AVI a first step in renewing Philadelphia

By Brett Mandel

The Actual Value Initiative is a reality for Philadelphia. It is not just good to have accurate values for real estate taxation, it is great to open up a world of possibilities to move Philadelphia forward.

Basing real estate taxes on a real measure of property value - for the first time in the lives of most Philadelphians - is a big deal. Now, we can put it to best use.

Fair's Fair: Accurate values should mean fairness, so properties with similar values should have similar assessments. This has not been the case, as a given row of nearly identical houses might have had values that varied substantially. Worse, many modest properties were valued substantially higher than more-expensive properties, which meant that many row home owners were paying more than those in townhouses. If we are going to tax property, it is crucial that we tax fairly. Establishing actual values for properties is the only way that this can be possible.

Bank on Growth: Tax increment financing (TIF) has been used in a limited way in Philadelphia to fund individual projects, but it works in other jurisdictions to make grand efforts happen. Want to make the Reading Viaduct into a High-Line-type park? Issue bonds to fund the improvements to be paid off by the incremental increase in real estate tax revenue that will come from the growth in value of properties located near the new park. Want to invest more in Parks and Recreation facilities? Create a TIF district that captures value increases from all properties adjacent to park facilities across Philadelphia. This will fund today's improvements with tomorrow's growth in property values.

Virtuous Cycles: Philadelphia has historically relied on increasing taxes on wages and business activities to fund services. Then, when firms and families moved out, the city was forced to increase tax rates to meet the demands for increased revenues (or decrease services, which makes the city less attractive), which caused more neighbors and employers to leave and increased pressure to raise tax rates on those who stayed. But, because growth in the value of property can generate additional revenues without an increase in tax rates, it is possible to create a virtuous cycle to make a better Philadelphia.

Witness what has happened in West Philadelphia near the Penn Alexander School, where the desirability of the university-supported public school has dramatically increased the value of nearby homes. Because the city has not regularly reassessed property, we never captured this growth as increased tax revenue. If we improve community safety, school quality, and overall quality of life, we increase neighborhood desirability and home values. When values increase, the city can realize increased revenues without raising tax rates (or can realize the same revenue with decreased tax rates).

Reform Philadelphia Taxes: It is extremely rare to tax business activity at the local level, and it has been demonstrated again and again that city business taxes continue to chase employers and their jobs from Philadelphia. A fundamental premise of the vision of tax reform in Philadelphia is the reduction and even elimination of local taxes on business income and receipts. But then how to keep the budget whole and increase revenues to compensate for the reduction in business-tax revenues? By generating more revenues from taxes on commercial real estate.

According to the Center City District, while city and suburban office rents are nearly identical, Philadelphia's business taxes add a 14 percent premium for office tenants - a $12-15 per-square-foot cost for major firms. If business taxes go down, the value of commercial real estate and real estate tax assessments go up. If we accurately and regularly revalue property, Philadelphia can reduce business tax rates and become a more welcoming place to create jobs, increase the value of commercial real estate, and generate the revenues necessary to fund the city budget.

So AVI is here and it is time to put it to good use. Let's make sure that real estate assessments are fair and accurate, and that they are regularly updated. Then, let's bank on Philadelphia's future, create the virtuous cycles to improve city neighborhoods, and reform taxes to attract and retain firms and families. By making real estate taxation work, we can build a better Philadelphia.