AVI delayed, schools get $40 million under Council deal

City Council reached a deal today to amend a series of budget bills that would delay the implementation of a controversial new property tax system for one year, but would nonetheless raise real estate taxes and a separate business tax to collect an extra $40 million for the School District of Philadelphia.

The compromise among Council members was hashed out during a long day of back-and-forth between Council leaders and Mayor Nutter. Council passed the package of proposals around 9 p.m.

The bills will come up for final passage next week, along with the rest of the necessary budget and spending bills, unless Council wants to further amend the bills and call for another meeting before the end of June.

The bills would allow for the city to collect an extra $20 million in property taxes and $20 million in the Use and Occupancy tax on businesses, but that amount comes up far short of Mayor Nutter's initial goal of raising $94 million for the schools in the changeover to a tax system based on the actual market value of real estate.

That reform effort, the Actual Value Initiative (AVI), was regarded as politically perilous.

Because a citywide reassessment essential to AVI wouldn't be completed before the June 30 deadline for passing a budget, the administration asked Council to assume a revenue target for real estate tax collections and pass a formula that would reach that goal.

Once the assessment was completed and the actual value of the city's taxable real estate was known, the tax rate could be plugged in to hit the revenue mark. That has left Council in the political dark, instituting a complex tax policy without fully understanding the impact on individual constituents and voters.

At one time, estimates of the aggregate value of all property in the city were well above $100 billion, which would have meant a tax rate in the neighborhood of 1.25 percent, or $1,250 per $100,000 of real market value. There was plenty of support for AVI at that millage.

But once the estimate of the aggregate value dropped as low as $80 billion, raising the millage rate to 1.8 percent, the plan started to lose votes - notably Councilman James F. Kenney's.

"If we had done AVI . . . the chaos would have been disastrous for the city of Philadelphia," said Councilman Mark Squilla, the chief opponent of AVI on Council, whose district in South Philadelphia, Center City and the River Wards would be particularly hard-hit by AVI.

He said that he felt that with all the data in hand, Council could craft the right safeguards to make AVI palatable next year.

AVI threatens to drive the tax bills up for thousands of residents, while also reducing taxes for many lower-income homeowners who have been overpaying for years.

Angry taxpayers have killed many political careers in similar situations.

And two other aspects of Nutter's plan promised to compound the impact of AVI. First, he planned to make permanent two years worth of property tax increases that were billed as temporary at the time Council approved them. Council appeared completely on board with this plan.

Second, Nutter proposed raising the additional $94 million for schools on top of those temporary-turned-permanent tax increases.

While AVI has been universally lauded as a needed corrective for a system now rife with inaccurate assessments, critics have bashed Nutter's approach to rolling it out and balked at his attempt to collect so much more money for the schools in the process.

Such reassessments are difficult enough to execute without a broad tax hike. Advocates of AVI - including Nutter, at one point - have argued that the government should not raise new tax money when implementing a citywide reassessment. Nutter abandoned that position in the face of the schools crushing financial needs.

Last week, Council gave preliminary approval to three bills offered as alternatives - one that would move the city to AVI but collect only $40 million for the schools; one that would collect another $45 million for the schools by raising the Use and Occupancy tax on businesses; and a third that would leave the current real estate system and tax rates in place for another year.

All three bills were on the table this morning for final approval.

The bill that would delay AVI, sponsored by Councilman Mark Squilla, would not have provided any new money for the schools, which are facing a deficit next year of more than $200 million. Squilla agreed to hold that bill today, not bringing it for a final vote. He has said he has only four or five "solid" votes out of nine needed to pass his plan out of Council. Mayor Nutter likely would veto the bill if passed, and Squilla would need 12 votes for an override.

Rather, Council members and Mayor Nutter haggled throughout that afternoon on how to amend the other two bills. Nutter, who was scheduled be at the annual gathering of the U.S. Conference of Mayors in Orlando through the weekend, flew home Wednesday night after participating in opening ceremonies. He is scheduled to be sworn-in as president of that organization on Saturday.

Support for AVI had been eroding for the past week, when it was revealed that the likely millage, or tax rate, could be as high as 1.8 percent, meaning homeowners would pay $1,800 per $100,000 of assessed value.

The Nutter administration argued that any attempt to continue using the current assessments would be "a train wreck," resulting in thousands of appeals from property owners that would likely cost the city and School District as much as $100 million.

Faced with those losses, Finance Director Rob Dubow told reporters Wednesday, the administration would have to reduce its revenue estimates, opening a hole in the budget that could be dealt with only by some combination of reduced spending or higher tax rates.

The only real solution to the problem, Dubow suggested, was for City Council to accept the new full-value assessments expected to be completed in August.

"We're going to have these values," Dubow said. "Once we have them we really have to use them . . .. If you have them and you don't use them they really open you up to more appeals."

Council members said today, however, that they planned to seek some legislative relief in Harrisburg from the threat of property tax appeals next year.

A number of opponents, mostly representing neighborhoods facing steep increases under AVI, testified in support of the Squilla bill this morning.

"It's been really disturbing to watch the lack of information coming from the administration," said Jeff Hornstein, president of the Queen Village Neighbors Association and a former Democratic candidate for Council. "You're asking us to jump off a cliff without the proper data . . . Do AVI right, not recklessly."

Supporters of AVI, primarily Councilman W. Wilson Goode Jr., have been pointing out that about half the city's homeowners, mainly lower income residents who are paying a disproportionate share under the current system, would get a tax break.