Despite last-minute politicking from Mayor Nutter, City Council on Thursday night reached a deal to put his controversial property- tax overhaul on ice for a year and provide less than half the schools funding he requested.
The decision was a major defeat for the mayor, who just a week ago appeared to be on track to get approval for the plan to move to a property-tax system based on market values, known as the Actual Value Initiative (AVI), for the 2012-13 fiscal year. Council instead gave preliminary approval to budget bills that would delay AVI for a year and would provide $40 million in schools funding through a small property-tax hike and an increase to a business tax known as the use-and-occupancy tax. The plan could get final passage next Thursday.
"We are moving toward a process, but we are simply not prepared to do that now because we don't have any numbers that reflect the outcome of whatever action we take and we just don't feel that it was prudent, appropriate," said Council President Darrell Clarke. "And we don't think it's fair to the taxpayers of the city ... to enact legislation without any numbers." He stressed that the deal wasn't finalized and could be revised before the end of June.
Support waned for the mayor's plan over the past week as Council members grew increasingly nervous, raising questions about the fact that assessments will not be complete by the June 30 budget deadline and that state-enabling legislation had not yet passed.
Council's biggest gripe was that it couldn't get firm data from the administration on property values and the likely tax rate. In April, the administration provided Council with charts suggesting a possible 1.2 percent tax rate under AVI, but officials more recently said that a 1.8 percent rate could be possible, based on a new estimate of the total property values in the city.
"I don't want to guess at one of the most important votes of my career or one of the most important votes in the city's history," said Councilman Jim Kenney. "I don't want to guess at the number so we're going to put it off for a year."
Nutter, who had been in Orlando this week for the annual meeting of the U.S. Conference of Mayors, jetted back to Philly Wednesday night to try to revive the deal. He spent most of Thursday huddled in his office with Council members. But those on Council were not swayed by administration arguments that without AVI, the city could face costly appeals.
"We believe those concerns can be handled by action in Harrisburg," said Councilman W. Wilson Goode Jr.
Nutter, who was returning to Orlando Thursday night, was not available for comment. Finance Director Rob Dubow said the administration would continue to work with Council in hopes of amending the plan. Schools spokesman Fernando Gallard said the district remains "cautiously optimistic" that Council will support their efforts.
The legislation includes the third property-tax hike in three years and would raise taxes by 3.59 percent to provide $20 million for the school district — meaning an additional $35.90 would be placed on a tax bill of $1,000. Two property taxes billed as temporary will also be made permanent in this plan. The legislation also states that AVI will be implemented in the 2013-2014 fiscal year.
To generate another $20 million for schools, the bills would also raise the use and occupancy tax, which taxes the square footage of the business portion of a property, from 4.6 percent to 5.5 percent of assessed value The impact to a business will depend on the amount of space used and the assessed property value of that space.
Critics of AVI have flooded Council in recent weeks, hammering the mayor for trying to implement the plan before values are established and for attempting to collect more revenue in what they call a "back door" tax hike. Members where property assessments were likely to skyrocket — like in many recently gentrified neighborhoods — have been vocal with their concerns.
"A lot of places in my district have gentrified. Therefore some of the elderly and some of the people who don't have the means to pay the taxes, we didn't have the proper safeguards in place," said Councilman Mark Squilla.
This chaotic budget negotiation was a major challenge for the new Councilpresident. Initially Clarke appeared to be pushing a deal to do AVI and more schools funding. But as support started lagging, he began seeking support for the plan to delay instead.
Nutter lobbied hard for more funding for the school district, but Councilwoman Blondell Reynolds Brown said this deal provided as much schools funding as Council could do.