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About 56% could get bigger bills in overhaul

It could be as soon as next year or the year after, but whenever Philadelphia fixes its malfunctioning property-assessment system, at least 240,000 homes could be hit with tax increases averaging $500 a year.

The 7000 block of North Tulip Street in the Tacony section. Homeowners in less affluent neighborhoods such asthe Lower Northeast, West Philadelphia, Kensington, Olney, and East Oak Lane stand to pay $200 less on average. (John Costello / Staff Photographer)
The 7000 block of North Tulip Street in the Tacony section. Homeowners in less affluent neighborhoods such asthe Lower Northeast, West Philadelphia, Kensington, Olney, and East Oak Lane stand to pay $200 less on average. (John Costello / Staff Photographer)Read more

It could be as soon as next year or the year after, but whenever Philadelphia fixes its malfunctioning property-assessment system, at least 240,000 homes could be hit with tax increases averaging $500 a year.

The fiscal two-by-four would smack 56 percent of all homeowners of single-family dwellings, with those in the wealthiest neighborhoods getting the worst of it, according to an Inquirer analysis of new property valuations released last week by the Board of Revision of Taxes. In areas such as Rittenhouse Square, Fitler Square, Queen Village, and Northern Liberties, residential property taxes could go up $1,000 a year on average.

In most cases, the bigger bills will be long overdue.

For years, residents of those areas have paid less than their fair share due to the BRT's wildly out-of-whack assessments of properties throughout Philadelphia.

Their loss, though, will be others' gain.

The annual tax bills for about 185,000 single-family homes, or more than 40 percent, would shrink $200 on average. Most are in less-affluent neighborhoods such as the Lower Northeast, West Philadelphia, Kensington, Olney, and East Oak Lane, where homes have been valued at unfairly high levels.

"We're still measuring the shift, but it really does look like . . . those sections that have been paying way too much are going to finally be taxed as they should," said Joshua Vincent, executive director of the Henry George Foundation of America, a nonprofit property-tax-reform organization in Philadelphia.

Among the beneficiaries would be 77-year-old Ianthe Lane. The East Germantown resident would save about $230 a year. Not much, but she'd take it.

"Every little bit helps," she said.

Purely on a dollar basis, the greatest pain would be visited on Center City.

Artist Yvonne Bobrowicz has lived on the tony 2300 block of Spruce Street in Rittenhouse for 45 years. The BRT had appraised her 4,080-square-foot home at a laughably low $258,000. Under the new system, it is valued at $1.2 million.

That translates to an additional $5,100 in property tax a year - nearly double the $7,000 she pays now.

"Oh, God," she said when told of her potential bill. "Do you want to buy some art?"

Commercial property owners stand to reap substantial savings. Under the new valuations, the total tax burden for the 7,500 commercial properties would decrease 37 percent, or $74 million a year. Generally, commercial real estate has been assessed at higher rates than residential properties.

Homeowners would pick up the slack, and then some. The single-family residential share of overall property taxes would grow by $85 million.

"That tends to happen after big reassessments in Eastern cities where commerce and industry are pulling out," Vincent said. "What is left is residential, and that's what we might be seeing here. It's unfortunate, but it is happening."

The entire point of the BRT's Actual Value Initiative was to produce property valuations that reflect the market value of rowhouses, office towers, factories. Even the BRT, which sets property values for tax purposes, acknowledges that its current system is inaccurate, inequitable, and confusing.

Last summer, an Inquirer analysis determined that more than 97 percent of Philadelphia's residential assessments were wrong, many by wide margins.

The new methodology, which uses a complex computer model, has generated figures far more realistic. But the numbers are not perfect. Nor are they final.

"These are not the last word in assessed values. These are the first word," said Kevin Gillen, a property-tax expert at the University of Pennsylvania's Wharton School and vice president with the economic consulting firm Econsult. The BRT retained him to develop part of the computer model.

"The city needs to revise [the new numbers] and modify them," he said. "You need human eyes on these values. You can't just accept what the computers tell you."

But Gillen, Vincent, and other experts who have begun reviewing them say the new figures already are a dramatic improvement.

For instance, the city's current assessments fail to meet national accuracy standards in 640 of the 641 divisions the BRT uses to set values. The new numbers meet national standards in 554 out of the 640 divisions, Gillen said.

The Inquirer's analysis of the actual-value numbers are based on a key assumption: that Mayor Nutter and City Council will not use the reassessment to increase revenue.

Under law, reassessments are not supposed to generate tax windfalls; the total amount collected should be close to what it was before the mass reappraisal.

"It should bring in the same amount of money, as much as within reason," said Robert Strauss, an economics professor at Carnegie-Mellon University in Pittsburgh.

Before the recession, Nutter strongly advocated such a "revenue-neutral" shift to the actual-value system. Now, however, with the city facing a $1.38 billion five-year budget deficit, that notion may be out the window.

"The current system is unfair. That's part one," said Doug Oliver, Nutter's spokesman. "Part two is we have a budget crisis that requires us to bring in additional revenue."

The mayor has proposed a 19 percent property-tax increase in 2010, trailing off to 15 percent over current collections in 2011, before returning to 2009 levels in 2012. He intends, Oliver said, to pursue those hikes whether the Actual Value Initiative is implemented or not.

It is unclear how state law would affect Nutter's property-tax proposals. But even if legal restrictions are no obstacle, the political hurdles created by simultaneously raising taxes and switching to actual value could be huge.

"There's a very real chance that this kills any chance of a real estate tax increase," said City Controller Alan Butkovitz, referring to Nutter's proposals.

Butkovitz, who has opposed the Actual Value Initiative, predicted that "people will not differentiate between a tax hike and actual value."

"They'll see it as one blended issue. To counter that will take a very complicated kind of 'trust me' explanation from the mayor."

A revenue-neutral transition is sure to be politically tough as well, but it would likely be easier for the public to absorb. To get there, Nutter and Council would first have to adjust the tax rate down, to about 1 percent.

That, in itself, would be a novel exercise for City Hall, which has not changed property-tax rates in 18 years.

Instead, a system has evolved that has met budget needs with steady increases in assessments.

Actual value ought to obliterate that practice. All property values would be updated annually, forcing Council and the mayor to wrestle with tax rates every year.

The second step Nutter and Council would likely take before actual value is enacted is to pass legislation blunting the worst tax spikes, perhaps by phasing the new values in over five years.

"It would be political suicide for the mayor or Council to allow someone to have a 1,000 percent increase," said Brett Mandel, candidate for city controller and a vocal advocate of the actual-value system.

Some property owners could no doubt easily survive the higher payments, even without a phase-in period.

David Freiman, who owns a 5,200-square-foot home on the 2100 block of Locust Street, would shell out $9,000 more a year once actual value was fully enacted.

"That would be a pain," he said.

But, he noted, the property tax would likely be higher still in some suburbs. As long as the assessments are fair, he said, he will have no complaints.

Longshoreman Bob O'Neill, who has lived his whole life on a now-gentrifying Pennsport block near the Delaware River, was less serene when told his property tax would rise about $1,500.

"How am I going to pay for this? Christmas, I don't know," he said. "It's slow down at the waterfront."

He figured his bill would not hit $2,700 until about a decade from now, judging by the rate that assessments had been ticking up in past years. Phasing in the higher cost would help at least a little, O'Neill said.

One possibility: He could appeal his new assessment to the BRT. The agency fully expects to be hit with a deluge of such requests when actual value is implemented.

It probably is right.

"If this is what they come up with, there's going to be a lot of pushback and a lot of lawyers," said Freiman, the Locust Street homeowner, as he reviewed a list of likely assessment increases in his neighborhood.

And that from a guy who thinks the new numbers look pretty fair.