Some critics of Mayor Michael Nutter are calling him out for hiding a real estate tax in his new budget since the budget proposes that after the new market based system of setting property values is put in place, tax rates will be set so that the city takes in an additional $90 million in real estate tax receipts.
There is a just a little bit of truth in the criticism. But most of it is really just hogwash.
In an ideal world, as the city switched to the new system of setting property values that moved them up to reflect market values, the tax rate would simultaneously be adjusted downwards so that the total take from the real estate tax from one year to the next would be roughly the same. Since the new system is supposed to, and most likely will, give us fairer assessments, some people would pay more and other less. But the overall real estate taxes take in by the city would remain about the same.
But we don’t live in an ideal world. Because the property assessment system has been totally broken, the values placed on property for the purposes of the real estate tax have not gone up as the actual market values of those properties have gone up. There has been no city wide reassessment since 2004 and in response to protests other upwards reassessments have been rolled back.
This failure to capture rising real estate market values, along with the recession’s effect on overall tax returns, is why the city had to enact two temporary increases in the property tax rate in the last two years.
The result is that any new, fair assessment will capture some of those increases market values. One could argue that transparency and fairness demand the city should cut tax rates to the point that the total take from the real estate tax does not increase, either relative to last year, or to a few years ago before the temporary tax increases. But one could just as plausibly argue that if we had a more transparent and fairer system of assessment in the last ten years, the real estate tax would be bringing in a lot more money today without any tax rate increases.
Given the mess the Nutter administration was handed, determining the right answer in this case is, frankly, pretty arbitrary. Arguments from fairness or transparency cut in both directions. But in a city that is still suffering badly not just from the recession but from the right wing lunacy of Governor Corbett’s budgets, the Nutter administration’s decision to seek some additional tax revenues from the real estate tax makes a great deal of sense. Given the need in our schools, I’d actually go further than they have in seeking higher revenues from the real estate tax.
However one comes out on that issue, it would be nice if the critics of the Nutter administration were transparent as well. Some of those critics—Brett Mandel comes to mind—were great supporters of wage tax and business tax “reform,” that is reductions to the wage tax and especially to the gross receipts portion of the business tax. If you look back at the reports written to defend these cuts, you will see that the reformers kept saying that Philadelphia should look more like other cities and take in more money from taxes on immovable objects—land and buildings—and less from taxes on moveable objects—people and businesses. And they predicted that reductions in the wage and business tax would lead to higher property values and thus higher real estate tax receipts.
Given that back in the day these folks called for higher real estate tax receipts base on higher real estate values, it is somewhat disingenuous for them to be criticizing Michael Nutter for carrying out the policy they supported.
The process in getting to that policy has been a lot messier than anyone would have wanted. And because it is messy it’s not as transparent as most of us would like. But the Nutter administration is doing what the critics called for ten years ago. And especially since the critics haven’t put forward any other ideas for funding city services and our schools, the lack of transparency in the critics is, to my mind, far worse than the lack of transparency in the budget.