The Budget Issue is Not about Nutter, it's about Nutter's Choices

I've been wrestling with the Mayor's new budget for a few days now. One thing I've figured out; it's not right to think about it in terms of what should reasonably be expected from Michael Nutter. In that framework I might be relatively pleased; when he was a Council member he worked hard to abolish the Business Privilege Tax in toto; now he proposes abolishing "only" the Gross Receipts part. Furthermore, he proposes to cut the rate of the Net Income portion of the BPT just 7%. Neither the Gross Receipts abolition, nor the Net Income cut is immediate; they would both be phased in over a period of years. And Nutter is also proposing an immediate 25% increase in the Parking Tax -- a relatively progressive tax -- which will make up a substantial part of the lost BPT revenue.

So as someone who thinks cutting business taxes should be a very low priority, if one at all, I could feel OK about all this compared to what might have been.

But personalizing the budget proposal is the wrong approach. The important question is not how to grade Nutter. The important question is this: are the choices the Mayor made in the budget the right ones for our City? My answer to that has got to be no.

Government exists, to me, primarily for the purpose of advancing justice. Its main purpose is not, as Nutter said several times during his budget address, to provide good "services" to the City government's "customers". City government is not a business. It is the exercise of power by its citizens, acting through elected officials, to advance the common and just good. Without government you've got the strong, the weak and uncontrolled capitalism. And that means the weak get ground down into very small pieces. Government is supposed to prevent that.

Of course, good services are important, but they are grounded in social justice as well. Public safety, decent education, clean and safe streets, fire protection, good drinking water, good health, decent housing; these ought to be available to all, not just to those who can pay for them. Without good government these services would exist, but they'd all be available only to the super-rich.

From a social justice perspective this budget is more than a little disappointing. For instance, buried in the Five Year Plan is Nutter's proposal to abolish a low income wage tax credit that doesn't even take effect until 2013 -- and then only in part. There is almost no budgetary reason even suggested for abolition of this credit. The only number that is offered as a rationale is $80.8 million, the amount that the credit would allegedly cost the city in FY 2016, which can only be categorized as a wild guess. No, the proposal is not about balancing budgets. It's about the wrong choice of whom the City needs to look out for.

The Mayor was presented with a choice between accelerating business tax cuts or retaining the one tax cut on the books that's targeted toward those who need help. The choice he made is to increase inequity by following the false siren song whose lyric tells us that economic growth comes mainly by feeding the rich.

This is a Republican siren song, of course, that we hear daily from Washington and Harrisburg, one that Democrats succumb to at their peril. Because they will always be outpromised on tax cuts for those who don't need them. Nevertheless, this budget embraces the Republican notion that cutting taxes for rich businesses as well as not so rich, eventually helps workers and the poor. And eventually is good enough.

The Administration's embrace of that logic is revealed in another tax choice as well, the one that tells us who will bear the growing burden of taxes until "eventually" comes around.

Look at the small print in the Five Year Plan and you'll note that real estate tax revenue is slated to grow 23% over the next five years. Two thirds of the City's real estate tax is paid by residents, and as we know, a tremendous number of those residents are poor or near poor. They will pay the tax increase whether they rent their homes or own them.

This tax increase will be a stealth tax increase. The Mayor is not announcing it, and City Council is not voting on it. Instead the budget assumes that it will come from the widely touted "equalization" of real estate values that the Board of Revision of Taxes intends to conduct soon. But "equalization" -- a nice sounding tax increase euphemism -- will fall regressively. Yes, some rich owners, maybe even Vince Fumo, will pay more. But most real estate taxpayers are not in Vince's income class. They will get hit hard, especially if they're getting gentrified, as so many are.

Now maybe I'm reacting in too knee-jerk a way. Maybe cutting the BPT and increasing reliance on the real estate tax is good for economic growth, and ultimately, therefore, really does help everyone. The Administration doesn't really seem to think so, however, because the Five Year Plan forecasts that BPT Revenue will start shrinking in FY 2011, and by 2013 will raise $15 million less than it's bringing in this year. And it forecasts that wage tax growth will decline from a 15.4% increase over the past 4 years, to a mere 7.5% increase over the next 5 years.

Personally, I think the tax policy that would be best for economic growth in Philadelphia is that which would put money in the hands of people who would spend it in Philadelphia, namely poor and working class people. And there's research to support that notion. But no one knows for sure; it's all about economic theory which wise people debate endlessly. So that brings us back to choices: how can a just government act on a guess the immediate consequence of which is to increase injustice? That is what cutting the low wage tax credit, and increasing real estate taxes will do. That's not the just choice, regardless of who sits in the Mayor's chair.

Here's a little more about choices. The budget makes some good ones in proposing increased spending on housing, Community College, health centers, housing, and reduction of youth violence. But instead of ending the gross receipts tax -- which now brings in $100 million a year -- a choice could be made to spend that amount to further fund those humane choices. Or the money could be given to the School District to meet its huge unfunded liability toward educating our young. Or the tax cut could be trimmed and targeted toward truly struggling neighborhood businesses.

Making that funding choice, or a progressive tax cut choice, would not guarantee economic growth. What we do know is that either of them would directly improve the lives of many of our residents now struggling for a future. While we're guessing about economic theory, how can we not opt for the path that advances justice?

Thanks Stan

for pointing this out:

For instance, buried in the Five Year Plan is Nutter's proposal to abolish a low income wage tax credit that doesn't even take effect until 2013 -- and then only in part. There is almost no budgetary reason even suggested for abolition of this credit. The only number that is offered as a rationale is $80.8 million, the amount that the credit would allegedly cost the city in FY 2016, which can only be categorized as a wild guess. No, the proposal is not about balancing budgets. It's about the wrong choice of whom the City needs to look out for.

The Mayor was presented with a choice between accelerating business tax cuts or retaining the one tax cut on the books that's targeted toward those who need help. The choice he made is to increase inequity by following the false siren song whose lyric tells us that economic growth comes mainly by feeding the rich

On the BRT revaluation thing, have there been plans floated to minimize the impact of revaluation on those at the low end of the income scale? I remember discussion of some kind of postponement of payment on increases until the point of sale, when the increased value would be realized, but don't know the current or actual status of any of this.

This a good post, Stan --

This a good post, Stan -- and a good jumping off point for the (renewed) debate.

1) First, the real estate taxes. The increase in projected revenue comes from 2010, which is also when the first set of residential 10-year tax abatements expire. Each successive year will bring successive expired abatements, which will in turn mean more revenue. I would not be surprised if a good chunk of those projections are driven by expiring abatements.

Now, as I've mentioned before, real estate tax revenues have been stagnant adjusted for inflation for the past decade. This is astonishing, as all other taxes have brought in substantially more revenue over the same time period, AND the city has experienced a residential and commercial real estate boom that has failed to be captured in taxes. The real wealth of the city has increased tremendously, but the owners of that wealth have been getting a free ride.

As for equalization, it's been well-documented that by far the biggest benefits of the current system of real estate taxation are property owners in the city's wealthiest neighborhoods, who pay far less on the dollar for their property than property owners in the poorest neighborhoods. It also benefits the owners of the wealthiest properties in all neighborhoods, whose assessed values are clustered with owners of much less valuable properties. In other words, the city's current system of real estate taxation is deeply regressive.

Does that include the odd retired widow in Bella Vista who bought their house decades ago and lives on a fixed income? Yes, but it's a specious argument to point to the exception rather than the rule, particularly when Nutter has also proposed a homestead credit and a cap on year-to-year increases precisely to account for those exceptions. And I simply reject the premise that anyone who has seen their real wealth triple or quadruple over the past half-decade should not have to pay something more than those who have no such wealth or have seen no such gains. That strikes me as the exact opposite of progressive.

2) I'm intrigued by your proposal that the business tax cut could be "trimmed and targeted toward truly struggling neighborhood businesses." Part of the argument of reducing/eliminating the gross receipts BPT has been that it does adversely affect smaller businesses and start-ups, which are frequently high-volume but low-profit. What would a targeted adjustment of the BPT look like?

3) City Council is in a good position to push back on the Cohen lower-income wage tax cuts, and they should. Particularly if the budgetary impact is as negligible as you say, I can't see Michael Nutter vetoing a tax cut, especially one that works the way this one does.

this is the whole point Tim

2) I'm intrigued by your proposal that the business tax cut could be "trimmed and targeted toward truly struggling neighborhood businesses." Part of the argument of reducing/eliminating the gross receipts BPT has been that it does adversely affect smaller businesses and start-ups, which are frequently high-volume but low-profit. What would a targeted adjustment of the BPT look like?

The reason Jennifer's request for information above is so important is that there is NO PUBLIC release of data about gross receipts payments that would indicate how the the tax is harmful.

So there is really no answer--that is not anecdotal--to your question without that data.

Replying to both you and Jennifer

On relief for low income homeowners, much has been proposed, little enacted. The City has power to allow low income homeowners and seniors to pay real estate taxes in installments, but without a cap or deferment that provides little real relief. Nutter has verbally proposed a homestead credit and a cap, but as far as I can tell, he has proposed no legislation either in Philly or Harrisburg. There is one ordinance on the books that allows deferral of a tax increase greater than 15% caused by a reassessment. But 15% is a pretty high threshold. And deferral may slow, but not stop, gentrification since buyers of homes with deferrals will have to be better off -- maybe much better off -- than the homeowners they replace. Plus, deferral will result in first tax liens that may make it impossible, or nearly so, to borrow money to repair those homes.

As far as a homestead exemption is concerned, that will require help from Harrisburg. The Citwide reassessments should wait until that help arrives. As far as I understand, that is not what the Mayor wants. In the meanwhile, nothing prevents the BRT from reassessing the fairly large number of properties where low assessments now shock the conscience. They know where they are, and they should go after them. It's only because they've lacked the political will to do anything that has caused the huge inequities to grow in the first place. Hopefully the BRT will now get backing to do the right thing given the new attitude in City Hall.

As to targeting BPT cuts, one needs to get the information that Jennifer is seeking to know exactly how best to do that. But one thing to start with is actually broadening the tax by erasing the preferences it contains for banks, insurance companies, port related companies, and others. These increase rates for everyone else. Unfortunately most of these preferences are embedded in state law, so we will need help to get rid of them. But our politicians need to begin making noise about them.

There are different ways targeting could be done. One option might would be a rebate program of sorts for small startups, or neighborhood-based small businesses, as a form of business assistance. A direct small business standard deduction of some amount might also be possible, but might run afoul of the uniformity provision of the constitution. The legality of this, however, is not clear, and it's also not clear who would sue to set it aside. So it should be in the hopper. Hopefully soon we'll get a read on just how much something like either of these ideas might cost, given different categories of businesses that might be targeted.

Thanks again

. Plus, deferral will result in first tax liens that may make it impossible, or nearly so, to borrow money to repair those homes.

If this is true, it is troubling and something that needs to be fixed or worked around.

Is it legal?

In the meanwhile, nothing prevents the BRT from reassessing the fairly large number of properties where low assessments now shock the conscience.

Wouldn't such a move violate the uniformity clause? How would they measure which assessments "shock the conscience?"

Reassessment and Uniformity Clause

Wouldn't such a move violate the uniformity clause?

Reassessment where more properties are assessed more accurately, would be a step towards keeping in the spirit of the Uniformity Clause, which states:

All taxes shall be uniform, upon the same class of subjects, within the territorial limits of the authority levying the tax, and shall be levied and collected under general laws.

One could justifiably argue that all properties should be reassessed, but wouldn't doing some widespread reassessment be better than doing nearly no widespread reassessments in terms of moving towards a fairer system? (Note this is a fairer system in terms of having the assessment process be more fair, not in terms of any ramifications in terms of higher or lower real estate taxes on specific properties, whether they be owned by a senior widow getting by on Social Security or a wealthy venture capitalist.)

I’m not Gong Ho on this

I’m not Gong Ho on this issue on either side, but I would still like to point out that I am a programmer in a time where there are more jobs for programmers than ever before, and I still have almost no choice but to get a job in the suburbs if I stay in Philadelphia.

I believe that taxes should be cut for the working class as well, but I also think that a tax cut to the working class doesn’t mean much if you have no job.

Of those who vehemently appose business tax cuts, how many of you have ever paid that tax? How many of you know anyone who owns a business? A business in the City? A business in the city and says that the tax system here is just fine?

I am not saying that you guys don’t have good points about prioritization and the likes. All that I am saying is that it is very easy for activists, academics, non business owners/non BPT payers, and people who can easily find a job in their chosen profession inside the city limits to say how much the BPT doesn’t matter. I think that it may be a little more complicated than that.

umm i do

It's funny how this always gets into a debate pro/con for biz tax cuts.

Pay careful attention everyone: Jennifer is asking the BRT for data, not a change in policy. That's all. Just want to see who is affected and how by the net income and gross receipts tax.

It's hard for members of the public to be pro or anti the tax when they can't see how it plays out in real numbers.

[And Charles, I pay the BPT. I honestly don't know if I think I should or not. I never sat down and compared my taxes paid to what i would have paid in wage tax if i was employed somewhere. My guess is I pay more, and maybe that is something that needs to be changed, but it is frankly not my biggest concern in life. Taxes are not what is holding me back from owning a home, buying a bigger TV, or saving more money--it's debt and wages.

And I'm sorry you have to work in the burbs, but there is not much proof that your employers locate in the burbs because of tax burden. These same-old arguments are really getting played out. Which is why I want data, data, data.]

In fairness to Charles,

In fairness to Charles, Stan's post isn't about Jennifer's request for data (which I'd like to see too!) but is about the relative value of the business tax cuts, property tax equalization, etc. So, yes, it's an old debate, but it's a new way of framing it -- i.e., not about whether BPT cuts will sink the budget, but what kinds of property tax on their face seem to best promote justice and the overall interest of the city.

I don't pay the BPT tax

I don't pay the BPT tax anymore, thank God. And to answer your question, yes you pay more, unless you can find a sick number of business related tax deductions, which most people who are anywhere near being honest on their tax return can't. And, to admit something that might support your point of view, I didn’t mind paying those taxes as much as I minded dealing with the complete and utter lack of service from the Department of Revenue when I had a problem or question.

My whole point was not to be inflammatory. My whole point was that this is a complicated issue. I can make what you perceive to be tired old arguments about how I think that the taxes in this city are hurting us, and you can make what some would say to be tired old arguments that it doesn't matter. Yes, we need data, and I would love to see the analysis. There is no more proof to your argument then there is too mine.

You live and work in Philadelphia because you grew up here, your work is in the city, you love the city, and you feel a very strong sense of duty to your community. To many perspective business owners, whether they are ethical, un ethical, or ethically neutral, the decision to start a business and where to put it is based mostly on Economics. I would bet that most who stay in the city when they could move into the suburbs and make more money do so because they feel a certain sense of duty as well.

My point is that saying that the BPT doesn't matter and acting like it’s a universal truth and not even asking business owners or quoting business owners or even knowing business owners is a little absurd. I am sure that if you polled business owners, in and around the city, then they would tell you that it matters a great deal, whether they stay in the city or not.

I have talked to a few current and former business owners who have a big problem with the BPT. I have a certain amount of anecdotal proof that taxes in the city force me to work in the suburbs because of conversations that I have with employees and employers in my industry, just like you have anecdotal evidence by working in the activist community in Philadelphia that says that it really doesn't matter. My only point is to say that it is at least possible that taxes are a major issue, not just for the "rich".

what is my point?

Charles, you are making a lot of assumptions:

My point is that saying that the BPT doesn't matter and acting like it’s a universal truth and not even asking business owners or quoting business owners or even knowing business owners is a little absurd.

I have not said that the BPT does not matter. It matters very much.

And I do know business owners who pay it. Of those I have talked to, the tax is just one of many problems people have with the city, with the bigger problems being how to find good workers, how to pay them well, how to give them healthcare, and how to deal with L & I.

However, my point is that all of the arguments we have all had about the BPT have been anecdotal.

I want to see the data. Period.

Any and every thing else that anyone has to say about the BPT without seeing the real data is pointless.

I'm completely pro-data

I think we need lots of it, including, for instance, to get back to the pension issue, how that Pension Fund has been invested since our last bond issue and what happened to that money. And how much in taxes has been lost by giving BPT preferences to banks, insurance companies, utilities and port related businesses over the past 20 years.

But as my original post said, the issue is about choices. No one likes to pay taxes, and some people/businesses may make their locational choices due to not liking to pay. But no one likes poor schools, rundown housing, high crime, potholes, or huge disparities in wealth staring them in the face. Clean, crime free suburbs, with nice lawns everywhere have a certain appeal. And business people like to bash taxes. The fact that they like to bash taxes doesn't mean that they locate businesses because of them, however. It may be due to any number of other factors, such as the ones above, (or due to utility, insurance, labor, transportation or other cost factors) that really drive them. They may just feel that taxes are the thing which, if they pound about them the most, will most easily yield to political change. Indeed, Brett Mandel has frequently stated that tax cuts alone aren't what's needed, but for City Council, that's the most doable, so it ought to just do them.

So that's why the data is needed. But that's why also, while we're just theorizing in the absence of the data, I prefer opting for those things that put bread on the table of those without it.

You both make very good

You both make very good points. I just wanted to stand up for "the man".

And yes, green grass everywhere does have a certain amount of appeal, but trust me when I tell you that working in those office parks for an extended period of time and then driving through traffic on 76 gets extremely depressing after a while.

I just never have and probably never will understand a mentality that likes the suburbs.

We can definitely agree

on that.

economics are not always just about $$

i work for a small biz in philly. we couldn't do the work we do in the suburbs. nor would we want to.

when a biz is located in philly it might pay more in taxes but gets a more talented pool of potential employees. that is a trade-off that you can't define squarely on the bottom line.

as a philly resident i save $$ by living here b/c i don't have to have a car. if i had to work out in media for example i'd be spending 10 hours a week on the bus or in a car.

this goes back to the data that shows that large companies don't locate b/c of taxes but primarily b/c of the workforce.

I agree that Economics are

I agree that Economics are not just about money but about resources. But you are basically saying the same thing that I was saying. Your company is in Philly, basically, because it is forced to be in Philly. I’d rather have companies be in Philly because they want to be there.

Yes, I do agree that finding qualified workers is many times more important than taxes. However, by your assumption, I can assume that you are making the argument that qualified software engineers would rather live/work in the suburbs or that there are more qualified software engineers in the suburbs than in the city. That, my friend, has never been my experience. It may be taxes, and it may be other things, but something is causing all these companies to be in the suburbs. And you would figure that with the tech crunch going on right now that at least some of them would move into the City.

Biz location is often based on where the owner wants to live

I don't have the studies at my fingertips, but several of them show that business owners locate their shops where they want to live. And amazingly, lots of them like the suburban life-style. That may have to do, and I'm giving my own spin now, with things like public safety, congestion, pollution, cleanliness. So if you make your city a world class place to live, business will probably follow. That requires spending, not tax cuts.

You are right. I think that

You are right. I think that there is a law that in its lifetime, most businesses will move closer and closer to thier owner, and then eventually fall apart when it's five minutes from the owners house.

But, Aaron, think of all the possiblities for punning

that you miss because you don't live in the middle of media.

The Beginning of Data Disclosure/Analysis

Since the budget/BPT data discussion has moved over here, I'll briefly link to the BPT data that *is* in the 5-year projected budget, which I put together here. It is not everything that would be useful to have a broader discussion of the BPT, but it does give an annual breakdown of how much has been paid separately in gross receipts and net profits since 1999.

Dollars in Thousands
NI=Net Income
GR=Gross Receipts
RA=Tax Rates (NI;GR)
PT=Percentage of Total (NI;GR)


__Net Income_Gross Receipts_Rates_Pct

1999 $151,791 ... $104,275 .... 0.2775% . 59.3%;40.7%
2000 $164,251 ... $111,234 .... 0.265% ... 59.6%;40.4%
2001 $156,937 ... $99,602 ...... 0.2525% . 61.2%;38.8%
2002 $189,888 ... $107,116 .... 0.24% .... 63.9%;36.1%
2003 $188,228 ... $106,619 .... 0.23% .... 63.8%;36.2%
2004 $220,734 ... $105,303 .... 0.21% .... 67.7%;32.3%
2005 $253,638 ... $100,151 .... 0.19% .... 71.7%;28.3%

This breakdown was not in the five-year budget the Street administration submitted in 2005, so it's new to me. What would be even more useful, as many people have said, is more structured data -- showing, for instance, how many busineses make X dollars in profit or do Y dollars in business per year, sorting businesses by number of employees, etc.

You are not standing up for the "man"

Charles, you seem to have constructed some alternate reality where being interested in social justice and being progressive is antithetical to being pro-small business.

One of the main reasons I want to see BPT data by payer type is because I am concerned that tax cuts on a flat tax will not actually do much to help small business or contractors.

Which is why I want to see the data.

Tim: the data you provide is interesting, but is not really useful in terms of figuring out WHO pays and what percent of their profit and, most importantly, figuring out who the proposed cuts will benefit.

I can't wait to see the real data.

strongly agree

and re-pasted for emphasis:

Making that funding choice, or a progressive tax cut choice, would not guarantee economic growth. What we do know is that either of them would directly improve the lives of many of our residents now struggling for a future. While we're guessing about economic theory, how can we not opt for the path that advances justice?

i would say my answer is that these policies are directed to first benefit the upper-middle class, not the 1/4 of philadelphians living below the poverty line.

I disagree

these policies are directed to first benefit the upper-middle class, not the 1/4 of philadelphians living below the poverty line.

That's just not true. Business tax cuts benefit businesses. The vast majority of middle and upper-middle class do not own a business or pay the business privilege tax. Likewise, property tax reevaluation does not harm the poor. There are many poor people in Philadelphia, but few poor people own their own houses and very, very few own property in areas that have been systematically underassessed. In fact, the typical upper-middle class household will pay more in taxes across the board beginning in 2010, both absolutely from BPT moving to full value and relatively, since the schedule of wage tax cuts is decelerated.

P.S.: The new formatting buttons are awesome.

  1. I especially like the bullet-point feature.
  2. Wouldn't you agree?

Revaluation hurts tenants too

Most of those poor people who aren't on the street or in shelters are tenants. Their landlords pay property tax and when that tax goes up as a result of reassessment, rents will go up.

Again, the increase in

Again, the increase in property taxes comes largely in more affluent neighborhoods. More importantly, though, rents are primarily driven by supply and demand. Property tax revenues have been stagnant for over a decade, we've had tax abatement programs, and rents have still risen dramatically, because there is greater demand and lower supply for rental properties. So forgive me, among a sea of skeptics of the relative impact of the BPT on businesses if I'm skeptical of the relative impact of property taxes bumps on landlords.

can you back this up?

Tim, you are making pretty bold claims with no data to back you up:

The vast majority of middle and upper-middle class do not own a business or pay the business privilege tax. Likewise, property tax reevaluation does not harm the poor. There are many poor people in Philadelphia, but few poor people own their own houses and very, very few own property in areas that have been systematically underassessed.

First and foremost, Philadelphia is known through the nation as a city with a very high rate of home ownership among even the lowest income quintiles.

Second, while it maybe be true that the vast majority of middle and upper-middle class citizens do not own businesses, neither do a vast majority of poor or working Philadelphians. The real question is, among people who pay the BPT, how many are in each income quintile, and how many are sole proprietors vs. corporations vs. LLC, etc? And at the risk of sounding like a broken record, you can not answer this 2nd question until the city releases data.

Until then, we simply can't talk about the BPT any way but anecdotally.

Remember, Councilman Goode promised to help get Jennifer access to this data. Maybe he can speed up the records request, before Council schedules any hearings get scheduled on the BPT cuts proposed by the Mayor.

The hearings on taxes begin February 27 at 10 AM

at Council Chambers. The public will be allowed to testify at 1:30 PM, according to what I've been told.

Paging Councilman Goode

right Stan, and that is 2 weeks too soon. The City Solicitor's office may not get back to Jennifer with the data she requested before the hearings begin. That means that the public and the media will have to rely on whatever data is presented at hearings, and more anecdotal evidence, to learn anything more about the current impact of the BPT.

What we do have data for

I don't think it's anecdotal to point out that the business property tax is a tax paid by businesses, and that property taxes are a tax paid by property owners. You can argue that in order to encourage home and business ownership, we should keep property taxes low (this indeed is the argument of the abatements) and you can argue that businesses should pay higher taxes, that higher taxes are not a deterrent to businesses relocating here, etc. But we shouldn't confuse the two issues.

The data from the BPT is limited (I wouldn't say it's anecdotal) but the data from property taxes is much less so, and Stan has claimed that an increase in property tax revenues amounts to a "stealth tax" on lower-income residents. I strongly disagree. For one thing, as I've said, a good chunk of the forecasted revenue comes from the expiration of ten-year tax abatements. On the broader issue of full value taxation, I agree that there is a high rate of home ownership among the lowest income quintiles in Philadelphia. But with very few exceptions, the properties affected by tax equalization are in neighborhoods with predominantly middle and upper-middle class residents.

Hallwatch.org has good data on the undervaluation of real estate in the city (which I posted here nearly a year ago). With the exception of parts of Kensington (really, Fishtown) and Nicetown, undervalued zip codes fall in Center City, University City, Chestnut Hill, Mount Airy, Fairmount, Bella Vista, etc. We can correlate average income in those zip codes and I will guarantee you that the vast majority of low-income property owners currently pay a higher effective property tax rate than their more affluent counterparts. This makes the current system of property taxation deeply regressive and unfair.

property tax is property tax

I'm not sure what you're getting at with your first paragraph, since property taxes are levied on the same basis for both residential and business properties, i.e, the BRT computes value, reduces that value in various ways, most of which are admittedly arbitrary, and then applies a uniform tax rate imposed by City Council on the result. But bottom line, whereas business tax reductions fall 100% on business, 2/3 of real estate increases are imposed against homeowners and their tenants. Which is why the biz lobby is so willing to trade biz tax cuts for real estate increases.

None of which means that I am against reassessments as a principle. I just don't think we can have them with an undetermined number of poor homeowners getting destroyed. Now that may be a small number, but I really don't know. Someone in the government should make it their business to find out. And whatever the number is, they have to be protected. Those who want to reassess everyone tomorrow should simply pause -- not stop -- long enough to enact protections for those who may be driven from their homes. They may be collateral damage, but that makes the harm no more attractive -- if somewhat less devastating -- than the collateral damage this country has done in other places.

Strike "business property

Strike "business property tax" to read "business privilege tax." Sorry. I've got those property taxes on the brain!

As for the protections against gentrification, etc., here is the relevant paragraph on fair value taxation and financial hardships from the budget:

This problem could be addressed, in part, by moving the City to a property tax system based on fair
valuation of properties. In the majority of Pennsylvania counties, local property taxes are calculated
using the full value of a property multiplied by the tax rate. Philadelphia, however, uses a much more
complicated calculation that obscures a property’s appraised value and does not reflect changes in
value over time. As a result, for more than three decades, high-value properties in some areas of the
City have been under-assessed, while lower value properties have been over-assessed. The City’s
Board of Revision of Taxes (BRT) plans to change this system to improve transparency and equity
in the property tax system. The BRT also intends to equalize values across the City, which means
that properties will no longer be under-assessed or over-assessed. While these changes will make the
system fairer and easier to understand, they will result in substantial increases in taxes for some of
the properties that are now under-assessed. The Administration is committed to working closely
with BRT, City Council, and the Commonwealth to ensure strategies are in place to mitigate the
effects of gentrification or undue financial hardship as a result of equalization.

Council and Nutter should work on this legislation (which Nutter campaigned on) soon.

Here's the full section on property taxes:

Property Tax

The property tax (or real estate tax) is expected to generate $394.5 million in FY08, or 16.1% of
local tax revenues. This tax is levied on the assessed value of residential and commercial property in
the City. The tax rate is 8.264% in FY08, and this rate is divided between the City (40%) and the
School District of Philadelphia (60%). In recent years, the City has shifted increasing proportions of
its property tax revenues to the District to help it avoid budget shortfalls.

Historically low mortgage rates, property tax abatements, and wage and business tax cuts have all
contributed to increased property demand and value in Philadelphia. From 2001 to 2006, the sales
price of existing homes in Philadelphia increased by more than 74%, averaging 11.1% increases per
year. However, the property tax’s performance indicates that City collections did not capture these
dramatic market changes. For example, while the real estate transfer tax (a tax on real property sales,
described in more detail below) nearly tripled from FY00 to FY07, real estate tax revenue never
surpassed 4% in annual increases during the same period. This indicates that while the number of
real estate transactions or “transfers” increased, the full value of those properties has not been added
to the rolls. The table below presents real property tax collections from FY04 to FY07, and
projected revenue through FY13.

Fiscal Health
Page 27

Table 8

Real Estate Tax Revenue History and Forecast
($ In millions)
History Forecast
FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13
Current 1 332.6 353.2 354.1 367.3 358.5 375.4 392.1 406.9 422.8 440.1
Prior 45.1 39.5 41.8 30.3 36.0 36.0 36.0 35.0 35.0 35.0
Total 377.7 392.7 395.8 397.5 394.5 411.4 428.1 441.9 457.8 475.1
Growth 4.6% 4.0% 0.8% 0.4% -0.8% 4.3% 4.1% 3.2% 3.6% 3.8%

This problem could be addressed, in part, by moving the City to a property tax system based on fair
valuation of properties. In the majority of Pennsylvania counties, local property taxes are calculated
using the full value of a property multiplied by the tax rate. Philadelphia, however, uses a much more
complicated calculation that obscures a property’s appraised value and does not reflect changes in
value over time. As a result, for more than three decades, high-value properties in some areas of the
City have been under-assessed, while lower value properties have been over-assessed. The City’s
Board of Revision of Taxes (BRT) plans to change this system to improve transparency and equity
in the property tax system. The BRT also intends to equalize values across the City, which means
that properties will no longer be under-assessed or over-assessed. While these changes will make the
system fairer and easier to understand, they will result in substantial increases in taxes for some of
the properties that are now under-assessed. The Administration is committed to working closely
with BRT, City Council, and the Commonwealth to ensure strategies are in place to mitigate the
effects of gentrification or undue financial hardship as a result of equalization.

Though the recent strength of the real estate market has increased home values, the nation’s
mortgage crisis and real estate market slowdown threaten to lower values. So far, these trends have
not yet hit Philadelphia as hard as they have hit other major cities, but the combination of a slowing
market place and falling home prices could mean decreases in property tax collections by the end of
FY08.

This potential decrease is why the budget actually forecasts a decrease in property tax collections in FY09. Also, the year-over-year increases in property taxes beginning in FY10 (btw 3 and 4% annually) are identical to the actual increases in FY05 and FY06. Once you take into account expiring abatements, that's not much of an increase at all.

I'm sorry, Stan. You are an expert on the BPT debate. But I think your claim about Nutter trying to use the property tax as a stealth tax on the poor is just bunk.

Is it bunk? I hope so

and admittedly I'm reading between lines. But the two big r.e. increases in the past were quite a while ago, in FY '04 and '05, not '05 and '06 as you wrote. If I recall that was another period in which the BRT was quite active. Also in those two years, collection of back taxes was quite high, $45.1 million in '04 and $39.5 in '05. In '06 and '07, r.e tax collections were essentially flat. They're estimated to actually be down this year, but that's because of the millage transfer to the school district.

Meanwhile, the Five Year Plan estimates five consecutive years of increases for a total of 23% over five years. That's a departure from the last 5 years. Whether it's's an assessment-driven departure or not is impossible to tell for sure because we don't know what's behind the numbers. But again, if poor homeowners get hit with an average 23% increase over five years -- recognizing that some will get more, some less -- that should be a concern. And they ought to get protection before that rock begins to roll.

I would add the wisdom of Satchel Paige to this debate: just because you're paranoid doesn't mean someone's not chasing you. Maybe there's a benign explanation for all this, but we should also remember that the Tax Reform Commission explicitly stated that the way the City should make up for lost revenue caused by BPT cuts is to let real estate assessments rise sharply. Which, the Commission forecast, would be a direct result of those BPT cuts. So one should wonder, and try to find out, whether this Five Year forecast is indeed, a pre-cooked chicken coming home to roost.

Again, got fooled by my own

Again, got fooled by my own fast hands and crummy formatting. You're right -- it's fy04-05.

Now, now -- "poor homeowners" aren't going to be hit with a 4% annual increase. All property owners will see an average 4% increase. If we move to full value taxation, the bulk of that increase will fall on owners of the most expensive property in the city -- residential, industrial, and commercial, while the bulk of property owners in poorer neighborhoods will see a decrease. This after property values in the city have increased over 75% in the past decade.

But since Nutter campaigned on year-over-year caps and exploring a homestead credit and extending tax abatements in poorer neighborhoods, and since a promise to work on this issue is in the budget, then yes -- I think Nutter and Council can get legislation to put protections in place.

Well, there's no tax relief for poor homeowners in the budget

Nutter has offered no legislation so far to accomplish his campaign promises to threatened homeowners, but he did offer a bill to wipe out a tax credit program for low wage workers. That doesn't mean he won't fulfill his promises, but the initial signs are troubling. And that ought to be brought to his attention.

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