Pew Report Finds Philadelphia's Property Tax Overhaul Effort Rare Among Cities

As Philadelphia prepares to overhaul its property tax system, a new report from The Pew Charitable Trusts' Philadelphia Research Initiative finds that no other city in recent years has made such significant changes all at one time, and in the absence of state mandates or court orders.

The report, The Actual Value Initiative: Overhauling Property Taxes in Philadelphia, examines how the city's property tax assessment system evolved—to the point that assessments of many properties have little relation to their true value—and how other cities have dealt with this situation. It also analyzes the current city proposals designed to mitigate the big spikes in property taxes that the changes would likely bring to some residents.

One key reason why property assessments in Philadelphia have gotten so far out of line with market values—in addition to a history of local inaction—is that the state of Pennsylvania has not regulated the assessment system. According to the report, Pennsylvania is one of only nine states that impose no reassessment timetables or standard assessment methods on local governments. It also is one of just three states to receive a grade of F in “standardized procedures” from the Council on State Taxation, a Washington-based trade group.

The idea behind the Actual Value Initiative (AVI) is that all properties should be assessed at market value. If adopted in Philadelphia, the initiative would change the certified market value of every piece of property; the way individual assessments are used to calculate tax bills; and the types of tax relief available to property owners. According to the city's chief assessment officer, Richie McKeithen, Philadelphia has never had a thorough citywide field inspection of every property and its characteristics, until now.

Among the report's other findings:

• Numerous jurisdictions have adopted measures intended to mitigate sharp increases in property taxes for some residents. Some of these measures go beyond the levels of relief currently envisioned or allowed by law in Philadelphia. These sorts of programs, if adopted in the city, would have several downsides. They would add layers of complexity to a new system that is meant to be simpler and more transparent than the status quo. They also would raise the property tax rate, at least slightly, for everyone.
• One reason Philadelphians have been relatively complacent about longstanding inequities in assessments, analysts say, is that they pay less in property taxes (and more in wage taxes) than residents of many other jurisdictions. On a per capita basis, Philadelphia's property tax produces only about one quarter the amount generated in Washington and a third of what is collected in Boston and Hartford.
• Efforts to restructure the system have been limited—and are likely to continue to be limited—by the uniformity clause of the Pennsylvania Constitution, which state courts have interpreted as requiring that all types of property be taxed at the same rate. In other jurisdictions, many located in states with uniformity clauses of their own, higher property tax rates are imposed on commercial, industrial and vacant property; in Boston, Chicago and Washington, commercial rates are at least twice as high as residential rates. This is forbidden in Pennsylvania.
• If the city successfully implements AVI, it will need to exercise vigilance—and provide adequate ongoing funding—to ensure that assessments are kept accurate and up to date. A 2010 report commissioned by the Pennsylvania Legislative Budget and Finance Committee looked at 14 counties that had met uniformity and equity standards through reassessment. Three years after the reassessments were completed, more than half no longer met the standards.

The comparison jurisdictions studied are Allegheny County, Pa., which includes Pittsburgh; Baltimore; Boston; Cook County, Ill., which includes Chicago; Hartford, Conn.; Los Angeles; and Washington, all of which have grappled with various aspects of the property tax issues now confronting Philadelphia.

This report does not include projections about what the tax rate will be under AVI, how the overhaul will affect assessments in specific neighborhoods, and how much change there will be in the share of property tax revenue generated by residential as opposed to commercial parcels. None of that information will be known until assessment numbers are made public and City Council adopts a new tax rate.