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All that uncollected property tax: Looking for a vision of reform behind the dollar signs
$472 million in uncollected property tax looks to be this year's $1.5 billion - the estimated unpaid court fees and forfeited bail that is now being collected by aggressive private firms following the newspapers' revelations of long mismanagement at the disbanded Clerk of Quarter Sessions. Time will tell if the property tax numbers in a report by PlanPhilly.com (in partnership with the Inquirer) draw the same sustained public attention, and spur creaky systems to change.
But a similar, fundamental, error already looms. In a city with a persistent 25% poverty rate, and glaring hunger numbers (1 in 2 people in Philadelphia's First Congressional District, as reported last week), much of that debt is simply uncollectible. It's not hiding under beds and in nightstands. A significant amount of tax and water debt can and will never be collected. We are stuck, rock and hard place, Scylla and Charybdis: leaving all that debt in place burdens title, increasing abandonment and blight, and complicates efforts to get people to pay their current and future tax debt.
It's easy to sell papers and get column inches with the accusation that government inaction and unfairness is costing those of us who followed the rules and paid taxes and bills on time, particularly against the backdrop of budget crises that are starting to look apocalyptic for states and cities. And it's not untrue. But it's mostly beside the point.
Look at the options presented, essentially two. One: quick and mass foreclosure. Two: unload the problem by selling off the debt itself to private third parties, who should have market incentives to foreclose and no meddling City Council members to interfere. Both are misguided for reasons amply suggested by the study's own data.
Foreclosure is obviously the final 'stick' that a municipality has to try to compel tax payment. But if payment isn't made (the owner is dead, moved to Florida, is living on disability payments), your choice is to take the house and try to cash out as much value as you can to offset the owner's debt. Here you can already see how illusory the debt number is. Flooding houses into the depressed forced-sales market will get you an ever-decreasing share of what's owed, if a property sells at all. Recent data shows that much of the city's neighborhoods simply can't be developed on the private market - the cost of land and construction (or of acquisition and rehab) is more than the neighborhood sales price for a home.
Selling liens to third parties was done under then-mayor Rendell, and it's currently regarded as worst-practices by the same national experts quoted in the Plan Philly study. While a city that unloads their debt gets some fast cash, it loses control over the collection and foreclosure process. In areas with weak sales markets, you don't want to unload land to whoever will pay for it. You want to control the pace of foreclosures onto the market, and you want to give land (even for nominal or reduced cost) to those who will be good stewards, create community spaces, or spark start-up businesses. You don't want speculators scooping up land to sit on, putting further pressure on your strained code enforcement department to force maintenance by absentee owners. Beyond all that, splintering ownership of municipal liens makes it harder to foreclose when that's appropriate (as described in the study's section titled, "Ad Hoc Approach"), and had a lot to do with why the amnesty program was of limited use.
We need to keep an eye on the real issues and solutions.
Why is the delinquent tax problem the greatest in the poorer neighborhoods? Well, aside from the obvious fact that people are, you know, poor in those neighborhoods, it has to do with our property values and tax assessments. Properties are worth so little in many areas, and taxes are so low, that it doesn't make economic sense to foreclose until many years have passed. By that point, other debt like water or gas could leave the property underwater and unattractive to buyers, or the condition may have degraded so much that repair is not worth the investment. In my work on land and housing issues for Councilwoman Sanchez, we are as often as not trying unsuccessfully to request foreclosures so that abandoned properties can be redeveloped by nonprofits or used for side yards or community gardens. The obstacles are low real estate tax debt, compounded by fragmented ownership of these and other municipal liens. Outside of low-value neighborhoods, the long-awaited reassessment of commercial properties could make it easier and more profitable for us to foreclose on valuable tax-delinquent properties like those individually cited in the study.
Why are so many folks who would be eligible not in low-income ('hardship') payment agreements for their back taxes? Partly because those programs are often effectively secret. You can not find the application online at any of the City's webpages, you must know to check deep on Community Legal Services' site. The guidelines are not fully understood, sometimes by the officials who are applying them, and there is no systematic requirement that people be informed or considered for the hardship agreements. That can and should change immediately, and the successful and nationally-acclaimed foreclosure diversion program created by Judge Rizzo is an obvious close-at-hand model. We can use already-city-funded housing counselors, along with the "Save Your Home Philly" hotline, to do affirmative outreach to occupied properties at risk of foreclosure. We can also finally create a program for low-income seniors, that grants the homeowner a life estate or otherwise delays collection of tax debt until a property is sold or brought through probate.
What else can be done? Two pending state bills introduced by Representatives John Taylor and Chris Ross propose a transformed foreclosure system that works with land banks to increase enforcement while giving cities more control and revenue than does the current speculator-friendly sheriff sale system (click here for a video of the legislative briefing in the Urban Affairs Committee last month, featuring relevant testimony from Alexander and Kildee). These bills need significant amendments so that they better suit Philly's needs and more adequately protect low-income residents - as introduced, Ross's bill would actually prohibit payment plans longer than one year, regardless of a homeowner's income or ability to pay, and doesn't address how we transition from widespread long-term delinquency to prompt, universal enforcement. But these bills pose a huge opportunity for ending our current system, which is ill-suited for the large-scale abandonment and blight of a post-industrial city.
This fall, City Council will begin considering how to implement those state bills, starting with preliminary land bank legislation introduced in June by Council members Sanchez and Green in coordination with Mayor Nutter and his agencies. A functioning system will involve increased communication of payment plan options, consistent enforcement, and a reformed (and hopefully much-limited) role for the sheriff sale process. It will also take a deliberate and difficult transition to get there, that will require looking realistically at our uncollectible debt. It's easy to talk about swift enforcement and cultures of compliance, but first we need to face this mess we've created of long-term delinquency by poor people in neighborhoods with incredibly weak sales markets. Let's not let that get lost in the distracting glare of dollar signs or easy narratives about political complacency.