Committee Hearing, October 25, 2005

COUNCIL OF THE CITY OF PHILADELPHIA COMMITTEE OF THE WHOLE - - - Room 400, City Hall Philadelphia, Pennsylvania Tuesday, October 25, 2005 10:15 a.m. - - - Resolution No. 050844 PRESENT: COUNCIL PRESIDENT ANNA C. VERNA COUNCILWOMAN JANNIE BLACKWELL COUNCILMAN DARRELL L. CLARKE COUNCILMAN FRANK DiCICCO COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN JACK KELLY COUNCILMAN JAMES F. KENNEY COUNCILWOMAN JOAN L. KRAJEWSKI COUNCILWOMAN DONNA REED MILLER COUNCILMAN BRIAN J. O'NEILL COUNCILMAN JUAN RAMOS COUNCILWOMAN BLONDELL REYNOLDS BROWN COUNCILMAN FRANK RIZZO RESOLUTION 050844 - Resolution authorizing Philadelphia City Council's Committee of the Whole to hold public hearings on the Board of Revision of Taxes's proposed change in property tax... - - - V A R A L L O Incorporated Litigation Support Services Eleven Penn Center 1835 Market Street, Suite 600 Philadelphia, Pennsylvania 19103 215.561.2220 215.567.2670 2

Good morning, everyone. This is a public hearing of the Committee of the Whole regarding Resolution No. 050844. I would ask Mr. McPherson to please read the title of the resolution. MR. McPHERSON: Resolution 9 authorizing Philadelphia City Council's Committee of the Whole to hold public hearings on the Board of Revision of Taxes's proposed change in property tax assessment, known as "full valuation," the policy's need and fairness, its effect on taxpayers, and possibilities of mitigating large tax increases.

Thank you very much. I would like everyone to know that today we are going to simply hear from the BRT and the Administration, and we will then continue the hearing to another date. So everyone is welcome to stay; however, if you have other business and you think you're going to be called 3 10/25/05 - WHOLE - RES. 050844 today for testimony, I just wanted to make the announcement that it will just be the Administration testifying. At this time, the Chair recognizes Councilman DiCicco.

Good morning and thank you, Madam President, and good morning to everyone who is in attendance today. I just have a brief opening remark to hopefully set the tone for these hearings over the next three days, or actually over the next week or so, but three days of hearings. For the past several weeks, my staff and I have met and spoken with various experts, interest groups and constituents regarding the Board of Revision of Taxes' Full Value Project. We have run numbers and looked at exactly what effect this proposal will have on various neighborhoods. We have researched other cities' and states' property tax relief. We have explored possible buffering techniques, like 4 10/25/05 - WHOLE - RES. 050844 circuit breakers, deferrals, caps, homestead exemptions, truth in taxation programs and phase-ins. We have talked, read and calculated, and after all of it, one thing is abundantly clear, this whole topic is pretty damn complicated. So that's why I called for this hearing, to gain clarity and dismiss misconceptions, to ask questions and hopefully get answers. Questions like, What exactly is Full Value Project and what does it mean to various neighborhoods throughout the City? Why is the BRT proposing full valuation? How will properties be assessed and how can we guarantee that those assessments are accurate? Will we commit to our constituents that we will not take this opportunity to fatten the City's coffers or increase our debt service? Will we promise to lower the tax rate to an appropriate level, and what is that level? Will we guarantee the proposal to be revenue neutral? What does revenue 5 10/25/05 - WHOLE - RES. 050844 neutral mean? Will this proposal have a negative impact on the real estate market and further force the middle class out of the City, or will the full valuation harm small business or further hamper our efforts to bring new businesses? Most importantly, how can we protect those who will see dramatic increases in their property tax bill? How can we protect seniors and others on fixed incomes? How can we protect the working poor? My constituents and I, as all of us, are asking all of these questions and more. This must not become a political exercise to make people feel good or bolster our own political careers. Political answers to real questions and fears will only damage the long-term future of Philadelphia. Instead, we must find real answers and we must propose workable appropriate policies for the coming tax year. To the witnesses that have 6 10/25/05 - WHOLE - RES. 050844 agreed to testify, I thank you and look forward to your expertise. Finally, I look forward to tackling this issue with the cooperation of my colleagues and the Administration. By working together, we can address our constituents' fears while building policies for the City's long-term fiscal health. Thank you.

Thank you. Councilman, was it your intent to also have the experts testify today or on the 27th?

I believe on the 27th. On the 27th at 1:30 p.m.

Very well. Thank you. Good morning. Welcome. Mr. Glancey, I would ask that you introduce yourself for the record and proceed with your testimony.

Thank you. Good morning, Council President Verna and 7 10/25/05 - WHOLE - RES. 050844 members of City Council. Before I begin the testimony this morning, let me just introduce a few folks so you know who is with the BRT this morning. Sitting at the table with me is the Vice-Chairperson of the Board, Charlesretta Meade, and the Secretary of the Board, Robert Nix. Also, we have other members of the Board here. We have Board Member Harvey Levin, Dveral Silberstein and Joseph Russo, and we have the Executive Director of the Board here with us today, Ricky Foglia. There's two vendors I would just like to introduce to you, because they're very involved in what we're doing with the Full Value Project. First, our data conversion partner and someone who has partnered with us on our website in the past is Ben Barnett from Media Bureau Professional Services, a local software firm and a computer firm. And, finally, we have the representatives from Colorado CustomWare, Inc. here today, and the 8 10/25/05 - WHOLE - RES. 050844 President of the firm is Lori Schlotter, and she is here, and the Project Manager for this project, Nancy Roldan is here, and all of those folks will be happy to answer any questions. We can make room 7 for them here at the table if anybody has any questions about their particular processes. So with that, on behalf of the Board of Revision of Taxes, I applaud City Council for its willingness to open a public dialogue on the issue of full market valuations of real property, what we call the Full Value Project. Let me say at the very beginning of this testimony that we're not here to raise anyone's property taxes in the City of Philadelphia. That's not our job at the BRT. We don't decide whether property taxes rise or fall. That difficult job belongs to the Mayor and to you fine ladies and gentlemen on City Council, because the Mayor and City Council set the tax rate for the City. 9 10/25/05 - WHOLE - RES. 050844 At the BRT, our job is to determine property values for all 568,000 commercial and residential properties in the City of Philadelphia. Setting values is all we do, and what's more, we're required by state law to do that. So at the outset, I want to be very clear about why the BRT has launched the Full Value Project. State law requires the BRT to value all properties in the City at full value. We don't decide tax policy. We merely help you define the parameters of the tax debate by setting values as accurately as possible. And make no 17 mistake, the most accurate valuation we can achieve is to value properties at their full market value; in other words, what a property would sell for on the open market. It simplifies the process and makes it easier to understand. Most property owners know the value of their property. The Full Value Project is based on that simple 10 10/25/05 - WHOLE - RES. 050844 understanding. The market value of your home or commercial property in Philadelphia now will become the basis for your property taxes as well. No more complicated formulas or fractional assessments to try to calculate property taxes. With full value, the equation is simple: Market value times the tax rate equals property taxes on any property in the City. As I said, full value is state law in Pennsylvania. Nearly 40 percent of all Pennsylvania counties use this method, including our neighbors in Chester, Delaware and Montgomery Counties. We now have the resources and state-of-the-art technology to achieve full value, and that is why we're moving ahead with setting accurate property values throughout the City. Just a quick commercial about the technology. Earlier this year, after reviewing proposals from many of the most 11 10/25/05 - WHOLE - RES. , to help us design, install and run a state-of-the-art Computer Assisted Mass Appraisal system. The so-called CAMA system will allow us for the first time to set and maintain accurate property values for all 568,000 properties in the City.

4 million over four years, particularly since other municipalities and counties have paid millions more than we will pay to implement full value appraisals. I'd also, just as an aside, I'd like to note that Colorado CustomWare, Inc. is an accredited WBE. It is a 100 percent-owned women's business enterprise. As I said, full value is the act of setting market value rates on all 12 10/25/05 - WHOLE - RES. 050844 properties and maintaining those values from year to year. Since real estate taxes are based on multiplying the property value times the tax rate, starting in 2007, the value is one half of the equation: Market value times the tax rate equals property tax. This fundamental reform of the system makes it easy to understand and improves taxpayers' confidence by making property valuations fair and uniform. In response to some of the points that Councilman DiCicco raised, what full value is not is a back-door tax increase or an attempt by the City to cash in on a hot real estate market or an unfair tax on senior citizens and the poor, because full value is merely about setting accurate property values. In doing so, we make it clear that responsibility for all decisions concerning property values rests with the BRT. Responsibility for taxes rests with the City's elected officials. 13 10/25/05 - WHOLE - RES. 050844 What will happen as a result of full value? 8264 per $100 of assessed value. And as we go through this, there are charts that I've attached to the back of this testimony where we can see that in a dramatic fashion. The policy question that you control is, how much does this tax rate decrease. It is possible to reduce the rate to a level that would make full value revenue-neutral; that is, reduce to a level where most properties would see either modest decreases or no changes at all in their taxes. Yet, there is no question that full value will cause increases for others, especially those whose properties have been severely undervalued for many years. The question for these 14 10/25/05 - WHOLE - RES. 050844 properties will focus on whether tax increases should be phased or buffered to prevent property tax sticker shock for homeowners. Let me be as clear as I can be. As the Chairman of the BRT, I have no 8 opinion on how City Council and the Mayor choose to set the tax rate. That is your job. But as a Philadelphia taxpayer, I am just as concerned as all of you in making sure that the tax system we create is fair, uniform and affordable. And even though full value does not begin until 2007, the time to begin thinking about these issues is right now. I'd like to turn to the charts. If I could ask Joe Faraldo, if you don't mind, would you please go up. First of all, I think we have to move it closer so that everybody can see. If you can move the whole apparatus closer. However, as I said, in the back of the testimony, there are copies of those charts. Can you see now, 15 10/25/05 - WHOLE - RES. 050844 Councilwoman?

We have them.

I'm going to work off the copy, because it's a bit hard to see. The first two charts that I'm going to show you, these are slides that have been on our PowerPoint for over a year and a half. These are slides that I've taken out to or community 12 organizations. So the reason I say that 13 is that a couple of the numbers are 14 somewhat dated, but we're not here to 15 talk about those numbers specifically. We're really here to talk about the concept behind those numbers. If you would turn to on the chart where it says 2005 and look at the total market base, it is 30 billion 9, roughly. That number was created in 2004. It's somewhat higher today. 08264. So if we take 32 percent of the 30 billion 9 16 10/25/05 - WHOLE - RES. 050844 and multiply it by the millage rate, the entire tax base yield for the property taxes -- and this includes the School District and the City. 7 million in tax yields. If we move over to the 2007 hypothetical, you see the total market value base of about 42 billion 7. We simply added 30 percent on top of the 30 billion 9, kind of a quick and dirty calculation just to give you the sense of what 2007 may be. Again, I believe that will be a higher figure. The ratio is now one to one. It's 100 percent. 9 mills roughly, 1909 mills. You can see, that's a dramatic reduction. That's 17 10/25/05 - WHOLE - RES. 050844 about an 80 percent reduction in the current millage rate. If we can go now to Chart No. 5 2, Joe, if you're around. Joe, if you go to Chart No. 2. This chart is something that folks in the community groups I've attended really understand well. " That's currently happening. That's a real number and that's what happens today. Now look at the house -- we read this going across the top of the chart. Let's assume in '06 that the house valued at $100,000 is really a $125,000 property or it's 80 percent of what the full value is. So in '07, it's going to be valued at $125,000. I'm using the hypothetical 1909 millage rate from the chart before, and as you see, I will use that throughout. 18 10/25/05 - WHOLE - RES. 050844 You note that the taxes on that property in '07 will be $2,386, about a $300 savings from what it is currently in 2006. The second property is kind of the great middle where we have the City-wide average being somewhere in the 70, 71 percent of market value to actual sale price. Again, a $100,000 property is in fact worth $140,800, almost $141,000. Significant increase in value. Using, again, the hypothetical millage rate that we extrapolated, the taxes on that property will be $2,687. Basically a wash from what they are paying in '06 to what they would pay in '07 under the full value example I'm using. Thirdly, this is an example of what we call the severely undervalued property. In '06, it's a $100,000 market value, but it's really a $200,000 property, and so, therefore, it's 50 percent under value. We take that 19 10/25/05 - WHOLE - RES. 050844 $200,000 property value in '07, multiply it by the hypothetical tax rate of 1909, you see there is a property tax increase in that property. It's about a $1,200 increase to 3,818. Two observations I would make. Number one, we have to be there anyway, and under the current system, taxes on that property, if we have to be there anyway, would be double what they're paying today. It would be over $5,300, if we moved it to $200,000 and used today's tax rate, with our same fractionalized system that we're doing today. The other thing I might add is that this is something that we're going to be talking about, I suppose, during the questions and answers, is there may be tax buffering. There may be methods within which that kind of dramatic increase can be softened at least over the first several years. And the final chart that we 20 10/25/05 - WHOLE - RES. 050844 have, if you can move that, Joe, this is a chart we prepared specifically for this hearing, and we did this to show dramatically that it's all about the tax rate.

First, just please look at the asterisk at the bottom of the page. 32, times the tax rate. If we take a $250,000 property and simply at 100 percent use the current tax rate -- I did this, as I said, to dramatically show you why the tax rate is so important -- that taxes would be over $20,000. I'm sure that nobody wants that to happen and nobody here is suggesting that something like that could happen, but I just use that as an example to show the dramatic differences that you could have when you look at No. 2. Look at the second line where it says "2007 full market value," using the same 21 10/25/05 - WHOLE - RES. 050844 hypothetical millage rate that we have used in the other two charts. The 2007 taxes would be $4,772. A small increase, about a $70-some increase from what it is in 2006. And we put down the third rate of mills, again, simply as an 9 illustration to show what -- that is all 10 about the tax rate, how important it is. 11 And the reason we put down the 15 mills 12 is because I think that the higher the 13 taxable assessed value -- in our example, 14 we're using like $42 billion. I believe 15 it will be higher. The higher the taxable assessed value, the lower the millage rate can be to make it revenue-neutral. I'm going to go back to my testimony now, if I can find the where I was. During the past year, BRT employees have been collecting, reviewing and verifying data on property characteristics that impact value all 22 10/25/05 - WHOLE - RES. 050844 over the City. We've had teams of evaluators in neighborhoods looking at properties from street level. We've employed Pictometry, a system that allows us to accurately view external property conditions from aerial photographs, and we've been building the CAMA system and making it work in conjunction with the City's other computer systems. Next year, we begin testing the entire process, with the goal of going live with full value in 2007. And the next part of this testimony I think is very important for -- Councilman DiCicco, certainly you've raised some of these issues, and Councilman Kenney has. Let me assure you that our goal is to switch to full value only when we're sure the system works. The mantra we've been using is, we want to get it right before we get it fast. We believe that our aggressive schedule is one we can meet, and we are 23 10/25/05 - WHOLE - RES. 050844 pushing very hard to make that schedule. However, the system must work before there's any changes in the system. We're going to take our time, if we must, and we're going to get it right. Taxpayer confidence in this system demands nothing less than complete accuracy. When full value begins, it will be a very good thing for Philadelphia. It will make the property tax system easier to understand: Market value times the tax rate equals property taxes. It will create an accurate set of values for all City properties, one that can be maintained every year thereafter. The appraisals will be fair and reliable, and taxes that are built upon those valuations will be more predictable and equitable as a result. Most important, it will place decisions about tax policy where they belong, in the hands of our elected officials. Full value in this sense is really a building block for comprehensive 24 10/25/05 - WHOLE - RES. 050844 tax reform. Decisions about reducing any of Philadelphia's other taxes, wage taxes, for example, or business taxes, are dependent, to a great degree, on the amount of revenue the City collects in property taxes. As the Tax Reform Commission concluded when it recommended market rate valuation for all properties in Philadelphia, these types of tax-shifting issues require accurate property valuations as the starting point for any reform. We recognize that this is an issue that people feel passionately about.

We've been organizing and participating in community meetings throughout the City this year, and I can assure you that when it comes to property valuation and property taxation, people care very deeply about the impact of any change whatsoever. At the BRT, we welcome this debate. It's long past time for 25 10/25/05 - WHOLE - RES. 050844 Philadelphia to simplify its property tax system so that our citizens can understand and have confidence their taxes are being set in a fair and uniform manner. I applaud the members of Council and the Mayor for engaging the public on this issue. It is time for full value in Philadelphia, and the more people can learn about it, the better off we'll all be, government and taxpayers alike. And with that, I thank you for listening to our testimony today, and we are here happy to answer any questions that you may have.

Thank you very much. Mr. Glancey, you state in your testimony that state law requires the BRT to value all properties in the City at full value. Will you explain what full value is?

Right. 10/25/05 - WHOLE - RES. 050844

And are you also insinuating that the BRT has not been in compliance with state law until now?

Well, I think that's a great question. Number one, what the statute says is that all property within the county, now or hereafter made taxable by law, shall be valued by the assessors and assessed by the Board at the actual value thereof. In arriving at actual value, the county may utilize the current market value or may adopt a base year. So it says that we should value properties at their actual value. Sales are not controlling, but they indicate what actual value is. And what we've done in the past is, what we've attempted to do is to take the actual value of property and when we've taken the actual value of property, we've taken a percentage of that actual value uniformly across the City and then 27 10/25/05 - WHOLE - RES. 050844 have used the fractional 32 percent ratio in order to find our taxable assessment. If you're asking me whether we were not in compliance, I think in the very literal sense we probably were not. We probably should have been at 100 percent of value since this Act was passed, but we believed we were in compliance because we treated all properties uniformly. And with that, I think at least we were trying to comply with the spirit of this statute.

I think you said something about the base year. What do you mean by "base year"?

What the statute means by "base year" is, that is, you can take a given year. Let's say you take this year's value, 2006 value, and you use that as the base valuation going forward, and you increase the values based on, I guess, inflation or other kinds of sales activity that takes place on top of that base year. 28 10/25/05 - WHOLE - RES. 050844 There is taking place in Allegheny County now, there is discussion about what the base year means, and what they're saying base year means is, it's frozen at the level of the base year. I think they're absolutely wrong in that and I think it will probably end up in court. You really can't freeze assessments in the Commonwealth of Pennsylvania. So a base year is simply let's take a value, whatever the value is on a property this year, use that as the basis for any increases that go forward.

Mr. Glancey, why do you believe that the BRT is now able to move to full value while in the past you were not able to do so?

Well, a couple of really good reasons. One, thanks to you folks and the Mayor, you've helped us with the ability to buy some technology that currently exists that has never existed in the past. 29 10/25/05 - WHOLE - RES. 050844

I hope we're not sorry for that.

I'm sure you won't be, Councilwoman. The technology today is just so far advanced from what it was four or five years ago. So the funding and the technology, we believe, are the best answers to your question that we can. With the help of our partners in doing this, we will certainly be able to get the best possible and most accurate values on property today.

Can you tell us for the record what is spot assessment? What factors other than sales do you take into consideration when valuing a property?

The definition of spot assessment is to treat one property of a group of properties in a different way. It usually means to increase the value of one property in that group so that it is not uniform with all the other 30 10/25/05 - WHOLE - RES. 050844 values in that group. Other than sales, we take into consideration all the property characteristics of a property. What we will do is, say, if a home has a deck or a home has a fireplace or a home has a kitchen -- I'm sorry; kind of a new kitchen, a rehabilitated kitchen or a rehabilitated recreation room, we will find properties that sell with those amenities. And if you have enough of those properties and you group them together, you can then take those amenities and put a value on each one. So that, for instance, a home that sells with a fireplace might be $5,000 more than a home that sells without a fireplace. So, in a sense, we use a statistical model based upon what the home sells for, breaking out that model, breaking out the characteristics in that model, and then doing something that's called a regression analysis to see what each of those particular 31 10/25/05 - WHOLE - RES. 050844 elements add to the valuation of a property. And I'm sorry. I'm talking really about residential properties. I want to say this for the record: We're really speaking about residential properties. For commercial and industrial properties, the valuation process is entirely different. And so while I'll talk primarily about residential properties now, if commercial and industrial properties are to be talked about, we should actually talk about the income approach to value and the cost approach to value.

The Chair recognizes Councilwoman Miller.

Thank you. This is a follow-up to your question, because I pretty much had the same question. Do you basically start from a particular size and then work yourself out? I mean, is there one standard value 32 10/25/05 - WHOLE - RES. 050844 of one home? Does size come into it? I mean, other things other than -- I'm trying to just figure this out.

Councilwoman, the very first place you go is the location.

Location?

The location. Location is the biggest additive or detractor from value in any residential property. And then from location, you start to look at the amenities, the exterior amenities first, whether it be a brick or a wooden house, whether it has a lawn, whether it doesn't have a lawn, whether it has a garage or doesn't have a garage or it has a deck, doesn't have a deck. And then when you have the correct data, when you have the data that's necessary for the interior of the property, then you look at that as well. Is this a property that has been completely rehabbed or is this a property that is in the same shape it was since 33 10/25/05 - WHOLE - RES. 050844 1965 when it was purchased by the homeowner. So you really look at all those things. Let me just back up for one second. We have broken the City down into over 600-some units that we call geographic market areas. I guess a way of thinking about that would be neighborhoods, although we don't use the term "neighborhood" because everybody's definition of neighborhood, where the boundaries are, is different from everybody else. We've broken down the City into these units where we believe we're comparing -- the best we can do is to compare apples to apples, the most homogenous type of properties to other homogenous type of properties, and then look at the sales and then look at the other things around those sales that will add value to the properties. And then with all that information, we then must model that. 34 10/25/05 - WHOLE - RES. 050844 Because remember what we're talking about. There are 568,000 properties in the City, and over a year, you may see 30,000, 35,000 sales. Okay? So to value properties in the City, what you must do is to take those properties that have sold and extrapolate a value to those properties that are unsold. And that's really both the science and the art. It's easy to put a value on a home that has sold. The hard part is putting a value on the many homes that haven't, using those sales and using those other statistical models that I talked about to place values on properties. Somebody once said it's a very easy thing to say that you're going to value properties at full value or whatever value. It's a very difficult thing to do.

I'm sure it is, because in some neighborhoods, I know in my district, we have some 35 10/25/05 - WHOLE - RES. 050844 neighborhoods that have very large homes and a block away, you have rowhomes, and then the characteristics of the neighborhood itself I would think is important. In some neighborhoods in my district, that type of situation I just said, around the corner there may be all kinds of neighborhood problems, a lot of blight. So how do you come up with the full value?

Well, one of the things we count on are our professional staff to be outside in those neighborhoods looking at the things you just mentioned, and we do that now under our current system, and we will continue to do that. There's no question that rowhomes should never be compared to detached houses, for sure, and we don't do that. We group, as I said, apples to apples. We group like properties to like properties. The quality of life issues, we 36 10/25/05 - WHOLE - RES. 050844 have something that we have been working on recently and will continue to work on called a Block Quality Index, which will both add value and take away value, depending on whether there's, say, a nuisance bar on this particular block or there's a ton of vacant properties on the block, or on the other side, do I butt up against the park and it's a very nice amenity. So, yeah, all of those things have to be put into the equation. And what we're going to do in the future is to have a modeling technique that will put all of those factors together and come up with values on the properties that you're mentioning. But none of that will be done until we test it, test it, test it, test it, test it first.

All right. Thank you. Thank you, Madam President.

You're welcome. 37 10/25/05 - WHOLE - RES. 050844 Mr. Glancey, in this area of escalating housing prices, what steps does the BRT and/or the Administration believe should be implemented to ensure that homeowners are not driven out of their homes due to escalating real estate taxes?

Well, the first thing is, we will put the right values on the properties.

I'm sorry?

We will put all the right values on the properties. Even if they are rising, it's our job to put the right value on the properties. One way that you attack the property taxes is to do the tax rate; that is, the Council and the Administration must look at the tax rate.

You know, you have said that at least six times. The question that Council controls is how much does the tax rate 38 10/25/05 - WHOLE - RES. 050844 decrease, is that correct, what the tax rate decrease will be?

Council sets the tax rate, Councilwoman.

Well, does not the Mayor set the estimate of tax yields and isn't City Council bound by those estimates?

My understanding is that the Mayor and City Council will work together to set what the tax yields are, and then you then set the tax rate.

Well, I think you also said time is of the essence that we consider this if we're going to be prepared to do it for '07. I don't think anybody from the Administration has talked to me. I don't know about anybody else. Then the Mayor, through his estimates of what the taxes will yield, really sets the rate and not City Council, as we have to pass a balanced budget; isn't that correct? 39 10/25/05 - WHOLE - RES. 050844

Well, I'm not the expert on what the Council and the Mayor's responsibilities are. However, let me just say, my understanding is that it is a joint effort between the Administration and City Council to set the tax rates. And if I'm incorrect, I'm sure the Solicitor will tell me that.

Well, I think that will be a question for the Administration then. Councilman DiCicco.

Point of order on your line of questioning. I want to be clear on this. In your testimony, Mr. Glancey, , you say that full valuation does not begin until 2007. At the bottom of that page, "Let me assure you that our goal is to switch to full value only when we are sure that the system works. We are going to take our time, if we must, and we're going to get it right." Are we bound to have this done 40 10/25/05 - WHOLE - RES. 050844 in '07?

That is the goal the BRT has set.

That is the goal.

But aren't --

Again --

If we're not bound, what does --

I just wanted to make sure. I didn't think we were. I wanted to be clear.

Could I just expand a bit on your question?

I'm not looking to drag this out. I mean, getting it right is the most important thing. If we can do it in six weeks, fine, but if it takes longer, I just want to make sure that we're not under the gun to have this done in '07 if, for some reason, we can't get to that point.

If I just might, 41 10/25/05 - WHOLE - RES. 050844 this is only going to take a second. No, there's no law that says it should be done by '07, but I will tell you that the law says it should be done, and I think it's a ticking time bomb in the sense that you might find a court or somebody might file a suit, a Court will come in and say, You have to get this done. And I think getting this done with the Council and with the BRT and with the Administration is a better way to do it than have a Court tell us how to do it.

I agree. I agree on both points. I just wanted for my mind and I guess for everyone else to make clear that there's no deadline set on this. The quicker we do it, the best it is for all of us, I agree, if we can get it right. Right depends on whose district you're representing, how many people got an increase, I guess. But before I go any further, I just want to go back to my opening remarks. I just failed to mention 42 10/25/05 - WHOLE - RES. 050844 that -- and I've said this in the past when you and your folks have testified. I've always had a great working relationship. This is not an adversarial issue for us. We're going to talk and work on this together. So I just want to again thank you for all the help you've given me in the ten years that I've been in Council.

Thank you.

I think we could all echo those same comments, but I think this is a very important issue and one that certainly has to be fully discussed, because I know I'm already getting communication from my constituents, who are really not too happy about what they're hearing. So when they communicate with us, we're going to have to have some answers that would at least be somewhat logical. With regards to the School District, has the BRT and/or the Administration met with our state 43 10/25/05 - WHOLE - RES. 050844 delegation to ask for an amendment to Act 46 with regards to lowering the District's millage?

The BRT has not. We are waiting for the Administration to take that lead.

I have any number of questions that I would like to continue asking. However, I see that several of my colleagues have been very patiently waiting, so we will have a first go-around, and at this time, I would recognize Councilman Kenney.

Thank you, Madam President. Thank you, Mr. Glancey, and all those at the table and all your staff that are here. I know you are very responsible and want to do this in the best way possible. Hypothetically, if this could be guaranteed to be revenue-neutral and that every homeowner with the adjustment of the millage rate and the adjustment of 44 10/25/05 - WHOLE - RES. 050844 the valuation were to experience little or no increase, I think we wouldn't need to be sitting here talking. But when you use the term "severely undervalued," that gets my attention in that I wondered if you could give me examples of where or what types of properties have been severely undervalued, because I assume they're the ones that are going to be experiencing the severe increase, potentially severe increase in taxes.

Absolutely. Councilman, I think if you can recall what took place in the reassessment cycle of 2003, there were about 47,000 properties that received substantial increases during that period of time. They were in neighborhoods throughout the City, but I'll throw out some names for some help. Obviously Center City, Bella Vista, Queen Village, University City, parts of the Northeast, the upper Somerton area, Mount Airy, Chestnut Hill, East Falls. So there were significant 45 10/25/05 - WHOLE - RES. 050844 value increases in many of the 47,000 or 50,000 properties. I think even with that, with the increases that we performed in that revaluation, there's still, because the market has skyrocketed as we all know, there are still severe undervaluations in those properties. I would also --

In those neighborhoods that you mentioned?

I'm sorry; in those neighborhoods. I would also add that -- and this is counterintuitive, but it's kind of the information that we've seen -- that properties in North Philadelphia and West Philadelphia and other what you would consider moderate-to-low-income neighborhoods have also seen dramatic increases as well over the last four or five years. So having said that, it might be more than 50,000 properties fall 46 10/25/05 - WHOLE - RES. 050844 within that. The housing types are single-family houses, townhomes, condominiums, every type there is.

Are there any neighborhoods or types of properties that, in your estimation at this point, have been overvalued?

Yeah, there's some. For instance, if you can think of the neighborhoods that surround the Elevated project in West Philadelphia, probably you couldn't sell a property there today for what the value is that they bought it a couple of years ago. There are small pockets like that, Councilman, throughout the City. I do think that every property in the -- because we aren't at 100 percent of value on any property, for the most part, but I do think that there are a significant number in that middle that fall somewhere between 65 and 70 percent of what they could sell for that will not see significant increases or decreases. 47 10/25/05 - WHOLE - RES. 050844

In the potentially undervalued or severely undervalued, as you said, or potentially overvalued, is there an idea that your staff has right now as to what the average increase or decrease, dollar figure or percentage, would be in those severely undervalued or overvalued areas?

It would be a guess, and you give me an opportunity to kind of give you a time line here, I think, because you'll need that as we go forward. I think we could use our information today, and if we're using the same valuation process next year, we could give you some idea, but I don't want to do that because I don't think those are numbers that you should really count on.

I'm sorry. You don't think the numbers are what?

That you could count on. We plan in December of this 48 10/25/05 - WHOLE - RES. 050844 year to have some test numbers, and I really want to emphasize test. It's not numbers I would like to ship over to you, because we are testing them. We intend to have some test numbers in December of this year with numbers that are proposed, and I'm talking numbers, taxable assessed numbers for all properties, numbers that are --

That proposed millage -- not proposed millage, but that example of the millage rate reduction, is that a revenue-neutral effort?

Yes, it is. In that hypo, it is.

So that hypothetical and that millage rate is kind of where we would be if we were trying to be revenue-neutral?

That's correct. I think it's going to be lower, but I think you can use that as a hypothetical.

And that's 49 10/25/05 - WHOLE - RES. 050844 the number you would plug into -- that or a lower number where you would plug into your test to determine what's going up, what's going down?

That's correct. But the problem is to get the actual taxable assessed numbers at 100 percent. Those are the numbers that you need to look at. My sense is by early '06, we will have a significant amount of numbers for you to --

From my perspective, I understand the full valuation is what's the important effort here, but what's also additionally important for me, and I think for a lot of my colleagues, is that when you do the formula, when you do the math, even though the property is existing at 200 and you're going to move the valuation to 250, what is the number going to be in the envelope when the tax bill comes. That's more important to most 50 10/25/05 - WHOLE - RES. 050844 people, because if you look at people in various stages of life, they don't care that their house is worth 200, 300 or 500 if they're not going to move. If they're going to die in the house, they don't care. If a person is younger and made it as an investment, it got fully valued from 250 to 300, they may be thrilled because they can flip it and make -- everybody is in a different circumstance. So the number that comes to the door in the envelope from the mailman is going to be the number that we're going to hear about.

That's right. I couldn't agree with you more. The question when I go out to community groups, and it's the right question, is what does it mean to me.

Would you recommend at some -- and I don't want to ask you to recommend a particular percentage right now, but should we be prepared to at least be proactive with a 51 10/25/05 - WHOLE - RES. 050844 potential cap, a percentage cap, on what an individual would experience in a given year over a given number of years, and can you at some point when you have better numbers kind of provide us with some guidance as to what a fair cap above which we will not go in a particular year?

I will be happy to provide you with every bit of information that not only I have from my experience but my staff has researched of what's taking place across the United States for all sorts of property tax relief measures. Caps are merely one of them. There are a significant number of property tax relief measures that I think we should talk about at today's meeting -- if not today, at another meeting -- which will impact, I think, those large increases to severely undervalued properties.

That's one issue, but the next question is, since 52 10/25/05 - WHOLE - RES. 050844 you've gone through with outside consultants probably the most in-depth analysis of our residential property, is there some way to use that information to really put into effect, for once and for all, the authority the City has had to take care of gentrified areas? I mean, we got a Constitutional amendment way before I was in this Council, I guess back in the '80s, and we could never seem as a body to be able to implement anything because the numbers were so nebulous and difficult to deal with. This seems that the activity you've gone through and are going through would give us a really good opportunity to designate which areas are gentrified or are going through gentrification and which are not, and be able to apply some tax relief to long-term residents there.

I don't think that there's any doubt --

We may be 53 10/25/05 - WHOLE - RES. 050844 at a good time information-wise to do that.

You bet. I agree with you. And not only will we be able to supply you with the data that you need, we may even be able to slice and dice some of that data for reports that you can use and slice them and dice them in different ways yourself.

Because I believe that if we can attack some of those issues that have been festering out there -- for example, the neighborhood -- I remember working for Senator Fumo. The neighborhood that triggered the gentrification issue for us when I worked for the Senate was Fairmount and Queen Village. Well, they've never been able to experience any relief because they're totally gentrified now and in a totally different condition. But there are still neighborhoods in many areas of the City that are beginning a rebirth, that the residents there who have been there 54 10/25/05 - WHOLE - RES. 050844 through the hard times are concerned, obviously very concerned, about losing their homes relative to the increase in property taxes. So if we had that information available to us, it may be a good opportunity to soften the blow of all this by trying to implement something for real.

Absolutely, Councilman. We'll supply that to you.

Thank you. Thank you, Madam President.

Is Councilman Clarke in the room? He would be next. (No response.)

Since he's not here, the Chair recognizes Councilman DiCicco.

I'm going to pass. I think most of my questions that I have at this time have been asked by either Councilman Kenney or yourself. 55 10/25/05 - WHOLE - RES. 050844 I'm going to pass for a few minutes. Thank you.

Councilman Kelly.

Thank you, Madam President. Good morning, Mr. Glancey --

Good morning.

-- and members of his staff. I just want to know about the appeal process. Are you still going to have an appeal? In other words, you're doing this by, I guess you would say, unit rather than neighborhoods and whatnot. Now, I know in the Northeast, there's many different homes on each block and they're entirely different. If a person has really been hit hard in taxes, what is the appeal process that the person would have?

Let me assure you, Councilman Kelly, that the appeal process that exists today will be the 56 10/25/05 - WHOLE - RES. 050844 appeal process that will exist in the future. Even though we internally group properties by these GMAs, we always try to make the most homogenous appeal hearings and bringing folks from the same neighborhoods together with the same problems. We may, depending on the amount of appeals, we may break into panels, but even saying that, seriously, we will have the same appeal process going forward that we currently have.

You mention in your testimony that it is possible to, when we increase these taxes, that we can do it in increments rather than a person getting a huge bill, especially senior citizens. As Councilman Kenney just stated, that it's possible that a person has no chance of moving or they don't want to move or whatever, they want to stay there forever and all the sudden, they're hit with this huge, huge tax increase. 57 10/25/05 - WHOLE - RES. 050844 Is there any steps that we can --

That is certainly possible in what we talk about property tax relief measures, but that is something that you, the Council, and the Administration would have to work out. There has been talk of rolling averages, for instance, after the revaluation. The taxable value would be based on a rolling average of three years. There is also -- and I think this answers your question directly -- talk of phasing in whatever the tax increase might be over two or three years. Those things have to be done, and, again, I don't know if it has to be state legislation authorized or it can be done under Council's current authority, but those are decisions that Council and the Mayor would make together on those things. 58 10/25/05 - WHOLE - RES. 050844 We will continue to put the value up. And I don't want to anger the Council President, but we also have to talk about tax rates again. We will put the value and there will be tax rates, but also the phase-in of those kinds of operations still remain in the hands of the elected officials.

Okay. Thank you. Thank you, Madam President.

You're welcome. The Chair recognizes Councilwoman Brown.

Thank you, Madam President. I'd simply like to underscore a comment raised already by President Verna with regards to calls and concerns that we're beginning to get, particularly seniors. And so though you've informed us a couple of times already that we set the rates, I will look to your 59 10/25/05 - WHOLE - RES. 050844 professional opinion on what best alternative we should consider with regard to where we end up. Is buffering preferred over deferrals versus exemptions and factoring in every single step along the way seniors, who I think at the end of the day are going to be most severely impacted.

I appreciate your asking for our opinion on this. I think as we go through this process, I will certainly express my opinion to all Council folks.

Please.

I think the best thing to do today, however, is to let's, first of all, find out what all the possible alternatives are. We put it on the table. And then as that debate goes on -- because I agree with Council President Verna. Today is just the beginning. Today is simply the beginning. This is the beginning of a debate about this process, and we really 60 10/25/05 - WHOLE - RES. 050844 appreciate your having these hearings in order for us to begin that debate. And as that debate goes on, Councilwoman Reynolds Brown, I think all of us will start to crystallize around certain issues that we think would be best to solve those problems, and there may even be property tax relief measures that none of us in this room are thinking about today that we could come up with as we do it. So I'll be happy to be part of that.

Okay. A follow-up question, has this City ever been at this type of place on this issue before? Is this unprecedented? Is this a first? What is it?

To my knowledge, that is true. To my knowledge, there has never been a system where the properties have been valued at 100 percent of what they sell for.

So to underscore a comment you made in your remarks, it's better that we do this 61 10/25/05 - WHOLE - RES. 050844 right and not rush it, because it is a first and we really do need to get it right. So the debate along the way for me will be -- well, the discussion will be very, very important, because it's a big issue and so many different worlds are going to be impacted, although because of state law, we're going to have to apply whatever we come up with uniformly.

I mean, that's really the alternative. I agree with you. As we go through this, if the information and the data that we are providing to you, if it's accurate, then we should just continue going forward, there's no question. And we believe that we will meet the deadlines that we've set to give you that kind of accurate information, with the caveat that if we don't believe that it's right, we won't go forward with it. We have to make sure that it's right. You know, in all honesty, I 62 10/25/05 - WHOLE - RES. 050844 think -- and as a citizen of this City for all my life, I think it's absolutely right for us as citizens to demand that you get this right the first time, that you don't go through a process that puts angst into every everybody's life and then do it again and then do it again. And I'm not picking on my colleagues in Allegheny County, but that's what happened out there, and it just is not the right thing by way of public policy. Listen, this is good public policy, full value, understandable market values, understanding what your property tax system is. It would be bad public policy to institute this without talking about all the ramifications.

Indeed.

And that's what this debate is about.

I welcome it. Thank you. Thank you for your testimony. Thank you, Madam President. 63 10/25/05 - WHOLE - RES. 050844

You're welcome. The Chair recognizes Councilman Clarke.

Madam President, are we on the clock?

We haven't been, so please proceed.

Thank you. Good morning.

Good morning.

One follow-up on the Council President's question as it relates to your new systems that we unfortunately funded. My understanding is that -- or maybe I'm wrong. My understanding is that it enhances your ability to do assessments on a yearly basis, on a more consistent pace, as opposed to currently where you kind of go out and sporadically do assessments in different parts of the City?

Well, Councilman, 64 10/25/05 - WHOLE - RES. 050844 we do that now. I mean, law says we have to do it year by year. Does it make us do it better? You bet.

Does it in any way, shape or form replace or does it simply enhance your current system where you right now use personnel --

It replaces the current system.

It replaces? So are we still going to have the current level of personnel that traditionally did the assessments?

I think we should.

I'm trying to understand. Are we --

Are you talking about personnel or the software?

Are we automating a system that replaces personnel --

No, no. I'm sorry. I misunderstood your question. 65 10/25/05 - WHOLE - RES. 050844 Our system does not replace the personnel. It replaces the methodology. It replaces the software. It replaces the technology with which we are working. Please forgive me. I didn't understand your question. It does not replace the personnel. We still need all the valuation personnel. We still need the professional evaluators to in fact look at properties. We still need the IT group to make sure that the system works properly.

Okay. In terms of the current process that allows individuals to appeal their tax bills, will we still have a similar system given the fact that now essentially it is what it is, it's 100 percent valuation? In the past, during the course of the appeals, people were able to say, Well, this property down the street sold for this, mine sold for this ten years ago, and it was somewhat of an ambiguous 66 10/25/05 - WHOLE - RES. 050844 situation where you didn't really know what the values were because of the 71 percent ratio and the 3.2 ratio. Now it is what it is. What's the appeal process going to be like now?

The appeal process should be exactly the same. We don't intend to change the appeal process at all. I was, in a sense, joking with Councilman Kelly, but if there are a significant number of appeals in year one, we simply may break up into panels. But the process will be the same. Everybody can come in and tell us why they think the value on their property is not the correct value, even if the comparables would seem to show that that's the correct value. They can give us reasons why their home is different from all the comparable sales that were used to value that property and all the other amenities that I talked about earlier, location amenities.

What could 67 10/25/05 - WHOLE - RES. 050844 be a possible scenario where a person can justify a reduction based on an appeal? I mean, if you're saying that this is the value, this is the market value, this is the comparables, it is what it is, I mean, I'm trying to understand that.

It's very easy. All the homes are selling on this block for $100,000, roughly. Well, mine is not going to sell for $100,000 because I have to wear hip boots when I go into the cellar because my basement is flooded all the time because there's an underground stream that affects my property, and when I sell that property, I have to disclose that kind of disability. Or there's a crack in my foundation or that all the hundred thousand dollar homes that are being sold are rehabilitated properties, and mine is an original from the 1960s. All of those things would go into specifically to that property to reduce the actual sales value of that property. 68 10/25/05 - WHOLE - RES. 050844 See, what we're looking at is what can a property sell for. Even on the same block with houses that look almost exactly alike, you will find that there are differences, so much so in some properties that will be a change in the value of those properties. We're not going to know that, Councilman, because we're looking at the sales and we're looking in a mass appraisal system. The appeals process has always been course correction for those kinds of problems, and it will continue to be that.

So the level of specificity in determining the values, the hundred percent values, weren't being in place, that essentially is the responsibility of the property owner to determine if in fact it should be a lesser value, therefore a lesser tax bill.

Your question is do they have to tell us why their 69 10/25/05 - WHOLE - RES. 050844 property value should be lower than we say it is? The answer is yes, and that's been the case as long as I've been on the Board of Revision of Taxes.

So with your enhanced systems, there's no way that you can do that prior to the issuance of the new assessment?

Prior to a notice going out? Well, let me say this --

I mean, if we're improving the system, it seems like you're improving the system to achieve one goal but you're not improving the system to help that property owner who has a property that should not be valued at the level that you all are saying.

The system is to value 568,000 properties. If we were 99 percent accurate, it would be 5,600 mistakes. I would hope that our system will be 99 percent accurate, but that still is not going to obviously -- if we don't have specific information about a 70 10/25/05 - WHOLE - RES. 050844 property, and the examples I was using would be very difficult for anybody but the homeowner to have that kind of information, that homeowner, yeah, the burden -- again, according to the law, the burden of proof is on the homeowner to tell us why that value is an incorrect value.

With respect to areas -- like I represent an area where we're doing a substantial amount of new homes, subsidized homes for low-moderate-income individuals and we're creating these sales values. How does that play into your assessment process? I have a situation in Brewerytown right now. We're rehabbing a number of houses and the values are, in terms of the sales, what we determine they are. In close proximity, there are properties that on the private sector are being rehabbed and sold at two, sometimes three times the cost of that particular house. 71 10/25/05 - WHOLE - RES. 050844 How do you get comparables in that situation? What determines the comparables? Does the subsidized house determine the comparable in terms of the sales price or does the market?

They're all separate groups. We wouldn't take a subsidized house and compare it to a market-value house. Those sales are apples and oranges. We don't do that. We don't do that now. We won't do it under the new system.

How do you do that? So do you leave out all of the properties that are subsidized?

We only compare the sales of subsidized properties to sales of other subsidized properties, and if there's none in that particular group, we will find like subsidized properties in other locations and try -- just as a regular real estate appraisal will do, we'll either add or subtract value based on that. We will never take the 72 10/25/05 - WHOLE - RES. 050844 subsidized properties and put them in a group with market-sale properties and say what are selling here is going to be a value there. We never did that in the past.

Even if they're physically comparable?

That is correct.

You don't take into account --

There is entirely different financing on that situation, yeah.

I'm talking about your process. You go out and you do an assessment on a neighborhood and you look at the comparable sales, right? You're saying that the sales of properties that are subsidized, you don't put those in the equation?

We don't put them in the equation of market properties. We put them in the equation of only matching their sales with other sales of 73 10/25/05 - WHOLE - RES. 050844 subsidized properties. It's apples to apples. Mr. Nix has just informed me it's the same as if you took a rowhouse and a twinhouse. You don't compare a rowhouse to a twinhouse.

But I'm talking about a sales. You look at sales, right? When you do your comparables, you pull up and you say what are the recent sales in this neighborhood, right? And are you saying that your testimony automatically -- first of all, how can you determine if that property was subsidized?

Our staff groups these properties together. They're grouped according to what they are, the types of properties they are.

And your staff can determine that that property is subsidized with your system?

Sure. We do that now. That's not something that's going 74 10/25/05 - WHOLE - RES. 050844 to be necessarily newly instituted. We've been doing that for a long time.

So when the tax bills go out for neighborhoods such as the Brewerytown where there are people that are rehabbing houses and they're selling for $200,000, we're getting -- matter of fact, we have a meeting tonight where we're selling Home Start houses where we're selling them for $60,000, and then a person who lives in the neighborhood who lived in a house that has not been rehabbed will probably only sell for $35,000 if they were to sell it. How do you get to a number for that person in terms of what their house is worth?

You only look at the sales of that type of property, which is the neighborhood house that has not been subsidized nor has been rehabbed. You look at sales --

Has not been rehabbed. 75 10/25/05 - WHOLE - RES. 050844

Has not been rehabbed.

So you're telling me that in a neighborhood like Brewerytown where these people live and these values are escalating by virtue of market-rate rehabilitation and government subsidized rehabilitation, when you send out those tax bills on people that live in that neighborhood, they're going to be based solely on the type of properties that they have?

First of all, we don't send tax bills.

That comparable house --

Let me finish. We don't send tax bills. We'll send a property value notification. We don't bill anybody. Secondly, the answer is clearly yes. We will only group together and value like properties to like properties. So if somebody is not in any of the 76 10/25/05 - WHOLE - RES. 050844 categories that you've just described, that's not going to be part of one of those categories.

Okay. So you're telling me that the individuals that live in Brewerytown should have no 8 concern as it relates to, quote/unquote, gentrification because their tax bills or their assessments will not increase dramatically because their house was not a market-rate rehab, although it would be a comparable house at the end of the day, or a government subsidized house that was rehabbed and sold for a particular value, their values will remain steadfast based on the existing housing stock that is comparable? That's what you're telling me?

What I'm saying, Councilman, and I can't say it any clearer, is, we don't compare apples to oranges. We don't compare market-value properties to subsidized properties to pre-existing homeowners that are already 77 10/25/05 - WHOLE - RES. 050844 there. What we do is, we group those homeowners that are there who are not subsidized, not market rate, folks who have been there for 30 years, we only group those together and the sales of those properties. We do not group them together with other properties.

So you're telling me that those people should have no concern or no fear of gentrification because their taxes are never --

Councilperson, I'm not going to be able to tell you about gentrification. I'm telling you about how we value properties.

What you're telling me now, that those property values are never going to go up.

No, not at all. What happens if the value of those properties increase?

Well, I shouldn't say never.

Whenever the 78 10/25/05 - WHOLE - RES. 050844 values of that group of properties would increase, all ships go with the tide. I mean, everything that is part of the group will be looked at in that sense. But we're not going to cross comparable groups. That's what we're saying. I think the specific answer to your question maybe for this evening's meeting is, we got $200,000 properties being built next to properties that are worth $50,000. I think you can clearly say that the BRT is not going to compare those types of properties. But I can't answer other questions about fears of gentrification. That's something that I don't even know what exists other than that.

They elected me to do that. I'm not asking you to do that. And we had that discussion at the earlier meeting before they built the now $300,000 house.

I can tell you about the values. That's the correct 79 10/25/05 - WHOLE - RES. 050844 answer that you can give them tonight about the values.

All right. They didn't believe me at the first meeting. They're probably not going to believe me tonight, and that's okay. I just want to get some definitive information about the existing housing stock. If those properties aren't selling for an ever-increasing value, then their taxes will pretty much stay the same, their assessments?

Councilman, I think -- my name is Robert Nix. I'm Secretary of the Board of Revision. I think what you're saying is if that $300,000 property is built next to the $50,000 property, will that $300,000 property drive up the value of the $50,000 property that's not improved. It very well might. In that end, we don't -- I mean, that's a market force. So there may be 15 $50,000 properties around that development. If those 80 10/25/05 - WHOLE - RES. 050844 properties start selling for 100,000, 125,000 where in the past they sold for 50, then in fact that's --

That's fine. That's a comparable. But as long as the existing housing stock does not dramatically sell for ever-increasing --

For the new house.

Okay. I'll come back, Madam President.

Very well. The Chair recognizes Councilwoman Miller.

Thank you, Madam President. I actually had a question similar to Councilman Clarke's around the value of properties being increased because of new development, but you answered it. But there is a difference, I guess, in what you're going to do now. 81 10/25/05 - WHOLE - RES. 050844 I was just talking to Mr. McPherson. I have a constituent that called who lives in Chestnut Hill who says, I've been here for 40 years, and someone down the street demolished a house and built like a $5 million house. So their fear was that their taxes were going to go up because of that new house, and you're saying that their taxes will not go up.

That $5 million property will be such an individual property, it would be a market unto itself. We would only look at that property, we would only value that property, we would never use that as a comparable for any of the other houses, unless there's a couple of other $5 million new properties being built, then we would use it.

Right. When speculators come in, because that's what's happening, a lot of speculators are coming in, purchasing homes and 82 10/25/05 - WHOLE - RES. 050844 driving the cost up. I have someone from the North Philadelphia part of my district that called me and talked about a house being purchased on North 15th Street near Allegheny for an astronomical amount based on what the other homes in that neighborhood are selling for, and that just seems to be going on, and perhaps that happened there because people are trying to buy properties to rehab for Temple University, housing of Temple University students. So there's just weird things going on across my district in different areas. But this system will evaluate and assess per property, not -- I think most of us kind of believe what Darrell was saying, that when there's a new development or new things going on in a certain part -- in the Tioga portion of my district, we're looking to do lots of development, and, of course, I guess I can better answer the questions now to 83 10/25/05 - WHOLE - RES. 050844 some of the residents that have been there 50 years or more or even years, 4 that their property taxes are not going 5 to be substantially increased because of 6 new development. 7

That's correct. 8 If you're not part of that development, 9 you shouldn't be compared with what's 10 taking place in that development. I 11 think it would be a fair statement -- 12

13 Excuse me. You're talking about a 14 development. 15 Is that what you're talking 16 about, Councilwoman? 17

Yes, both 18 new and old. New developments versus 19 existing housing. New housing. 20 And we're going to create new housing on lots.

I'm sorry. I didn't hear your question. What I was saying was, I think to be more accurate, where you said you would value one 84 10/25/05 - WHOLE - RES. 050844 property at a time, a mass appraisal, you can't value one property at a time. More accurate would be property types. We will value groups of property types, and they will be as you described in your hypothetical. You have different property types. You have the new development and you have others who are not part of that development, pre-existing housing. They would be grouped separately and valued separately.

And earlier when you answered my question, you talked about something called a Block Index?

Yes. It's called a Block Quality Index, and it's done statistically, but I won't get into that particular methodology, but the point is is to say on a given block or in a given neighborhood or a given GMA, if there are significant quality of life properties, that index is going to be lower and it 85 10/25/05 - WHOLE - RES. 050844 will have an impact in lowering the actual value of that property. The amenities I was talking about to lower values, of course, would be if there's vacant properties or, God forbid, a crack house or a nuisance bar, or even to the point where there's just some illegal activity taking place by way of tractor-trailer parking on streets, which does happen in parts of our neighborhoods. The other side are the good amenities, the amenities that you're next to a park or that all the homes are kept nicely. The Block Captain has made sure that the neighborhood is -- you know, flower boxes and that kind of thing. Well, the Block Quality Index there would add to the value of property. We're not talking about huge numbers. What we're really talking about here is to say if you sold a house on a block that has 16 vacant properties and it's only a block away from properties 86 10/25/05 - WHOLE - RES. 050844 that are well kept, the house where it has vacant properties should be a 4 lower value than the homes that are well 5 kept. 6

Is there 7 something written? Do you have a list of 8 the comps? Is this in writing, the 9 factors that would impact the Block 10 Index? Is that written? 11

Sure. We can get 12 that. We'll have to send that. We'll 13 send it to the Council President to send 14 to you, but we will get that for you. 15 Yeah. There is the list that we use or 16 the elements that go that BQI. We'll make sure you get that.

Thank you. Thank you, Madam President.

You're welcome. Is Councilwoman Blackwell in the room? (No response.) 87 10/25/05 - WHOLE - RES. 050844

The Chair recognizes Councilman Rizzo.

Thank you. Are we on the clock, Madam President?

No. 7

I'm just having some fun with Darrell.

But we will do a second go-around, so just be considerate.

Good morning, Mr. Glancey.

Good morning.

And the rest of your colleagues. One of the issues that I'd appreciate for the record, many of us are accustomed to a real estate appraisal. Could you please describe for the record the difference between what you will do and a real estate appraisal?

Sure. A real estate appraiser will look at one property basically and will go inside the 88 10/25/05 - WHOLE - RES. 050844 property -- will obviously look at all the exterior conditions, will then go inside the property, will measure the property, will inspect things, such as heating units, air conditioning units, over and above all the other amenities that may be in a property. When you're doing mass appraisal, you clearly can't do that. That's not available for us to do, nor do I think anyone would want to pay for that kind of thing. In order to interior-inspect over 450,000 residential properties would be so cost-prohibitive that the City would never be able to do that. So what we do, Councilman Rizzo, is, we do have physical exterior inspections of properties. Obviously location, obviously property type, obviously any amenities that can be seen from the outside of a property, appraisers either walking around the outside -- because we will never trespass 89 10/25/05 - WHOLE - RES. 050844 on a property. We also use another tool that we have. It's called Pictometry. Pictometry is aerial photography that will show us oblique angles of properties throughout the City, and with that, you can see where decks are, whether there are other structures on a property that you may not see from the street. You can also look at the chimneys and make a fairly significant guess at what the fireplaces might be in any given property. You can certainly see if there's swimming pools or other amenities in a property. The third thing, and this is something that we continue to work on and this is something new, we have been attempting to contract with either the trend MLS service in the City of Philadelphia, I might add unsuccessfully at this point, or other databases that contain what we call interior property characteristics. I'm separating that 90 10/25/05 - WHOLE - RES. 050844 from the first two things. The first two things we do. We have that now. We also ask in a survey, as you see on every appeal form, whether homeowners would send to us their interior property characteristics or correct the property characteristics. So we have that data coming back as well. The best data that we can get -- at this point, we have been unsuccessful in attaining -- we would love to have the real estate listing service, the MLS service, sell us, and we would contract with them to do this, the interior property characteristics of historic properties, not what's currently on their list of houses to sell but three or four or five years' worth of historic data, and that data would include number of bedrooms, number of baths, kitchen remodel, those kinds of things. We don't care who the owner is. We get that from records. We don't care about who the real estate salesperson is. 91 10/25/05 - WHOLE - RES. 050844 No meaning to us. We don't care what the sale price is on that listing, because, again, we'll get that from the Department of Records, but what we would love to get is that interior data. We're not giving up. We are still trying to work with MLS to see if it's possible to get that from them. But there are other databases, and some members of my staff are in constant contact with folks to attempt to get that interior characteristic data.

Can I just jump in? Because I have a couple more questions. This is not the first time in this polity in the United States of America has moved towards 100 percent. Why can't we learn some lessons from other places that did this? I mean, we've heard all these questions. I'm sure these questions have popped up some place else, and I hope part of your process is to communicate with other 92 10/25/05 - WHOLE - RES. 050844 jurisdictions that recently have went to 100 percent, because if it happened there, it's going to happen here. And I hate to have us reinvent the wheel here. I mean, 100 percent valuation is in New Jersey, it's in Delaware, it's in other places close by, and for us not to learn from those experiences would not be a good situation.

Thank you so much for asking that. We are doing exactly what you've asked. We are in contact with Nassau County, New York, for instance, which is a huge, as you can tell -- I think it's about a 700,000-parcel jurisdiction. We've been in contact with Allegheny County to see how not to do things. We've been in contact with -- I should say this, and I give kudos to our CAMA vendors from Colorado. They have installations all across the country. They have been supplying us with best practices from those installations all 93 10/25/05 - WHOLE - RES. 050844 across the country. I mean, they do Oklahoma City, they do Alexandria, they do Washington, the State of Washington, they do the entire State of Wyoming. We're relying on them to give us that kind of information.

Well, I know a community that recently did a reevaluation. They all were at 100 percent, but they just did a reevaluation, and from their department, and I assume our Department of Licenses and Inspection, when a developer comes in to build 50 homes, that we have plans on records of what the square footage are, how many bathrooms, what the options potentially could be on that construction for many years. I know of a situation that the person that was doing the physical reevaluation in New Jersey had on a laptop every property's building plan that was submitted to the code enforcement people for approval to build 94 10/25/05 - WHOLE - RES. 050844 the property. I mean, there was no 3 snowing them. Walk up to the door, how many bathrooms do you have. Well, he knew, four, three, two, one.

I might add, we do too for all new properties. That's not a problem. The problem is, we have so many pre-existing properties.

Well, I would bet that the Department of Licenses and Inspection goes back many decades and has records, whether they're on paper, for various communities throughout the City of Philadelphia. I'm not suggesting every little rowhouse that is located -- they're townhouses now. When I grew up, I lived in a rowhouse. I didn't realize I lived in a townhouse. But I would think that the Department of Licenses and Inspection could be a very, very valuable source for information of what we have out there.

You're absolutely right, and we have been in contact with 95 10/25/05 - WHOLE - RES. 050844 them. They're giving us electronic information all the time, but, again, the new properties, we get the information. That's not a problem. I grew up in a rowhouse as well, and I'm not so sure L&I would have the plans of my rowhouse that was built in 1950. If they do, we'll get it.

Well, at least ask.

Absolutely.

The other issue is, and I mentioned this, but I want it to be for the record, is something that I find helpful in paying real estate taxes, is that many people's intentions are good, that they're going to save throughout the year to pay the one lump sum. Some jurisdictions pay quarterly. And I know that's not your responsibility, but the Administration should consider possibly a quarterly payment, because I think it makes it easier for people. Because if something 96 10/25/05 - WHOLE - RES. 050844 significant happens along the year, I think the money that's saved for the whatever is going to go towards that versus the tax bill, and I know many municipalities do allow their taxpayers to pay on a quarterly basis, and I hope that's a recommendation that you'll have to the Administration, that something like that would occur here.

I'm going to let the Administration answer that question.

Well, would you agree that that would be --

I think it's something that should be debated. I agree with that.

Debated?

Should be discussed certainly. Again, I'm not trying to be cute. I don't think it's my job today, other than to lay out everything, as to what should be somebody's final conclusion. As we go through this process, 97 10/25/05 - WHOLE - RES. 050844 I may have an opinion, but right now I think it's best just to kind of lay it out, set the table, so to speak.

We're ganging up on you here. Okay. That's fair enough, that that would be asked of the Administration. I think I have everything that I wanted to discuss with you. Let's go slow. Thanks.

Thank you.

Thanks, Madam President.

Thank you very much. The Chair now recognizes Councilman Goode.

Thank you, Madam President. Good morning, Mr. Glancey --

Good morning.

-- and to those joining him at the table. 98 10/25/05 - WHOLE - RES. 050844 I would agree this is an important discussion to have early on. I'm not yet sure whether it's a useful discussion. Although we've begun to get down to whose job it is to do what, you've made it very clear that it's Council's job to set the tax rate, and Council sets that tax rate based upon required tax yields, and we know that for the budgetary process, the Administration will tell us what those required tax yields need to be, but those tax yields are based upon total market value base, and the BRT's projection within your testimony is that in 2007 that will be 42 billion. Under the recently released PICA report, their projection is that it will be 46 billion, and although in your testimony you said that that 42 billion may be a bit low, how low is it and what accounts for the discrepancy between the $42 billion total base and the $46 billion total base? 99 10/25/05 - WHOLE - RES. 050844

Well, as I said about the 42 billion, I didn't want anybody to get married to those numbers, because it was simply conceptual that I was talking about. That number is a good months old. It appears on our website 8 today. The number isn't as important as 9 the concept of how to get the higher 10 value and the lower tax rate to get the 11 yield that you need. 12 So how our methodology on that, 13 Councilman Goode, was that we simply took 14 about a 30 percent increase, because we 15 used the value of 70 percent of market 16 value to sale price, the City-wide 17 average, and we added a 30 percent 18 increase to what the 2004 taxable assessment was. The 46 billion that PICA uses is probably done the same way, except they use the higher base because their numbers are more current. I will tell you, in 2006, the taxable assessed value today is about 35 100 10/25/05 - WHOLE - RES. 050844 billion. And here it was 32, I think, 32 billion. I can't remember.

That is exactly the point that I'm making, is that it is important to use these models for people to understand the process by which we will discuss tax yields and tax rates, but while this discussion is important, I'm not sure it's useful unless somehow we can determine how we're going to resolve this type of discrepancy. In the end, how are we going to decide what the total market value base is going to be and when is that decided? Because that actually has to be done before we can do what you've declared our job is to do.

You may not have heard my earlier testimony. I absolutely agree with you. These numbers are really used for me to go around to the community and discuss the concept of what will take place. The real numbers, we will have what we'll call really test numbers 101 10/25/05 - WHOLE - RES. 050844 sometime in December of this year. Those are numbers I wouldn't feel comfortable giving to you in December, because we are still in a testing process. Early in '06 we will have proposed numbers. Again, assuming everything goes on schedule, we will have proposed numbers that we feel confident enough for you to use to talk about how you can seriously get to the tax rates that are necessary. We may tweak those numbers a little bit over the months, but the numbers we will give to you, you can count on.

I guess my question is, who is the final arbiter in terms of what the total market value base is?

That will be the BRT getting -- the market value base, the taxable market value base, we will create that and supply that to you.

And how much can that change based upon challenges to 102 10/25/05 - WHOLE - RES. 050844 the assessments?

We have seen in the past not very much. Maybe one to two percent difference, tops. I suspect that we will see more appeals this time, but I feel constrained to give you a percentage today not knowing what those numbers are yet.

I'm not asking for specifics. I'm asking, is there a great chance that -- the same as between the current BRT assessment and the current PICA assessment are a few billion dollars off, that's a significant amount of money to be able to discuss tax yield and tax rate.

I understand your question. I would hazard a guess. As I said, I feel confident that you can use those numbers in early '06. I do not believe that you will see much change due to appeals.

Thank you. Thank you, Madam President. 103 10/25/05 - WHOLE - RES. 050844

You're welcome. The Chair recognizes Councilwoman Blackwell.

Thank you, Madam President. I know that we've discussed some of this back and forth, but I'm still concerned about the issue of why we want to do it now and who is really making the request. I mean, are we saying just BRT and just it's something you all wanted to do? Why do we want to go now to this full valuation?

Well, the short and easy answer is, the law requires it, Councilwoman. The law requires that we go to full value. The reason that we should do it now is, as I said, I think it is because if we don't, I think somebody is going to make us do it, and I would rather that we do it in conjunction with you and in conjunction with the Administration 104 10/25/05 - WHOLE - RES. 050844 rather than have it be Court ordered. And I say that because our neighbors in other counties have had that very same experience. Also, as I said, I think it is the best time to do it now, because the technology exists for us to do it. The technology exists for us to get the best possible values that we can. And also, part of what the beginning of today's debate will be, I think, is what do you do to buffer some of the maybe large increases in some property. The short answer is, it's good policy to do it. It's good public policy to make this system understandable for our citizens. The other short answer is, if we don't it, it's going to happen. It's going to happen sometime. It's probably best for us to do it in the way that makes the most sense for you and for us and for the citizens.

Can you tell us a little bit about the -- 105 10/25/05 - WHOLE - RES. 050844

Excuse me, Councilwoman. Can I just interrupt you for just a minute?

Sure.

Mr. Glancey, you said that we have to do this or there's a possibility that we would be taken to court. Who will take us to court?

I believe so. I think that's --

Who would take us to court? I'm sure it's not --

A citizen who feels aggrieved who would have standing to do that.

Who?

Who?

A citizen who feels aggrieved would have standing to do it. Any citizen who feels aggrieved that this system doesn't treat them fairly would have standing to take people to 106 10/25/05 - WHOLE - RES. 050844 court.

Well, if we have not complied with this state law heretofore and so we don't do it for a couple more years, and I don't know that a citizen has taken us to court because he or she has been aggrieved, what would the likelihood be that --

I couldn't guess what the likelihood would be, Council President, but it exists. It exists. If you recall, in October 1, 2002, when -- their Chambers was up on the Fifth Floor at the time. We had a fairly substantial hearing before the Finance Committee and we talked about this then and we talked about this in 2004. In fact, in the Council Caucus Room, we had a large meeting, which you attended and there were other Councilpeople in attendance and their staffs, and we talked about it then. So this isn't something that we're saying we're just pulling it out of 107 10/25/05 - WHOLE - RES. 050844 the air today. This has been a conversation that we've been having since October 1, 2002.

Could you give us more information about this law or if it's state law?

It is state law. That's what he said.

State law says what? That we have to go to full valuation?

I think Mr. Glancey said or a base year.

Or a base year, yeah. It says actual value. The word used in the statute is "actual value," and it said that sales should be that which you should look at, but not controlling, because they're also indicating that sometimes sales are not the prime indication of value. What it says is, "All property" -- this, by the way, the citation, is 72 Purdon's 5341.13. 108 10/25/05 - WHOLE - RES. 050844 "Assessment at actual value: All property within the county, now or hereafter made taxable by law, shall be valued by the assessors and assessed by the Board at the actual value thereof," and it goes on to tell you how to arrive at actual value.

Effective when? When is this law effective? Is there a time?

I don't have the date on this, but I assume if this was part of the General County Assessment Law, the First Best County Assessment Law, sometime in the '40s, '50s. I don't know.

I'm also -- let me ask you --

1951. I'm sorry, Councilwoman Blackwell.

Let me ask you about homeowners who escrow their taxes with their mortgage payment. What 109 10/25/05 - WHOLE - RES. 050844 happens in those kind of cases? You may have people who default on their mortgages because they can't pay their taxes.

Again, at the risk of angering anybody, the tax rate is what you have to look at, not the value of the property.

I didn't hear you.

The tax rate has to be looked at, not the value of the property. If the property value is raised and you lower the tax rate, it may not change the escrow payment whatsoever. Again, I don't want to anger anybody by keep saying that, but the tax rate is everything. It's all about the tax rate.

I'm also concerned, too, about the natural increase in property values, for example, in University City where I live and how people will know the difference between 110 10/25/05 - WHOLE - RES. 050844 this and that, since the value of some properties are going up. And on the opposite side, you talked about the SEPTA properties. I have businesses that 6 have closed down, 25 already, due to this 7 West Philadelphia Market Street 8 Redevelopment disastrous project. 9 So we've got real, real big 10 problems there, but this whole natural 11 property increase that's happening here 12 and in other places will be a real 13 concern, and how do we separate out this 14 from that? How will people know? 15

Councilwoman, 16 that really is our job. The BRT is 17 mandated to make the values accurate for 18 properties that go up and properties that 19 go down. 20 But let me just say one thing 21 in response to your question. Most 22 people today do not understand their real 23 property taxes, because it's a fraction 24 of a fraction times a millage rate and, 25 you know, people get very confused. This 111 10/25/05 - WHOLE - RES. 050844 system will unbind the valuation from the taxes. It's simply the value of your property times the tax rate equals the property taxes. It is a system that is absolutely intended to make the tax system understandable. So when I say it's good policy, that's what I'm talking about, make it more understandable.

I think that we could accept that it makes it simpler to understand, but the residents and the business owners of our City are not going to understand that their property taxes are still going to go up. Every time from the early '70s until now when we've talked about changing taxes -- obviously we haven't done this, but every time there's been some reassessment, taxes always go up, and the people who live in the City and the voters are not going to believe this is not another property tax increase. 112 10/25/05 - WHOLE - RES. 050844 And I think that is why my colleagues and I, judging on the impression I'm getting here today, none of us agree with this, because our voters are going to say that we're increasing their taxes. They don't care if it's clearer for us to understand. They just know they get a tax bill that they have to pay. They're not going to understand or they're not going to care as much about clarifying their bill as not getting an increase. And every single time we've said it in the past, there's always been an increase. So I'm concerned about that, and also the issue of properties around universities. I have about four in my area. I have Penn, Drexel, USP, I have CCP, for example, and property values around there. I have Children's Hospital of Philadelphia, and how this impacts that. I'm concerned about that as well. So I would like somebody to kind of get back to me at some point and 113 10/25/05 - WHOLE - RES. 050844 the President, and she'll let us all know, because all of us could have institutions. We're concerned about the institutional effect this has on residential properties.

We'll most certainly do that. Most of the institutions, as you know, are exempt from property taxation, but we'll certainly meet your request.

I won't comment on that one. Thank you. Thank you, Madam President.

You're welcome. Mr. Glancey, who made the determination to go to 100 percent valuation?

The Board of Revision of Taxes did.

Why did they make the policy decision to go to 100 percent versus base year?

Well, we believe 114 10/25/05 - WHOLE - RES. 050844 that 100 percent is much more understandable for the taxpayers. What you sell your house for and what you believe your house is valued for should be the basis for your taxation. A base year may be -- that may be accurate for the first year of the base year, but it starts to get skewed as you go further. But, again, it's something that we can all discuss. If anybody has any great ideas, we'd be happy to discuss that.

I know someone that recently received a reassessment notice and I believe it's gone up by 300 percent. I think there was somebody in the office not too long ago that said they had gotten a notice of their assessments going up by 700 percent. Now, does that mean that their taxes are going to be going up by 700 percent, 300 percent?

I don't know the 115 10/25/05 - WHOLE - RES. 050844 specifics of your case, but under the current system, that's exactly what that would mean. Under the new system, it wouldn't mean that. It would not mean that.

I'm sorry. Under what?

Under the new system, it would not mean that. Under the current system, it would mean that. Under the new system, you'd have a higher value and a lower tax rate. Therefore, the taxes would be lower.

I find that hard to believe.

If we were to lower the rate.

That's right.

But that assumes that the assessment -- Councilman.

The practical problem when we deal with this ultimately -- and this has been alluded 116 10/25/05 - WHOLE - RES. 050844 to in your questions to Mr. Glancey, and either he didn't know the answer or he was dancing quite well, which he has been known to do in the past -- is, the problem is that you tell us, and it's accurate, that Council sets the tax rate. The problem is, the Mayor sets the revenue estimates. And unless we pass a millage rate that matches his or her, any Mayor's, revenue estimates on the real estate taxes, we have two choices. One is that we raise the millage rate -- or we lower the millage rate enough so to meet the revenue estimates or we don't. And if we don't, the Mayor could say, You know what, I thought I was going to have more money than I had and now I don't have as much because they didn't give me a millage rate to match my revenue estimates and, therefore, we're back to fire houses and rec centers, and it's a way that someone who is suspicious could control Council in a final year of a term with this apparatus, with this procedure. 117 10/25/05 - WHOLE - RES. 050844 Because we have nothing to do with the revenue estimates. So when we get them from the Mayor, we have to accept them as they are, because that's his power to do. Now we have to pass a millage rate to either match those revenue estimates or not. And if we don't go high enough, there's a gap, and that gap could be put on us to say, you know, I would love to have kept that rec center open or that library open or that fire house open -- and, of course, we've never experienced that problem here before. I think we just did -- or we can't lower other taxes. So it's a way to leverage Council because of the Mayor's office's power of setting what the revenue estimates are. And this is beyond your argument and presentation on the law is requiring us to do it, it's fair, it's more understandable, but in the practical application of it, we could be left having to pass a millage rate that either 118 10/25/05 - WHOLE - RES. 050844 met the Administration's estimate on the real estate tax revenue collection or not, and that's our two choices. And that's a difficult position to be in considering the relationship that we've had over the last few years on the budget process.

I absolutely understand your question and I understand your dilemma.

And you don't have the answer, I understand, but I think it's important that the record is clear. It's the final year of the term. It's the final year of our term, and we could potentially be in a situation where we're being blamed for closures again because we didn't raise the millage rate high enough to what the Administration wanted us to.

Councilman, as I said, I absolutely understand it, and I am not going to -- I obviously can't -- you're not asking me to, I know. 119 10/25/05 - WHOLE - RES. 050844

It remains to be seen what's going to happen.

The only thing I could suggest to you and to the Administration is that it seems to me that the common sense way of handling this situation is to have lots of those conversations before with the Administration about spending priorities and revenue priorities. I'm not a therapist and I'm not here to be able to put a process together that that would happen. However, it seems to me that that's something that really is almost a pre-condition for doing what you have to do.

With about a modicum of trust. Thank you.

You're welcome. Councilman Goode, you have a point of information?

Yes. 120 10/25/05 - WHOLE - RES. 050844 I'm not agreeing or disagreeing with Councilman Kenney. I think his point is well founded, but that would be the same scenario related to business tax reform. I mean, essentially we can't reduce business taxes unless we set a millage rate high enough to deal with that revenue shortfall. Is that correct?

That's correct. I mean, but, again, I'm just dealing with real property taxes.

Thank you, Councilman. The Chair recognizes Councilman DiCicco.

Thank you, Madam President. I think the President asked you the question about who came up with the 100 percent. BRT did. So is that to suggest that you can actually come up with a lower than 100 percent and would that have any impact on the legislation 121 10/25/05 - WHOLE - RES. 050844 or the mandate to do full valuation?

Well --

Full valuation doesn't necessarily mean 100 percent, or does it?

I think if you take the literal reading of the law, it probably does. What we've been doing in the past, we've been doing something less than 100 percent. So in order to get the correct values today and then do something less, I think it just adds to the confusion that currently exists and wouldn't be something that I would recommend. If you're asking does the legislation give you authority to do all that kind of stuff, it may. It may, but I think a literal reading says it should be actual value, and actual value is 100 percent.

Is 100 percent. But, again, my question is, the legal side of that, is there any way to 122 10/25/05 - WHOLE - RES. 050844 adjust that so that there is an increase but not at the full 100 percent? Since you said the BRT set it at 100 percent, is it because that's what was mandated or that is the way you interpret it to mean because when they say "full value," it means 100 percent?

I think it's mandated. That's my opinion, that I think it's mandated. But, again, and I don't know if this is the proper time, all of those property tax relief measures that we should talk about and I think everybody in Council should talk about would be rolled in to that argument about 100 percent value.

I mean, based on the way we currently do things, if full assessment were to be enacted, it could be a rather frightening thing for a lot of homeowners. I mean, that's the purpose of these hearings. And there are a number of suggestions that my staff and I have been working on, maybe something 123 10/25/05 - WHOLE - RES. 050844 like a five-year roll-out period and a certain amount of adjustments every year out to five years or even longer, and we'll get into that as this progresses. My other question is, you say that by the spring the CAMA system should have identified all of the properties and the assessments that we're going to be looking to do?

Yeah. That's our goal.

And that contract has already been signed?

Yes.

What can the residents, constituents, expect in the spring? What kind of notice? What will be reflected in that notice?

What we intend to do in the spring is unofficially, because we don't want to make it official, we want everybody to see what these valuations are. What we intend to do on our website is to post all 568,000 values 124 10/25/05 - WHOLE - RES. 050844 for all properties. We would also -- and, again, we would put all kinds of caveats around this, because we don't set the millage rate. We would have a tax calculator that residents could use, just like you do today when you're looking for a mortgage, have a tax calculator on the website, which you would be able to put in the unofficial proposed value and multiply it by a series of taxes. I think the best thing to do would be to set a series of hypothetical tax rates. As you've seen here, we've used 1909 and 15, but we'd fall somewhere within what we think is a revenue-neutrality yield. And then citizens would be able to see what it means to them. At that point in time, we're open for everybody to call us, to e-mail us, to visit us, to write us to say where we're wrong or where we're right.

But these 125 10/25/05 - WHOLE - RES. 050844 charts and examples you're speaking to would not necessarily show the increase in the tax -- or it would be reflective of whatever the rate is currently. You would base those charts and examples on what the current --

In the spring?

Yes. On what the rate is.

No. We wouldn't use the current rate. We would not use 8264.

What would you use?

We would use, as I said --

You're going to use a hypothetical.

That's right.

And I appreciate what you're saying, but I don't know if that helps us with the confusion, because we may not get to that number. We may be higher. Hopefully 126 10/25/05 - WHOLE - RES. 050844 we'll be less. And I don't know if that creates more angst or anxiety in the community. Although I understand you want to give people an idea of how this will all be calculated, I'm just concerned when you've plugged that number in that the people in Queen Village, Society Hill are going to see this number moving probably considerably higher, I'm assuming.

The value number, yes.

The value. And using that hypothetical number, I'm assuming again that they're going to see a significant increase in their tax, and they'll be calling my office and every other office saying, My taxes are going up, when in fact it's only the example. And they're intelligent enough to know that it's an example, but the fear is that example is really reality coming down the road a year out. And, again, I'm not criticizing 127 10/25/05 - WHOLE - RES. 050844 what you're trying to do. It's one of those things where you're kind like, you're damned if you do and damned if you don't. I'm a little concerned about that --

I understand your concern.

-- after having represented 2,000 cases in front of you. I like seeing you guys, but not that often. I have a little concern about that, because it's kind of like putting the cart in front of the horse, because we, Council, as you said, has the ability to adjust the rates. We don't know where we're going to be. We don't know where the Administration is going to be. We're certainly going to work at it.

I would be happy to do something along those lines and work closely with you and the Council President and anybody else in City Council that will somehow make it very clear that this isn't what Council is 128 10/25/05 - WHOLE - RES. 050844 doing, or maybe in a different form. I just raise that because my concern is simply to inform the citizens. However best we can do that together that actually works, is better maybe for you folks, I'm happy to explore that with you.

Again, not dismissing your challenge and your concern and your sincerity, I think it was said a couple of times, the bottom line is, as clear as you make it, the one thing that everyone understands is how much they owe at the end of the year. All those formulas and all, it's what the tax bill represents, assuming it's an increase, and how much of an increase is what gets everybody all stirred up, and I have a concern about that. When do you think these notices or this example may go out?

Spring of '06 is what we're calling now.

And 129 10/25/05 - WHOLE - RES. 050844 obviously we're going to be talking about buffering and other things as this process moves forward. All right. Thank you. I don't have any further questions, Madam President. Thank you.

Councilman DiCicco, are you finished with your questioning?

Yes.

Thank you. The Chair recognizes Councilman Clarke.

Thank you, Madam President. The Board of Revision of Taxes, do you have any level of flexibility in terms of the way you do assessments? Everything has to be uniform assessments? You can't take into account incomes, areas, any of that? It has to be uniform based solely on --

That's correct. 130 10/25/05 - WHOLE - RES. 050844 The law calls for uniformity.

The law calls for uniformity. Okay. I want to ask this question, and I don't know if you can answer it: With respect to appraisers, I don't know if you all operate under the same guidelines when appraisals are done for purposes of buying a house or for purposes of condemnation. I understand that the private appraisers go out and they do comparables. In terms of your area, your radius, the areas that you get your appraisals from to do your assessments, what's the radius? Is it neighborhood based or is it block based?

I think the best way to describe it, Councilman, is the amount of parcels that an evaluator has, one of our appraisers has. In the average, about 7,000 property accounts per evaluator. Do they do it geographically? Yes. 131 10/25/05 - WHOLE - RES. 050844 Actually, the geographic wards of the City, the 66 wards of the City, we divide the City up that way initially, and an evaluator is responsible for a book inside that ward. For instance, if it's a large ward, like the 66th Ward, there might be two evaluators, because there could be four or five books. And a book is simply the amount of properties within a book. Then within that group, the evaluator then defines the smaller geographic market areas that I talked about before. So the evaluators do try to work always in the same neighborhood within the geographic area.

So when you're saying 7,000 parcels but conceivably -- say, for instance, as an example -- I keep bringing up Brewerytown because I got this real hot meeting tonight. Girard Avenue has traditionally been an artificial dividing line between 132 10/25/05 - WHOLE - RES. 050844 communities and, years back, was socially, racially. Now it's, to some degree, economic. If you take that into account if you do an evaluation of a comparable, north of Girard properties are selling for a lot less, obviously you know, than south of Girard. Doesn't that seem that that can somehow be a flawed formula if you're looking at properties that would have these sometimes, albeit artificial, but they have these recognized lines, like south of Girard is Fairmount, north of Girard is Brewerytown or North Philadelphia, depending on how recently you were born? Does it make sense to not take into account these different neighborhoods and all the other issues and just simply look at parcels?

It makes absolute sense to take in the different neighborhoods. Is that what you're saying? Yeah, I agree with you. 133 10/25/05 - WHOLE - RES. 050844

Yes.

The artificial lines that you described, let's say the Girard Avenue between Fairmount and Brewerytown, if, for instance, the evaluator who works in that area said that everything below Girard is selling for lots of money and everything north of Girard is selling for very little bit of money, they would draw that line right there. If, for instance, and this is purely hypothetical -- I don't know what the next large artery is south of Girard. You would know it better than I. Whatever that next large street is.

Spring Garden.

Fairmount?

Spring Garden. Well, Fairmount.

So let's say, for instance, purely hypothetical, that all of the sudden from the block from Girard 134 10/25/05 - WHOLE - RES. 050844 to Fairmount Avenue, those home sales are starting to reflect what's really taking place north of Girard Avenue as well. For internal purposes for us, our evaluator would then move that line down and draw it there and say even though it's kind of cutting a neighborhood, we're looking at what the homes are selling for and if they are the same property type and kind of all those other amenities that I talked about before. Now, I agree with you, I think the way to divide up property groups, you have to look at neighborhood lines initially, you look at the ward lines, you look at the neighborhoods lines, and then you break it down to even smaller building blocks. What we used to do was census tracts, because we thought that was the smallest possible. But there's 400-some-odd census tracts in the City. Well, we found that census tracts sometimes cause neighborhood boundaries 135 10/25/05 - WHOLE - RES. 050844 and aren't a good reflection of the sales in that tract for the types of properties in that tract. So we've given our professional staff the ability to break it down even further, and that's what we've done.

So you do have flexibility in that respect. A private appraiser, do they operate under the same premise or -- I don't know --

Are you talking about professional standards or something?

Yes. To give you an example, we have somebody who wants to buy a parcel of land, actually a few parcels of land, in Strawberry Mansion. They want to build a house. And we get appraisals. Redevelopment goes out and gets appraisals. The number comes back as $20,000 a parcel, and that's obviously ridiculous for a piece of vacant land in that part of town. 136 10/25/05 - WHOLE - RES. 050844 So when I inquire further about where they got the comparables, I'm told that they got the comparables from 16th and Oxford. Charlesretta, you're familiar with that area.

And it's obvious that 16th and Oxford, the reason why those numbers are high is because of all the student housing binge in that particular area. That's why I'm asking this line of questioning. Do private appraisers operate under your premise? They should have a clear understanding that this is student housing. You can't equate -- although the housing stock and the vacant lots may look the same as in Strawberry Mansion, there's clearly something different going on in that area. Do private appraisers operate under the same guidelines as you guys?

Yes. We certainly work under those same rules. 137 10/25/05 - WHOLE - RES. 050844 In your example, we would try to find vacant lot sales that reflect what type of vacant lot you're looking at in that area. And also, there's a series of reviews within the department that takes place. The evaluator could say the value of this lot is $20,000, and the supervisor is going to have to look at it and sign off and ask what kind of comparables are made. And then the supervisor has to report to the Director of Assessments and his administrator. So we get a lot of reviews before that becomes a real number.

But do you have some sense of how the private sector operates? Do they operate under similar guidelines, is what I'm trying to get at?

They do. They don't do it in a mass way, but they do just as I described.

I'm saying it's clear that whoever this appraiser 138 10/25/05 - WHOLE - RES. 050844 was had no sense of the difference between 16th and Oxford, Temple University area and Strawberry Mansion.

Well, I mean, that --

I mean, is there a set of guidelines that all appraisers are --

There is a set of guidelines, and within that set of guidelines, we often find, particularly when we're hearing commercial property appeals, we often find that -- or even better, condemnation appeals, because we do get two sets of appraisals. We get one from the Redevelopment Authority and one from the private industry, a private appraiser. We often find that there's a great disparity between those two appraisals. However, saying that, they are both still operating within the standards of their industry. Sometimes it's a little confusing when we see that, 139 10/25/05 - WHOLE - RES. 050844 but, nonetheless, they operate within those standards. And then it's really up to, at least as we sit as a Condemnation Board, it's up to us to make the judgment as to the veracity or the reliability of the comparables used by one or the other.

Okay. All right. Thank you.

Also, may I just say, the example that the Chairman gave basically dealt in terms of geographic areas for residential properties. If you're talking about a commercial or industrial property, then that geographic area may widen that the evaluator considers.

Okay.

So that may have been one of the variables.

Okay.

For the record, my name is Charlesretta Meade. I'm Vice-Chairman of the Board of Revision. 140 10/25/05 - WHOLE - RES. 050844

Thank you. Thank you. Thank you, Madam President.

Thank you. Are there any other questions from any of the Councilmembers? (No response.)

Thank you all very much.

Thank you. Can Ms. Meade make a short statement?

Yes, please.

There was one statement that I wanted to make for Councilman Clarke.

I'm sorry. I don't think your microphone is on.

Councilman Clarke, this is a comment I wanted to make in response to your earlier question in terms of how we deal with subsidized 141 10/25/05 - WHOLE - RES. 050844 housing and how we're aware that developments are in process or that housing units are coming up and they're subsidized. One of the main ways is that the abatement process is also handled by the Board of Revision of Taxes, and the exemption process is handled by the Board of Revision of Taxes. So what happens is that when new developments come up because of the abatement process, especially for residential, largely then they are appearing not before the Board of Revision of Taxes but submitting their documents to the Board of Revision of Taxes for approval of those abatements. The same thing happens with the exemption unit, that most often you have non-profits that handle the development of subsidized properties, and in doing that, they will apply for an exemption status for that development or for that property to the Board of Revision of Taxes. 142 10/25/05 - WHOLE - RES. 050844 At that time, we actually request certain information personal to each entity, and we also request the information particular to the property, not only the description but if there are architectural plans and specs. In that way, we have intimate knowledge of those new developments and those subsidized properties. We also have information in terms of the subsidies. We pass that information then, when the properties are issued their Certificate of Completion, to the evaluator who will handle that area, and they actually have a complete folder of documents that contains all of that information. In addition, our staff continually pulls and receives the permits from the L&I Department, and in that way, when a permit hits for a particular property, then immediately they are proactive in terms of determining the basis of the permit, 143 10/25/05 - WHOLE - RES. 050844 what's being added, what's being built, and that's how we have that knowledge. So we actually are very proactive in terms of obtaining the information early on so that we can separate the apples and the oranges so that we are not dealing with subsidized properties the same way we're dealing with the properties that are not subsidized. But what happens that oftentimes causes the increase in taxes for the non-subsidized properties is that by virtue of developments occurring, then others then start looking at the properties that are available in the regular housing stock, start making those purchases, and that drives the market up. When we then see that that section of the market has been driven up, then we have to react based upon those sales.

Thank you. Madam President, Ms. Meade bringing up tax abatements could lead me 144 10/25/05 - WHOLE - RES. 050844 to a totally new line of questioning. I wasn't going to go there today, but you brought it up. But because of the time associated with today's hearing, will the Board of Revision of Taxes be available as we continue this debate to talk about tax abatements for new construction?

We're always available, Councilman.

Absolutely.

I personally think that they should be represented at each of the hearings that we'll be having.

The hearings for this policy.

Yes.

Yes, we will be. We will be.

Good. It has been suggested that we take a half hour recess. I want to thank you all for attending today's hearing. It's been 145 10/25/05 - WHOLE - RES. 050844 very informative. I don't know if you heard me earlier say that this hearing will be continued until the 27th of October at 1:30. Thank you.

Thank you.

We will recess for a half hour, and when we return, Joyce Wilkerson will be testifying. So we will now stand in recess until ten of 1:00. Thank you. (Short recess.)

This is the continued hearing of the Committee of the Whole regarding Resolution 050844. I believe I have indicated our next witness would be Joyce Wilkerson. She is at the testifying table. So, Joyce, would you identify yourself for the record and proceed with your testimony.

My name is Joyce Wilkerson, Chief of Staff to Mayor Street, and I'm accompanied by Romy Diaz, 146 10/25/05 - WHOLE - RES. 050844 City Solicitor; Nancy Kammerdeiner, Revenue Commissioner; and Sean McNeeley of my office. I want to start by thanking Councilman DiCicco for setting up this forum. A lot of times we have these hearings in the context of a specific piece of legislation where people have hardened their positions and it makes it much more difficult to really work with the issues, and we appreciate the opportunity to come here before the numbers are really out there to explore. In my testimony, you'll see that we've put out a number of alternatives that we might want to consider, and I express a preference for some as opposed to the others, but we're completely open as we go through this process to try to work with Council to address what are probably some of the most challenging issues, tax issues, that we've faced over the last term and a half. 147 10/25/05 - WHOLE - RES. 050844

Ms. Wilkerson, we do have a copy of your testimony, so I would appreciate it if you would summarize your testimony, please.

Thank you. Even Sean said I shouldn't read it. Hopefully, people will take the opportunity to read the testimony. The Administration supports the move to 100 percent assessment. It has been our position and continues to be the position that we think the transparency that will occur is important. We think that it will enhance the fairness of the system. We think that's important. And, hopefully, it will improve the accuracy and the timeliness of BRT assessments without permanently increasing the cost of conducting assessments, and we think that's another important goal. The system we have currently is confusing. It was something that was noted in the Tax Reform Commission report 148 10/25/05 - WHOLE - RES. 050844 of several years ago. I think it's important to say that the Administration does not consider and has never considered the change from fractional assessments and valuation to be an opportunity for a back-door increase. We do not support using this as an opportunity for a windfall tax revenue for the City. Having said that, the Administration in defining revenue-neutral would adopt the PICA position on that issue, that the City ought to collect the revenues that have been set forth in the Five-Year Plan for FY07, and that would be our target revenue moving forward, and that as we adjust the assessments and recalibrate the millage, the revenue yield ought to be what's indicated in the Five-Year Financial Plan. I think this will be a challenging year for everyone. The BRT has done fewer reassessments each year 149 10/25/05 - WHOLE - RES. 050844 since its decision in 2003 to focus on the full valuation effort. The BRT testified to Council that its previous equalization program was suspended for tax year '05 to focus on full valuation. For tax year 2003, the BRT sent out 322,000 reassessment notices. This figure fell to 10,000 last year, tax year 2005, and is roughly 35,000 for tax year 2006. This means that even as values have appreciated, the City and School District have not realized the additional real estate tax revenue that would have been due if BRT had continued with its equalization program. 5 percent. We're aware that the changes that will take place through full valuation will impact hundreds of 150 10/25/05 - WHOLE - RES. 050844 thousands of Philadelphians, some positively, some negatively. We're committed to working with Council and the BRT to mitigate negative impacts on our most vulnerable homeowners as valuation is implemented with the legal and financial tools we have available. For the balance of my testimony, what I do is outline some of the options that we might consider. In talking about these options, all of them have their challenges. Some of them are not now legally possible. Others have dramatic financial impact on the City, but we think that as we move forward, we ought to take a look at all of them. Some of them help certain segments of the population. Others are targeted to more limited groups. 32 to 1. We support that. We also support moving to capture full value on 151 10/25/05 - WHOLE - RES. 050844 properties. Either one of those factors is going to require that City Council lower the millage, unless we're going to realize a windfall, and I think Mr. Glancey had dramatic depiction of what that might mean. And so we do support lowering real estate tax millage, which will mainly address the change in assessment ratio and the lowering of the traditional 30 percent cap between BRT market value and full market value. There are a number of strategies we want to take a look at. The first is buffering. We're adopting the Tax Reform Commission definition of buffering, which a system of buffering or temporarily deferring increases in real estate tax would smooth the impact of the sudden one-year increase in real estate tax payments for some homeowners that may result following the implementation of full valuation. 152 10/25/05 - WHOLE - RES.

050844 One of the Tax Reform Commission recommendations was to base real estate tax bills on the average of three years of assessment rather than just the current year's assessment in order to provide tax system stability and relief to property owners who unexpectedly face large tax increases. Under this system, the BRT would conduct reassessments annually as planned, and the annual assessment would be recorded, but the tax due upon a property would be based on several years' worth of assessments. A buffering or temporary deferral should be modeled in order to determine the City-wide taxable assessed value simultaneous with identifying new millage rates, not afterward. Buffering would probably also require that the millage rate be adjusted downward each year for several years until the full impact of the 2007 revaluation were incorporated. 153 10/25/05 - WHOLE - RES. 050844 Buffering would provide a short-term benefit, but in the long run, it would not address the issues that face many households in Philadelphia. For people who do not have the ability to pay higher tax rates, buffering does not offer a relief. The last time both City Council and the Administration wrestled with property taxes, there was a lot of consideration made to the deferral of real estate taxes. Real estate taxes can be deferred on a City-wide basis with discretion. For the length of deferral in the amount that can be deferred due to the uniformity clause and other laws, the ability to defer for specific classes of properties or property owners is limited, although the City has the ability to defer taxes for low-income residents based on poverty guidelines used by the state. A deferral could be for one year, several years or until the sale or 154 10/25/05 - WHOLE - RES. 050844 transfer of a property. Deferring even a portion of real estate taxes due until sale would likely have a negative impact on revenue and cash flow for a number of years. According to the 2000 census, the median year a Philadelphia homeowner moved into their house was 1983, for nearly two-thirds of the homeowners have lived in their properties for at least ten years. Based on this housing tenure, it could be a number of years before a sufficient amount of sales occurred to return to normal revenue collection patterns. And then the testimony goes on to explore this a bit further. There's also a category of relief referred to as exemptions. An exemption of some portion of the residential assessed value would provide a progressive tax benefit to homeowners. An amendment to the State Constitution approved by voters in 1997 provided an 155 10/25/05 - WHOLE - RES. 050844 exception to the Uniformity Clause for a homestead exclusion, making Pennsylvania one of 40 states to authorize a homestead exclusion or exemption, according to the Institute on Taxation and Economic Policy. This amendment and its enabling act provide taxing bodies, including counties, municipalities and school districts, the ability to provide a homestead exclusion of up to one half of the median assessed value of homes in the taxing district. The exclusion is required to be a flat dollar amount that applies uniformly to all owner-occupied residential properties in the taxing district regardless of income, age or other factors. The flat exclusion is a progressive benefit. It represents a greater proportional tax benefit to properties at or below the median property value than for those above the median. 156 10/25/05 - WHOLE - RES. 050844 Unfortunately, this enabling act also specifically excluded Philadelphia. The General Assembly would have to change the law in order for the City to provide the exclusion. And even if the City had the legal authority, there are conditions attached to the exclusion and this enabling act, which have discouraged most taxing districts in the Commonwealth from providing a homestead exclusion.

The district now cannot raise millage rates to compensate for real estate tax revenues lost through the exclusion, and voters must approve the exclusion. But we mention this because we think it's an interesting approach and that if we could agree on this as an approach, it would be something that we could approach the state legislature to pursue in its feasibility further. Another category that we've looked at in the past, and some of which have been adopted, are caps and freezes. 157 10/25/05 - WHOLE - RES. 050844 The City's forgiveness of real estate tax or the Senior Freeze Program freezes the real estate tax due on a property at the last level before the homeowner successfully applies for the program. The Revenue Department implements this program pursuant to state law. The current program provides a freeze on increases in tax due for homeowners over 65 who fall within the income guidelines of the state's PACE program. In 2004, 16,000 homeowners received cash credits or rebates of over $3 million. In the previous years, we've had conversations about increasing that dollar or the eligibility limits to the PACENET limits. This would require, I think, both state legislation if it were to be adopted, and we would, again, need to figure out ways of covering for the lost revenue, but this is one of the approaches that helps target any kind of benefit that we might want or create in order to avoid hardship. 158 10/25/05 - WHOLE - RES. 050844 The last category that we've identified is the state Property Tax/Rent Rebate Program that provides real estate tax relief to low-income senior citizens, widows, widowers and the disabled. The program provided over $20 million in rebates to over 50,000 Philadelphia residents in 2003. If the Commonwealth expanded the maximum income eligibility for this program, this would provide relief for more homeowners that may be impacted by real estate tax increases in tax year 2007. City Council has also considered Bill No. 050345, which would create a non-profit entity that would distribute cash rebates to real estate tax bills to low-income homeowners. The non-profit would have a five-member Board of Directors, two appointed by the Mayor, two by Council and one by the other four members. The non-profit would provide cash rebates to owner occupants of up to 159 10/25/05 - WHOLE - RES. 050844 half their real estate tax liability as long as they are at or under 200 percent of the poverty level. The Administration is supportive of the concept, but ultimately the effectiveness of this approach would be determined by the source of the revenue, the amount of funding. It's unclear from the bill how the non-profit would be funded and what the annual amount for the rebate would be. As I started out by saying, the Administration remains flexible and open to consider all options. We do think that 100 percent assessment is a step that we ought to take, but at the same time, we have to be mindful of the fact that in recalibrating our assessment in initiating what is basically an equalization program, there are going to be winners and losers, and we need to make sure that this does not become something that drives people out of their homes or places a further burden on 160 10/25/05 - WHOLE - RES. 050844 people who are already reeling from high gas costs and other challenges to their personal finances. I've also included in the testimony a time line so that people can see how it might differ in the coming year from previous years. It would call for us to first consider a change of millage with this next budget cycle and would, I think, have Council actively making millage decisions every year. The Council hasn't changed millage, I believe, in years, and so this is 15 going to be a new undertaking. But I thank you for the opportunity to come up here, and we look forward to working with Councilmembers as we try to figure out what to do.

Thank you very much. Ms. Wilkerson, has the Administration been having conversations or communications with our state legislators regarding Act 46? 161 10/25/05 - WHOLE - RES. 050844

We have not initiated that yet. If this goes forward, there are a number of issues that would have to be changed as a result of going to 100 percent assessment, changing the pre-determined ratio and also going up to capture full value. Act 46, the Law Department has said, needs to be changed. There are also certain tax rates for the School District that are set explicitly in state law, and so those would need to be adjusted as well. They might need to be adjusted. We are waiting with others to try to get a better picture of what it is that we're likely to be dealing with. Mr. Glancey has promised us preliminary assessment information in December, January, and we'll have a much better idea what it is that we will need to discuss with the state then. I think we might be carrying it on some general agenda, but we have not entered into 162 10/25/05 - WHOLE - RES. 050844 explicit conversations yet.

Thank you. On of your testimony, you say that for tax year 2007, the City and School District should benefit from some of the recent gains in real estate value that would otherwise have been realized if not for the timing of the full valuation project, end of quote. Would you explain to me what you mean by that statement, and quantify the gains the Administration would be expecting.

What we don't accept is revenue-neutral taking in only the same revenues that we had in FY06. Our Five-Year Plan turns on there being some increase in revenues. Most of our taxes track up from year to year. We project in our Five-Year Plan some level of increase between FY06 and '07, and that's what we attempted to talk about. What we don't propose is using 163 10/25/05 - WHOLE - RES. 050844 the mathematical change to sweep in a lot of money. We don't have, and are not going to propose, new spending initiatives. When I read through the PICA report, I think the Administration's position is largely identical to that, that if there were going to be anything other than what's projected in the Five-Year Plan, that kind of normal growth in a healthy market, that it ought to be linked to something explicitly, but we're not talking, though, about any kind of windfall here.

Thank you. I have a couple other questions, but at this time, I'll recognize Councilman Rizzo.

Thank you, Madam President. My questions, I think, have been satisfied and this one, I think, is a bit premature, but we discussed it 164 10/25/05 - WHOLE - RES. 050844 earlier and I'm sure all this will eventually get addressed, is that many of my constituents have suggested, because they have experience in other parts of the country, that we move towards a quarterly payment of our taxes, and I would hope that whatever does turn out to be, that that be one consideration. I understand that's a call of the Administration. And it might be helpful some day, Chief of Staff, to actually see a document that says this is the Administration's position or control of that versus the Board of Revision of Taxes.

Okay.

So that would be helpful to me to understand who does what, but the quarterly payment I think would be helpful even presently.

I think we will get that for you. As I recall, in the past, we've said that we appreciate that the quarterly payment would make it 165 10/25/05 - WHOLE - RES. 050844 easier for people. It presents a cash flow problem for the City, but I will provide documentation on that. Rather than getting money up front, we get it over -- it's a one-time problem, though. It's not --

I was told that there was a report that said that was to the advantage, to get the money quarterly.

Once you get over the one-time hurdle of switching from the current system to the new system, there are advantages there. But, like I said, the Mayor sent me up here and said, We want everything to be on the table, that this is an initiative that has real benefits, the transparency that derives from there, the fairness in making the -- in undertaking the equalization are important. But there are going to be challenges from house to house, family to family, and we have to be sensitive to that, and so everything 166 10/25/05 - WHOLE - RES. 050844 ought to be on the table. We're willing to take a fresh look at all the alternatives.

Thank you. Thank you, Madam President.

You're welcome. The Chair recognizes Councilman DiCicco.

Thank you, Madam President, and good afternoon. If you haven't already done so, I guess going forward, we need to look at what full valuation will mean to not only existing homes but new construction, affordable housing and what, if any, effect it would have on existing businesses, whether it's large or small businesses. I think that's really important when we factor in and talk about all these issues. The other thing is, we keep talking about revenue-neutral. I'm not trying to put you in a bad spot, but 167 10/25/05 - WHOLE - RES. 050844 could you shed some light on what revenue-neutrality means to the Administration?

Yes. Revenue-neutral means we hit the revenue figure in the Five-Year Plan for FY07, that we have a Five-Year Plan that made revenue assumptions that really didn't depend on our going to the whole equalization part of the initiative, and at the end of the day, we need at least the amount of revenue shown in the Five-Year Plan, shown last year, shown the year before, in the Five-Year Plan for FY07. For us, that's what revenue-neutral means. If we were to end up with assessments and a millage rate that was the same as FY06, we would have to go back in and begin making some fairly deep cuts in the budget, because we'd have less revenue. So revenue-neutral means sticking to the numbers in the Five-Year 168 10/25/05 - WHOLE - RES. 050844 Plan. Our position is consistent with the PICA position on that issue.

The debt limit, how is that calculated?

The?

Debt limit.

The debt limit is State Constitutional. It's a constitutionally derived calculation, and I've brought our lawyers to talk about that.

Under the Constitution --

I'm sorry. Identify yourself, please.

Sorry, Council President. Romulo L. Diaz, Jr., City Solicitor. The Constitution, if I recall correctly, sets a debt limit for non-revenue debt of 13 and a half percent based upon an average of the ten preceding years. 169 10/25/05 - WHOLE - RES. 050844

Ten?

Ten preceding years for which the assessments are made.

Would the switch to full valuation increase the City's debt limit automatically? Conceivably it would, right?

Yes, it would, but -- yes, it would. There are other limits on our ability to issue debt, and the one that the City really wrestles with is our ability to service the debt. Just because you can issue the bonds doesn't mean you can pay the bondholders. And our challenge right now is not just being close to the constitutional debt limit, but it's more our ability to service the debt, and that's what the rating agencies tend to flag us on, that we are near the top of what they consider appropriate when it comes to ability to service the debt.

Thank you. I have no further questions. 170 10/25/05 - WHOLE - RES. 050844 Thank you.

Thank you. Ms. Wilkerson, you mention that the Administration will be working with City Council to lower real estate tax rates. I would offer a suggestion, and I think it would be extremely advantageous to everyone concerned, if whoever is working on this with the Administration certainly worked with our technical staff and Mr. McPherson so that we could all be very much aware of what is being proposed, what direction we're going, and hopefully Councilmembers could have some input.

We will do that. I know that once the numbers come out, everybody is going to be developing models. Sean will be furiously modeling the various strategies. You know, we're talking about buffering, what does buffering look like, how does it impact revenues, and so we'll 171 10/25/05 - WHOLE - RES. 050844 be developing computer models, and we'll welcome to have Sean and Charlie and Rick and the other folk in Diane's department work together so that at least we're working off the same template as we go to evaluate what the impact might be of some of the alternatives that are on the table. I thought it was helpful several years ago when we thought we might be able to work out a deal on the tax cuts and everybody had the same model they were working off of. I thought it ended up being a real constructive way to exchange, and we look forward to doing that this year.

Great. We'll look forward to that. Are there any other questions from members of the Committee? The Chair recognizes Councilman Ramos.

Thank you, Madam President. 172 10/25/05 - WHOLE - RES. 050844 I know we're going to be talking about this for a while. What's the difference between buffering and the capping of tax assessments that have been brought up by -- and the laws that have been introduced here through District Councilpeople in particular?

Buffering refers to averaging. So you don't collect everything that's due in one year. You take the taxes due over an extended period, three years, five years, average it out so that you don't have the spikes that you might otherwise have. It's kind of like with the gas bill. You can average out your gas bill over a year as opposed to taking it all -- an increase in in just a single month. You average it out in order to make it easier to pay. At the end of the day, you pay the full amount. What buffering doesn't do is cap what your tax exposure might be. With the capping and some of 173 10/25/05 - WHOLE - RES. 050844 the other strategies, you limit what somebody's exposure is as opposed to just smoothing out how fast you have to pay.

You make mention in your testimony or allude that for a program of this nature to take life, that we will probably need state action. Would it then require state legislation as well?

Not for a buffering strategy. I think the Law Department can talk about some of the other approaches. In the past, there have been conversations about capping and freezing, and I think that Mr. Diaz can speak about some of the challenges with those approaches.

Joyce, can the City do this without state involvement, or is it going to require the state?

The buffering we don't think requires state involvement, but I'll let the City 174 10/25/05 - WHOLE - RES. 050844 Solicitor talk on what is a legal issue.

My judgment, Councilman, is that this is a practical issue that we need to look at closely, but if you are considering a period of buffering that's relatively brief, let's say three years, and we could justify it within the spirit of the real estate tax laws that are imposed on the City and County of Philadelphia, then we think buffering could be accomplished without explicit state authorization. That's a judgment call, and we'd have to look at the particular circumstances of a buffering program, but given the fact that we've already heard testimony from Mr. Glancey and others that there are some pockets of, shall we say, non-equalization within the current assessments, we believe that a reasonable attempt at buffering for a short period would probably be something that could be done. With regard to caps, there we 175 10/25/05 - WHOLE - RES. 050844 get into a situation where it depends whether we have state legislative authorization. There are some programs which are potentially applicable to the Philadelphia circumstance for which we don't have that authorization. You may recall that in 2002, there was a bill 9 enacted that would have established a cap of 4 percent subject to General Assembly authorization. To the best of my recollection, that has not been given and, therefore, that type of a cap is not yet effective.

The reason why I asked the state-related question is that if we have to do this -- anything we do through the state will probably be a very, very big, especially legislatively, will be a very big challenge. I know there's programs out there that the City of Philadelphia could probably benefit from, the homestead program, for example, and I think we're left out of it, if I'm not -- I mean, that will be something 176 10/25/05 - WHOLE - RES. 050844 that could probably help us, but we will need to get all of the administrative and the legislative teams to go and lobby and see if we can muster up enough support for homestead to be expanded into Philadelphia.

That's right. We're going to end up -- if we move to 100 percent full valuation, we're going to end up having to have conversations at the state level anyway, because we have Act 46 problems. We have certain tax millage that's expressly provided for in the state law. So chances are we're going to end up there anyway, but I think that if we can reach agreement locally, then we go to Harrisburg speaking with a single voice, I think we can continue to control our future as opposed to just having our issues thrown up there and having them make decisions about what's appropriate for Philadelphia.

Thank you so much. 177 10/25/05 - WHOLE - RES. 050844 Thank you, Madam Chair.

You're welcome. Are there any other questions from the members of the Committee? (No response.)

Seeing none, this Committee will stand in recess until October 27th at 1:30. Thank you all very much. (Committee of the Whole adjourned at 2:05 p.m.) - - - 178 CERTIFICATE I HEREBY CERTIFY that the proceedings, evidence and objections are contained fully and accurately in the stenographic notes taken by me upon the foregoing matter on October 25, 2005, and that this is a true and correct transcript of same. ______________________________ MICHELE L. MURPHY RPR-Notary Public (The foregoing certification of this transcript does not apply to any reproduction of the same by any means, unless under the direct control and/or supervision of the certifying reporter.)