Conflicted Council gives preliminary OK for property-tax overhaul

George Ricchezza, who heads the school employees' Local 1201, talks with school district employees during on recess from a City Council hearing Thursday at City Hall. ELISE WRABETZ / Staff Photographer
George Ricchezza, who heads the school employees' Local 1201, talks with school district employees during on recess from a City Council hearing Thursday at City Hall. ELISE WRABETZ / Staff Photographer
Posted: June 08, 2012

IS A NEW property-tax coming to your home very soon?

A conflicted City Council Thursday night gave preliminary approval to Mayor Nutter's plan to overhaul the city's property-tax system. The legislators also appear ready to provide $85 million to the embattled school district through two separate revenue measures — close to the $94 million sought by the mayor.

But the budget plans — which received split committee-level votes from members — could still change before Council gives final approval to the legislation, which could happen as early as next week.

"It should not be construed that this will be the final vote," said Council President Darrell Clarke. "I don't want the headlines to say that certain things will be passed at the end of the process."

Nutter has proposed moving to a property-tax system that relies on market values — known as the Actual Value Initiative (AVI) — and collecting $94 million for schools in the process. Critics have called that move a backdoor tax hike; Nutter says he's merely capturing the increase in city property values.

Council's preliminary plan would bring in $40 million extra funding for the district through AVI and another $45 million by raising a business tax known as the use and occupancy tax, which taxes the square footage of the business portion of a property.

Finance Director Rob Dubow said the city was glad that the bills had received preliminary approval.

"Our primary goals are to get AVI implemented and to get additional funding for the school district," Dubow said, although he noted the administration would prefer the full $94 million.

Council members huddled in closed-door meetings for most of the day on Thursday before emerging about 8:30 p.m. to vote. They also kept their budget options open by giving preliminary approval to a proposal from Councilman Mark Squilla to maintain the current tax system for another year. Squilla said he had just four or five solid votes for the plan, but that he planned to keep lobbying colleagues.

A key reason Council is having a hard time reaching consensus is an ongoing debate over the total aggregate value of the city's property. Members this week said they were surprised to hear that Dubow thought a projection of $80 billion was accurate because they thought he had communicated a higher value was likely. Dubow said he has not given an estimated aggregate value to Council.

This matters to Council because the bigger the value, the lower the tax rate becomes. Councilwoman Maria Quinones-Sanchez said the lower numbers were worrying.

"We started with a base of $120 billion in net value; we went to $100 billion, then $80 billion and now we're at $78 billion. That creates a situation where the [rate] is now at 1.825 [percent] and some people are just very uncomfortable with that."

A key issue of concern for Council has been protecting homeowners from sticker shock if the city moves to AVI. It has given preliminary approval to an exemption that would reduce all homeowners' assessments by $30,000, as well as a gentrification protection that would cap bills for those who have been in homes for more than a decade and have a new assessed value that's three times the current assessment. With those protections in place, the tax rate would be 1.8 percent, said Dubow.

Council must finalize a budget by the end of June. They did not vote on any spending measures at Thursday's hearing.

Contact Catherine Lucey at 215-854-4172, luceyc@phillynews.com or follow @phillyclout on Twitter. Read her blog "PhillyClout" at phillyclout.com.

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