What did the mayor want?
The mayor wanted to implement a new system for assessing residential and commercial properties in Philadelphia during the next fiscal year (which begins on July 1) and give $94 million in property tax revenues from the new assessments to the city’s public schools.
And what did Council do?
Assuming nothing changes in the next two weeks (the mayor says he will keep fighting), City Council will vote to maintain thecurrent property assessment system for another year and give $40 million to the city’s public schools: $20 million in property tax revenues from the current assessments and $20 million from raising the Business Use and Occupancy Tax.
Why are you calling this a compromise? The mayor lost.
The new assessment system isn’t totally dead in the water. It will happen, just not now. And at one point it looked like the public schools might get no money. So it’s not a complete loss for the mayor. And some Council members who were in the mayor’s camp, especially on the $94 million for the schools, aren’t too happy either.
What does this mean about the value of my property?
Your property will maintain its current assessed value – at least for another year.
So my property taxes will be the same as this year?
Not quite. The assessed value of your property is only part of the equation in determining how much you pay in property taxes. If published reports are correct, City Council also agreed to raise property taxes by 3.59% in order to give $20 million to the public schools.
If the city's property reassessment system is a disaster, why is Council waiting to fix it?
Because Council members, especially the 10 who represent districts, said they had to know whether their constituents’ property taxes would go up – or down – as a result of the reassessments. Those results won’t be out until the fall.
In other words, Council was afraid that the reassessments would cause a dramatic hike in property taxes.
You would be too if you were facing a decision to endorse a new assessment system that was predicted to result in very significant property tax increases (at least for a significant portion of property owners). Remember that Council approved property tax increases of 3.85% last year and 9.9% (for two years) the year before that -- both of which were supposed to be temporary but which Council reportedly has agreed to make permanent. Raising taxes isn’t exactly the way to make friends – or, more to the point, to win votes.
Doesn't waiting one year just delay the inevitable?
Yes, in the sense that the reassessments will happen. Owners of properties with higher assessed values will have higher property taxes. But City Council will have more time to figure out how to soften the blow. We told you in our June 5 HOW PHILLY WORKS about some of the ways they can do this.
I remember. I applied for one of them - the homestead exemption - already.
To remind everyone: At the beginning of June, Mayor Nutter encouraged everyone who owns a home in the city (regardless of your home’s value or how much you make) to apply for a $15,000 “homestead exemption.” The exemption would take $15,000 off the taxable portion of your property’s assessment. So if your home is worth $100,000, you’d only have to pay taxes on $85,000.
Will I still get my homestead exemption?
No. The homestead exemption was specifically meant to reduce your home’s reassessed value. Since the reassessments aren’t happening now, neither is the homestead exemption.
Why is the mayor still fighting?
He wants a lot more money for the public schools. He believes it’s a big mistake to postpone the almost-completed reassessments, which he says will be far more reliable and accurate than the current assessments. And because his top financial people are telling him that Council’s decision to delay the reassessments will cause a “train wreck.”
Why will the delay cause a "train wreck?"
A June 13 memo from the Revenue Department’s Chief Counsel, which you can read here, says that sticking with the highly arbitrary and flawed current property assessments violates the Pennsylvania Constitution that requires properties to be taxed uniformly.
That doesn't sound good.
Neither does the prediction in the memo that, because of a state tax board ruling, the city will face an “avalanche of assessment appeals,” which could lead to potential losses of over $100 million.
What does Council say to that?
Council members say they hope to get some help from Harrisburg to minimize the losses.
Harrisburg - is this the same Harrisburg that cut money for public schools?
One and the same. And thanks for bringing up the schools, which takes us to the second part of Council’s decision.
You said the schools are getting $54 million less tahn what the mayor proposed.
Yes, and the $40 million Council is giving the schools is also coming from different pots of revenues than the mayor proposed: $20 million from property tax revenues based on current property assessments (not the reassessments) and $20 million from an increase in the Business Use and Occupancy Tax, which is paid only by commercial and industrial property owners/tenants on property in use (which the mayor never even mentioned).
I thought the business use and occupancy tax idea came and went.
It came, it went, and then came part way back. Councilman Bill Green first proposed giving $94 million to the school entirely by increasing the Business Use and Occupancy Tax (and dropping the mayor’s property taxes from reassessments proposal). Then Council President Darrell Clarke came up with a hybrid plan that Council preliminarily approved: giving $85 million to the schools but splitting it between an increased Business Use and Occupancy Tax ($45 million) and property tax revenues ($40 million).
Then what happened?
Then the business community went ballistic, saying that increasing the Business Use and Occupancy Tax would drive small businesses out of town. So that idea seemed to come off the table.
But now increasing the business use and occupancy tax is back on the table?
It is, but the increase will bring in only $20 million from that source, not $94 million (as Green originally recommended) or $45 million (as Clarke recommended).
What about the public school kids?
Many people are saying that they could be the biggest losers of all. The School District’s Chief Recovery Officer Thomas Knudsen says the public schools might not be able to open in the fall without the $94 million proposed by the mayor.
Is he crying wofl or will it really happen?
We’ll have to see.
Let's go back to Harrisburg. Why can't the General Assembly give the schools more money?
Council members asked the same question. And they apparently don’t believe the Nutter administration did enough to plead his case in the capitol because they are considering hiring their own lobbyist.
What about the School Reform Commission begging for more state dollars?
That’s a sore point. The Governor appoints three of the five members of the School Reform Commission, which runs the city’s schools. And current Governor Tom Corbett picked the SRC’s Chair, Pedro Ramos. But on a recent trip to Harrisburg, the SRC’s mission was to ask for legislation to give it the right to cancel contracts with the schools’ unions and establish salaries and benefits. Mayor Nutter was reportedly blindsided by this idea, and the city’s lawmakers in Harrisburg were apparently “outraged.” This doesn’t bode well for getting more state revenues.
What's the next step in Council?
City Council has to give final approval to the proposed operating budget for the next fiscal year. Then the budget, and the city’s five-year spending plan the state requires the city to maintain, has to be approved by Philadelphia’s fiscal overseer, the Pennsylvania Intergovernmental Cooperation Authority, also known as PICA.
A whole new wrinkle? What is PICA?
We told you all about PICA in a past HOW PHILLY WORKS, which you can read here. But, in short, PICA is a state agency comprised of five unelected members picked by leaders in Harrisburg that monitors and approves the city’s budget plans. It has make-or-break powers over the city’s finances.
Then what happens?
As we said, the compromise could still change in the next few weeks. But the most interesting stories could come after the current reassessments/schools debate is resolved. Look for stories about how much money was spent by people who lobbied Council to get the outcome they wanted. Watch to see what happens to the real estate market now that there is a little breathing room before the reassessments (and potentially higher property taxes for many homeowners) go into effect.
Where can I learn more?
We recommend this great resource from the Philadelphia Public Interest Information Network: PPIIN.org
We will continue to keep you informed as these developments unfold. And we hope you will share your thoughts with us about what you think about Council’s decision.
Thanks, again, 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.
06/15/2012