City likely to make profit from AVI

IT'S NO SECRET that the city's new property-tax system will have a huge impact on tax bills next year.

But what will happen beyond 2014?

Breaking down the city's plan going forward reveals that tax bills in gentrifying areas may continue to rise over time and that the new system, the Actual Value Initiative, could become a source of new revenue despite the city's claim that it is revenue-neutral.

The goal of AVI is to rid Philly of its grossly inaccurate and outdated property-tax rolls. So for two years, assessors canvassed the city and checked out all 579,000 taxable properties. Their assessments will be the basis for next year's tax bills.

To keep the system accurate over time - as is required by state law - the plan is to reassess every property on an annual basis, said Richard McKeithen, the city's chief assessor. But only a portion of the city will be evaluated by field inspectors each year. Many assessments will be calculated using estimates of market conditions. Property owners will receive notices only when assessments change.

McKeithen said it's his hope that field inspectors will make it to each property at least once every three to four years. The industry standard, he said, is at least once every six years.

Assuming there is no large upswing or decline in the overall market, he expects assessments to be relatively stable - except in rapidly changing neighborhoods with a lot of real-estate activity that could lead to increased assessments.

Councilman Mark Squilla's district, which stretches from South Philly to Kensington, contains many gentrifying areas that will be hit hard in 2014. Continued increases, he said, could have a chilling effect on those hot areas.

"That'll weigh on [potential buyers'] decision - absolutely," he said. "There is a chance probably that the value of the home will go down if they keep doing this."

Last year, Mayor Nutter and Council agreed to make AVI's first year revenue-neutral to emphasize that the program is about fairness, and not just a way to bring in more money. So this spring, Council will set a property-tax rate that is intended to capture the same revenue next year as the city collects this year.

Beyond 2014, however, the continual reassessments of Philly's properties will likely result in added revenue because of the recovering economy and growth in the real-estate market.

In other words, AVI will allow the city to collect more in property taxes without raising tax rates.

Kevin Gillen, a real-estate expert who worked as a consultant for the city on AVI, said the real-estate market usually grows one or two percentage points faster than overall inflation. Philly, he said, typically lags national trends by a few years, and its recovery from the 2008 real-estate crash will likely take root over the next few years.

When that happens, he said, the resulting revenue growth will be a healthier way to find new money than raising tax rates.

"Revenue will rise because [the city's] property-tax base is growing and not because its property-tax rate is growing," he said. The city, he said, could use that extra cash to cut the onerous wage tax.

Councilwoman Marian Tasco, however, said it was a mistake for the administration to describe AVI as revenue-neutral, even though it will be for one year.

"The message was flawed," she said. "Say, 'Well this is how we fixed it . . . and at the end we got some additional revenue. What are we going to do with that revenue? Here's how it benefits you as a citizen.' That's what you have to say."