Phila. again considers selling property tax liens

"It's a step we can take without taking on an obligation ourselves and still get paid. It's a vehicle we have, and we should use it until we have a better one." - Bill Green, city councilman
"It's a step we can take without taking on an obligation ourselves and still get paid. It's a vehicle we have, and we should use it until we have a better one." - Bill Green, city councilman
Posted: October 25, 2013

Philadelphia hasn't tried to sell off its property tax liens since a complicated and controversial deal during the Rendell administration left many people sour on the tactic.

But now that the city has overhauled its property tax system - bringing renewed attention to its abysmal record of collecting those taxes - some proponents are trying to resuscitate the idea.

Selling liens against tax-delinquent property has been a popular strategy in recent decades for cash-strapped cities. It provides city officials with money upfront while handing debt collection over to private companies.

Supporters hail the sales as a near-panacea for Philadelphia's chronic tax-collection ills. Critics describe them as poor public policy and warn of questionable tactics of collection agencies.

A bill City Councilman Bill Green has sponsored that is up for final approval Thursday would set some new parameters for lien sales.

To be sure, Council members may not have the last word. The city already has the option of selling the liens. The Nutter administration's Law Department has opined that Council has no authority over such sales and that Green's bill would have "no legal effect."

But Green, who wants to advance the idea, says he hopes the bill at least would spur the city to consider using this tax-collection "tool."

"It's a step we can take without taking on an obligation ourselves and still get paid," he said. "It's a vehicle we have, and we should use it until we have a better one."

He estimated lien sales could be worth $50 million to $60 million annually to the city.

"That's meaningful money that's available every year," Green said.

At a recent Council committee hearing on the bill, Revenue Commissioner Clarena I.W. Tolson was open to the idea.

"By including the private sector into the mix . . . we believe the bill enhances the collection process," she said.

A request to interview Tolson to seek more details of the administration's thinking drew a general response from Mark McDonald, Mayor Nutter's spokesman: "It's a tool that we will use when and where appropriate in efforts to enhance our tax-collection activities."

The sooner the better, says Allan Domb, president of the Greater Philadelphia Association of Realtors and perhaps the biggest local advocate for tax lien sales.

Domb told the Council committee the city should use such sales not only for back property taxes, but to go after unpaid use-and-occupancy and liquor taxes, as well as delinquent water and gas bills.

Domb said he met last week with Tolson, Finance Director Rob Dubow, and the city's chief collection officer, Tom Knudsen, and found them "very receptive" to the idea of a lien sale.

"I left the meeting feeling very encouraged," the real estate broker said.

Green, too, said he was "confident" the administration would go forward with lien sales for delinquent taxes owed on commercial, industrial, and speculator-owned properties - but not owner-occupied homes.

The impact of lien sales on residential neighborhoods is a concern for critics. At the committee hearing, Councilwoman Jannie L. Blackwell predicted doom for some neighborhoods if tax liens on private homes were sold to collection agencies.

"Bills like [Green's] . . . invite outside investors and developers to come in and just buy up all our neighborhoods," she said. "I find it very dangerous."

Tolson, the revenue commissioner, tried to reassure Blackwell.

"I have no interest in trying to deliver Philadelphia taxpayers to the bogeyman to be taken advantage of," she said.

Frank S. Alexander, a professor of real estate law at Emory University in Atlanta, says cities often see tax lien sales as "a quick, easy solution," but they do nothing to address the underlying problems of tax delinquency, blight, and abandonment.

Private companies that buy liens on vacant and abandoned properties often have as little luck as cities in collecting the taxes, Alexander said. And by selling the liens, the city loses control over properties that could be part of a larger redevelopment strategy.

That's what happened in 1997, when the Rendell administration used $106 million owed in back taxes as collateral to borrow $75 million for the schools and economic development projects. Private collection agencies had trouble collecting the taxes, and the city defaulted on more than $46 million worth of bonds in 2004.

Meanwhile, the city lost control of thousands of blighted and abandoned properties. When Mayor John F. Street launched a fight against blight in 2001, the city had to buy back millions of dollars' worth of liens to assemble properties for redevelopment.

Beth McConnell, policy director at the Philadelphia Association of Community Development Corporations, cited those problems last week in a letter to Council. She said lien sales can prevent "the city from getting the parcels into the hands of responsible new owners for far too long."

She also noted that a renewed interest in lien sales comes with the city on the cusp of creating a central land bank, designed to acquire vacant and tax-delinquent properties and get them back into productive use.

The Rendell-era deal was far different than any of the possible lien sales Tolson and Green have envisioned. But critics still warn of turning over an essential government function to the for-profit sector.

Even for delinquencies that are more easily collectible, Alexander said, private agencies are happy to drag out the process, running up interest on the owners.

"They are in no rush to get their money back until they have to," he said.

McConnell simply argued that if a debt is collectible, "the city should be able to collect it."


BY THE NUMBERS

102,789 - Number of Philadelphia properties with delinquent taxes as of April 2012, according to a Pew Charitable Trusts study published this year.

$515.4M - Total of delinquent taxes, interest, and penalties owed to the city and School District on those properties as of April 2012.

$155M - Minimum amount the study estimated the city could collect. Much of the uncollectible tax debt is on abandoned or vacant properties, and many of the owners are bankrupt or dead, the study found. Many properties are in low-income areas where taxes and penalties owed on a home exceed its value.

$50M-$60M - City Councilman Bill Green's estimate of what the city could take in annually by selling its tax liens to private collectors.


tgraham@phillynews.com

215-854-2730

@troyjgraham

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