This Economy: Rough road lies ahead to fix Phila. tax system

Philadelphians voted by an overwhelming margin last week to abolish the Board of Revision of Taxes, setting the stage for a major overhaul of the way real estate taxes are assessed and how appeals are heard in the city.

But experts in the local legal and business communities cautioned last week that elimination of the 156-year-old tax board does not guarantee that necessary changes will come easily.

A top Center City real estate lawyer said it was hard to think of a more challenging exercise than creating a fair system for assessing properties in Philadelphia, given the city's history.

The stakes are high in the commercial real estate world, where some investors take their money elsewhere because they cannot understand the city's byzantine tax system and doubt its fairness, said Robert Fahey, a broker for CB Richard Ellis Group Inc.

What's more, property taxes are just one aspect of an onerous Philadelphia tax system that is forever stretched because too few workers and residents have to fulfill too many financial obligations.

Michael Sklaroff, real estate department chair at Ballard Spahr L.L.P., expressed optimism, despite his conviction that fixing the system is extremely difficult. "If there is a political will, this can be done effectively. Mayor Nutter seems to have the courage to set this right," he said.

Others have doubts.

"It hasn't changed in all the years that I have practiced. It can be done, but the politicians have to stay out of the mix," said Marc Brookman, a partner at Duane Morris L.L.P. and a real estate lawyer here for 42 years.

It will take enormous effort and discipline to complete the years-long task of assessing properties based on estimated market values as opposed to the tax board's vague and seemingly random method, lawyers said. They expect a significant shift in the tax burden among neighborhoods, potentially upsetting large blocks of voters, which politicians like to avoid.

"There is absolutely the political will to fix things," said Doug Oliver, Nutter's spokesman. "We acknowledge that actual value is the direction we want to go, but we are going to take the necessary time to get it right."

Unless a legal challenge gets in the way, the BRT will go away Oct. 1. Before then, the mayor can set up a new Office of Property Assessment within the administration. An independent Board of Property Assessment Appeals is also to be established.

John Binswanger, chairman of Binswanger Corp., a Center City commercial real estate firm, said there was not much to talk about yet. "I think the concept is fine. I want to see the result," he said.

A Pittsburgh professor who has studied property taxes nationwide was skeptical of putting the assessment operation in the executive branch. "This has all the makings of major mischief if you ask me," said Robert P. Strauss, a professor of economics and public policy at Carnegie-Mellon University. "It's just replacing one highly political organization with another."

The structure was a compromise, Oliver said.

Even if property taxes are more equitably distributed across the city, the underlying problem of the city's expenses outrunning revenue remains.

Health benefits and pension costs, for example, each more than doubled from fiscal 2000 to fiscal 2009 while city revenue increased only 35 percent, according to the mayor's office. Meanwhile, the number of jobs here fell 7 percent, to 647,400 from 699,200. That means the average pension contribution per job soared to $680 from $257.

In the end, Sklaroff said, the city has to pursue three goals: more jobs, a stronger tax base, and more residents to share the burden. Fixing the property-tax system can play a role in meeting those goals, Sklaroff said, because "a transparent system will be more inviting to investment."