Philadelphia's citywide property reassessments in 2012 will be used to raise 20 percent more property tax revenue than was collected last year, Nutter administration officials said Tuesday, even as they announced that Gov. Corbett's budget would be less than devastating to city finances.
The 2012 reassessment, in which all properties are to be assessed at market value, will hit each property owner and neighborhood differently, with some seeing higher tax bills, some experiencing lower bills.
But the city expects to bring in about $200 million more than the $1 billion collected in 2010 for the city and school district.
The state budget cuts will hurt education and health care in the city but will not devastate city government, a top Nutter administration official said Tuesday.
After months of fretting about the fallout from Corbett's budget cuts, city officials now say that the expected direct impact on the city's general fund did not meet their worst fears.
"Our analysis suggests while the governor's budget makes some painful cuts to key city services, the proposal will not hit as hard as some may have predicted," Clay Armbrister, Mayor Nutter's chief of staff, testified Tuesday morning in the year's first budget hearing before City Council.
The cuts include:
$7.5 million less for the city's Department of Human Services, specifics to be determined.
A $2.4 million cut in the Human Services Development Fund for homelessness.
A $2.3 million reduction in Human Services Development Fund money for HIV prevention, lead abatement, and services at city health centers.
$1.9 million less for after-school and summer youth programs.
While the 2011-2012 budget appears relatively stable, without any new tax increases, City Finance Director Rob Dubow acknowledged in the first in a series of budget hearings that the city in 2012-2013 plans to raise about 20 percent more revenue for the general fund and school district from property taxes. This would be done through a planned citywide reassessment of property values, called the Actual Value Initiative, by factoring in growth in property values.
The roughly 20 percent figure includes the reassessment and corresponding increase in revenue of about 10 percent plus the temporary 9.9 percent tax hike now in effect.
That revenue will translate into an additional $86 million for city coffers and about $120 million for the struggling Philadelphia School District by 2012-13.
The Actual Value Initiative (AVI) is meant to correct long-standing inequities in property assessments across the city. Values are currently so inconsistent or inaccurate that Nutter froze reassessments on most properties last year.
Critics question whether trying to catch up on missed increases in property values - and the increased revenues they bring - will endanger the reassessment project, always a perilous endeavor for any politician.
"It totally puts AVI at risk and threatens to ensure that we never fix real estate-tax values in Philadelphia," said Brett Mandel, an advocate of full reassessment who has sued the city to force it to correct its inequitable property-tax system. "When citizens see that this is a backdoor tax increase, they're going to go nuts."
Dubow acknowledged the Nutter administration's approach on Tuesday, when questioned by Councilman Bill Green during Council budget hearings. Dubow said the city would compensate for the rise in property values missed by a two-year assessment freeze, and up to a decade of incomplete assessments, to capture the growth in the real estate market.
Dubow estimated that properties had increased in value about 2 percent a year for 10 years, but could not provide any data to back up his assertions after the hearing.
"We're projecting that the net impact of the years we've missed is a substantial increase in values," Dubow said. "Obviously it's a projection. . . . If the projection is wrong, we'll have to make other adjustments next year in the budget."
Robert P. Strauss, a professor of economics and public policy at Carnegie Mellon University, is a close observer of Philadelphia's attempts at reassessment, as well as the still simmering controversy over reassessment in Allegheny County.
In Philadelphia, Strauss said, the city and school district's desperate need for funding, and the political fallout that will come with AVI - with or without a tax increase folded in - should override the ideal situation of "revenue neutrality."
"Historical inequities are going to be corrected in one fell swoop, and the losers in this change are going to be very angry," said Strauss.
"This is not a financial situation that you can be a perfectionist - there's just a gaping amount of red ink," he said. "You might as well pick up some more money when everyone's mad at you."
Green disagreed, saying the Nutter administration was doing what the Board of Revision of Taxes had been accused of for years.
"It is the very system that administrations have used for the past 30 years," Green said. "It's a continuation in one, big, final hurrah of the unfair, inaccurate system."
Council's majority whip, Darrell L. Clarke, was unapologetic for wanting to maintain the additional $86 million brought in by the 9.9 percent tax hike. That eliminated the need for a $300 residential trash fee, he said, that would have hurt lower-income property owners more than the tax increase.
When AVI comes online, Council will have to adjust the tax rate downward to compensate for higher assessments. If assessments are based on true property values, and the administration has chosen a target revenue goal, then the tax rate is the only variable that matters.
Kevin Gillen, vice president of Econsult Corp., was a consultant to the Philadelphia Tax Reform Commission in 2003, and to the Board of Revision of Taxes to develop more accurate valuation models for AVI.
"Be honest about the fact that you are doing this, and that you should use a change in the tax rate rather than a change in assessments to do it," said Gillen. "Setting a tax rate to achieve a revenue target is fine, but they should openly acknowledge this as well as open it to public debate."
That issue will likely continue to be the subject of debate in budget hearings.