wait, why are taxes there currently like 9.2% of the assessed value?

What’s really depressing is that this whole bamboozle is the result of Gov Corbett’s neoconservative slash and burn budget. Philadelphia is left to pick up the pieces, and people will be pointing fingers at Council and the Mayor’s office, when they’ve been forced into a rocky hard place by Harrisburg.

You’ve got to be kidding me.  This is a result of decades of poor property tax enforcement by the City and utter mismanagement of City funds.  Now the City is unable to push the problem off to another day and you’re pointing the finger at the governor.  Philadelphia has no one else to blame for its own problems, and this is coming from a Philadelphian through and through.

During a terrible downturn for city revenues the Mayor shied away from making the hard (but right) decisions to cut costs and clean up the bureaucracy of many city institutions.  There is redundancy and unproductiveness galore sucking down tax dollars and it has been largely allowed to continue.

There are many businesses and individuals itching to spend money in Philadelphia but the City can’t get out of its own way and make it an appealing place to live, operate a business, and oh yeah, pay taxes.

 Corbett’s not helping, certainly, but remember that the property tax system in Philadelphia has been broken beyond belief since the time of Rizzo, at least. We can blame Corbett for the School District fiasco, in part, but we can’t really blame him for our horrifically out-of-date tax code.

I support AVI, in conjunct with a fair assessment, because it lays the framework for a land value tax, because it is the fairest form of property tax available.

But another business overlay tax, because Council members are afraid that Liberty Place’s tax bill will go down? Utterly ridiculous, and certainly a remnant of thinking about property improvements as a taxable base. (That leads to parking lot proliferation, because if your property tax system is based on site improvements, then the obvious way to decrease your tax burden is to UNimprove your property. Land value tax, by contrast, assesses based on an intangible, but essential, urban amenity: centralization. A land value taxation system increases the tax burden on those owners who insist on marginal uses on valuable land.)

Instead of cringing in fear at tax decreases on showcase properties, my advice to Council is: let the system rebalance, and then, when we get a handle on them, seek to address the inequities in the new system. (There is no such thing as a 100% perfectly fair overarching taxation structure.)

So your issue is not with the AVI but with the Use and Occupancy Tax.  The AVI has to happen.  There is no way not to do it.  It sounds to me like the Use and Occupancy Tax is a redundant tax and should be eliminated.

So the way it is proposed right now: My residential property taxes will more than double, my commercial property taxes will double and my U&O will be four times the amount. With Green’s plan my U&O will be eight times what it is now. I am a resident of this city and I own a very small new business. If these changes happen I will be out of a home and business!!! 

In my experience, rent and property taxes are a tiny portion of a business’ expenses.  While a 500% increase in U&O sounds ridiculous on its face, the actual dollars aren’t significant.  If a business is running so close to the bone that an additional $500/month expense will mean bankruptcy, the business is going to fail regardless.

The same political machine has been running Philly into the ground for 60 years and we keep voting them into office.  You get what you vote for.

The AVI does not have to happen.  We need a reasonable rate of 1%, and the use of actual cost basis (what you paid for your home plus improvements) as the real market value.  We could save tens of millions of dollars by eliminating the AVI bureacracy, many recently hired.  We could save hundreds of millions of dollars by making school district employees contribute to their benefit and pension costs, as well as by realizing other saving within the district.  There are 30 unions for school disctrict employees, but none for the students themselves, nor property owners.  This is the same issue that was stared down Tuesday in Wisconsin, essentially.

really? how much do you think the business in the example above clears each month after all is said and done? do you think they have an extra $600-$1600 per month to pay in taxes?  I’d be willing to bet they (and other businesses like it) would be closed within 6 months.

Wow, this has degraded into a conversation barely above philly.com comment level. 

 I can only imagine that this is the correct answer.

 Actually, AVI does need to happen and the only way to get a lower rate closer to that 1% is to not have carve outs for homestead exemption, “gentrification” tax, etc.  The one option that is not legal is keeping the system we have where in similarly priced houses I pay $2,000, my neighbor pays $800 and another neighbor pays $2,400.

The City’s payment to the School District cannot go down under state law so it’s stupid to pretend that union givebacks affect our current budget.

Sure, most businesses will survive.  What will happen is that they’ll pass (most of) the costs on to customers.  This will slightly decrease demand and some customers will find other venues.  It’s not the end of the world but it’s not a good thing.

The real take away for me is that we shouldn’t let politicians pretend that increasing the U&O is a tax on someone else, not us.  It’s a tax that will increase the price of everything I buy.

 It’s not redundant.  It’s a business property tax.  I don’t think we can really afford to eliminate it now but I don’t think we should raise it either.

AVI is our fault.  We’ve let property taxes stay the same even though areas have drastically increased in value.  Now it’s all going to hit at once as AVI forces us to pay a percentage of what our property is worth.

The biggest problem is every councilman and his brother is trying to make carve outs which is pushing a 1.4% rate to 1.8%.  No homestead exemption, no gentrification exemption, no U&O changes.  All of these things just drive up the rate we will pay.

 Because the assessed value is a (relatively low) percentage of the actual value defined somewhere in state/city law/regulation.  Since we’re going to actual value the rate will be dramatically lowered.  Also, I don’t think they’re 9.2% but they are higher than the 1.2-1.8% we will pay under AVI.

 AVI has nothing to do with property tax enforcement.  It has everything to do with poor assessments.  Sure, we all pay more because of tax deadbeats.  Probably somewhere in the low hundreds of dollars on our tax bills each year.  But what is going to make South Philly property taxes triple is that the assessments were done when the home was worth $50,000 and the home is now worth $350,000.  THAT is primarily why all of us gentrifying sophisticates from Naked Philly will be paying more in taxes.  Our shit’s worth more.

 AVI has nothing to do with property tax enforcement.  It has everything to do with poor assessments.  Sure, we all pay more because of tax deadbeats.  Probably somewhere in the low hundreds of dollars on our tax bills each year.  But what is going to make South Philly property taxes triple is that the assessments were done when the home was worth $50,000 and the home is now worth $350,000.  THAT is primarily why all of us gentrifying sophisticates from Naked Philly will be paying more in taxes.  Our shit’s worth more.

 In all honesty you’re in a pretty good position.  Just assume your property taxes will be 1.2-1.8% of the house’s actual value.  If it’s still a good deal with taxes at 1.8% buy it.  Also you’ll be able to finance more if you want since the tax rates will look lower to the mortgage company and you’ll be able to bargain against the homeowner because you know they’re going to go up.

Oh but it does.  By itself, sure AVI is all about poor assessments, but Nutter’s tax hike that’s tacked on is all about increasing tax revenues – tax revenues that are flagging after years of nonexistent enforcement, among other things.  People aren’t pissed off about making the system rational, they’re pissed off about their taxes going up while deadbeats get away scot free.  

[...] AVI’s small-business impact [NakedPhilly] [...]

so if i have a warehouse that’s 10,000sq,   valued at 100,000.00 my U&O tax would be $46,200.00?   what am i missing

The AVI doesn’t have to happen. It is normal that some longer term residents pay less, because their cost basis is lower; we all pay the same tax rate.  This is a completely legal and fair system, as opposed to the Dickensian AVI.  Rather than obsessing over your neighbors bill, you should be working to make sure little old ladies don’t get taxed out of their homes.  One day you will be in their shoes too.

Any system that uses “appraisals” to set a fanciful value (and unrealized gain/loss) will ultimately tax a homeowner out of his/her home.  If we simply used the cost basis of our homes as actual value, with a reasonable tax rate, almost every house on my block would have been reassessed.  As homes appreciate, older residents tend to sell. 

Also, it’s stupid to pretend that there aren’t huge cost savings to be realized in the school district and elsewhere in City Government.  We will never be able to afford their ever growing bill for wages, benefits and pensions.  Rather than raising taxes and cutting services, how about we cut wage, benefit and pension expenses instead? 

4.62 per $100 would be $4,620 not $46,200 

Even as a city employee, I strongly agree with the sentiment of cutting pension expenses. This must be done if Philly is to survive.

However, the “cost basis” cannot be used – for example a house is sold to a family member for $1.00 – an extreme example, but makes the point.

“Like” is hardly the right word for my reaction to your post, Tara – but, I am in the same position and I am terrified.

I don’t really see the chilling effect on development happening.  Most development benefits from the ten year tax abatement anyhow, so buyers are still going to be paying taxes on the unimproved property until it expires.  There are plenty of underassessed properties with annual tax bills below $100 which will become much rarer after AVI, so perhaps the baseline is going to be higher than what it is now, but new houses and rehabs aren’t going to be slammed with several thousand dollar tax bills.

New construction doesn’t set the price of housing. The market price determines what sort of new construction is feasible. This status quo in PHilly has driven new development into a lot of marginal neighborhoods over last 10 years. 
The way I see it, this tax increase effectively raises the cost of carrying the property by 20%. Holding affordability constant, that is a 20% drop in values.

Let’s assume the average assessment in an up and coming neighborhood is .8% (low) and that goes to 1.8%. So we add 1% to the cost of the property. This increases the mortgage cost by 25% at a 4% rate (high). 80% of the property is financed (low) so, we have 20% increase in the cost of the property.

Same product. 20% more expensive.  Can people afford more? Not really. Will they pay more?  Maybe a little. But then a lot of people will take a look at that 1.8% payment, consider what they are getting in return and run for the burbs.

I don’t mean to be too pessimistic. I am buying. The opportunity to borrow at current 30 year fixed rates is amazing. But you have to assume retail prices will come down. Certainly no appreciation for 10+ years.

About the only thing that can change that dynamic is a souped up PICA, state takeover/ oversight of state tax & spending decisions. Philly self-government is hopeless and this impending fiasco reminds everyone. The only silver lining to how screwed up and overpriced the government here is- it is not hard to do much better.

[...] powder keg, read this well-reasoned piece by Isaiah Thompson. As we wrote about last week, the consequences for small businesses located in under-assessed mixed-use properties could be terrible a…, as they are hit with a share of the higher taxes, as well as a significantly higher punch from a [...]