Councilmen Bill Green and Jim Kenney co-sponsored a bill in City Council Thursday morning that would eliminate the $30,000 homestead exemption the Nutter administration has offered as part of its shift to a new property assessment system known as the Actual Value Initiative. Without the exemption, the reasoning goes, the city can keep the base tax rate lower, making investment in Philadelphia more attractive.
Earlier this week, the Nutter administration briefed Council on the new assessment figures. The Office of Property Assessment estimates that the total taxable market valuable of all property in Philadelphia for Fiscal Year 2014 would be just over $98.5 billion. The OPA estimates further that, in order for AVI to be revenue neutral, the tax rate would be set between 1.2 and 1.25 percent. With the $30,000 homestead exemption, the rate would be between 1.35 and 1.4 percent.
Assuming the higher end of the OPA’s estimates is correct, these numbers could mean various things for individual homeowners. For a $100,000 house, billed at a rate of 1.25 percent, the annual tax bill would be $1,250. If that same house were subject to a $30,000 homestead exemption and a 1.4 percent tax rate, its annual bill would be $980. A $60,000 home would have an annual tax bill of $750, or $420 with the $30,000 homestead exemption.
The savings become less significant, and then disappear altogether, with more valuable houses. A $300,000 home would have a tax bill of $3,750 at a base rate of 1.25 percent, but the bill would rise slightly to $3,780 with a homestead exemption and the higher rate. And so on.
So the homestead exemption works better for lower-value homes, as it’s intended to do.
But Councilman Green says that, given the new assessments, the homestead exemption doesn’t make sense on a citywide level.
“When [the homestead exemption] was enacted, Council was facing a potential tax rate around 1.8% because we didn’t have all the information we have today,” Councilman Green said in a statement. “Now that we’re half a point below that, we need to re-think the exemption measures we applied too broadly across the City.”
Green says that the new assessment numbers—and the lower base rate they would apply—make the homestead exemption unnecessary, and that pushing the rate up would prevent the city from shifting the tax structure from businesses, which can leave the city, to real property, which cannot.
“If we go to 1.4 percent instead of 1.25 percent, in the long run, we won’t be able to do the shift from business taxes and wage taxes to real property taxes to make us more competitive, that everybody is asking for,” Green told PlanPhilly. “If we don’t go to 1.4 now, there is room for us to do the business-tax-to-real-estate-tax shift that every Mayor’s commission on taxation report has suggested, that Councilman Goode’s recent jobs commission suggested that we do. So we need to leave room in the real estate taxes for that very important shift—taxing things that are immobile instead of things that are mobile.”
Green said that he hasn’t heard anyone make a case for the citywide benefit of the homestead exemption now that the base rate is going to be lower than what was estimated last spring.
“There is some correlation between low-value homes and income, but it’s not necessarily a correlation,” Green said. “So I don’t see the public policy rationale. The point is, you pay a whole lot less taxes because you live in a much lower value home even though you’re absorbing the same amount of city services as somebody who lives in a much higher value city home. So it’s already progressive, because, presumably, you’re living in a home based on what you can afford.”
Of course, many homeowners have gotten used to the idea of writing $30,000 off their property value since the exemption was floated last year. So will there be a will in Council to remove that?
“I don’t know,” Green said. “It’s bad policy. I’m going to make my case and see what happens.”