Nutter makes his opening property-tax pitch

The politically charged process of deciding how to spread $1.2 billion in property taxes across Philadelphia surged forward Thursday, with Mayor Nutter suggesting a basic tax of 1.32 percent and three tax breaks to ease the impact on lower-income home and business owners.

Nutter acknowledged that negotiations with City Council to find the "right balance" were just beginning and subject to change.

"But we have to start somewhere," he told reporters after using the Mayor's Reception Room to deliver the budget address that he was unable to finish in Council chambers.

Council plans to begin budget hearings March 25 with a goal of passing revenue and spending plans before the new fiscal year begins July 1.

The rates and relief measures are part of Nutter's property-tax reform effort, the Actual Value Initiative (AVI), which figures to be the focal point of this year's budget season.

With new tax assessments that are supposed to reflect the actual market value of Philadelphia's 579,000 parcels, Nutter's starting point would set next year's tax bills at $1,320 for each $100,000 of assessed value.

Homeowners would be eligible for a $15,000 homestead exemption on their primary residences - allowing them to deduct that amount from the assessed value of their homes before applying the tax rate.

The administration is proposing an additional $20 million in relief for longtime homeowners in gentrifying neighborhoods and $10 million for owners of small commercial properties who are also facing significantly higher tax bills.

City Finance Director Rob Dubow said details remained to be worked out with Council. The idea of gentrification relief is to help lower-income people who have lived for years in neighborhoods that have seen explosive growth in real estate prices.

Last year, City Council passed a bill that would set the homestead exemption at $30,000. The administration wants to lower that exemption - which every homeowner can seek - so that more relief can be offered to people who need it the most, Dubow said.

Some Council members have staked out different positions.

Councilman James F. Kenney, for example, wants to explore cutting the budget until a flat 1 percent rate could be set.

His reaction to Nutter's proposal?

"I'm not voting for that," he said. "Not even close."

Councilman Mark Squilla, whose district faces some of the largest tax increases with AVI, has proposed phasing in the new assessments over four years.

"I'm tired of the administration saying 'we need the $1.2 billion,' that it's a necessity," he said. "That hasn't been proven yet."

Councilman W. Wilson Goode Jr., noting that many low-income homeowners have been paying too much under the old system and should see their bills come down, called the mayor's numbers "reasonable."

As tax breaks are added, the underlying rate must rise to make up for lost revenue. Fewer tax breaks lower the overall rate - and Councilman Bill Green has proposed eliminating the homestead exemption to keep the rate as low as possible.

Goode, however, said the mayor's proposal should give property owners the assurance that the rate will settle between 1.30 and 1.35 percent.

"I don't believe you can get enough votes to take away enough relief measures to get below 1.3," he said, "or to increase relief enough to get above 1.35."

The rest of Nutter's budget proposal stuck closely to the lines of current city spending, with little new revenue to improve programs or sweeten union contract offers.

Overall, general fund spending would climb about $99 million, from $3.66 billion to $3.75 billion, a 2.7 percent increase, funded by projected growth of 3 percent in existing taxes.

"The economy is showing some signs of recovery and growth," said city Budget Director Rebecca Rhynhart.

Half of the projected new spending, about $49 million, is earmarked for the massively underfunded pension system, now about $5 billion short of the assets it is supposed to have.

An additional $20 million of new city money will be needed for pay increases awarded to the police force by arbitration completed late last year, Rhynhart said.

She described larger projects to be financed with long-term borrowing, the biggest a new police administration building at 46th and Market Streets, replacing the current headquarters at Eighth and Race Streets.

It would also house the morgue, now located near the hospital complex in University City, and Health Department offices now at Broad and Lombard Streets.

The $195 million necessary to build the new Police Headquarters would be offset by selling the three real estate parcels, Rhynhart said.

The administration also wants to use $3 million in capital funds to buy 650 bicycles for a new bike share program endorsed by Nutter in December.