5-6-2009 Philadelphia Pa Budget Hearing Testimony

Eron Lloyd, Research Associate, Henry George Foundation of America Committee of the Whole Testimony on FY2010 Budget Wednesday, May 6th, 2009 Good afternoon Madame Chair and members of Council. Within the city’s budget crisis is an enormous opportunity to lay a new foundation for sound and stable fiscal policy. The time frame and complexity of the situation prevents a comprehensive redesign of Philadelphia’s tax structure in the weeks left before us, but there is a way to make the most of the inevitable situation for the next fiscal year. Several things are certain at this point: •

One or several taxes will need to be raised to close the projected deficit, which may include a combination of the sales and property taxes;

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Even if you avoid a property tax increase in favor of an alternative, we will still have a property tax to fund the schools and part of the city’s operations;

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The release of the BRT’s full value numbers will require additional time for further work, public review, and possible appeals;

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The property tax will thus depend on the current fractional assessment system for at least the next fiscal year, prolonging a system of inequity.

We are optimistic about the improvements of the BRT’s actual value initiative, and hope to contribute to the effort to ensure the final numbers are as accurate and uniform as possible. However, Philadelphia will remain dependent on the current assessments for the near future, as rejecting their legitimacy outright would require repealing the entire property tax—an impossible scenario. With that said, we strongly urge Council and the Administration to consider shifting the existing property tax to a revenue-neutral land value tax for the coming fiscal year. This action will have three significant advantages over retaining the status quo: 1. Even under the current assessments, a large majority of residents will see substantial reductions on their property tax bill, which will help offset any increases in other taxes or fees. 1

2. The current assessments are indeed problematic, but are still good enough for a land value tax.1 Much of the irregularities in the assessments are with the valuation of buildings, not land, so removing building value from the equation will help establish increased uniformity. 3. Establishing a land value tax now—which is legal and does not require Harrisburg’s permission—will set the ground work necessary to transition to full value when the numbers are ready by reducing the impact on residents. Our sister organization, the Center for the Study of Economics2, has already completed a full analysis on the impact of a land value tax for Philadelphia and is ready to assist the city in implementation. To do so would necessitate minimal changes or costs in the administration of the property tax, requiring only the adoption of an ordinance defining new millage rates for both land and buildings, and would utilize the existing infrastructure for billing and collecting. This would not mean doing so in haste, as land value taxation has endured almost 30 years of careful scrutiny by City Hall, being considered in Council in the early 1980s, officially proposed by the Goode Administration in 1989 under similar circumstances as we face today, and formally endorsed in Controller Saidel’s tax analysis in 2002 and the the Philadelphia Tax Reform Commission in 2003.3 The cumulative results of this long-term examination combined with our current research makes a strong case for adopting this solid reform without further delay. At council’s request for a full hearing on the subject, we stand ready to provide further testimony and detailed documentation on this proposal, and strongly urge you to consider taking this first but crucial step necessary to fix a broken system. To institute nothing but temporary measures this year will only prolong and complicate the underlying problems. Thank you.

1 Roger A. McCain, Paul Jensen, and Stephen Meyer, Research on Valuation of Land and Improvements in Philadelphia (Drexel University, February 12, 2002). 2 http://www.urbantools.org 3 Efforts to enact land value taxation in Philadelphia have a long and detailed history: http://www.ourcommonwealth.org/resources/a-history-of-land-value-taxation-reform-effortsin-philadelphia

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