Inquirer Editorial: Don't jump the gun with AVI adjustments

Houses on Delancey Place near Rittenhouse Square.
Houses on Delancey Place near Rittenhouse Square. (AKIRA SUWA / Staff Photographer)
Posted: February 19, 2013

As Philadelphians receive new property assessments in the coming days, they will learn whether the city's Actual Value Initiative raises or lowers their property values and, as a result, their tax bills.

City Council is weighing a few ways to soften the blow for taxpayers, but it needs to be careful not to act prematurely. Wait until there is real data about who will be hit hard and who won't. Granting tax breaks now that could prove unnecessary or poorly targeted later would undermine the plan's goal of creating a fair, predictable, uniform tax system - probably for the first time in the city's history.

Preliminary information suggests most property owners are likely to see a slight increase or decrease in their property values and their tax bills. About 36,000 property owners may see tax bills go up by about $1,000.

Generally, the program will put a heavier burden on residential than on commercial properties, so Council has been debating the best ways to help homeowners. Everyone should pay close attention because these changes could affect each property owner differently.

Implementing the Council's previously approved homestead exemption would lower the most homeowners' property taxes, but it might also require a higher tax rate to avoid a drop in revenue that the city can't afford. The homestead exemption takes $30,000 off of a home's assessed value, the base figure used to calculate a property-tax bill. For a $100,000 house, the owner would pay taxes only on $70,000 of its value.

Council is considering a bill that would erase the exemption. Councilman Mark Squilla has instead suggested a 5 percent property-value deduction, which would effectively lower the tax discount for low- and mid-value homes and raise it for more expensive houses.

That may appease constituents in his First District, which has seen home values go up dramatically, especially in Fishtown, Northern Liberties, and the Graduate Hospital area. But it's not good for most of the city.

For example, the owner of a $100,000 home would pay taxes on $95,000 of its value with Squilla's 5 percent deduction. But under the homestead exemption's 30 percent discount, he pays taxes only on $70,000 of the home's value. Meanwhile, the owner of a $1 million home gets a $50,000 discount under Squilla's proposal, as opposed to $30,000 under the homestead exemption.

Because the homestead exemption would benefit the most property owners, Councilman W. Wilson Goode Jr. believes it could help build public support for AVI, a system that until now has been a mystery to most property owners because they don't know how it will specifically change their assessments and tax bills.

Overall, the new system is fairer because it bases assessments on a property's actual value. Under the old indecipherable assessment system, identical properties could carry vastly different tax bills.

No doubt the new system will need adjustments. But before Council and the Nutter administration commit to any further tinkering, they need to make sure they're not about to use an ax for a job that requires a scalpel. They need to make sure the number of property owners who need relief justifies alterations that could risk creating yet another unfair system.

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