Philadelphia's budget battle continued to rage Thursday, as City Council rolled out an audit of the Office of Property Assessment and the Kenney administration questioned the legislative body’s proposed alternative to a property-tax hike.
Mayor Jim Kenney’s budget plan is meant to proactively address the Philadelphia School District’s funding, which has never recovered from the harsh cuts experienced while Republican Tom Corbett was governor. Finance Director Rob Dubow said that the council's budget proposal, which avoids the property-tax increase Kenney is pushing, comes up more than $240 million short for the city's schools.
"The long-term fiscal stability of the school district… hasn't been resolved [in the council proposal],” Dubow said in a morning briefing with reporters.
But for City Council members, some of whose constituents are seeing spikes in their taxes because of the increased assessed value of their properties this year, the call for a property-tax increase is unpalatable.
“The assessments came out, and it created an environment where people were blown away. Citizens across the city [were] asking how we can increase property taxes on top of these new assessments,” said Council President Darrell Clarke.
Without the property-tax increase, the council's alternative budget plan relies on $340 million from a slowdown in the city’s long-term wage-tax reductions and a grant of $100 million from the city’s general fund, both of which were proposed by Kenney. It also relies on a $95 million cut to the city’s prison system, which has seen its population plummet in recent years, and $93 million from tax-delinquent property owners through a process called sequestration.
The Kenney administration disputed whether the last two revenue sources would be as lucrative as City Council hopes.
Sequestration, a process the city has made use of since Michael Nutter’s administration, requires taking the owner of a tax-delinquent rental property to court. A judge installs a receiver to manage the property and uses the rent from it to pay off what is owed to the city. In the meantime, the city operates the rental property, collects the rent, and makes repairs.
The council is offering an expanded sequestration plan proposed by Councilman Allan Domb as an alternative to his controversial plan to securitize tax-lien collections. That plan was opposed by Clarke and other council members and went down to defeat without even making it to a hearing. (“An effort to securitize liens will not move forward,” a recent press release from Clarke’s office read.)
The Kenney administration, however, does not believe Domb’s new proposal will bring in the money council projects. As a means to collect delinquent taxes, it is effective only with occupied rental properties, which comprise just a portion of tax-delinquent properties. Hence, the belief that it will not bring in anything like the $90-million plus council is banking on in its budget.
“It’s something we want to expand, but we have to be cognizant there are a limited number of properties that meet the qualifications that make it a candidate for sequestration,” Revenue Commissioner Frank Breslin said at the 9 a.m. press briefing.
Uncertainty over the amount sequestration could bring in led the administration to question the council’s $630 million budget. “We don’t think the amount of revenue it would generate [is] supportable enough to put in our budgets and plan,” said Dubow.
Discounting the $90 million from sequestration brings the council’s proposed funding to only $540 million, dramatically less than the $770 million Kenney requested. And without the full allotment the mayor is requesting, the Kenney administration claims school district could not borrow the additional $130 million it plans to use to update the aging infrastructure that has recently received much harsh press attention.
The Kenney administration also says that it does not want to reduce the prison budget by such a large amount, noting that some of the savings from the reduced population need to be reinvested “to permit continuation of reforms,” as budget director Anna Adams put it.
For example, the city will need to fill the $3 million hole left when the administration goes through with its plan to eliminate cash bail. Other reforms cited include the distribution of the anti-overdose drug Narcan to released prisoners and funding for police-assisted diversion programs.
But at a 9:30 a.m. press briefing at which council members discussed an audit of the Office of Property Assessment, Clarke framed Kenney’s concerns in the context of the perennial push and pull between the legislative and executive branches of government.
“Administrations always say there isn’t enough money, that’s what administrations do,” said Clarke. “It the responsibility of City Council to protect the people’s money.”
That is also why Clarke and his colleagues called for the audit of OPA, which has generated controversy this year because of property values that have soared in neighborhoods from Pennsport to Strawberry Mansion.
Clarke said the methodology OPA used to come up with home values was murky. "They were so inconsistent that we felt we needed to go out and get a third-party source to review what was put forth."
The $160,000 audit should be wrapped up by September, Clarke said. The Office of Property Assessment says it welcomes the review.
Unnoticed in all the controversy were measures Councilwoman Helen Gym introduced Thursday that she hopes can provide an alternative path forward. They center on a millage shift that would increase the school district's share of every property-tax dollar to 59 percent, from the current 55 percent, roughly equaling the amount that Kenney’s proposed property tax-increase would bring in.
The idea is that property-tax revenue is more stable than the assortment of funding in the council’s budget plan. Gym also introduced legislation slowing cuts to the business income and receipts taxes (BIRT) and increasing the use-and-occupancy (U&O) tax to help the city’s budget recover from the hole the proposed millage shift would create.
“I remain deeply concerned about the long-term financial stability of the school district and its ability to make any headway on the dangerous and inhumane conditions in our schools' facilities,” Gym said in a speech on the council floor. “These revenue options offer Council in this budget session or in the future a wider range of funding possibilities.”
*This story has been updated and altered to reflect that the proposed elimination of cash bail is a Kenney administration effort.