Philadelphia City Council mulls "gentrification relief" from property taxes

The 2300 block of Christian Street sits squarely in Graduate Hospital, for more than a decade one of the city's hottest neighborhoods, where new homes and residents have translated into skyrocketing prices.

While about half the homes are filled with newcomers, the block also reflects the strong attachment Philadelphians have traditionally shared with their neighborhoods.

The other half of the homes there have had the same owners for an average of 27 1/2 years, according to a City Council analysis, including three under the same ownership for more than 50 years.

These longtime residents in fast-growing areas are considered most vulnerable to the seismic changes from Mayor Nutter's property tax reform, the Actual Value Initiative (AVI).

For these residents, moving from a broken, inequitable tax system to one based on market value could mean enormous tax increases, thanks to the recent desirability of their neighborhoods.

Critics often raise the specter of elderly residents being taxed out of their homes in such neighborhoods as a reason to modify or stop AVI.

Mayor Nutter has pledged that no one will lose a home because of AVI. The best weapon he and City Council could wield in that effort may be so-called gentrification tax relief.

A 400-plus page briefing book recently complied by Council staff and Econsult Solutions detailed how gentrification relief would work, and under what conditions it would most effectively help the intended targets.

A bill awaiting final passage in Council would set the parameters - anyone who has owned his or her primary residence for more than 10 years and whose home's market value has more than tripled would qualify for a tax break.

A longtime owner with a home valued at $80,000 under the old system would not have to pay taxes on more than $240,000 worth of value under AVI - even if the new assessment was much higher.

That cap would last 10 years or until the home is sold. Many homeowners who would qualify live in neighborhoods that have grown thanks to the city's 10-year tax abatement on rehabs and new construction, a sore point for longtime residents who never got a similar break.

"So that's their abatement," said Councilman James F. Kenney, the main sponsor of gentrification relief. "I'm for the tax abatement, but these people have a legitimate complaint."

(Kenney is proposing to slash city spending and drop the tax rate for all properties. But if that plan does not pass, he said, he will support gentrification relief.)

Kenney's bill would cap the amount of gentrification relief given out citywide at $30 million. Mayor Nutter has proposed $20 million in gentrification and $10 million in other kinds of tax breaks.

The Council analysis found that the cost of gentrification relief would depend on the Homestead exemption, which allows homeowners to deduct a certain amount from their assessments before the tax rate is applied.

Without a Homestead exemption, nearly 72,000 of the city's 347,000 owner-occupied residences would qualify for gentrification relief and it would cost $35.1 million in tax breaks, according to the Council findings.

With a $15,000 Homestead, nearly 47,000 homeowners would qualify, costing $25.6 million in gentrification relief; with a $30,000 Homestead, nearly 30,000 would qualify, costing $19.2 million.

The Council analysis looked at individual properties in gentrifying areas - taxes on one property in the 2300 block of Christian would rise $2,284, even with a $30,000 exemption.

With gentrification relief, that property's taxes would rise only $181.

The Council analysis said that with a $30,000 Homestead exemption and gentrification relief, taxes would rise more than $400 for just 10 percent of the city's homeowners.

Council members likely will wait to pass the gentrification bill until they learn the fate of state legislation that would give the city the authority to do "means testing" - to give a break only to those who need it.

Because the previous property tax system had such inaccurate assessments, some wealthy homeowners are likely to qualify for gentrification relief without means testing.

The Council analysis singled out two Rittenhouse Square properties that have been assessed at more than $1.5 million each. Because they had such artificially low assessments under the old system, both would qualify for gentrification relief and would get a combined $20,000 in tax breaks without means testing.

People eligible for gentrification relief would have to apply, and Council and the administration would have to work out a handful of specifics, such as putting together an application, setting a deadline, figuring out who is eligible, and getting word out to homeowners.