Elmer Smith: Grabbing the tax third rail: Full-value assessment

GIVE COUNCILMAN Darrell Clarke credit for his willingness to venture perilously close to the third rail of local government - tax policy.

Clarke proposed last week to reduce the 10-year tax abatement from 100 percent to 80 percent while offering a break on the real-estate-transfer taxes and recorder-of-deed fees paid on existing home sales.

The hoped-for effect would be to reduce tax breaks on new construction to finance incentives that help sell existing homes.

Whether his proposals would be revenue-neutral is debatable. But they may quiet the critics who say that all the good tax breaks are going to rich homeowners and even richer real-estate developers.

"Since we instituted the tax abatements," Clarke said, "a lot of people have been complaining that some guys are getting away with paying nothing."

In reality, tax abatements don't cost the city anything because little or no tax was collected on the vacant land before the construction. Eventually, the new properties come onto the tax rolls.

Tax experts argue that there also has been an increase in wage taxes caused in part by people who moved in from the suburbs and are now paying the higher wage-tax rates that city residents pay.

But all of that falls on deaf ears in a lot of inner-city communities. The whole thing gets mixed up with the gentrification issue, and you get folks lining up on opposite sides of a class divide.

Clarke is betting that reducing the 10-year abatement to 80 percent will bring in "a couple million a year to help support a tax credit on existing sales."

"We believe 80 percent will still maintain the integrity of the abatement program. It's not low enough to negatively affect the market."

Mayor Nutter, who proposed a reduction in the abatement from 100 percent to 90 percent during the mayoral campaign, is studying both of Clarke's ideas.

Clarke also plans to introduce in Council this week a bill to lower fees paid by builders.

But it all amounts to tinkering with an issue that is so frightening, it paralyzes elected officials: FULL-VALUATION TAX ASSESSMENTS.

They don't even like to whisper it around City Hall because, no matter how you say it, it comes out sounding like a tax hike.

The Board of Revision of Taxes sets property values for tax purposes at an "assessment ratio" that is about one-third of what the BRT thinks the property would sell for on the open market.

The BRT sends the assessed values to Council, which then sets a tax rate that gets multiplied by the assessed-value ratio to compute your tax bill.

State law requires the city to switch to a full-valuation assessment system. The BRT has spent $5 million writing new assessments. The mayor has said that he is in favor of implementing them.

Council would then lower the real-estate-tax rate so that the increase in value assessment would not increase the overall tax bill for city homeowners.

Problem is that, even though many would pay less, some

homeowners would end up paying more taxes.

If only 10 percent of city taxpayers ended up with higher bills, you'd have tens of thousands of voters looking to take it out on somebody.

"I used to hear, 'The Legislature is running this year - it's not a good time to do it,' " said Brett Mandel, of the tax-reform group Philadelphia Forward.

"I soon found out there is no good time. There's an election every year."

Which is why Mandel's group spent $30,000 in legal fees on a lawsuit to force the city's hand. They are holding off on filing it to give the BRT a few more months to finalize the new assessments.

"What would drive us into court is if they aren't moving forward with deliberate speed," Mandel said. "If they refuse to release figures, that would drive us into court."

They may want to dust off that lawsuit. Council has been stalling this one for four years.

Meanwhile, they'll be tiptoeing around the edges of this issue, trying to avoid that third rail.

Send e-mail to smithel@phillynews.com or call 215-854-2512. For recent columns: http://go.philly.com/smith