City Council poised to approve more school funding, new property tax system

City Council has established the framework for a budget deal that would give Mayor Nutter all or most of the money he wants for the Philadelphia School District, and begin to shed light on how much property owners can expect to pay in taxes next year.

Under the deal, the property tax rate under a new assessment system would be between 1.75 and 1.80 percent of a property's value — depending on where Council sets the homestead exemption.

The tax rate, or millage, could end up lower, depending on what value the ongoing reassessment tags as a total for all real estate citywide.

Council could begin moving elements of the compromise through the legislative mill Thursday, voting bills out of committee and giving them a first reading during the regularly scheduled meeting.

That would put Council on track to pass a budget in one of its final two meetings before the summer recess and the June 30 budget deadline.

The budget deal would allow the city to move to a new property-tax system based on the actual market value of real estate, but with a number of changes to what the Nutter administration initially proposed.

Under the proposed scenario, a tax rate of 1.75 percent to 1.80 percent of assessed value would translate to $1,750 to $1,800 per $100,000 of real market value of a property. With homestead exemptions likely to be part of the package of legislation, a $200,000 home would be taxed only on a value of $160,000 to $170,000. The deal could be held up if Council members don't like the answers they get today from Finance Director Rob Dubow and other city officials on some of the administration's budget assumptions.

Dubow and some Council members — including Council President Darrell L. Clarke — had several tense exchanges during a hearing Wednesday, after Dubow revealed that $80 billion was a "reasonable" estimate for the aggregate value for all property in the city. Still, he called it a "working number" subject to change.

That number is critical, because the greater the overall value, the lower the property-tax rate. Council members say the administration previously estimated the value much higher in private meetings — at more than $100 billion. At the higher value, the tax rate could be as low as 1.25 percent and still reach the mayor's revenue goals.

Until this week, Dubow has maintained publicly that he couldn't accurately predict the aggregate value — and thus the millage rate — until more data were available.

The administration also planned to collect $94 million more for the schools in the change to the new system, known as the Actual Value Initiative (AVI). The administration has argued that the extra money merely would represent the rise in property values that the broken system has failed to capture.

Council wants more information from Dubow about what the administration initially thought the aggregate value would be and how officials arrived at the $94 million figure for the schools.

Some details remain to be worked out, but the deal's framework would include:

• Raising between $85 million and $94 million for schools. Some of that money would go to the district only after it met certain conditions — still being defined.

• Some of the new revenue would come from an increase in the Use and Occupancy Tax on businesses. The amount is still being debated — Clarke suggested $45 million in a bill, while Bill Green proposed raising the full $94 million from the tax.

• A homestead exemption between $30,000 and $40,000. That means homeowners could deduct that amount from the value of their primary residence before the tax rate is applied.

• A gentrification bill to protect longtime residents in fast-developing areas. People who have owned their homes for a decade or more in a gentrified section would have their assessments capped at three times their current values. The relief would expire after 10 years.

• Removing a mechanism the administration proposed known as "smoothing," which would phase in tax increases and decreases.

• A minimum tax of $100 for homeowners whose bills fall below that amount.

Each relief measure raises the millage rate to make up for the lost revenue. Assuming the aggregate value of all properties is $80 billion, a $30,000 exemption would set the millage at 1.75 percent; the $40,000 exemption would push the millage to 1.80 percent.

Sources said the aggregate value could end up higher — as high as $90 billion — which would reduce the millage rates, and tax bills, for each property owner.

"I think the objective is to come up with a compromise to protect as many constituencies as possible — seniors, the poor," said Councilwoman Maria Quiñones Sánchez. "Part of it is how do you quantify that? Because that has to be paid for."

Councilman W. Wilson Goode Jr. notes that the higher the homestead exemption, the more people who would get a tax break. With no exemption, he said, 150,000 homeowners likely would see lower bills; with a $40,000 exemption, he said, 270,000 homeowners would get a break.

That's out of a total of about 340,000 owner-occupied residences in the city. Council also could move a bill sponsored by Councilman Mark Squilla as a backup plan. Squilla, whose district includes neighborhoods such as Northern Liberties and Queen Village that face some of the most drastic tax hikes, proposed keeping the current system and tax rates for one more year.

Majority Leader Curtis Jones Jr. described Council's effort to reach a deal as "being in a moving truck on a bumpy road, shooting at a moving target."

Nonetheless, he said, "I think we're going to do it."