DN Editorial: Value proposition: Property-tax overhaul necessary

MAYOR Nutter's budget address this morning will surely be less dire than in past years, when the economic meltdown led to big budget cuts.

That's not to say there are not land mines in the overall budget picture. Yesterday we talked about two of them - how the city will respond to the school district's need for help with a big deficit, and the underfunded pension problem. Those are small potatoes compared with the biggest one, which in fact is so big, we're counting as two: the change in how the city values and taxes property.

The city is moving from a system that is not much more scientific than throwing darts at a dartboard to property taxes based on actual and uniform values.

The city has been staggering toward this change for nearly 10 years, and revenues based on the new system will show up in the new budget as $90 million more for the schools, as well as more for the city. That money comes because the new tax system will more accurately capture actual values of properties, which the city estimates have risen about 25 percent since 2004, the last time assessments were done.

Yes, that will mean higher tax bills for some. Maybe even much higher. But those getting higher tax bills are likely those who have benefited for years from a broken system that has effectively assigned arbitrary values to properties - deflated in some cases, inflated in others.

For example, suppose you live in a house you paid $125,000 for in 2004. The city has valued it at $60,0000 (don't ask how the city has valued your neighbor's house, which, while might be identical to yours, could have a value even lower.) Your tax bill, which has been artificially low, will now go up to reflect the actual value. This isn't a tax hike, though it is a higher tax bill. (An important distinction - though if you're writing the check, one you may not appreciate.)

Consider the homeowner whose $20,000 house has been valued and taxed at $45,000. He will now likely pay less ... not enough to make up the difference of how much he overpaid all those years, but still less.

Seniors don't have to worry, since they will get a special exemption. And everyone will get a homestead exemption, which is worth $15,000 in value (that means a bill based on the new true value of a $125,000 house will be taxed at a $110,000 value. Got all that?

The land mines on AVI (actual value initiative) are everywhere: from outrage from well-heeled constituents (those most likely to get higher bills) to City Council's refusal to enact the changes needed for the new tax bills to go out.

This is not a painless change. For some, it will spark a debate about the value we receive for the taxes we pay - and even the value of living in Philadelphia. That's one big land mine.

But better to fix this now than try to keep people happy, when that happiness has been based on an unfair, broken system.