.9 percent increase," Clarke said. It was an easy lift for City Council, which does not have to approve the five-year plan.

Clarke said there was no support on Council for a permanent 9.9 percent increase, which would have better reflected the city's intention to collect property taxes at a higher level permanently.

Nutter and others have long derided the Board of Revision of Taxes for doing much the same thing that city leaders are doing now - adjusting assessments to meet a desired revenue goal.

Traditionally, the BRT reassessed properties based more on the mayor's need for cash than to fairly update assessments, leading to wild inequities. Assessments have become so skewed that they bear little relation to any rule or to comparable properties.

The system is so off that Nutter froze most assessments in January 2010 for up to two years while the city worked on citywide reassessment - the Actual Value Initiative (AVI).

Nutter appears intent on getting AVI up and running next year, and has proposed spending $4.4 million to hire extra assessors to do it.

The initial move will cause such dramatic shifts in tax bills that the city should not try to raise additional property taxes from one year to the next, many advocates of AVI argue. That's what Nutter is trying to do, before the tax hike expires.

His chief Council rival, Bill Green, said AVI must be revenue neutral.

"For it to be politically possible to accomplish," Green said, "we have to guarantee it's not a backdoor way to increase the cost and size of government."

When AVI comes on line, the tax rate will be adjusted downward to reflect higher property values. The new tax rate will be unrecognizable from the old millage rate, making it difficult for property owners to tell if a hike in their property-tax bill is due to a higher assessment or a higher rate.

That's not a bad thing for politicians.

One Council member, speaking on condition of anonymity, said there was a clear understanding that Council's vote for a temporary increase in the millage rate would be made up under the new assessment system.

"Everyone was clear that it was going to be rolled into AVI," the Council member said.

Contact staff writer Jeff Shields at 215-854-4565 or jshields@phillynews.com.


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