Reassessment an underassessment for many, city says
When Philadelphia launched its first property reassessment overhaul in decades in 2013, it was pitched as a way to level the playing field when it came to real estate taxes.
When Philadelphia launched its first property reassessment overhaul in decades in 2013, it was pitched as a way to level the playing field when it came to real estate taxes.
People's homes and businesses would be valued at 100 percent of market rate, making the assessments "fair and accurate and uniform," Michael Piper, chief assessment officer, said in an interview this week.
Now, city officials say they got a good part of it wrong. So wrong, in fact, that they have concluded that they underassessed land values for 69 percent of the city's 495,000 residential properties. An additional 30 percent were overvalued.
City officials now say the effort - called the Actual Value Initiative (AVI) - has proved largely inaccurate when assigning value to the land portion of properties.
"We had problems in some areas - in fact, in a lot of areas - where the land portion of the assessment didn't look like what the market was showing us it should be," Piper said.
In most instances, any increase in the land's value was offset by a decrease in the value of any structures on the land, so taxes were not impacted.
For homeowners with tax abatements, however, there has been a shocking jump in the portion of their properties that is taxed - the land.
"The process is clearly flawed and erratic. It changed overnight with no explanation," said Rick Piper, owner of a $495,000 Center City condo. He is not related to Michael Piper.
The reassessment has resulted in an additional $2 billion in total assessed value for the city to tax, creating an additional $31 million in revenue, of which the city will keep $14 million and $17 million will go to the School District.
And there is more to come. The city's Office of Property Assessment (OPA) is wrapping up its revaluation of vacant land this year and will reassess all commercial properties next year. The city is predicting a 3 percent increase in revenue from commercial properties for 2018.
City Controller Alan Butkovitz, a critic of AVI, said this week that the new land values seem to be a discreet tax increase.
"Back in 2013, the city's expectation was that the valuation would be $99 billion, and it's fallen to $89 billion. ... They've been losing appeals left and right," Butkovitz said, adding that increasing the land value is a "means of patching this hole."
Michael Piper has rebutted that notion. On Wednesday, city Finance Director Rob Dubow said, "Their job is to get assessments accurate, not raise revenue."
As Piper explained it, the assessment problem is rather simple. The city was more concerned with the overall assessed value of a property as opposed to the values of its parts - the land and the structures on the land.
Only after getting numerous phone calls did the city take another look.
Indeed, there are examples of assessors addressing improper land values.
Take the small Cresmont Farms neighborhood in the Northeast. The land value on most of the properties was placed at $68,000, despite lot sizes ranging from 12,649 square feet to 23,700 square feet. The most recent reassessment adjusted land values to better reflect lot sizes; homes did not see a change in total value.
There are some curious cases in the latest reassessment, however, such as the condominium complex Center City One on 13th and Spruce Streets, where residents saw dramatic differences in their assessments despite having same-size units on the same floor. (Piper said at least 25 recent sales at Center City One were taken into consideration when determining the new values.)
In residential streets like the 1100 block of Titan Street in South Philadelphia, the land values on the same side of one block fluctuated from $59 per square foot to $149 per square foot, despite the same or similar lot sizes.
But perhaps most perplexed are homeowners who benefit from 10-year tax abatements and now have seen the value of the taxable portion of their property jump.
Land values have increased for about 12,000 of the city's 15,000 properties that have tax abatements.
Rick Piper, who lives in a 19th-floor condominium at Symphony House on South Broad Street and owns two other condos at Center City One, saw the Symphony House condo's assessed land value go from $7,100 to $44,550. He said his taxes will go from $98 a year to more than $600.
Piper, 68, former owner of the 12th Street Gym, said that while he can afford his tax increase, he is troubled by the "sneaky" surprise.
"How about telling the public what's going on?" Piper asked.
City officials said that the assessment notices are their way of telling people about the increases. Once people receive their new assessments, they can apply for a First Level Review by May 20. Formal appeal applications are due Oct. 3. New tax bills won't be due until February or March.
Overall, 85 percent of properties in the city saw no change, or saw a decrease, in their total market value assessments. The areas that saw the highest increases included Center City, South Philadelphia, and Southwest Philadelphia.
The city used recent sales data to determine assessment values. For the land values in particular, OPA looked at recent sales of vacant land as a base.
"The DNA of what we do with everything is sales," Michael Piper said.
Ideally, the city should be assessing all properties each year. However, it does not have the capacity to do so, Piper said. New software is expected to be installed by July 2018 that will allow yearly assessments.
Councilman Alan Domb, a real estate mogul known as the "Condo King," said market values have gone up 3 percent or 4 percent each year since AVI.
"We could be collecting $40 million more each year" if assessments matched the current market, he said.
Domb said land values, especially in commercial high rises, are undervalued. He would like to see the city ramp up its efforts to accurately assess all properties.
"You wouldn't be talking about any soda tax if we had this," Domb said.
Once the $7.2 million system is up and running, city officials estimate, there will be a property tax-revenue increase of at least 3 percent each year through 2020.
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