Property-tax delinquents owe city, schools $515.4M.

Mayor Nutter, shown during this year’s budget address, has proposed a tax increase to help the Philadelphia School District close its budget gap. AKIRA SUWA / Staff Photographer
Mayor Nutter, shown during this year’s budget address, has proposed a tax increase to help the Philadelphia School District close its budget gap. AKIRA SUWA / Staff Photographer
Posted: June 11, 2012

Patrick Kerkstra is a freelance journalist and former Inquirer staff writer.

Philadelphia property-tax delinquents piled up an additional $43.8 million in new debt over the last year, increasing the total amount owed to the city and School District to $515.4 million, an increase of 9.3 percent in a single year, city records show.

There are now about 103,000 tax-delinquent properties in Philadelphia. About 18 percent of all parcels in the city are in arrears. As documented in an Inquirer/PlanPhilly series in August, no other big city in the nation approaches that level of property-tax delinquency.

Past-due property taxes have long been a contentious issue in Philadelphia, but the growing pot of delinquent cash has attracted more attention than usual in recent months.

That's because City Council and Mayor Nutter have enacted two straight property-tax hikes in two years, and are considering a citywide property reassessment that would collect an additional $94 million. Meanwhile, the School District of Philadelphia, which relies on property taxes for 80 percent of its local funding, is in the midst of perhaps the worst financial crisis in its history.

The School Reform Commission, Council members, activists, and residents have been clamoring for the city to do a better job of collecting delinquent property taxes, both to throw a lifeline to the schools and to limit tax hikes on the majority of property owners who pay their share.

"The numbers speak for themselves. It's ludicrous: half-a-billion in revenue still on the table, and more of it every day," said State Sen. Michael Stack (D., Phila.), one of a growing number of critics.

The Nutter administration has heard the complaints.

"The Revenue Department is not insensitive to the shortcomings of the present real estate tax-collection system, and over the past few years, we have taken steps to improve that system," revenue commissioner Keith Richardson said during City Council testimony last week.

By some measures, the situation is improving. The city is on track to meet its budgeted delinquent-collection goals. And the administration has reduced the number of delinquent accounts by more than 8,000 in a single year.

But by the most critical and basic standard — the total amount owed the city and schools — the delinquency epidemic continues to grow, as it has throughout Nutter's administration. An Inquirer/PlanPhilly analysis of city records shows that between 2009 and April 30, 2012, the debt owed by property-tax deadbeats, including principal, interest, and penalties, has increased by 21.3 percent, from $425 million to $515.4 million.

"They're not even treading water. They're falling behind," said Councilman Bill Green, who has proposed a bill that would overhaul the way the city collects delinquent property taxes.

The Problem

Mass property-tax delinquency has been the norm in Philadelphia for at least 20 years. And in their more candid moments, city officials suggest that may always be the case.

"This is a very poor city, and there are a lot of areas with a lot of tax delinquencies," said Frances R. Beckley, chief counsel to the Revenue Department. "There's a chunk of this, that, if you were to be realistic, you're never going to do anything with."

Yet no other big city, including communities with far worse poverty rates, such as Detroit and Cleveland, has a delinquency rate as high as Philadelphia's.

Elsewhere, delinquent property owners are given a hard deadline, typically no more than a year or two, to settle their accounts. If the deadline passes without a resolution, delinquent property owners often automatically lose their land, usually at sheriff's auction or to a government-run land bank.

But in Philadelphia, many tax-delinquent properties are left to languish for years, even decades, without being subjected to meaningful enforcement action. The average amount owed on tax-delinquent properties is $5,000, and the typical delinquent is seven years past due. More than 13,000 properties are 15 or more years behind, including more than 2,100 parcels that are at least 30 years delinquent.

The effects of so many long-term delinquencies go beyond lost revenue. Tax-delinquent properties are at least 4.5 times as likely to be vacant as properties whose owners are current on their taxes, a recent Inquirer/PlanPhilly analysis of public data found. And vacant properties spread blight, depress property values, and cost the city millions annually in maintenance.

Potential Fixes

Harrisburg and City Council are considering bills that would reinvent the city's system for collecting delinquent taxes. The proposed reforms would compel the city to foreclose on delinquent properties after one year of nonpayment. The parcels could be sold at sheriff's auction or put in a land bank (which would require additional legislation also under consideration at the city and state levels). The locally drafted ordinance would also make it easier for tax delinquents to get into compliance through payment plans.

Councilman Green, who is co-sponsoring the overhaul with Councilwoman Maria Quiñones Sánchez, said the system needs certain and hard-and-fast rules.

In the administration's view, Green's bill combines a too-lenient payment plan with an overly harsh crackdown on those who can't or won't pay. City officials also worry about the city's legal exposure if it were forced to bank tens of thousands of delinquent properties, many of which are vacant, that nobody wanted at sheriff's auction.

That reasoning aggravates land-bank supporters, who contend that the city is responsible for the problems delinquent parcels create, regardless of who formally holds title.

"When people look at a vacant house, they see it as the city's problem," Sánchez said.

Where the private market is weak, "the city should be acquiring these abandoned delinquent properties, clearing titles, and creating an assemblage that could lead to faster development," Sánchez said.

This redevelopment-centered approach to delinquency enforcement runs counter to the Nutter administration's view.

"We don't think being the largest owner of delinquent property should be the goal," city Finance Director Rob Dubow said, noting that the city already owns more vacant land than it can manage. "Our goal here is to get paid."

To that end, the administration has a series of new initiatives under way or in the works, including:

A bureaucratic reshuffling designed to give one department — Revenue — clear responsibility for delinquencies.

Hiring a second collection agency to pursue delinquent properties.

Targeting landlords with multiple delinquencies for aggressive enforcement.

Prioritizing nuisance properties for sheriff's sale and denying problem landlords the convenience of payment agreements.

Earlier dunning of property owners, starting with a phone call shortly after payment is due (March 31).

But the city's claims of progress are hard to reconcile with the fast-growing debt ($43.8 million in a single year) property-tax delinquents owe.

Asked what was preventing the city from doing more, Richardson said the delinquency pool was not as large as it seemed. For instance, more than 10,000 properties are caught up in bankruptcy proceedings, and thus cannot be foreclosed upon, he said. And 11,000 are subject to payment plans.

That leaves about 80,000 properties for the city to go after.

Contact Patrick Kerkstra at patrick@patrickkerkstra.com or follow on Twitter @pkerkstra.

A searchable interactive map of the city's delinquent properties is at philly.com/delinquent2012

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