With all the uncertainty surrounding Mayor Nutter's effort to reform the city's property tax system, another variable entered the picture Wednesday — one that could potentially upend the administration's plans.
State Sen. Larry Farnese (D., Phila.) said Wednesday he would seek to amend a bill in the General Assembly — Senate Bill 1303 — that is essential to Nutter's Actual Valuation Initiative (AVI). Without the bill, which would give the city the necessary authority to change the millage, or property tax rate, the city likely could not proceed with AVI — and Nutter officials admit they have no"Plan B."
Farnese said he supports AVI and is not trying to stop the process in its tracks. But he won't be introducing his amendment until after lawmakers reconvene in Harrisburg on June 4, and time is running short for the city to pass a budget before July 1.
Under the current system, which wildly underassesses properties, the millage rate is set at 9.4 percent. Under AVI, which is seeking to tax properties based on their actual market value, assessed values would soar.
As a result, Council needs the authority to lower the millage rate drastically. A home worth $100,000 otherwise would be taxed roughly $9,400 a year — depending on homestead exemptions or other alleviating measures.
Council members were especially curious about the prospects for the needed state legislation, while questioning city Finance Director Rob Dubow on Wednesday. Dubow called it "a significant issue."
"I think it's more than significant," Councilman James F. Kenney said. "Imagine 9.4 percent and market rate values. People would be jumping off the bridge — or throwing us off."
"That's the case we're making in Harrisburg," Dubow said.
"You know how much I respect you," Kenney said. "But a Plan B is almost a requisite now."
The only other choice, Kenney noted, was to go with a bill introduced by Councilman Mark Squilla — a South Philadelphia ally of Farnese's, and of Kenney's — that would keep the current system and tax rate for another year.
Farnese said he's been concerned about Nutter's plan to rake in an additional $94 million in the switch to AVI for the cash-strapped schools. The administration has argued that collecting the extra money merely would be making up for the growth in property values the current system has missed.
Farnese's amendment would force Council to take a separate vote to appropriate any additional revenue from AVI to the schools.
"Have the guts to call it what it is," Farnese said. "Don't sit there and tell me it's a recapturing of value."
State Sen. Anthony Williams, the city Democrat who introduced 1303 and another bill that would give the city the authority to provide a homestead exemption, said he was comfortable with Farnese's amendment. The homestead measure authorizes Council to exempt a portion of a property's assessed value from taxes.
Asked whether his bill would pass in time for Council to pass a budget, Williams said, "That's like asking, 'Are the Sixers going to win Game Seven?' " (His words came before the Sixers played Game Six of their series with the Celtics on Wednesday night to determine whether there would even be a Game Seven.)
"Let's put it this way, we came a long way today to making sure that, of the seven members of the Philadelphia delegation, six are on board," Williams said. "The momentum is going in the right direction."
During his testimony Wednesday, Dubow also said the administration was agreeable to a series of Councilman Bill Green's amendments that would increase the homestead exemption and eliminate a phasing-in of actual value, known as "smoothing."
Dubow also acknowledged that AVI "likely" would result in a shift in the tax burden from commercial to residential — as Green has been warning and as has been shown in a previous Inquirer analysis. Green said taxes for commercial properties would drop $100 million, while residential taxes would rise more than $200 million. Dubow did say he was comfortable with the councilman's assumptions that residential property is now assessed at a third of market value and commercial at about 60 percent.
According to Green's calculations, that would put the aggregate value of the city's taxable property at about $90 billion. The millage rate then would have to be 1.5 percent of market value, with a $15,000 homestead exemption, to reach the administration's revenue goals.
That's a greater millage rate — meaning higher tax hikes for those adversely affected by AVI, and lower tax reductions than predicted previously for those who stand to benefit.