AVI is going to SCREW us!

[seand]

So again if we wipe the exemption and we raise the minimum to $250 or $500 what is the new millage rate, 1% or 1.1%? Sounds reasonable to me.

[unionspaghetti]

So again if we wipe the exemption and we raise the minimum to $250 or $500 what is the new millage rate, 1% or 1.1%? Sounds reasonable to me.

The main driver of the high millage rate is the aggregate property value estimate dropping from $120 billion to $80 billion. As I've mentioned before every $10,000 in homestead exemption is something like 0.05% increase in millage. I doubt raising the minimum from $100 to $500 would lower the millage by more than 0.05%. So, I agree the minimum should be raised and the exemptions should be removed but those two combined don't bring us anywhere near 1.2% from the current 1.8%. Maybe they get us to 1.6%.

I should also mention not adding $94 million to the property tax total (or $40 million now) would also shave off 0.1% or something. But we still don't get near 1% if the $80 billion value is correct.

[seand]

So the huge question is where is the aggregate value dropping so extremely. I suspect its dropping more in recently gentrified areas after the bubble burst because values in areas where houses are less than $100k are less prone to swings from the boom and bust cycle. But the problem is noone knows.

[unionspaghetti]

So the huge question is where is the aggregate value dropping so extremely. I suspect its dropping more in recently gentrified areas after the bubble burst because values in areas where houses are less than $100k are less prone to swings from the boom and bust cycle. But the problem is noone knows.

It's not clear that aggregate values have really dropped--especially not by 1/3. If the $80 billion number is correct it's probably mostly bad estimations 1-2 years ago when someone threw out the unofficial $120 billion, 1.2% rate estimates.

[seand]

Well than it all comes down to whether assessments are coming in as high as we all expect. Which is why it would be good to have them done first.

[Jelly Roll]

5) An increase in the U&O tax (to compensate for lower RE taxes on businesses) has the potential to cripple small businesses throughout the city, where U&O taxes could in some cases rise 700%.

The U & O tax is going to affect a lot more then just small businesses. Since AVI is taking assessments from 32% of value to 100% of value the gross tax rate on the U & O tax should change from 4.62 per $100 of assessed value to 1.4784 per $100 of assessed value for AVI to be tax neutral. If the U & O rate stays at 4.62 per $100 of assessed value it is an automatic 314% tax increase for commercial properties. If the general rate for real estate is 1.8 per $100 and the U & O tax stays at 4.62 per $100 commercial properties in Philadelphia will be paying an effective rate (rate per market value) of 6.42 per $100. To put this into perspective commercial properties in Cherry Hill pay 2.692, Mt Laurel is 2.09, Moorestown is 1.976, Lower Merion is 1.61, and Plymouth is 1.25. Unless the U & O rate is adjusted downward to account for the change commercial users are going to be paying roughly 4-5 times more in taxes as opposed to the suburbs.

[raider.adam]

So again if we wipe the exemption and we raise the minimum to $250 or $500 what is the new millage rate, 1% or 1.1%? Sounds reasonable to me.

I would theorize that the only reason you need the minimum is because of the exemption. If you get rid of that, the minimum is probably irrelevant. If the rate is 1.6%, to have a tax bill less than $250, the property would have to be valued under $16K. But I don't think the exemption drops the rate 6-7 tenths of a point. The current estimation is that no exemption is about a 1.6%. Keeping the temporary property tax increases and the extra $94 million is what is jacking up the rate I believe.

The main driver of the high millage rate is the aggregate property value estimate dropping from $120 billion to $80 billion. As I've mentioned before every $10,000 in homestead exemption is something like 0.05% increase in millage. I doubt raising the minimum from $100 to $500 would lower the millage by more than 0.05%. So, I agree the minimum should be raised and the exemptions should be removed but those two combined don't bring us anywhere near 1.2% from the current 1.8%. Maybe they get us to 1.6%.

I should also mention not adding $94 million to the property tax total (or $40 million now) would also shave off 0.1% or something. But we still don't get near 1% if the $80 billion value is correct.

So the huge question is where is the aggregate value dropping so extremely. I suspect its dropping more in recently gentrified areas after the bubble burst because values in areas where houses are less than $100k are less prone to swings from the boom and bust cycle. But the problem is noone knows.

It's not clear that aggregate values have really dropped--especially not by 1/3. If the $80 billion number is correct it's probably mostly bad estimations 1-2 years ago when someone threw out the unofficial $120 billion, 1.2% rate estimates.

And herein lies the problem of not having the numbers. There are a variety of scenarios.

Scenario 1) The city is assessing many properties much lower than we think they would be assessed at. It could be because the assessments aren't correct or they figure if they come in low, it will limit the amount of appeals.
Scenario 2) There could be a variety of properties that fell off the ledge on value. As an example, water front property and industrial land... stuff that would have fallen into the commercial and not residential category, further shifting the burden to residential property owners.
Scenario 3) As spaghetti said, it could be that the $120 billion was a back of the napkin number and realized they used a napkin attached to a glass of vodka and tonic.

There could be other scenarios as well, but those are the top of the head based on my speculation of what we know.

[ArcticSplash]

Well than it all comes down to whether assessments are coming in as high as we all expect. Which is why it would be good to have them done first.

Which I think 99.5% everyone agrees with.

The trouble is that Nutter & Co. want to cement in the millage now before that's even done, so nobody is quite sure exactly WHAT is gonna happen. FYI, Green's tax calculator spreadsheet was based on 1.2%, not 1.8%.



I think we all knew there was a turd coming down the pike back when Nutter baked in the 2 tax hikes into the 5-Year-Plan. But I don't think anybody realized how bad it would smell.

[unionspaghetti]

Which I think 99.5% everyone agrees with.

The trouble is that Nutter & Co. want to cement in the millage now before that's even done, so nobody is quite sure exactly WHAT is gonna happen. FYI, Green's tax calculator spreadsheet was based on 1.2%, not 1.8%.



I think we all knew there was a turd coming down the pike back when Nutter baked in the 2 tax hikes into the 5-Year-Plan. But I don't think anybody realized how bad it would smell.

In defense of Nutter it is a difficult situation although partially of his own creation and partially of the state's. By having to set the rate by June 30 he has two bad choices. He can either set a rate now based on an estimated aggregate value or he can not set the rate and continue with the current illegal system for at least 6 months when we have good assessments. It would have been nice if we could have gotten these numbers earlier (not sure how much Nutter is to blame but I'm sure he's some to blame for the delay) but it's also a problem that rates have to be set by the end of June in this case.

I should also repeat, for most of us the tax increases are just a slap in the face on top of the real increase which is the increased values of our houses relative to others in the city.

[3rd&Brown]

Incorrect. You get a 10 year tax abatement for improvements on your house.

You'd be crazy to apply for the abatement for improvements to your house. All it does is allow the city's assessors to put a target on your back for T-10 years. Essentially, the abatement is worthless. Because after 10 years, they come back and jack your taxes so high that they get what they would have received during the abatement and then some. This is something I was suspicious of all along...and according to my architect/developer/contractor friends, it's something that has come to fruition as the first abatements expire.

Previously abated homes, whether because they're new construction or rehabs, are getting assessments in the STRATOSPHERE...far above what comparable houses in the same neighborhoods are getting.

The main driver of the high millage rate is the aggregate property value estimate dropping from $120 billion to $80 billion. As I've mentioned before every $10,000 in homestead exemption is something like 0.05% increase in millage. I doubt raising the minimum from $100 to $500 would lower the millage by more than 0.05%. So, I agree the minimum should be raised and the exemptions should be removed but those two combined don't bring us anywhere near 1.2% from the current 1.8%. Maybe they get us to 1.6%.

I should also mention not adding $94 million to the property tax total (or $40 million now) would also shave off 0.1% or something. But we still don't get near 1% if the $80 billion value is correct.

I'm not so sure about this. There are a lot of properties in this city...tens of thousands...which would likely pay $100+ to $500 per year without an exemption. With the exemption, they'll pay close to nothing. That's a lot of money in aggregate, and could affect the overall millage rate.

[MariusPontmercy]

The U & O tax is going to affect a lot more then just small businesses. Since AVI is taking assessments from 32% of value to 100% of value the gross tax rate on the U & O tax should change from 4.62 per $100 of assessed value to 1.4784 per $100 of assessed value for AVI to be tax neutral. If the U & O rate stays at 4.62 per $100 of assessed value it is an automatic 314% tax increase for commercial properties. If the general rate for real estate is 1.8 per $100 and the U & O tax stays at 4.62 per $100 commercial properties in Philadelphia will be paying an effective rate (rate per market value) of 6.42 per $100. To put this into perspective commercial properties in Cherry Hill pay 2.692, Mt Laurel is 2.09, Moorestown is 1.976, Lower Merion is 1.61, and Plymouth is 1.25. Unless the U & O rate is adjusted downward to account for the change commercial users are going to be paying roughly 4-5 times more it taxes as opposed to the suburbs.

This is what has me the most worried really. Not only does it kill any incentive to open a small business in the city, it will be absolutely devastating to small businesses in the city. If it means a mass closure of businesses in the city, not only will it radically decrease the QOL for many areas, but also contribute to the city's weak job base. This could means thousands and thousands of lost jobs in the next few years, not to mention the jobs that will not be created due to the penalties of opening a business in the city. Once this has an affect on the tax base it will almost certainly necessitate another round of tax increases. Basically, this could be the beginning of a giant negative feedback loop that ultimately sees the end of a livable city coupled with the city's financial meltdown. That's what I'm worried about. If the proposed policies raise taxes that much on so many small businesses in the city, I don't know how the city is going to make it another ten years without turning into Detroit. It will be bad enough trying to retain those who have recently begun moving back to the city given the higher taxes, but if you take away one of the few remaining QOL benefits to living in the city then its essentially game over. What benefit remains to living in Philadelphia? If you want a livable urban space you can move to a functional city.

[ArcticSplash]

Well there was that one chick in G-Ho who came off her 10Y to see her taxes go up from the cost of a dollar-store handbag to the price of half the front inventory in a Hermès store.

[3rd&Brown]

Hope this works:

Value 0.012 0.015 0.018(.012E)(.015E)(.018E)
10000 120 150 180 -240 -300 -360
20000 240 300 360 -120 -150 -180
30000 360 450 540 0 0 0
40000 480 600 720 120 150 180
50000 600 750 900 240 300 360
60000 720 900 1080 360 450 540
70000 840 1050 1260 480 600 720
80000 960 1200 1440 600 750 900
90000 1080 1350 1620 720 900 1080
100000 1200 1500 1800 840 1050 1260
120000 1440 1800 2160 1080 1350 1620
140000 *16802100 2520 1320 *16501980
160000 1920 2400 2880 1560 1950 2340
180000 2160 *27003240 1800 2250 *2700
200000 2400 3000 3600 2040 2550 3060
225000 2700 3375 4050 2340 2925 3510
250000 3000 3750 4500 2640 3300 3960
275000 3300 4125 4950 2940 3675 4410
300000 3600 4500 5400 3240 4050 4860
350000 4200 5250 6300 3840 4800 5760
400000 4800 6000 7200 4440 5550 6660
450000 5400 6750 8100 5040 6300 7560
500000 6000 7500 9000 5640 7050 8460

600000 7200 9000 10800 6840 8550 10260
700000 8400 10500 12600 8040 10050 12060
800000 9600 12000 14400 9240 11550 13860
900000 1080013500 16200 10440 13050 15660
1000000 1200015000 18000 11640 14550 17460

What I'm trying to show here is that beyond 180,000, the exemption actually hurts properties in terms of total tax burden if the tax rate is 1.8% and the exemption is 30,000. Beyond that point, the homeowner would be better off without the exemption and a lower overall tax rate. If the rate is 1.5% with a 30,000 dollar exemption, that inversion point seems to be somewhere around 150,000. Of course, I could include many more permutations (1.3, 1.4, 1.6, 1.7%) and these numbers would change, but this is assuming that the likeliest combo is 1.8% with an exemption versus 1.5% with no exemption. If without the exemption the rate is closer to 1.2%, then it's a no brainer. The inversion point is at 90,000. Thus, above 90,000, you are paying more with the exemption than you are at a 1.2% rate.

Obviously, these numbers are meaningless without knowing how many properties fall into each cell so that we could extrapolate overall revenues from those properties, but I suspect council is trying to use this as an opportunity to give huge tax breaks to those folks in the under 90K bucket, when in reality, many of them would likely see lower taxes anyway or at worst, marginally higher taxes, without any exemption at all.

It seems like the best course of action seems to be no exemptions at all, as it just increases the overall millage and then shifts the burden to the over $90K house crowd, when in reality, many of the under $90K property owners would see decreases anyways as a result of AVI WITHOUT the exemption. Just a guess, but as is usual, council seems to be overcomplicating this thing.

[unionspaghetti]

I'm not so sure about this. There are a lot of properties in this city...tens of thousands...which would likely pay $100+ to $500 per year without an exemption. With the exemption, they'll pay close to nothing. That's a lot of money in aggregate, and could affect the overall millage rate.

There are 574,488 households in Philadelphia. If a third of them are worth under $30,000 and therefore would have to pay $400 more in taxes because of the minimum that's $76,598,400 assuming everyone pays. Obviously households don't account for fully commercial buildings or the fact that not every household is tied to a discrete OPA account but it's the best proxy I could find in the 5 minutes I'll devote to this post. My guess is that well under a third of OPA accounts are worth less than $30,000. Houses worth $30,000 to just under $60,000 would be paying some portion of that additional money to pay $500 with the exemption. So yes, it might change the millage by 0.1% which isn't insignificant but it's nothing near the magnitude of a aggregate housing being 33% less than predicted. And I'm also guessing on those numbers.

I do think the $500 minimum would be great since it would acknowledge that every land owner needs to pay something for city services and it would make the gentrifying areas feel better about the fact that the majority of the tax burden will be shifting to them.

[seand]

It seems like the best course of action seems to be no exemptions at all, as it just increases the overall millage and then shifts the burden to the over $90K house crowd, when in reality, many of the under $90K property owners would see decreases anyways as a result of AVI WITHOUT the exemption. Just a guess, but as is usual, council seems to be overcomplicating this thing.

Looks right to me.

[raider.adam]

Which I think 99.5% everyone agrees with.

The trouble is that Nutter & Co. want to cement in the millage now before that's even done, so nobody is quite sure exactly WHAT is gonna happen. FYI, Green's tax calculator spreadsheet was based on 1.2%, not 1.8%.

I think we all knew there was a turd coming down the pike back when Nutter baked in the 2 tax hikes into the 5-Year-Plan. But I don't think anybody realized how bad it would smell.

That was his first one. He has updated it within the last week that does the 1.6 to 1.8 spread.

In defense of Nutter it is a difficult situation although partially of his own creation and partially of the state's. By having to set the rate by June 30 he has two bad choices. He can either set a rate now based on an estimated aggregate value or he can not set the rate and continue with the current illegal system for at least 6 months when we have good assessments. It would have been nice if we could have gotten these numbers earlier (not sure how much Nutter is to blame but I'm sure he's some to blame for the delay) but it's also a problem that rates have to be set by the end of June in this case.

I should also repeat, for most of us the tax increases are just a slap in the face on top of the real increase which is the increased values of our houses relative to others in the city.

There is zero blame to the state on this. Nutter took assessment duties over from the BRT and missed his own deadlines. The deadline of the rate setting is nothing new. The rates have to be set for the budget and end of June is the end of the Fiscal Year.

You'd be crazy to apply for the abatement for improvements to your house. All it does is allow the city's assessors to put a target on your back for T-10 years. Essentially, the abatement is worthless. Because after 10 years, they come back and jack your taxes so high that they get what they would have received during the abatement and then some. This is something I was suspicious of all along...and according to my architect/developer/contractor friends, it's something that has come to fruition as the first abatements expire.

Previously abated homes, whether because they're new construction or rehabs, are getting assessments in the STRATOSPHERE...far above what comparable houses in the same neighborhoods are getting.

It's not filing for the abatements. It is filing for the permits. To stay off the radar, you would need to illegally do your construction without permits. If it was stuff that didn't need permits to begin with, then it would be silly to put in for an abatement since they wouldn't have known about it anyway.

Well there was that one chick in G-Ho who came off her 10Y to see her taxes go up from the cost of a dollar-store handbag to the price of half the front inventory in a Hermès store.

If it is the news story I think you are referencing, she bought her house with one year left on the abatement.

What I'm trying to show here is that beyond 180,000, the exemption actually hurts properties in terms of total tax burden if the tax rate is 1.8% and the exemption is 30,000. Beyond that point, the homeowner would be better off without the exemption and a lower overall tax rate. If the rate is 1.5% with a 30,000 dollar exemption, that inversion point seems to be somewhere around 150,000. Of course, I could include many more permutations (1.3, 1.4, 1.6, 1.7%) and these numbers would change, but this is assuming that the likeliest combo is 1.8% with an exemption versus 1.5% with no exemption. If without the exemption the rate is closer to 1.2%, then it's a no brainer. The inversion point is at 90,000. Thus, above 90,000, you are paying more with the exemption than you are at a 1.2% rate.

For the most part, correct. The homestead exemption doesn't help all homeowners, it just shifts the burden from low priced homes to what would be co9nsidered middle class and wealthier homes. As of right now, with the numbers provided, removing the exemption is estimated to be a 1.6% rate instead of 1.8%.

Obviously, these numbers are meaningless without knowing how many properties fall into each cell so that we could extrapolate overall revenues from those properties, but I suspect council is trying to use this as an opportunity to give huge tax breaks to those folks in the under 90K bucket, when in reality, many of them would likely see lower taxes anyway or at worst, marginally higher taxes, without any exemption at all.

Correct. There are a variety of people trying to make the property tax system "more progressive".

It seems like the best course of action seems to be no exemptions at all, as it just increases the overall millage and then shifts the burden to the over $90K house crowd, when in reality, many of the under $90K property owners would see decreases anyways as a result of AVI WITHOUT the exemption. Just a guess, but as is usual, council seems to be overcomplicating this thing.

That is pretty much the direction I am heading now (even though I would be in the advantaged group with an exemption). The general rule for taxation is "broad base, low rate". Council is seeming to break that rule and currently looking at narrowing the base and raising the rate.

I do think the $500 minimum would be great since it would acknowledge that every land owner needs to pay something for city services and it would make the gentrifying areas feel better about the fact that the majority of the tax burden will be shifting to them.

I think a minimum, to bring in significant revenue, would probably have to be in the $500 range. Of course, I highly doubt the minimum will be considered without a $30K+ exemption as well. Which leads to the question, are you better off keeping it simple with a no exemptions and no minimums or having and exemption and a minimum?

Here is the other thing to consider and would need to be looked at... of the properties that would be hit with a $500 minimum, what is the percentage that are currently delinquent or on a payment plan? Would the minimum be levied against people the City wouldn't collect from anyway and ends up being unrealized revenue?

[seand]

Everybody is so negative on the payment plan but in some cases it aids collection. For many it lets people who are not ready to pay in a lump sum, catch up in monthly installments. Sometimes I think the city would do well to steer folks not already required to escrow taxes onto a monthly plan anyway. Provided you get good information and track them correctly.

[raider.adam]

Everybody is so negative on the payment plan but in some cases it aids collection. For many it lets people who are not ready to pay in a lump sum, catch up in monthly installments. Sometimes I think the city would do well to steer folks not already required to escrow taxes onto a monthly plan anyway. Provided you get good information and track them correctly.

I'm not being negative on it. My point is, if the minimum is $500, but you are only collecting $100, you're not collecting the $500 that is projected.

[seand]

I'm not being negative on it. My point is, if the minimum is $500, but you are only collecting $100, you're not collecting the $500 that is projected.

The one time I did it the clerk set a schedule to be caught up before next Feb. and they sent a threatening notice as soon as a payment was late because I was out of town.
Maybe my experience was a fluke, maybe they've tightened down since people remember but its not quite the revenue seive many describe it as in my one experience.

Also the city did make extra interest on me getting caught up over time. It seemed to work out OK for the city in all.

[3rd&Brown]

I think a minimum, to bring in significant revenue, would probably have to be in the $500 range. Of course, I highly doubt the minimum will be considered without a $30K+ exemption as well. Which leads to the question, are you better off keeping it simple with a no exemptions and no minimums or having and exemption and a minimum?

Why is this necessarily true? Is it just to make people feel better? I wouldn't even know how a minimum AND an exemption would work. It's just a big Kabuki dance.

It should be a simple rule. $250 or $500 if your property is assessed below X (It looks like that number is somewhere around $30 - $50K). Above X, your property is assessed at 1.6% of full value.