Dear Mayor Kenney;
I am writing to express concern about the residential real estate assessment design used by the City of Philadelphia. The current system creates harmful pressures on existing residents whenever concentrated construction and/or rehab drive up property values.
Increased property values and increased occupant density are both good for the City’s operating budget, of course. And it is also true that the net worth of residents in reviving neighborhoods often see great gains. But this financial benefit is no benefit if residents must take out loans to pay for skyrocketing real estate taxes; or worse, if they must abandon their homes because they cannot afford to live in them. No government policy should drive residents from their homes.
The City has made attempts to address this problems using the Homestead Exemption and LOOP but, frankly, these options fall far short of addressing the inherent threats of the Philadelphia property tax system.
Philadelphia would be better served by a self-assessing system in which property taxes are established on the basis of actual sales price. Sales price is a real measure of property value, since the buyer has demonstrated willingness to pay that price. These prices are also confirmed by loaning institutions, since they assess properties for which they intend to provide mortgages. Bank assessments tend to be more thorough and accurate than City real estate tax assessments.
A self-assessing system provides two immediate benefits. One, the City does not need to do the assessments and, two, owners will not appeal assessments since they have already agreed to them via the mortgage process. Both of these benefits represent savings in City staff time and, therefore, the City’s budget.
Of course, this leaves the question of determining tax rates for the intervals between property sales. I suggest that real estate taxes are adjusted automatically, annually, based on a standard inflation measure, such as the Consumer Price Index. Using such a method would effectively keep real estate taxes flat, both for residents and for the City’s budget needs, reserving more dramatic changes for the times of actual sales. There is no reason current assessments could not serve as the starting point for this system. A two or three-year transitional period from the current system would allow for tax assessment appeals. In any case, it would not take many years before all Philadelphia properties would be assessed by actual sales.
One concern might be that Philadelphia would lose taxes by this change, since appreciation outpaces inflation. Recent studies suggest otherwise: that, over time, property appreciation reflects inflation fairly closely. In all likelihood, since adjustments would be annual and automatic, and therefore more current, tax collections would actually go up. At the same time, citizens would experience less distress, since adjustments would be small and predictable.
There would be special cases, of course. One such case would be interfamilial transfers. Technically, these properties are sold, but prices are such that the transactions are essentially hand-offs. I recommend that, if the new owner can prove to be an immediate relative and to have lived in the property for at least one year, the property tax should be increased 10%, subject to the right of appeal, in keeping with current practice. Where low-cost transfers do not meet the qualifications just noted, the City should perform a full assessment, according to current practice.
There are other reasons to undertake this property tax assessment change. One is that the current system discourages homeowners from making property improvements. This is bad policy. When homeowners improve their properties, not only do properties gain value, the improved properties contribute to community well-being. Well cared for properties demonstrate respect for neighbors, not to mention they are more pleasant to the eye. Homeowners should be encouraged to improve their properties, not punished.
Another benefit of the policy change is that it would support the City’s objective of ghetto avoidance. Where property taxes are limited and stable, low income owners will be able to stay in their homes, even when their neighborhoods are experiencing gentrification. This stability encourages both racial and economic mixing in the City. By pushing back against ghettoization, there should be a general diminishing of areas in the city characterized by deep poverty (and all the accompanying social ills).
I know you share my interest in making Philadelphia a better place, especially for those who live here. Please consider carefully how this proposal might significantly contribute to that aim. I do thank you for your service as mayor, and for your time and interest in this recommendation.
Sincerely,
Easton Omither
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