Allan Domb wants to collect all the taxes, and he thinks New York can show Philadelphia how to do it.
Domb, a high-end real estate broker who was among the top vote-getters in the May Democratic primary election for an at-large City Council seat and is virtually guaranteed a general-election victory in the fall, returned to the city’s delinquency problem again and again in an interview with PlanPhilly on Monday. He said the city can collect a significant portion of the millions of dollars in back taxes it’s owed if it follows New York’s lead, and should simply wipe the remaining balance off the books.
Longtime PlanPhilly readers will be familiar with the host of bad outcomes caused or exacerbated by excessive tax delinquency. A two-year-old analysis found that in Philadelphia, which has performed worst among major cities at collecting delinquent property taxes, a delinquent property can reduce the value of other houses on block by 20 percent or more. Delinquent properties, which are owned mostly by investors rather than owner-occupants, reduce the value of property citywide by $9.5 billion.
Over the last few years, the city has made some progress on tax collection, in fits and starts. Last month, it offered close to 1,000 property-tax liens for sale, earning $2 million on the 240 liens that actually sold and significant additional revenue from delinquents who paid off their bills under the threat of having to answer to a private debt collector.
That’s potential progress, according to Domb, but we could solve the problem immediately if we would just do what New York does. New York’s system is basically a sale of tax liens with outsourced collection, similar to what many other cities and counties do across the country, but with a few tweaks. The process works like this:
Every year, the city identifies property-tax bills that amount to at least $1,000 and are at least three years overdue.
It sets aside liens on properties owned by senior citizens, disabled people, veterans, and active military personnel.
It transfers the rest to a trust established by the city.
The trust bundles the most valuable liens, sells them as securitized debt, and pays the city upfront.
The trust then contracts with private debt collectors to “service” the liens for a percentage of the debt they collect.
After the trust collects enough money to pay back the investors who bought the bundled liens, it delivers the surplus back to the city.
Domb said that New York generally gets an upfront return of about 65 percent of the value of the liens it sells through the trust each year. He doesn’t expect Philadelphia would see that type of return, because the property assets aren’t as valuable. Maybe we’d get 30 or 35 percent upfront, he estimates.
So what makes the trust so appealing, as opposed to simply selling the liens to a third party?
“We’re the sellers into the trust, and we [the trust] are the buyers,” Domb said. “We’re the buyer and seller, we get it both ways. It’s beautiful. It’s a beautiful thing, versus, we sell it, and some third party comes in and makes a fortune on our back. Now the city’s making it. That’s how it should be.”
Domb said the city should be able to collect 100 percent of the delinquent taxes in Center City. Downtown, the ratio of the delinquent tax to the total property value of the delinquent accounts is particularly low, making it easier to collect. (He said a lien-to-value ratio of less than 40 percent is especially collectible.) In out-lying neighborhoods, where the outstanding debt is greater compared to the total delinquent-property value, the city would have less luck collecting.
“And by the way,” Domb said, “even if we don’t get a dime [in certain neighborhoods], we clean the records and start over tomorrow.”
Kevin Gillen, a research fellow at Drexel University’s Lindy Institute and chief economist at Meyers Research, said that a lot of cities have success with regular tax lien sales, and the New York model is worth exploring here in Philadelphia. He noted that success would mean a greater portion of tax delinquents paying something toward their debt, though, and not necessarily a swift collection of the total half-billion dollars in past due property tax on the city’s books.
“The whole idea is to depoliticize the collections process by decoupling the collections agency from political influence,” Gillen said.
Politicians generally are wary of moving toward depoliticizing things like this, in Gillen’s view, because they don’t like to admit they’re not capable of solving major problems. But he said that in other cities that have instituted regular lien sales, political leaders have admitted that it was a relief to not be involved in a granular process of selecting which bills to go after.
Before the city’s most recent tax lien sale, a group of advocates who’d worked on helping to get the Land Bank passed through City Council sent a letter to the Mayor’s office outlining a number of concerns. The city might sell off some uncollectible debt, they worried, which could prevent the city from later seizing properties and hamper redevelopment efforts down the line.
Mark Levin, a lawyer for Regional Housing Legal Services, which signed onto that letter, said that a tax lien sale trust might make sense.
“If it’s another way of being held by a public body, albeit a different public body, it would alleviate some of the concerns,” Levin said. “The principal concern was if you sell to these private entities … it’s very difficult [for the city] to get the property and get those liens taken care of.”
Levin said that in any case it’s worth letting the Land Bank try to take advantage of the provision in the state and local laws that allow it to go after tax-delinquent properties for redevelopment before considering more lien sales.
Domb said he’s encouraged that the city is dipping its toe back into the lien-sale waters, and especially that a good portion of delinquents paid up at the threat of having their debts sold.
“Now what I’m trying to do is show the city which is the method to do it,” he said.