Philadelphia Council opts to raise business and property taxes

Posted: June 23, 2012

City Council moved ahead Thursday with a budget deal that collects $40 million more for the nearly insolvent School District by raising a tax unpopular with businesses and hiking property taxes for the third year in a row.

The actions also bring an end to Mayor Nutter's drive this budget season to institute the property-tax effort known as the Actual Value Initiative (AVI). Council's property-tax legislation sets the tax rate, or millage, using the current system.

The Use and Occupancy tax on businesses would increase roughly 19 percent, and property taxes would go up 3.6 percent, adding $49 to the average annual tax bill of $1,358.

Each proposal would generate $20 million for the schools.

The Use and Occupancy bill faced stiff opposition from the business community, and the legislation was considered on shaky ground for much of the last two weeks. Council President Darrell L. Clarke said support coalesced only in the final hours of negotiating.

"There was a lot of lobbying against this particular vote," Clarke said. "But members of Council stepped to the plate to ensure that we will be able to send some revenue over to the School District of Philadelphia."

The bill passed, 11-6. Voting against were Democrats Bill Green, James F. Kenney, and Marian B. Tasco, and Republicans Dennis O'Brien, Brian O'Neill, and David Oh.

Joseph Mahoney, executive vice president of the Greater Philadelphia Chamber of Commerce, said the organization was disappointed that Council passed the Use and Occupancy tax hike and failed to support AVI.

"We thought that real estate was the right way to go, because anything for the School District should be broad-based," Mahoney said.

Under AVI, many commercial and industrial properties were projected to have a reduction in taxes because they have been historically overassessed.

Council made technical amendments to its property-tax plan, which meant a vote could not be taken. But, as Clarke said, "whatever we did today is it." Members would have to pass that bill next week to meet the city's June 30 budget deadline.

The $40 million would fall far short of Nutter's goal of collecting $94 million for the schools through the changeover to AVI, a system that would tax properties based on their actual market value.

Nutter predicted "real fallout" for a school district already facing a $218 million deficit, including "significant negative cuts that will affect classrooms."

He would not say whether he would sign a budget package that included only $40 million for the schools. He called the school deficit and AVI "two big challenges, two things that, quite honestly, have not been taken on in the past."

"It's a heavy lift," he said. "These are tough circumstances, very complicated and detailed work."

Pedro Ramos, chair of the School Reform Commission, said Council had "moved in the right direction" by passing the Use and Occupancy tax hike.

"We're hopeful that next week it could be back up to $94 million, where the mayor proposed and where we budgeted," he said, though his goal does not seem possible given Council's legislative schedule.

Council's property-tax legislation says the city will switch to AVI for the next fiscal year, after a citywide reassessment key to instituting AVI is completed.

Clarke said that Council was committed to AVI but that members weren't comfortable moving ahead without the data necessary to predict AVI's impact on property owners and to craft relief measures for those facing the biggest increases.

"This particular proposal just wasn't ready," Clarke said. "This is too important an issue . . . not to get it right."

Passage of Council's property-tax bill nonetheless memorializes two years' worth of previous tax hikes that were billed as temporary when they passed - a two-year 9.9 percent hike passed in 2010 and a 3.85 percent hike in 2011.

The three combined tax hikes will leave taxpayers with a bill that is 18 percent higher than their 2010 taxes.

By not switching to AVI, the city remains stuck with a system widely recognized as broken and inequitable. Property-tax appeals will cost the city and School District millions this year, and the administration predicts even more dire consequences from appeals next year.

City Finance Director Rob Dubow said that he would have to lower the city's revenue estimates by "tens of millions of dollars," and that the district could lose more in appeals than the $40 million Council will provide.

The administration is supporting two measures in Harrisburg - one that would give the city a year of relief from property assessment appeals, and another that would allow the city to reopen its budget and reset the millage rate once the citywide reassessment is completed in the fall.

Nutter said the idea of resetting the millage was proposed by a member of Philadelphia's statehouse delegation, and he viewed it as a "backup plan" in case Council's bill faces a legal challenge.

Contact Troy Graham at 215-854-2730,, or follow on Twitter @troyjgraham.

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