The city of Philadelphia, Pennsylvania has often been chastised for the way in which it assesses property values for purposes of property taxation. Next year, however that will change. The city has undertaken an ambitious reform program that will alter the way property values are assessed, resulting in a property tax base and rate change.
In the past, city property values failed to reflect true market value and there was a lack of horizontal equity in the system (that is, similar properties weren’t valued similarly and thus had drastically different taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. liabilities). Assessments were not conducted on a regular basis resulting in drastically misvalued property. For example, the last partial assessment of property was completed in 2004 and was only based on a fraction of full market values.
Ideally, a property tax system reassesses properties at regular intervals to ensure that property taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. liabilities reflect market values—and to prevent a drastic hike in tax burdens when a reassessment is finally done after a number of years.
In an attempt to fix the system, the city launched what is known as the Actual Value Initiative after concerns arose in 2010 over how the Board of Revisions and Taxes managed the assessment procedure. The responsibility was removed from the Board and a new entity, the Department of the Office of Property Assessment, was established to take over this role. The department began to reassess all property in the city in 2011 to ensure that assessments reflected the true market value of properties.
Unfortunately, because of the outdated and inaccurate procedures, the city is now forced to overhaul the entire system resulting in a painful transition process that will change the property tax bill for a number of property owners. Concern has arisen over the drastic increase in liability many homeowners will see. Though Mayor has proposed lowering the rate to 1.32 percent from 9.77 percent next year to account for the larger tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. (it will increase from $36 billion to $98 billion), tax liabilities for many residents will likely be higher. They Major has argued setting aside $30 million in tax relief for those hit hardest by the changes. To ensure transparency and fairness, residents will be able to appeal their assessed values. As many as 22,000 homeowners have already done so.
Other localities can learn from Philadelphia. Property assessments should be undertaken at regular intervals to ensure valuations reflect market values. When a system becomes outdated, inefficient, and inaccurate, at some point it must be updated, and it’s likely that the transition will be painful. In order to prevent such a situation, it’s better for local governments to ensure accurate property assessments occur at regular intervals.
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