Originally published in the Daily News, May 29, 2012
It’s time to recognize, however, that that monster is a friendly creature who will benefit most of us.
Partly because tax matters are hard to understand and partly because Mayor Nutter wants to raise more revenue for schools from the real-estate tax, public discussion of AVI — Actual Value Initiative — has become confused. No one trusts any government, and some people in office or thinking of running for office can’t resist the temptation to be demagogues about any issue. So, the confusion has created the false belief that AVI is just a tax increase in disguise.
We desperately need to get back to some basics: AVI is about tax fairness. And, under it, most Philadelphians will see their real-estate taxes decline.
To understand AVI properly, we must start with what it was meant to correct: decades of property-tax assessments that were biased, corrupt and unfair. The unfairness was both systematic and random, a result of political corruption and incompetence. The result was that on any given street, assessments for two similar houses could be wildly different. And citywide, assessments — and taxes — relative to market value were higher in poor and working-class neighborhoods than in upper-middle-class neighborhoods
The Actual Value Initiative corrects this inequity in two ways. First, it has required a complete reassessment of the city by a new, professionally run agency, the Office of Property Assessment. Second, instead of assessments being a fraction of the actual market value, they will now be actual market values. It will thus be easier for us to determine if our assessment is unfairly high.
Some people will pay more under AVI. And the truth is that they should, because their taxes have been too low relative to their neighbors’, in some cases for years. (I’m one of them, and I’m ready to pay more.) But the systematic bias of the system against working-class neighborhoods means that, if implemented properly, at least half the homeowners in the city will see their taxes go down. Estimates provided by Councilman Goode suggest that about 250,000 homes have a value below median of about $120,000. The vast majority will see their taxes drop. Almost all will do so if Council and the General Assembly implement a homestead exemption at least $40,000, which will deduct that amount from the assessed value of every house for which taxes are calculated.
There are always issues in the transition to a new tax system. Councilman Green has, rightly, warned us that AVI will shift some of the tax burden from residential to commercial property. There are long-term ways to deal with this issue. A high homestead exemption, and Green’s suggestion of raising additional money for the schools through the use and occupancy tax, will minimize the size of that shift next year.
Councilman Kenney has pointed out that even if the old system was grossly unfair, there is also some unfairness when people who have planned their lives around it are forced to adjust. That’s especially true for long-term residents in gentrifying neighborhoods who have seen their property values skyrocket. Council President Clarke has introduced legislation that will reduce the burden on people in that circumstance. Lowering the interest rate and other changes to the city’s tax-deferral program will enable others to put off a portion of tax increases until they sell their homes at a profit that far exceeds what they owe on taxes.
These fixes need to be included in legislation this year. And perhaps others will be made in the future as all the implications of AVI for the city become clear. But the most important thing we need to do this year is move ahead.
Some people have worried that, until the final assessments are released, we don’t have enough information to decide about AVI. But we now have enough information to know that the new assessments will be far better than the old ones. And there may be no choice, as the city may be subject to legal action if it fails to use the new assessments.
More importantly, the radical injustice of the existing assessments demands that we move forward to AVI now. Philadelphians — especially poor and working class Philadelphians who have suffered under the old system — have waited far too long for a property-tax system that is transparent and fair.