Getting a look at the impact of Philly's new property tax system

In April, the Nutter administration began providing Council members with a first glimpse at the potential winners and losers from the shift to a property tax system based on the true market value of homes.

The data, which was shared with The Inquirer on Friday, shows some results that confound conventional thinking and demonstrate - yet again - the haphazard unfairness of the current tax system.

Not surprisingly, wealthy neighborhoods like Rittenhouse Square and University City are likely to pay more, and some poorer areas like Kingsessing and Kensington could see dramatic reductions.

But the data also show stable middle-class areas like Eastwick, Port Richmond, and Tacony getting big breaks. And areas now paying relatively high taxes, such as East Falls and Fox Chase, could see 10 percent dips.

The biggest increases come in wealthier neighborhoods where the homes' assessed market values are dramatically lower than the true value. Generally, the wider that gap, the higher the tax increase.

The biggest drops come in lower- and middle-class areas where homes are assessed closer to actual value.

Still, there seems to be little rhyme or reason why that divide between assessed and actual market value would be less than $4,000 in Kingsessing but more than $18,000 in West Fairhill.

"Over time people would try to ascribe things, like lower valued houses are assessed better," said city Finance Director Rob Dubow. "You look at this and it seems much more random than that."

Mayor Nutter's reform effort - the Actual Value Initiative (AVI) - is meant to correct decades of inaccurate and inequitable assessments that have left most properties wildly undervalued. Similar neighborhoods - and even similar properties - can end up paying different amounts.

A citywide reassessment that is the key to AVI is still ongoing. Because Council must set a tax rate and pass a budget before the reassessment is completed, members have been clamoring for more information on AVI's potential impacts.

The presentation and briefing was developed by Dubow's office in response to Council, but the data come loaded with caveats and assumptions.

Because the reassessment is incomplete, the administration used recorded sales data from the last 18 months to arrive at market values for different neighborhoods.

The administration also didn't survey entire neighborhoods, just small subsets known as Geographical Market Areas (GMA), which are not meant to be representative of the whole.

The presentation to Council surveyed 44 GMA's across the 10 councilmanic districts.

The administration also assumed in its calculations a homestead exemption on the first $15,000 of each home, as well as a mechanism known as "smoothing" that would phase-in increases over three years.

Smoothing and the homestead exemption - or at least where it would be set - are dependent on legislation in Harrisburg and in Council and are not assured.

"This is just to give a sense and sort of show what the impact [of AVI] would be," said Anna Wallace Adams, Dubow's chief of staff. "But we don't think these tax rates are reality."

Another issue is that the administration assumed a tax rate that does not include AVI's impact on commercial and industrial properties.

Councilman Bill Green has been arguing for weeks that those properties now are assessed much closer to their true value and are paying more relative to residential.

Under AVI, he has warned, commercial and industrial properties are poised to get a monumental break - thus shifting much of the tax burden to homeowners.

While that impact has long been anticipated - a 2009 Inquirer analysis predicted that commercial properties would get a $74 million break - Green now says as much as $200 million to $300 million could be shifted to residential.

Dubow said the administration was still analyzing the situation. But, he said, if Green is correct, "there's the trade-off between what you want to happen to residential taxpayers and the equity question."

"The question is do you want to avoid [the tax shift] at the price of saying, 'For years and years you've been doing a better job on commercial so they've been paying more,' " he said.

Green maintains that without knowing the value of commercial and residential, it's impossible to know the impact of AVI on residential.

On Monday, he unveiled a spreadsheet - available on his campaign website, greenforphiladephia.com - that allows homeowners to calculate their future tax bills under a variety of property assumptions.

"We should have had information like this a long time ago," Green said.

He pulled his numbers from administration budget testimony, data from the Board of Revision of Taxes and other outside sources.

Green said he favors increasing the homestead exemption and eliminating smoothing - the phasing-in of market value increases over three years.

But smoothing, which would be applied citywide, also means the tax rate would have to be higher in the first two years of actual value to collect the same revenue as in year three.

This creates a scenario where some homeowners would pay more in the first two years than when smoothing ends.

The administration's sampling shows that smoothing generally works as intended for homes worth less than $150,000 to $175,000.

One administration example is a Fishtown GMA where the average sale price is about $78,000 and the average market value on the city's rolls is about $14,000.

Those homeowners see a $69 increase in the first year, a $268 jump in the second and a $371 increase in the third. All the increases are compared with the current tax bills.

Homes worth more tend to fall victim to smoothing's side effect. The starkest example in the administration's sampling is a Queen Village GMA where the average sale price is $488,000 and the homes are currently valued by the city at an average of about $188,000.

There, homeowners eventually would pay $241 more in taxes a year. But with smoothing they pay $870 more in the first year and $460 more in the second year.

"There are places where it's not having the effect that you would think," Dubow said. "But overall it benefits a substantial number of places."

Green said that including commercial and industrial property in the calculation shows that smoothing hurts anyone with a home worth $120,000 - the median residential value - or more.