Thursday, May 7, 2015

Assessment: Broken

Can the BRT finally fix property valuation? Maybe, but that’s the tip of the iceberg.

The Ritz-Carlton Hotel (left), at Broad and Chestnut Streets, got a $400,000-a-year tax break after a private meeting with Board of Revision of Taxes chairman David B. Glancey in 2003. In hundreds of meetings during 19 years as chairman, Glancey cut millions from building values.
The Ritz-Carlton Hotel (left), at Broad and Chestnut Streets, got a $400,000-a-year tax break after a private meeting with Board of Revision of Taxes chairman David B. Glancey in 2003. In hundreds of meetings during 19 years as chairman, Glancey cut millions from building values. RON TARVER / Staff Photographer
Travel Deals

When the owners of the Ritz-Carlton luxury hotel wanted a tax cut, they knew where to turn.

In a private meeting in 2003, the then-chairman of the city Board of Revision of Taxes gave the hotel owners a once-in-a-lifetime deal. He dropped the Ritz’s value from $35 million to $19.5 million, saving it $400,000 a year in property taxes.

The chairman, David B. Glancey, says he can’t remember how he arrived at the number. But he says the break — worth more than $2 million so far — was justified because the hotel was in financial trouble.

“I made a lot of commonsense decisions,” said Glancey, a former Democratic Party chief who left the agency two years ago. He said other BRT members, some still on the board, always signed off on his decisions.

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  • The BRT says it no longer allows those backdoor tax cuts. But the Ritz settlement and hundreds like it live on, part of a legacy of private deal-making that has resulted in millions trimmed from the tax rolls and untold losses to the city’s bottom line.

    Decades of such deals and persistent mismanagement by the BRT have left Philadelphia with one of the most unfair and chaotic property tax systems in the nation.

    Last week, after years of delays, the BRT finally produced the long-promised fix — a new set of proposed “actual values,” supposedly based on what properties are really worth in the marketplace.

    But an Inquirer review of dozens of commercial properties found that many new numbers still bear little resemblance to recent sale prices.

    The Red-Lion Bustleton Shopping Center, an 18-store strip mall, is currently valued at $1.04 million. Under the BRT’s new system, its tax value would be $1.5 million, even though last year the property sold for nearly $5 million.

    For the BRT, confusing numbers are nothing new. But they are a symptom of deeper problems at the agency, a relic of the 19th century that’s historically been used as a political dumping ground.

    Now, with the city in a revenue crisis, an Inquirer investigation raises questions about whether the BRT is capable of handling the complex and politically sensitive task of repairing Philadelphia’s broken tax system.

    The review shows:
    Political influence pervades the agency. Former assessors say they were routinely pressured to give breaks to people with pull. One said he was ordered to lower the assessment of the Democratic Party headquarters in Center City while other values on the block were soaring.

    The agency is a jobs bank for Philadelphia pols. It’s run by a board of seven insiders selected in a backroom process engineered by party leaders. Nearly half the agency’s jobs go to patronage employees who know little about appraisal.

    More than 9,000 properties haven’t been reassessed in at least 20 years. The oversight has cost the city millions.

    The BRT works far better for insiders than for rank-and-file taxpayers. While some lawyers have won reductions in nearly three-quarters of their appeals, more than half the homeowners who challenge their assessments are turned away.

    The BRT has violated state open-government laws for years, hiring contractors, making deals with property owners, and deciding on citywide reassessments without any public meetings or minutes.

    The agency’s records are a mess. Assessments have been cut by millions with little evidence to support the decision other than a newspaper clipping, a building diagram — or nothing at all.

    Glancey’s settlements violated a BRT rule that said all cuts of more than $150,000 needed full board approval, city audits say. Glancey said he thought he could stand in for the full board.

    With the Ritz-Carlton, an apparent BRT goof made a good deal even better. In his settlement, Glancey agreed to limit increases to no more than the rate of inflation until 2010. That sheltered the Ritz-Carlton’s owner, the Arden Group Inc., during the recent real estate boom.

    But for the last two years, the agency failed to make even those modest increases, leaving the assessment unchanged.

    “That was stupid,” said retired assessor Nicholas Gerace, who once handled the hotel’s file. “Two years of a free ride. That’s unbelievable.”

    The proposed actual value places the Ritz Carlton at $48.7 million.

    In recent interviews, BRT officials acknowledged the agency’s assessments are flawed and some property values have probably been rigged.

    “The system is fundamentally broken,” said Russell Nigro, a former Pennsylvania Supreme Court justice and the board’s newest member.

    But he and other board members say the agency is well on the way to reform.

    Chairwoman Charlesretta Meade said the BRT has put in tighter controls to prevent abuses. For example, the board now must sign off whenever a property is reduced by more than $50,000.

    “There are maybe some bad apples,” said Meade. “But by and large we have a very dedicated staff.”

    In hearing appeals, she said, the agency bends over backward to help struggling homeowners and is committed to “make sure things are being done fairly and equitably and transparently.”

    After The Inquirer asked about closed-door meetings that violated the state sunshine law, board members promised to do business in public.

    But old habits have been hard to break; the BRT recently held a private meeting, just as it did during the Glancey era.

    “It’s just the way we operated,” said board member Robert N.C. Nix III, who, like Meade, served during Glancey’s tenure.

    “Dave would call you and say, ‘Here’s what we’ve got. … What do you think?’” said Nix, son of a former Pennsylvania chief justice. “Can that be criticized? Sure.”

    The actual-value numbers will help prevent manipulation, board members say, by making it easier to see when values are out of kilter.

    “I know there has been mischief from time to time,” Nigro said. “I want to eliminate the possibility of mischief as best as I can.”

    The agency that time forgot
    For years, civic watchdogs, consultants, and auditors have slammed the BRT, saying its assessments were unfair, its operations inefficient, its ranks filled with political no-shows.

    But the BRT has survived for one main reason: It’s always been a convenient spot to park political insiders.
    One expert said Philadelphia has a national reputation as a backwater of the assessing world.

    “Philadelphia stands out by itself as the only one that is way back in the 1950s, 1960s, or early 1970s,” said Guy E. Griscom, former president of the International Association of Assessing Officers.

    “It is definitely in the back roads of what used to be.”

    This is no small problem. The BRT has enormous power. By setting the value of all 577,700 properties in the city, it helps determine what people pay in taxes.

    For decades, bills have been based on a baffling set of fractions and formulas.

    “Actual value” is supposed to fix all that by using true market values.

    But that’s no sure bet.

    After struggling for five years, the BRT last fall decided in private to hire one of its sharpest critics.

    Kevin Gillen, a vice president of Econsult Corp. and a University of Pennsylvania fellow, led a reappraisal of more than 477,000 residential properties.

    But Gillen said he worked only on homes. The BRT’s assessors redid the commercial values, he said.

    An Inquirer spot review of business properties raises questions about their accuracy.

    At the new Union Trust steak house at 717 Chestnut St., the BRT’s proposed value is $630,000, up 40 percent from the current $450,000.

    Two years ago, partners bought the old bank building for $2.8 million and have spent millions turning it into a luxury restaurant.

    Barry Mescolotto, the BRT’s acting chief assessor, said the new assessments are preliminary: “We’re going to go over every one of the numbers and scrutinize them.”

    Just because the actual-value numbers don’t match sales doesn’t mean the BRT is wrong, Mescolotto said. He said commercial properties aren’t always valued on the basis of sales.

    “One sale doesn’t necessarily make the market.”

    ‘Willful manipulation’
    The assessment problems aren’t surprising, given the BRT’s long legacy of patronage and bungling.

    For starters, the agency is not accountable to the public. It’s run by a part-time board appointed by city judges and not controlled by the mayor.

    On paper, the 200 staff members answer to an executive director. In fact, he has nothing to do with assessments, is not qualified to appraise property, and has only a high school diploma.

    A bastion of patronage employees, the agency has long been criticized for a lack of professionalism. Unlike other cities, Philadelphia still allows assessors to moonlight as private appraisers, a practice that experts say could lead to conflicts and corruption.

    The agency is often clueless about the rules of modern government. Meade, the chairwoman, said she didn’t realize the BRT, like other public agencies, is required to conduct its business in public.

    “I have to say I had a deficit in my knowledge of that,” said Meade, a lawyer.

    The BRT’s secretive nature can be a problem for taxpayers. People who lose their assessment appeals are rarely given a reason. The board deliberates behind closed doors, then mails taxpayers a form letter with no explanation.

    There are often no answers in the agency’s files, either. For buildings big and small, records are a disaster.

    In one recent audit, the city controller said assessors couldn’t explain why they shaved a total of $39 million in value from five big buildings.

    “Market-value reductions for millions of dollars were processed without any documentation or cause,” the controller said.

    Those failures left the BRT exposed to mistakes and “the risk of willful manipulation.”

    Let’s make a deal
    David Glancey says he arrived at the BRT in 1983 to find a political backwater, adrift with no real direction.
    When he became chairman five years later, his solution was to make the big decisions himself, never mind the rules.

    “What I succeeded in doing was running an efficient and very honest operation,” said Glancey, a lawyer. “I took up a lot of space on that board. That was the way the board was happy, it seemed to me at the time.”

    On Glancey’s watch, the board regularly met privately to hike assessments citywide, effectively raising property taxes.

    In hundreds of meetings involving some of the city’s most expensive real estate, Glancey also made the call to slash millions from building values.

    Sometimes, he even made up his own appraisal methods.

    In 2003, Craig A. Spencer, the Arden Group’s president, met with Glancey to seek a cut in the luxury Ritz-Carlton’s $35 million market value.

    The hotel, which opened in 2000 across from City Hall, was suffering financially with extraordinarily high overhead and low occupancy, Spencer argued. He said $10 million would be more accurate.

    Gerace, the assessor, did calculations using the hotel’s revenue figures and came up with $38 million, BRT records show.

    A lot was at stake: At $10 million, the Ritz would have paid $264,500 taxes in 2004. Using Gerace’s figure, the payment would have topped $1 million.

    After his meeting with Spencer, Glancey scribbled his own calculations on a sheet of paper, figuring the Ritz’s total rooms, rates, and occupancy.

    “It’s a quick and dirty way to get there, but it’s fairly good,” he said in a recent interview. “It’s a good eyeball.”
    He placed the new value at $19.5 million, for a tax bill of $515,673.

    When presented with copies of his own notes, Glancey couldn’t explain how he did the math, but defended his number as correct.

    Glancey then gave the Ritz-Carlton another special deal: For five years, beginning in 2005, the BRT would not increase its value by more than the rise in the Consumer Price Index.

    Tax officials in other cities say that makes no sense. The CPI tracks the cost of items like clothing, food, and medical care, not property values.

    “Absolutely not,” said Griscom, now assistant chief appraiser in the Houston area. “Not hotels or any other business.”

    Glancey acknowledged that it’s not an accepted assessment method, and he said he never used it again.

    “In my mind, quite frankly, it was a throwaway,” he said.

    Gerace, the retired BRT assessor, said $19.5 million was too low and the CPI deal “strange.”

    “What’s the word I’m looking for?” he asked. “Ingenious, to come up with something like that.”

    No other high-end city hotel got a settlement anywhere close to the Ritz-Carlton’s 44 percent cut, records show.
    In making the deals, Glancey said, he tried to factor in what he thought was good for the city. Referring to the Ritz as a “distressed property,” he said he didn’t want the hotel to go under.

    Spencer, a heavyweight political contributor, has given $110,000 to the campaigns of Gov. Rendell and former Mayor John F. Street since 1999. Glancey said politics did not influence the Ritz decision or any of his other private settlements.

    Spencer did not respond to repeated requests for comment.

    Board member Harvey Levin said in a recent interview that he would ask the board to review the Ritz deal.

    ‘Why do you have a board?’

    Glancey’s private settlements did not sit well with some BRT appraisers, who complained to the controller’s office that the deals undercut their work.

    Glancey said he always consulted with assessors but overruled them if he thought the owner’s case was more convincing.

    “I know this is going to sound very unhumble,” he said. “I found that I knew more about real estate than anybody in the room.”

    Maybe so, but Glancey had no authority to make those deals, said City Controller Alan Butkovitz and his predecessor, Jonathan Saidel.

    “If the chairman can unilaterally make the decision, why do you have a board?” Saidel asked.

    Glancey said at least two other members typically signed off on his decisions, though he acknowledged they might not have read them.

    The system worked well for a few lawyers who handled most of these cases. Without a hearing, they were able to win sizable reductions for clients and substantial fees for themselves.

    Lawyers Peter F. Kelsen and S. David Fineman won about three-fourths of their appeals. Fineman handled 273 cases and Kelsen 357 between 2003 and 2007, BRT records show.

    In three appeals, Kelsen, one of the city’s leading real estate lawyers, got the value of Liberty One reduced by $31 million, a tax saving of $819,000 a year. He got $6.5 million knocked off the Commerce Square building and $9 million off Ten Penn Center.

    From 2003 to 2007, Fineman won reductions of more than $150,000 in 34 cases.

    Glancey said no attorney asked for or received any special benefits: “There’s not a chance in the world that I would ever compromise my own personal integrity.”

    Fineman and Kelsen said they got no favors and always had to present good evidence to prevail.

    “Forget the process, but at the end of the day, from a pragmatic standpoint, is the result that was achieved appropriate?” Fineman asked.

    Homeowners who filed appeals with the board were far less successful. In more than 10,000 cases between 2003 and 2007, they lost more than half the time.

    ‘I was pressured’

    There was more than one way to score a break from the BRT. Several former assessors said politics permeated the agency and could skew the setting of property values — sometimes subtly, sometimes not.

    One recently retired appraiser said he regularly was told to review properties after his bosses took calls from City Council members or other politically connected people. They would say: “I got a call on it. Can you check on it?” said the evaluator, who spoke on condition his name not be used. “Go see if you can lower it so they’ll bother someone else.”

    In the case of the tax cut for the Democratic headquarters, near Broad and Walnut Streets, former assessor James Luciani said the message was brutally clear.

    The story starts in late 2004. With the Center City boom well under way, another BRT assessor more than doubled the building’s market value for the 2005 tax bill, from $325,000 to $650,700.

    That was still low. Thomas M. Nocella, a Municipal Court judge who once did legal work involving the building, said the land alone was probably worth about $2 million.

    Other buildings on the block were hit, too, by as much as 80 percent.

    After the tax notices went out, Glancey said he got a complaint from Democratic Party official Carol Ann Campbell. He told her to appeal.

    She never did, records show. But the message got through.

    In an interview, Luciani said he overheard BRT executive director Enrico Foglia talking with assessors, expressing surprise that anyone would be foolish enough to slap a tax hike on the city’s ruling party.

    Next thing he knew, Luciani said, his supervisor, William F. Jamieson Jr., told him to lower the assessment. Jamieson said Foglia “requested that this be taken care of,” Luciani said.

    When Luciani resisted, he said, his boss told him to lower it “for one year.”

    That’s what he did.

    In October 2005, Luciani trimmed the building’s market value to $425,000, which cut the party’s tax bill by $6,000.

    “I was pressured by my supervisor,” Luciani said. “Did I think it was warranted? No.”

    No other building on the block got a reduced assessment, BRT records show.

    The next year, Luciani raised the market value to $700,000. “Still undervalued,” he wrote in the file.

    Jamieson, who retired on Friday, said Luciani’s account was inaccurate.

    “An individual can state anything,” he said.

    Foglia denied Luciani’s story. “He’s full of s—.”

    In an interview, Foglia said he routinely got calls complaining about assessments and simply passed them along.

    “So many properties come through my desk,” he said. “I take it to the evaluator and say, ‘Can you review it?’ Then I walk away.”

    “I help anybody out in the city who has a problem,” he added. “If you called me, or your sister or mother called me, I would do the same thing.”

    Asked whether he spoke to any assessors about 1421 Walnut, Foglia said he couldn’t remember: “Maybe ‘Review it.’ Maybe something like that.”

    Campbell died in November.

    The reduction of $225,700 in market value violates BRT rules; a cut that size should have been approved by a supervisor. There’s no evidence in the BRT file that was done.

    “I can’t tell you what happened there,” Mescolotto said.

    Last year, the BRT found out that Luciani had met with the controller’s office to complain that higher-ups were changing his assessment decisions without justification.

    A worried Luciani sent an e-mail to the controller’s office.

    “The inference is that I was ‘whistle-blowing,” Luciani wrote, saying he was “concerned about any retaliation.”

    Shortly thereafter, Luciani lost his job.

    Mescolotto said Luciani was terminated for violating residency rules requiring city employees to live in Philadelphia. The BRT was told Luciani lived in New Jersey, sources said.

    Luciani says he does live in Philadelphia. He filed a grievance, said board members, declining to discuss his case.

    Luciani says he was canned for telling the truth.

    “I think that was the prime reason for my dismissal,” he said. “That’s it. My life has been hell since.”


    Mysteriously low taxes
    The BRT’s numbers are so chaotic that it’s tough to tell where mistakes end and favors begin.

    One example is 1208-12 Tasker St., the legislative office of former State Sen. Vincent J. Fumo.

    In 2007, an appraiser hired by Fumo’s lawyers said the renovated Tasker Street building was worth $950,000.
    Today, the BRT says its value is $95,000, same as it’s been since 1988, records show.

    Fumo’s neighbors haven’t been so lucky. Since 1997, the BRT has raised the value of every other property on the block; some doubled.

    “Terrible, terrible mistake,” Glancey said. “The evaluator blew it, the assessment director blew it, and the chairman blew it. What can I tell you? That should have obviously been changed.”

    Mescolotto stressed that the Tasker Street property was not unique.

    “We missed it,” he said.

    After The Inquirer raised questions, the BRT searched records and found that more than 5,000 buildings and 4,000 vacant lots had not been reassessed since at least 1989.

    In a city Philadelphia’s size, Mescolotto said, it’s not unusual that 9,000 properties hadn’t changed.

    “I’m surprised it isn’t more,” he said. “We’ll take a long and hard look at them.”

    Mayor Nutter said he found it “a little bizarre” that properties could go unchanged for two decades with all the fluctuations in the real estate market.

    “I’d certainly be interested to hear the BRT’s explanation,” he said.

    Senior assessors in Chicago, Los Angeles, and greater Seattle — all with more properties than Philadelphia — said it was unthinkable that a major commercial property would not be reassessed for 20 years.

    “I can assure you not even a house has been missed for 10 years,” said Rich Medved, deputy assessor for Seattle’s King County.

    With the full-value project, the BRT has finally proposed new values for Fumo’s Tasker Street office and the rest of the 9,000 properties.

    But that doesn’t guarantee the new numbers will be right, or fair.

    All 17 houses in the 1200 block of Tasker would shoot up in value, by an average of 345 percent.

    But BRT assessors apparently figured the boom times skipped over Fumo’s office. The Tasker complex would go up 40 percent, to $133,000. That’s $817,000 less than Fumo’s own appraisal.

    Back from the dead
    Repeatedly, when asked to explain assessment decisions, BRT officials simply shrug. Employees don’t file paperwork, they say. Files are lost. Assessors die and take answers to the grave.

    For years, board member Joseph A. Russo has benefited from an inexplicably low assessment on one of his properties, a brick two-story rowhouse at 821 Porter St., records show.

    In 2000, the year Russo took title to the house, the BRT lowered its market value from $22,000 to $10,600, trimming Russo’s tax bill to $280 a year. At the time, he was working as an evaluator in South Philadelphia.
    Since then, Russo’s taxes have been about half what the 22 other homeowners on his block pay. (That would change under full value; his assessment would go up about 800 percent.)

    Russo declined repeated requests for comment.

    Mescolotto could not explain why Russo’s house value was so out of whack. He said that the records were missing, and that the assessor, Elaine Holloway, had died.

    At least, he and others at the agency thought she had died.

    An Inquirer reporter found her in East Oak Lane. Holloway, who retired three years ago, could not recall the details of Russo’s property. But one thing stuck in her mind.

    She said Foglia, the executive director, repeatedly asked her to “take another look” at properties after he received calls.

    “That’s all he would say: ‘Take a look at it,’” Holloway said. She said that she never yielded to pressure, but that the environment was difficult: “You got to keep your job.”

    In 2007, it became clear just how easy it would be to put in a fix at the BRT.

    That year, veteran assessor James F. Lynch admitted taking $20,000 from a developer and lowering the assessments on his properties around the same time. In one case, Lynch helped reduce the market value on the old Western Union building at 11th and Locust Streets from $4.6 million to $1.6 million.

    The developer, James F. Campanella, told investigators that calling an assessor was easier than hiring a lawyer.
    He and Lynch pleaded guilty and got probation instead of jail time.

    Meade said the board was cleaning things up.

    In December, the BRT adopted a rule requiring the board to sign off on reductions greater than $50,000.

    Members voted on it at a private meeting.

    As for pressuring assessors to make improper changes, she said, “That doesn’t happen now.”

    And in appeals involving high-end properties, the BRT now asks for written evidence, such as an appraisal, to justify any reductions.

    In a recent two-hour interview, board members Meade, Nigro, and Nix said the BRT needs an overhaul but insist the agency can handle its mission.

    In fact, they said, the BRT’s independence from City Hall protects the integrity of the assessment process. Otherwise, politicians might be tempted to boost assessments to create more revenue.

    Once the new, full value numbers are in place, they say, many of the BRT’s problems will be solved.

    Said Nix: “If the values are fractional, they can be manipulated. If they are actual, they cannot be.”

    Contact staff writer Mark Fazlollah at 215-854-5831 or mfazlollah@phillynews.com.
    Inquirer staff writers Anthony R. Wood, Dylan Purcell, and Craig R. McCoy contributed to this article.

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