Why the Actual Value Initiative is causing so much heartburn

Berks Street in Fishtown
A not-atypical Philly rowhouse block, this one on Berks Street in Fishtown. The city’s current crazy-quilt assessments could mean next-door neighbors in virtually identical houses could have wildly different assessed property values. The Actual Value Initiative will fix that and a couple of other problems too. That’s why everyone’s so apprehensive about it. A new Pew Charitable Trusts report seeks to examine ways the city can make an abrupt and painful transition for many less so.

What do SEPTA fare hikes and the Actual Value Initiative have in common?

Nothing, at least not any more, not since SEPTA implemented regular incremental fare increases a few years back in response to a state performance audit. But until then, those irregular, widely spaced fare hikes caused as much wailing and gnashing of teeth as AVI has to date.

A new report from the Pew Charitable Trusts’ Philadelphia Research Initiative provides useful perspective on why AVI is causing all the agita. Like the proverbial python swallowing a pig, the City of Philadelphia undertook a huge program to fix three large problems with the city’s property-tax system at once, according to the Pew report, “The Actual Value Initiative: Overhauling Property Taxes in Philadelphia.”┬áThose three problems are: Wildly erratic and inconsistent tax assessments, how assessments are used to calculate property taxes, and how to cushion the blow of dramatically higher tax bills for residents whose properties have been underassessed, undertaxed, or both.

Blame it on the Commonwealth, at least partly. Pennsylvania is one of only nine states that do not have a mandated regular process for local jurisdictions to update property assessments, and one of only three to receive a grade of F for “standardized procedures” from the Council on State Taxation, a Washington-based trade group. That means that municipalities and counties pretty much wing it when it comes to keeping property assessments up to date, and Philadelphia has been winging it for decades – some properties have not been reassessed since the 1980s, according to the report.

Comparative property tax revenues from Pew reportBut a second reason for the distress is that AVI is likely to end a sweet deal for many city property owners: property taxes lower than they would pay in just about any other large U.S. city, often significantly so. As this chart from the report shows, Philadelphia collects substantially less in property tax revenue than its East Coast and big-city peers. (Which, by the way, is one reason the city wage tax is as high as it is.) We wouldn’t advocate Philadelphia implementing a property tax regime that rakes in as much as Washington’s does, but there’s a case to be made that the city could safely collect a good bit more in property taxes than it does now – especially if the change is paired with a significant reduction in the wage tax. That last move is not yet among the palliatives City Council or Mayor Nutter has considered to soften the blow of AVI – but maybe it’s time to consider it as well, especially since it’s less likely to introduce new distortions into the property tax system than the ones now under consideration might.

Photo from Wikimedia Commons, used under a Creative Commons license