Well, that's true, but that's a different situation. If you also have rising and escalating property prices in a neighborhood, then obviously assessments go up and people pay more. But let me tell you --
That's what's happening in Madeline's area. The prices are skyrocketing.
Okay. I understand. You're getting whopping increases. But let me tell you something. Even in those circumstances, what we're proposing would in fact make it more likely for people to appeal. 225 02/25/04 - WHOLE - RES. 040076 If my property values go up from $100,000 to $150,000 as a result of sales, and I know what the sales are in and around the area, and I know they're going for $150,000 or $160,000. Now, I get my real estate tax bill and I look down and the real estate tax bill says that my property is worth $105,000 or $110,000, whatever 70 percent is of $150,000. Now I'm looking at this and saying, well, my God, the Board of Revision of Taxes thinks my property is only worth $110,000. Obviously, its sales prices are going for much higher than that. So I don't appeal because I'm afraid to go down to the Board. They're going to see -- you know, if you believe it's full market value, they're giving me a break. If on the other hand, they put the value at what it's supposed to be worth and you really do believe that the property that you're in is not necessarily going to be saleable at the rates that some of these others are, then that's the reason you go down there and make an appeal. You say just because these folks were able to get $150,000 226 02/25/04 - WHOLE - RES. 040076 now for their property because they've put improvements in, doesn't mean that we can. So it is precisely to benefit the people who are facing skyrocketing property assessments that it's important to have the Board of Revision of Taxes put on that form what they think the property is worth and not some number so far below it that people think they're getting a break.
But they base the value on the last property sold, and that's what happens.
I know. But they also then just take 70 percent of that. What you're describing is grounds for appeal.
The thing is, how do you protect -- why should her property go up -- because it's really gentrification.
I'm understanding that. Obviously we've talked here about the downside, if you will, of economic development as the property values go up and people who are living on fixed incomes and elsewhere have a difficult time with that. No question 227 02/25/04 - WHOLE - RES. 040076 that's a huge problem. On the other hand, the question you have to ask is, do we keep the City in a state of economic depression in order to keep people's property values low? That's the dilemma that we've got here. In terms of being able to get equity and fairness in those, the other recommendation we make, which I strongly favor, was the idea of a taxpayers' advocate working at the Board of Revision of Taxes on behalf of the taxpayer. Because most people have no idea how to appeal, what in fact would be adequate grounds for an appeal, so they just stay away. But if there were somebody at the Board whose sole responsibility was not involved in making the assessments, not involved in making these judgments, was involved in helping residents understand what they can do to appeal, that will encourage more people in fact to take advantage of whatever is there for them. But I don't mean to back away from the real dilemma. I raised this several times, and it is a dilemma. If Philadelphia 228 02/25/04 - WHOLE - RES. 040076 begins to skyrocket economically, as happened in Center City, there's no question at all that what you're calling gentrification happens. Absolutely not. The issue then is how do we help people in both circumstances with the housing issues, in which I've had a little bit of experience, so that we get the benefit of economic growth without destroying a lot of homes and people in the process.
I'd like to respond and say that the economic depression will end because -- one of the channels had a thing on about how many millions of dollars you're missing in real estate taxes for people down in Florida who ain't paying their taxes.
If they paid their taxes like I pay mine, we wouldn't be in this economic depression that you're talking about. Also, if people stop getting these rebates for not paying taxes and they build these skyscrapers and they don't have to pay for 15 years, who do you think is making up that? I am. That's right. I don't know about you, 229 02/25/04 - WHOLE - RES. 040076 but I know I am.
If that's the economic depression you're talking about, we need to stop giving them all those incentives to build this stuff and start collecting taxes from people who aren't paying their taxes. We wouldn't be in this depression we're in now.
Well, I think yesterday I made the point that our very first suggestion for this year is to get really tough on people who have not paid their taxes. I absolutely agree. One percent increase produces $20 million. That pays for the whole reduction program that we're anticipating in a year. If you could do it all, that would be $100 million. If we collected 100 percent of the taxes that were owed to us, every year that would be $100 million more. I agree absolutely with that. The tax breaks are offered because they presumably benefit the City. Our basic stance on that is that this piecemeal approach to offering incentives has all of the problems 230 02/25/04 - WHOLE - RES. 040076 you've just heard. It generates tremendous resentment. It may help an individual group of people, but it's costing the rest of us. We heard from many people who came before us in the community hearings who made it very clear that they resented the fact that they lived in Philadelphia 30 or 40 years and they weren't getting a 10-year write off of their taxes, and here somebody living next door to the guy who just bought his house, and he is. So we are definitely proposing to move away from this cherry picking approach to it all and having a tax system that works so well that you don't need this economic incentive, and then deal with the problems associated with that. But they are going to be less serious than the problems we have now.
Maybe I didn't make myself clear. You indicated that you needed the cooperation of Council, the Mayor, the Board of Revision of Taxes to go to 100 percent of market value. Why couldn't it be 231 02/25/04 - WHOLE - RES. 040076 part of the process? In New Jersey, part of the process is each year the law requires an adjustment of the rate after the --
It can be. And that's what's called budget based. That's what we propose. That is precisely what we propose.
Excuse me. The Chair recognizes Councilman Goode.
Just for the record, the bill that was actually introduced that I co-sponsored with Councilman Nutter says that the BRT cannot move to 100 percent valuation without Council changing the rates. It's in the legislation.
What I'm understanding -- and I'll address the Chair -- that part of the process annually would be to adjust the rate?
I think there are two steps. 232 02/25/04 - WHOLE - RES. 040076
There are two issues here. One is the immediate recommendation to move to 100 percent market value, which is a specific recommendation reflecting the low valuation now. That is the recommendation covered by the Nutter/Goode legislation. Then down the road there's also the question of what happens on a year-to year basis as a result of rising property taxes. Now, the budget-based system that Councilman Rizzo is talking about is used elsewhere where the Board of Revision of Taxes, the City's finance people and the Council get together and they say, here's what we need to raise. And if it looks like assessment increases are going to generate enough revenue without -- you can reduce the real estate tax rate 233 02/25/04 - WHOLE - RES. 040076 accordingly. That's not an easy thing to do in a complicated city. But it is what we recommend. I don't know whether you're going to be able to do that this year, but it's certainly what we recommend, and in part gets at the complaint that every time the taxes go up, the poorest people in the City pay the highest burden, which is absolutely correct.
Thank you. Thank you, Madeline. Do we have anyone else to testify on this resolution? Approach the witness table. Good afternoon. Thank you for coming in. Please identify yourself for the record and proceed with your testimony.
I'm Dan Sullivan. I'm the director of the Henry George School and Birth Place Museum at 413 South 10th Street. I can talk for hours and hours, but I'm from Pittsburgh where they give you three minutes and then the traffic light turns red and the buzzer starts buzzing and it gets louder and louder. 234 02/25/04 - WHOLE - RES. 040076
I just wanted to say that in general I think this is a very good bill. I would have done some things a little differently here and there, but probably if you ask people, you'd have got 10 little 9 sets of differences. 10 The things that impress me about what happened is that you had 15 people representing constituencies all sitting 13 down at a table. And the normal process for 14 taxes is that lobbyists come individually and 15 they come to Council and they say you have to do what's right for me and my constituency. At this process, they had to sit across the table from each other, and the labor guy had to explain to the Chamber of Commerce guy why the Chamber should take a hit so labor could get a break, or why the African American group should take a hit so somebody else -- and they just worked and worked together on this. And because all this constituencies were across from each other, I think that has a lot to do 235 02/25/04 - WHOLE - RES. 040076 with why the overall package works. The process you're up against is that now that that's done, you're going to have individual people with their individual concerns. And some of the them are going to dislike it a lot. And how you handle it has a lot to do with whether they will accept it and whether they will respect you, whether they disagree with you or not. In Pittsburgh this was handled very adroitly. I was involved in this for 13 years. But when I first started I knew 14 nothing about politics and taxes and 15 everything. And there was a Councilman Cohen 16 who later became a Congressman who got this 17 through. It was one of those things where he 18 would rather have a unanimous vote for a 19 compromised package than a 6-3 override on the 20 Mayor's veto vote for what he really wanted. 21 And that as a political thing is a very 22 important thing to do, to try to work out some 23 things that you can get a very overwhelming 24 majority so people don't make it into a 25 political football. 236 02/25/04 - WHOLE - RES. 040076 I don't want to get into the economics of it and I'm not as much an expert on the legal aspects as I am the economics of it. I don't want to try to get into that here. I did want to say we did seminars, and there's seminars on here and 19 of them 8 pertain to land tender and land taxation. I 9 am at the service of every Councilmember. 10 I'll even give you details about what I think 11 is wrong with the package or what could be 12 changed to accommodate a group that's sorely 13 distressed when they see it the way it is. 14 I think it's a very good package. 15 Given political processes, I'm amazed that the 16 Association of Realtors is asking for a land 17 value tax. It's almost like the theater 18 owners asking for an amusement tax. 19
Did they 20 have that in Pittsburgh, and if they did, was it successful?
It was economically successful for a very long time in that we had a great deal of development and economic growth when we had it. They got rid of it 237 02/25/04 - WHOLE - RES. 040076 because the county did a very bad assessing job and the City -- Philadelphia is lucky because the City and the county are the same entity. In Pittsburgh the real estate developers dominated suburban politics, where here the people who are outside of Philadelphia are outside the county and they have less clout than they had in Pittsburgh. But the reassessment was done by a private outside firm who was a computer firm. They were very good at computer analysis, but they didn't start out understanding real estate. They understood computer analysis and hired some real estate people. The problem with that, I sum it up that art can hire science, but science cannot hire art. So had they used a company like Colay (ph) or Trumble (ph), which had been doing real estate assessments before there were adding machines, and then took on computer expertise to enhance its results, they would have probably come out with a better result. It's very important to get uniform 238 02/25/04 - WHOLE - RES. 040076 land values from place to place, regardless of what the building is on it in order to make this work well. Philadelphia is doing something -- in a way they're doing it the hard way because you probably could have just slid through a slight shift to land value tax each year and ignored the assessments, which is what we did in Pittsburgh. But in Pittsburgh, the land to building ratio got to be considerable and the assessments were very bad. And when they reassessed they were very bad in a very different way. And it caused shock. So the assessment buffering proposal that the Tax Reform Commission put forward is a very good proposal. The idea of doing the assessments, not necessarily before you start to shift, but doing them as you start to shift and not letting one thing just languish while we play with the other thing is a very good idea. The people who will be most upset with this are the people who have collected a lot of old building who didn't expect this and their taxes are going to go up. My philosophy 239 02/25/04 - WHOLE - RES. 040076 has always been, land tax kind of sends you a message to use it or sell it. And so one of the olive branches that I always suggested offering to the Rappaports of the world is, since we are giving you the stick, how about this. How about if we abolish the deed transfer tax and make the building permit fee a deposit so when you've actually built the building, you get your permit fee back. And that means the land tax has to be a little bit higher. But since you're taking the taxes off of ordinary homeowners and productive businesses and putting it on these people who are not using their land, then this is a good olive branch to say to them, okay, we're not doing this to punish you. We're doing this because we want Philadelphia to become more vibrant and we want your land to get back into use. So we're going to take away the tax that you would have paid for selling it to someone who will fix it up or for fixing it up yourself. That's a minor thing. It's more of a nice gesture than a big piece of money. That's something that if Council wanted to 240 02/25/04 - WHOLE - RES. 040076 play with it and say, let's see if there's anybody that wasn't accommodated by the Tax Reform Commission, that's a possible variation. The important thing, though, is if I were on Council I might have my pet idea. One of the people on the Tax Reform Commission had an idea about changing the wage tax, and he voted against this because his pet idea didn't go through. Well, I happen to agree with him. I happen to agree that exempting the first $5,000 like the state does is a very progressive thing to do.
But the fundamental impact of this thing is so important that if I didn't get my deed transfer tax cut or I didn't get my $5,000 wage tax exemption in the package, I would still support it. I said to the people in the Tax Reform Commission, if the state does give you the authority to exempt the $5,000, I think you should take it. But one of the reasons I think that they didn't go for that was that would tie it up, waiting for the state to act. I get the sense Philadelphia has dangled on many things 241 02/25/04 - WHOLE - RES. 040076 waiting for the state to act. And they just said, no, we're going to put a package that anything in here that requires help from the state, if we don't do that, we can still do the rest of the package. I think that's a very important concern.
Your testimony has been very interesting. Thank you so much for coming in. The Chair recognizes Councilman Rizzo.
Don't hold your breath for anything from the state when it comes to some of those issues. I'd appreciate you commenting on something. When I first bought a property outside of Philadelphia it was very pleasing for me to know when I made the transaction that I didn't have to pay the real estate transfer tax. I'm talking about New Jersey. Is there any statistics on exactly how that encourages growth, home ownership? I don't remember exactly what it was it, but I believe it was either I didn't have to pay any of the 242 02/25/04 - WHOLE - RES. 040076 transfer tax or it was just a percentage.
Point of order. About New Jersey, the transfer tax is paid by the seller as opposed to the buyer. Just for your information, about two years ago or maybe three years ago I introduced legislation that would have set up a similar mechanism here, did not get enough support and the bill 10 basically died, although I've had some conversations recently with the Real Estate Association and they're looking at it again. I don't want to bore you with what my philosophy was and why I think it would benefit, but we did attempt it here. We couldn't get the bill out of Committee and it died.
The observation I had, it wasn't personal, but I've had people tell me that they were able to proceed with a deal economically.
The purpose of my legislation was it meant in some instances -- I don't know what the exact percentage is -- often times people, especially people who 243 02/25/04 - WHOLE - RES. 040076 are low income, have a difficult time raising the necessary funds to get to a settlement. And if you shift the burden to the seller, it makes it that much easier for the buyer. If it's a seller who is moving out of the City, what do I care if they're paying the full transfer tax because they're going anyway. But if you're a seller who is then moving up, staying in the City and you're buying a home that is more expensive, when you do the calculations as I had laid out in the legislation, you actually save money by staying. But the way it is now, you're almost penalized for selling your home and moving into a home that's more expensive, if you choose to stay in the City of Philadelphia.
I hope you are going to pursue that, Councilman DiCicco, because it makes sense. And I don't know whether you have a comment on that, but I believe it would be a positive change to the way we do transfer tax here in the City.
The economic reality is that no matter who pays it on paper, the 244 02/25/04 - WHOLE - RES. 040076 seller pays it. The reason for that is that the buyer looks at what he can afford. If you can sell a house for $100,000 and you abolish the transfer tax you can sell it for that much more. Say the buyer has to put percent 8 down on $100,000. He has to raise $20,000 9 plus closing costs, and the deed transfer tax 10 is part of that. Well, he's only 20 percent 11 down, so every dollar in closing costs is five 12 dollars less he can pay for the property. 13 Especially in poorer neighborhoods, the buyer 14 is not looking at long-term growth or 15 anything. He's just saying, this is how much 16 money I can raise. This is how much nice a 17 house I can get. The deed transfer tax comes 18 out of his front money, which is what limits 19 him. So you take $1,000 out of his front 20 money at a 20 percent loan, you're reducing $5,000 what the seller can get for the house. So it's really in the seller's interest, even without a law, if I was selling a house in Pennsylvania I would advertise that I will pay your deed transfer tax. 245 02/25/04 - WHOLE - RES. 040076
Don't sometimes real estate brokers negotiate because they don't want to reveal that they've reduced the price of the home, especially if it's new construction? They will assume in many cases the transfer cost and show the property selling at a value so they don't get picked apart on people trying to do deals. I've heard that done regularly where the sellers sometimes assume this transfer of taxes.
Your guess is probably better than mine. One thing I know is that we did the study in Pittsburgh -- and I haven't done one in Philadelphia -- but homeowners pay far more in deed transfer tax over the life of their home than they would have had to pay in additional property tax to pay it that way. Part of that is a lot of property transfers without you seeing it. When the US Steel Building sold in Pittsburgh they got a law passed saying -- what they did was they sold the corporation that owned the US Steel Building so that there was no deed transfer. But legally the 246 02/25/04 - WHOLE - RES. 040076 government could say, well, that is a deed transfer in kind. And they get a law passed that now you can collect that. The problem is that you can only collect that if you realize it. Since corporate transfers are not registered here, quite often a property will transfer because the corporation that owns the property will transfer. In that case -- this is in Pittsburgh -- the US Steel Building is owned by the 600 Grant Street Corporation because that's their address, and that corporation changes hands over and over. And unless somebody is reading the real estate section of the newspaper and notices that it happened, you don't get the transfer tax. With the smaller corporate properties, the change, nobody gets the transfer tax even though you're legally entitled to it because you don't have a way of tracking that. So the deed transfer tax falls disproportionately on small businesses and homeowners, and it tends to avoid corporate holdings. 247 02/25/04 - WHOLE - RES. 040076
Thank you. Are there any other questions from Members of the Committee. (No response.)
Thank you so very much. We appreciate your testimony. Do we have anyone else to testify on this resolution? (No response.)
Seeing none, the Committee will stand in recess until the call of the Chair. Thank you very much. (Council adjourned at 3:25 p.m.) - - - - 248 C E R T I F I C A T I O N I HEREBY CERTIFY that the foregoing proceedings of the Council of the City of Philadelphia of February 25, 2004, were reported fully and accurately by me, and that this is a correct transcript of the same. RE: COMMITTEE OF THE WHOLE _________________________ Lisa C. Bradley, RPR