Who pays city property taxes?
Property taxes are paid by everyone who owns residential or commercial property in Philadelphia. This includes the land and improvements on the land (such as a home or garage), but does not include any personal property (such as your car).
Where do property tax dollars go?
Philadelphia has traditionally split property tax revenues 40/60 with the School District: 40% goes to the city’s operating budget and 60% to the public schools.
How are property taxes set?
How much you pay in property taxes is determined by a few factors. One is the value of your property. In Philadelphia, the value of all residential and commercial properties is determined by “assessments” conducted by the Office of Property Assessments.
What's another factor in how much I pay in property taxes?
The tax rate, which determines what percentage of the assessed value of your property you must pay in property taxes. As of January 1, 2012, the city’s property tax rate (also referred to as the millage rate) is 9.432%. To calculate how much you owe in property taxes, you multiply the assessed value of your property by 9.432%.
Does the rate figure into Council's decision about the reassessment process?
Yes, especially if the assessed value of your property goes up after the city’s reassessment process is finished (which the Office of Property Assessments says will be this fall). The higher the property tax rate, the more you will pay in property taxes. Council members don’t want to set a property tax rate before seeing what the reassessments for their constituents look like.
Are reassessments why I seem to be seeing more "for sale" signs?
It may be. People who are worried that the new assessments will significantly drive up their property taxes could decide to leave the city.
I keep hearing about something called "AVI." What is this?
For techies, AVI was a technology introduced by Microsoft back in 1992. But, for now, AVI stands for “Actual Value Initiative.” It is the name for the method being used by the city’s Office of Property Assessments to come up with accurate and fair assessments of the value of the 577,000 residential and commercial properties owned in Philadelphia. This process hasn’t been done for years, sometimes for decades. You can read more about the reassessments here.
Does AVI play a part in the property taxes/schools debate?
Yes, a huge part. As we said, the value of your property that is being “reassessed” through AVI is part of the equation in figuring out the property taxes you owe. The mayor wants to give $94 million in property taxes generated by the reassessments to the public schools.
So by approving the mayor's plan, Council is agreeing to a property tax increase, right?
If your property tax bill goes up, that’s how you will probably see it. So will some members of City Council because you vote them into office and will be in a position to vote for any of them who decide to run for another city office – let’s say, mayor in 2015. Other members agree with the mayor’s view that higher tax bills following reassessments are not “tax increases” since they are being made to correct a longtime problem of wildly inconsistent, inaccurate and long overdue tax assessments.
Didn't Council raise property taxes last year?
Yes, for reasons that had nothing to do with AVI, Council approved property tax increases of 3.85% last year and 9.9% (for two years) the year before that. If the new assessments result in higher property tax bills, angry homeowners will accuse Council of raising taxes for the third straight year.
Can anything soften the blow of higher property taxes?
Yes, and you will hear several proposed bills today to help property owners cope with the “sticker shock.” Let’s start with the Homestead Exemption.
I hardly consider my house a "homestead."
The homestead exemption, at least the version proposed by Mayor Nutter last week, would apply to anyone who owns a home in the city and lives in it as their primary residence – no matter how much reassessments say your home is worth or how much money you make. The exemption would take $15,000 off the taxable portion of your property assessment. So if your house is worth $100,000, you’d only have to pay taxes on $85,000. Homeowners have until July 31, 2012 to apply for the homestead exemption. Here is the application.
I’m signing up now.
You can apply but we have to tell you that the mayor doesn’t have the final word on the homestead exemption.
I should have known there's a catch.
Homestead exemptions must be approved by the state legislature – and that hasn’t happened yet. Complicating matters, several members of Council have their own homestead exemption proposals that differ from the mayor’s. For instance, Councilman Bill Green has proposed increasing the homestead exemption to $40,000.
Can any other proposals help lower my property taxes?
Yes. Also on the today’s hearing schedule are bills proposed by President Clarke to (1) reduce interest rates if the city’s Revenue Department permits taxpayers to defer their property tax payments, (2) give property tax credits to low income homeowners, (3) grant special exemptions for long-time owner-occupants of homes in areas where property values are expected to soar, and (4) remove interest charges on property taxes paid in installments if the taxes are paid in full by the end of the year in which they are due.
Are other ways to protect me being considered?
“Smoothing,” which is part of Mayor Nutter’s proposal, would spread out property tax increases over several years instead of requiring the annual payment all at once.
Sounds good to me. Sign me up.
Hold on. You have to meet certain financial eligibility criteria to qualify for smoothing. And, once again, some people on City Council have different ideas about the value of smoothing.
I see: Another catch.
Councilman Green, who is the most vocal critic of the mayor’s proposal (and has made no secret of his mayoral ambitions), says that smoothing would cause more harm than good because people whose tax bills have been “smoothed” would actually pay more in the next two fiscal years than in 2015 because higher property tax rates would be necessary to counteract the lower property tax revenues generated overall as a result of smoothing. Green says raising the homestead exemption to $40,000 and allowing homeowners to defer some portions of increased property taxes is a better way to go.
Where do the public schools fit in?
Remember that the public schools are very dependent on the city’s property taxes: they get 60%. And that’s where the $94 million the mayor wants to give them will come from.
Will Council go along with this?
We’ll get a good idea this afternoon. If Council members decide to give more funds to the schools, some prefer to do this through a different source of revenues, such as the Business Use and Occupancy Tax, which is paid only by commercial and industrial property owners/tenants on property in use. In other words, not by residential property owners.
Is there a plan to do this?
Proposals have been introduced in City Council to give $94 million to the schools entirely through the Business Use and Occupancy Tax or to give a little less than the mayor wants ($85 million) but to split this between property taxes ($40 million) and the Business Use and Occupancy Tax ($45 million).
Does the city need AVI now in order to give money to the schools?
No, the funds could be generated from revenues from the current property assessment system.
If the city sticks to the current assessment system, what happens to AVI?
AVI will happen (everyone agrees the current system is a mess), but perhaps not right now. First District Councilman Mark Squilla, who represents several Center City and South Philadelphia neighborhoods where property values could go up considerably, says Council shouldn’t be forced to approve the mayor’s proposal before the reassessments are released in the fall. He has proposed putting off AVI for a year. The administration says it makes no sense to use bad assessments when good ones are about to be released.
Is there a chance the School District would get nothing?
Doubtful. No elected official wants to be blamed for not caring about public school children. And the finger pointing has already started because the District’s Chief Recovery Officer says the schools may not open in September without the $94 million from property reassessments. But Council is likely to exact some demands from the School District in exchange for any money: Guarantees that their dramatic schools overhaul plan (which you can read here) will result in higher achievement and significantly strengthened fiscal management.
Is there really a chance the schools won't open?
Again, doubtful. But these kinds of threats are often used to force action.
Does Council have other demands?
Actually, on May 31, City Council unanimously approved a resolution resolving not to “move forward on any [School District] budget plan” until an agreement is reached between the District and the Service Employees International Union 32BJ, which represents many School District of Philadelphia workers, including 2,700 employees due to be laid off under the District’s sharply reduced $2.3 billion budget for next year. We will see if Council follows through with its resolution.
Do property assessments and money for the schools have to go hand-in-hand?
Not according to President Clarke. As we said earlier, he intends to separate the two issues.
When do Council members have to make up their minds?
The City Charter says Council must approve the city’s annual operating budget thirty days before the start of each fiscal year (July 1). That time has come and gone. But, last year, Council’s budget negotiations continued in June too. But there’s no way Darrell Clarke wants to go past July 1 during his first year as Council’s president.
Will today be decision-making day?
No, because some of the proposals are being aired for the first time. There is an orderly process that has to happen before proposals are given final approval by Council. And the city’s budget approval process is even more complicated. You can read about this here.
Where can I learn more?
We recommend this great resource from the Philadelphia Public Interest Information Network: PPIIN.org
We’ll keep you posted on Council’s continuing debate on property taxes and the public schools. If you want to watch today’s hearing, it will be aired live on Channel 64, which is the city’s government access channel. If you have a computer or can get to one, click here. Or you can go to Room 400 in City Hall and listen in person. You can even speak out (for three minutes) on any of the bills being considered today. Read about how to participate here.
In the meantime, thanks for reading the non-partisan Committee of Seventy’s HOW PHILLY WORKS series. If you have other issues you want us to take up, or want us to send these pieces to your friends and family members, please e-mail us atfutureofthecity@seventy.org.
06/05/2012