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 think it's something that should be debated. I agree with that.
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 very much. The Chair now recognizes Councilman Goode.
Thank you, Madam President. Good morning, Mr. Glancey --
-- 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?
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?
Who would take us to court? I'm sure it's not --
A citizen who feels aggrieved who would have standing to do that.
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?
State law says what? That we have to go to full valuation?
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.
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.
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?
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.
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.
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
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.
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?
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?
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 --
No. We wouldn't use the current rate. We would not use 8264.
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. 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 --
-- 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?
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?
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
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.
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 --
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.
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.
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.
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. Are there any other questions from any of the Councilmembers? (No response.)
There was one statement that I wanted to make for Councilman Clarke.
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?
I personally think that they should be represented at each of the hearings that we'll be having.
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.
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.
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.
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 is State Constitutional. It's a constitutionally derived calculation, and I've brought our lawyers to talk about that.
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
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.