Phila. tax hike could cost homeowners hundreds

The tax increases and new fees that Mayor Nutter is considering to close a yawning budget deficit could raise as much as $270 million a year for the city, while costing most homeowners hundreds of dollars annually.

It is too soon to say precisely how heavy the new tax and fee burden will be, since the administration has not yet settled on its proposals and City Council has yet to weigh in.

But it is clear that if the city raises the property and sales taxes and simultaneously creates a trash fee, the new costs for Philadelphia residents would be significant.

For instance, if the city raises its share of the property tax by 11 percent - a proposition Nutter tested in a private poll he commissioned last week - property owners would pay an average of about $81 more a year.

A trash fee might cost homeowners more than $200 a year, depending on the final structure of the program and the amount of trash occupants of a home generated.

Nutter has said he opposes raising Philadelphia's wage and business-privilege taxes, the two levies that numerous studies have shown are the most damaging to the city's economic competitiveness.

Even so, the tax and fee hikes he is considering would solidify Philadelphia's standing as one of the nation's most highly taxed cities.

"The city still has a noncompetitive tax structure, and any increase in the tax burden only exacerbates that," said Uri Monson, executive director of the Pennsylvania Intergovernmental Cooperation Authority, the state agency that oversees Philadelphia's finances.

But new taxes and fees would be a welcome tonic for the city's battered budget.

The national economic crisis has brutalized Philadelphia's budget, leading Nutter to make deep spending cuts last fall to close what was then a $1 billion five-year budget gap. As the economy worsened, a second $1 billion five-year deficit opened up.

Recently, Nutter said it would be impossible to close the fresh deficit with spending cuts alone.

The tax hikes and fees now under consideration could wipe out more than half of the current estimated five-year deficit. Big cuts still would be necessary, but Nutter's deficit-closing job would be far easier.

If, that is, he can win Council's approval and the backing of Philadelphia residents.

A recent Pew poll found that 44 percent of Philadelphians would accept higher taxes in exchange for more services, while 45 percent preferred fewer services and lower taxes.

So far, it is those who are willing to accept higher taxes that have spoken out louder.

Of the 1,700 Philadelphians who attended recent budget workshops organized by WHYY and the Penn Center for Civic Engagement, a vast majority said they were willing to pay more to preserve city services.

Nonetheless, big political and policy challenges remain for Nutter and City Council for each tax and fee now being considered. Consider:

Property tax. It will be a challenge for Nutter to raise a tax when public opinion and independent studies agree that the system the levy is based on is inaccurate and inequitable.

"People think their property assessments are unfair, that they're politically fixed, that they're outdated," said budget workshop coordinator Chris Satullo, executive director of news and civic dialogue at WHYY.

The workshop attendees were onto something.

In June, an Inquirer analysis found that property assessments in Philadelphia often fail to correlate with values and could vary wildly on homes of similar value. For example, assessments on 250 homes that sold for exactly $125,000 ranged from $3,808 to $32,256 in 2007, based on data from the Board of Revision of Taxes, the city agency that determines property values.

The BRT has nearly completed work on a new assessment method, but the Nutter administration said recently that there was not enough time to change to the new method before the budget - and any associated tax hikes - was finished.

"In effect, they're talking about raising taxes on a system they know is broken. That's not fair, and it's not legal," said Brett Mandel, a tax reformer and candidate for city controller.

Complicating matters further is a deep-seated dislike of the 10-year property-tax abatements that are granted for new construction and major renovations, Satullo said.

"A lot of people see the tax abatement as a sop to rich people from somewhere else. They see it as not fair to people who've lived here their whole lives," said Satullo, a former editor of The Inquirer's editorial page.

And then there is the long-standing objection that property taxes are particularly hard on fixed-income residents, such as retired senior citizens. That concern troubles even activists who generally support raising taxes to avoid cutting city services.

The arguments in favor of raising property taxes boil down to two compelling points. First, the city's property-tax burden is low relative to other communities, and the millage has not been increased since 1989. Second, taxing property - instead of wages and businesses - is considered less damaging to job creation.

"Jobs can move. Businesses can move. Property can't," Monson said. "Raising property taxes increases the overall burden of being a resident, but it doesn't chase jobs away."

Sales tax. The biggest stumbling block to increasing the sales tax is Harrisburg.

Philadelphia and Pittsburgh are the only Pennsylvania municipalities to have 7 percent sales taxes. The rate is 6 percent in the rest of the state.

In his budget, Gov. Rendell has proposed giving other counties the ability to raise that rate to 7 percent, matching Philadelphia and Pittsburgh.

Last week, a pollster for Nutter asked Philadelphians for their opinion on a three-year increase in the sales tax. If the tax hike were temporary, it might be better received in Harrisburg.

There are several drawbacks to raising the sales tax. It generally is seen as a regressive levy that hurts low-income residents more than wealthy ones. And the higher rate could discourage consumers from shopping in Philadelphia, particularly when it comes to big-ticket items such as cars and jewelry.

Garbage fee. The proposed trash-removal fee already is facing stiff opposition in City Council, and it is unlikely to be popular with residents.

Opponents say it is absurd to charge a fee for such an essential service, and some worry it will lead to an epidemic of illegal dumping, as Philadelphians attempt to save cash by avoiding per-bag trash fees.

Deputy Mayor Rina Cutler, the principal driver of the levy, says it has enormous potential to increase recycling rates and lower the city's landfill bills.