After years of debate, hours and hours of public testimony, and a slew of studies, reports, and recommendations, Philadelphia’s painful and controversial debate over changing its property tax system today came down to The Number — $96.5 billion.
The Number is how much city assessors say all of the city’s taxable property is worth. The Number also is what city officials use to determine the tax rate they need to charge property owners in order to raise the money the city needs.
Based on The Number, administration officials said today that they expect the new tax rate will likely need to be around 1.3 or 1.4 percent, depending in part on whether City Council includes certain exemptions for owner-occupied homes.
It’s important to note that these calculations have no impact on 2013 tax bills, which are based on the old assessments, and that individual homeowners won’t know what these numbers mean for their 2014 tax bill until mid-February, when the city begins mailing out the new assessed value to each property owner.
But if you have a good idea of what your property would likely sell for, you might come close to guessing what the assessment will be. Based on that number, you can see the potential impact on your neighborhood and estimate your tax bill based on these suggested tax rates with our map and calculator.
This assessment has been a long time coming. The city has not undergone a thorough re-assessment in years — resulting in what many regard as a wildly unfair system that values some properties much too high relative to other similar homes, and many others much too low.
For the past year, the Nutter administration’s Office of Property Assessments has been reassessing every property in the city as part of its effort to implement a new, fairer tax system — the Actual Value Initiative, or AVI. As one sign of how far off the old assessments were, the city’s total value for taxable property jumped from $38 billion to $96.5 billion in the new assessment.
To understand what the first number ($96.5 billion) means, and how it translates into the second number (a tax rate of 1.3% to 1.4%), let’s do some math.
Step One: Total value = $96.5 billion.
— This is the value of all taxable property in the city (nonprofits and certain other properties are exempt from paying real estate taxes).
Step Two: City’s budgeted property tax revenue = $1.05 billion
— The Nutter administration has suggested that the city should take in the same amount of money in fiscal 2014 under AVI as under the old system in fiscal 2013. That $1.05 billion represents roughly $480 million for the city and about $570 million that goes to the Philadelphia School District. Of course, City Council, which sets the budget, can choose to appropriate more or less money for the city next year.
Step Three: Assume a collection rate of 87.8%
— The city doesn’t expect to collect everything it bills; the administration uses this rate based on experience over recent years.
Step Four: Calculate how much to bill
— Take the $1.05 billion the city needs to generate and divide it by the 87.8% collection rate to get a total amount to be billed: $1.2 billion.
Step Five: Calculate the tax rate
— Divide the total amount billed ($1.2 billion) by the total taxable value ($96.5 billion). Result: 1.25%
This math gets more complicated if you include a popular proposal to give homeowner-occupied properties a $30,000 exemption, which would reduce their taxable value by that amount.
An estimated 340,000 homes in the city are owner occupied. If every one of those homeowners applied for and got the $30,000 exemption, the total taxable property value would decrease by just over $10 billion, reducing that key figure to $86.5 billion and boosting the tax rate to 1.38%
But some city officials estimate that only 80% of the eligible homeowners will apply for and get an exemption. That puts $2 billion back into total taxable value — $88.5 billion — and moves the tax rate to 1.36%.
If your head is spinning now, wait for others to propose even more ways to lessen the impact of large tax increases in neighborhoods that have seen significant increases in home values.
All of this is the main reason AVI didn’t pass last spring. As Council debated the implementation of AVI, the lack of this aggregate number for taxable value became a sticking point. Council members couldn’t know what tax rate ultimately would be needed (estimates got as high as 1.8%) and therefore didn’t know what the impact would be on individual taxpayers.
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