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Assessment Hell

Mayor Kenney is replacing his chief property assessor. But will he fix the broken assessment system?

Mayor Kenney is replacing his chief property assessor. But will he fix the broken assessment system?

With the steady drumbeat of criticism from property owners about the Office of Property Assessment’s 2019 assessments, and City Council’s recent decision not to reapprove OPA’s chief assessor Michael Piper, the Kenney administration has announced they’ll conduct a national search for someone new to lead the city’s property assessment office.

But just a day later, in a separate story about OPA’s land valuation methods, Kenney spokesman Mike Dunn is still out there defending the biggest thing OPA is doing wrong.

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The criticisms of the Office of Property Assessment are coming from a lot of different directions, and many of those criticisms actually conflict with one another, so it’s useful to sort out what the complaints are, and what exactly it is that we want the next Chief Assessor to fix.

Regular tax politics

It’s important to note right up front that a lot of the complaints about OPA are just rooted in plain old anti-tax politics. OPA isn’t being criticized only for things they’re doing wrong; they’re also getting slammed for things they’re doing right.

Property values really have increased by a lot in the neighborhoods ringing Center City and University City, so correctly matching assessed values to market values every few years means people in those neighborhoods are going to keep seeing their taxes go up a lot. That makes people upset, but just because people are upset doesn’t necessarily mean OPA is doing something wrong. Property taxes are going to keep rising fast in places where values are rising fast, and that’s how it should be. Because the alternative is that people in places where real estate values aren’t rising as fast, or are even shrinking, will be left paying unfairly high property tax bills.

Too much deviation

While many of the loudest complaints about over-assessment are coming from higher-income areas of the city, the reality is that many of these areas are still under-assessed, and the over-assessed areas are really in North, Southwest, and West Philadelphia, according to a recent analysis by Controller Rebecca Rhynhart.

It’s important to note right up front that a lot of the complaints about OPA are just rooted in plain old anti-tax politics. OPA isn’t being criticized only for things they’re doing wrong; they’re also getting slammed for things they’re doing right.

Rhynhart’s analysis found that 2019’s assessments were some of the most accurate citywide, but that within specific sub-regions were still way off the mark.

Historically, the OPA has not met the acceptable range for uniformity or regressivity since AVI, despite claiming to have met acceptable standards every year since tax year 2014. Tax year 2019 is the first year in which the OPA achieved acceptable results for both regressivity and uniformity. For several of the years, the OPA’s reported results differed materially from ours, which were determined using industry standard guidelines.

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When you look at the OPA’s accuracy at a geographical basis for tax year 2019, the OPA is still outside of acceptable ranges for uniformity and regressivity in 7 of 14 zones, despite its citywide acceptable results.

The OPA performs worse in the areas of the city with the lowest median income. These areas of the city have the least uniform and the most regressive assessments. As a result, less expensive homes in North, Southwest and West Philadelphia tend to be overassessed relative to neighboring more expensive homes.

An Inquirer analysis from last summer had similar findings, showing that about 35 percent of properties are over-assessed, and these are disproportionately located in lower-income areas.

Land values are still all over the place

The other big finding in the Controller report is that OPA has gotten worse at assessing land values, starting around 2017. And the issue is that they’re not even really trying to value land—which is mostly a function of locational value—and instead are just taking a flat percentage of each property’s value and calling that land.

That practice has led to the bizarre outcome where land values jump around a lot within specific blocks on a square foot basis, where common sense would suggest similarly sized lots on the same block should have almost identical land values, all else being equal. Any land assessment methodology that’s turning out vastly different square footage values on the same block or section of the neighborhood is doing it all wrong.

The Inquirer looked at one block in Fishtown for an example, where it’s clear this is what’s happening:

Rhynhart found that land values for properties with 10-year tax abatements were priced higher as a result of OPA’s move to start backing land values out of building values in the 2017 assessments. Lots of people thought this was an intentional decision by the Kenney administration to try and collect more property taxes from people who have abatements, since those property owners still pay taxes on their land value.

If OPA would finally release their official methodology, as they’re required to by law, we’d be able to get to the bottom of that.

Unfortunately, the Kenney administration still doesn’t seem to see anything wrong with this approach and they’re still defending it even as they reluctantly show Michael Piper the door.

Assessment officials disagreed, calling the 2017 changes “a great improvement,” and said OPA is still refining its approach.

The value of residual land — land that is encumbered by a building — is influenced by the value of the structure that sits upon it,” Dunn said. “Developing the best structure to the highest permitted density on that land generally maximizes the value of that land.

Do Something

The idea that building values feedback into land values isn’t wrong, but what is wrong is the idea that this effect is somehow contained only within that one parcel—rather than diffused throughout the block or neighborhood sub-market. If a fancy new building makes the land value underneath it go up, it obviously makes the land values of the parcels next door to it go up too, and in the real world you’d see it impact comps within an even broader geography. The land assessment methodology should accurately reflect this.

What City Council Could Do

Most of the recent legislative responses coming out of Council so far, particularly from David Oh and Maria Quinones-Sanchez, are really awful and regressive, and would either leave a lot of tax dollars on the table from people who can afford to pay (Oh) or make a mockery out of the whole concept of fair and accurate assessments (Sanchez.) But Council also has played a productive role on this issue in the past, and it’s worth highlighting what they’ve already done well, and how they could build on that.

What if instead of burning down the whole assessment system, the City were to hire someone like Benefits Data Trust to do targeted marketing of the existing successful programs to more eligible property owners?

One area where City Council did a legitimately good job during the Nutter administration was designing programs to shield lower-income homeowners and long-time residents from big jumps in their property tax bills due to corrected assessments. A Philadelphia Fed study found that these programs were very effective at preventing displacement caused by property tax pressures, and the main problem with them is just insufficient awareness and enrollment:

“Philadelphia is unique in its offering of gentrification relief programs, like LOOP, and such programs are quite effective in terms of reducing long-term homeowner’s tax burdens and preventing tax delinquencies,” said Ding in an interview. “However, there is anecdotal evidence that not all eligible homeowners have enrolled in these programs.”

Ding credits the lack of displacement among older and disadvantaged homeowners in gentrifying areas “to the programs that sheltered them from rising taxes.”

“By raising general awareness of these unique gentrification relief programs and increasing take-up rates, practitioners can help mitigate negative outcomes caused by gentrification,” the Fed researcher said.

What if instead of burning down the whole assessment system, the City were to hire someone like Benefits Data Trust to do targeted marketing of the existing successful programs to more eligible property owners to try and sign everybody up who qualifies?

Another thing the Mayor and City Council might consider is changing the law to require revenue-neutral assessments, which is something that’s required in all other Pennsylvania counties except for Philadelphia.

In the rest of Pennsylvania, counties aren’t allowed to raise net revenue during a reassessment. If the real estate tax base grows overall, the county and municipalities and school districts all have to cut their tax rates enough to keep their revenue intake the same. Those bodies are still free to propose a property tax rate increase during their normal budget season if they want to raise more revenue from real estate, but they have to do it transparently by voting on it, rather than sneaking through tax hikes during routine assessments.

This won’t make the anti-tax politics go away, but it would reduce some of the sticker shock, and it would also make it clearer when the City is voting to raise taxes.

Jon Geeting is the director of engagement at Philadelphia 3.0, a political action committee that supports efforts to reform and modernize City Hall. This is part of a series of articles running in both The Citizen and 3.0’s blog.

Photo via Picryl

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