Schools crunch, other demands fueled city tax hike

At a time when cities and states are engaging in bruising fiscal battles and balancing the books mostly by slashing their budgets, Philadelphia instead raised property taxes last month for the second year in a row.

As the saying goes, all politics are local - and all budgets are subject to local circumstances. But how, exactly, did Philadelphia get away with once again doing the politically taboo, raising taxes 3.85 percent this year after a 9.9 percent increase in 2010?

Mostly, blame the School District of Philadelphia and the $629 million gap in its budget - especially since Mayor Nutter's initial budget did not call for any tax increases.

The district, which is controlled by the state but partially funded by the city, asked Council to help fill the shortfall.

Nutter has cut from the city budget in the past, including eliminating police academy classes and instituting the controversial rolling "brownouts" of fire stations.

This year, he warned Council that cutting again to find money for city schools would force layoffs, the loss of another police academy class, and reducing or eliminating items such as literacy programs and city pools. Nutter said he was not willing to make those cuts.

"Philadelphia is really kind of an outlier in what it's choosing to do in not really cutting programs," said Joshua Vincent, executive director of the Center for the Study of Economics, a Philadelphia-based educational nonprofit group.

Of the 10 largest cities, only Phoenix and San Antonio, Texas, had a substantial tax increase this year, and most cut jobs and services in 2010.

"I think it's pretty clear that these other cities really have forecast down the road in terms of revenue, as well as politically," Vincent said.

He said Nutter and Council knew the schools were going to face big cuts from a Republican-controlled state government and did not adequately prepare for the district's money woes.

And even with the city's help, the School District has been forced to lay off thousands of employees and make other painful cuts.

Voter and special-interest backlash this year was reserved mostly for the mayor's proposal to fund the schools with a 2-cents-per-ounce tax on sugary drinks.

Nutter also proposed a property-tax increase, but neither the mayor nor Council seemed at the time to have the stomach for raising real estate taxes after the 10 percent increase in 2010.

The possibility seemed remote until last-minute negotiations failed to gather enough votes to pass the soda tax. Most Council members agreed they had to take some action to help the schools, so they turned to a modified property-tax increase.

At the final Council hearing before the summer recess - when this year's 3.85 percent increase was passed - Council had to endure about an hour's worth of angry public comment, mostly from unaffiliated private citizens.

But by then, the deal to raise taxes had been consummated.

Although property taxes have risen in each of the last two years, both increases are supposed to be temporary and are set to expire in June 2012.

That is complicated by the city's plans next year to implement the Actual Value Initiative - a citywide reassessment of all properties at current market values.

Most property-tax bills are based on an assessment that is supposed to equal 30 percent of the market value. That means Council will have to reset the tax rate at a lower level once property is assessed at current market levels.

Under actual value, some homeowners could actually see a lower tax bill, while others who have been under-assessed for years will see theirs go up.

The looming question for Council is whether to set the tax rate to continue raising the $37 million brought in with the 3.85 percent, as well as the $88 million raised with last year's 9.9 percent property-tax increase.