Philly to rake in $118 million in new taxes after reassessing commercial properties

Commercial property owners could be in for some sticker shock when they receive the city’s new property assessments in mid-April.

The taxable portion of the assessed value of Philadelphia’s 60,000 commercial, industrial, and hotel buildings, as well as other nonresidential properties, went up by 50 percent -- from $30.23 billion to $45.3 billion -- with the reassessments, an increase that will contribute to an expected $118 million in new tax revenue to be split between the city and School District.

The city has no plans to immediately spend its portion. Officials say the money will be reserved for use if funding cuts threatened by the Trump administration come to fruition.

This is the first full reassessment of commercial properties since the controversial Actual Value Initiative (AVI) in 2014, which uses market values as the assessment standard.  

“The goal was not only to ensure the assessed values more accurately reflect sales and market forces, but to also to reduce value inequities among comparable properties,” Michael Piper, chief assessment officer, said.

The market value of all 580,000 city properties -- residential and commercial -- grew by $17 billion this year to $153 billion, with the biggest increases coming from hotel, apartment, and commercial buildings.

Of that total market value, $111.3 billion is taxable property, a 15 percent increase from last year, according to city estimates. The total property-tax revenue for the city is expected to be $653 million. Nearly $800 million will go to the School District.

The Chamber of Commerce for Greater Philadelphia, whose members are likely to be impacted by the city's reassessments, declined to comment. 

The new assessments, which were finished last week, are not yet reflected in the city’s five-year plan. City Finance Director Rob Dubow estimates that there will be a 20 percent decrease in the total taxable assessed value due to appeals. Dubow is also counting on a 93 percent collection rate. In all, the new assessments are expected to pump $54 million in new tax revenue into the city’s coffers. 

“Our recommendation is going to be, that money is reserved as a contingency against what may or may not happen with the federal budget,” Dubow said.

Philadelphia has the advantage of being exempt from a state law that requires property reassessments to be revenue-neutral. 

The School District is estimated to receive $65 million in new tax revenue. The additional revenue has the potential to close by one-third a projected $900 million budget deficit in the district’s five-year plan, announced last week.

"It is good news for the schoolchildren of Philadelphia whenever we can identify new, recurring, and reliable revenues,” Uri Monson, the district’s chief financial officer, said in a statement. 

The district learned of the additional revenue Thursday.

Monson said that once the district is fully briefed by the city, the district’s five-year plan will be updated.

City Controller Alan Butkovitz said Friday that he had not yet been briefed on the new assessments and therefore declined to comment until he has the new data. 

Similar to last year’s residential property reassessment, which increased values by $2.2 billion and pumped an extra $14 million into the city’s general fund, commercial properties also saw an increase in the land portion of taxable assessments.

Piper, the chief assessment officer, said that as a category, hotels saw the highest increase in value, largely because of the increasing number of hotels going up in the city. 

Individual data on the new property assessments were expected to go live on property.phila.gov late Friday. The city will mail notices on April 14 to property owners who had a change in assessment. 

Anthony Campisi, spokesman for a coalition fighting the city's sweetened-beverage tax, said the city should fix the its property-tax system "before imposing regressive new taxes to take money out of the pockets of working families."

"The city could fund many of the mayor’s new initiatives, including expanded pre-K, with reliable revenue -- which will increase when the city reassesses residential properties," he said.

City spokesman Mike Dunn said the $54 million in new tax revenue would only cover about half of the programs the soda tax is expected to fund.  "We said from the start that the new initiatives -- quality pre-K, community schools, and rebuilding rec centers, parks and libraries -- need new funding sources, and that remains the case today," Dunn said.

The city reassessed the land value of all residential properties last year and is planning annual reassessments of all 580,000 properties starting next year. 

Councilman Allan Domb, a real estate mogul whose campaign platform included fixing the city’s assessment system, said he knows some property owners will be pained by the increases. But he said many of those owners have for years received a “tremendous advantage” due to their properties being underassessed.

“I know one example where someone five years ago paid $40 million to the city for a piece of land. And we had it assessed at $4.5 million,” he said. “I realize it may be sticker shock, but for five years we didn't get the right money.”

Domb stressed that the new revenue should be placed in reserves, something he said he hopes will lead to the city’s bond ratings being raised, ultimately lowering the city’s cost of borrowing.

“City Council and the mayor can’t spend this money,” he said.

Staff writer Anthony R. Wood contributed to this article. 

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