8-13-2009 Ptrtf Presentation Booklet

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2009

Center for the Study of Economics 413 S. 10th Street Philadelphia, PA 19147 Office: 215.923.7800 www.urbantools.org

[LVT AND AXI PHILADELPHIA TASK FORCE] Analysis and recommendations submitted to the Philadelphia Tax Reform Task Force

Table of Contents Introduction ....................................................................................... 3 City-Wide Values ................................................................................ 4 Land Value Taxation (LVT).................................................................. 5 LVT Impact by Tax Class ................................................................ 6 LVT Impact by Council District .................................................... 11 Assessed Exemption of Improvements (AXI) ................................... 18 AXI Impact by Tax Class .............................................................. 18 AXI Impact by Council District..................................................... 22 LVT and AXI by Neighborhood ......................................................... 28 Conclusions and Recommendations ................................................ 32 Supplemental Material .................................................................... 33

Table of Figures Figure 1: Citywide Real Estate Assessment Totals ............................. 4 Figure 2: Revenue Neutrality Among Options ................................... 5 Figure 3: Overall Impact of LVT vs Current Tax .................................. 6 Figure 5: LVT Count of Increase vs. Decrease by Tax Class ................ 8 Figure 6: LVT Total Dollar Difference by Tax Class ............................. 9 Figure 7: LVT Average Dollar Difference by Tax Class ...................... 10 Figure 8: LVT Average Percent Change by Tax Class ........................ 11 Figure 9: LVT Residential Percentage Increase vs. Decrease by Council District ................................................................................. 12 Figure 10: LVT Non-residential Percentage Increase vs. Decrease by Council District ................................................................................. 13

Figure 11: LVT Residential Count of Increase vs. Decrease by Council District .............................................................................................. 14 Figure 12: LVT Non-residential Count of Increase vs. Decrease by Council District ................................................................................. 15 Figure 13: LVT Residential Average Dollar Difference by Council District .............................................................................................. 16 Figure 14: LVT Non-residential Average Dollar Difference by Council District .............................................................................................. 17 Figure 15: AXI vs Current Tax, Total and Average by Tax Class........ 19 Figure 16: AXI Percentage Increase vs Decrease by Tax Class ......... 20 Figure 17: AXI Count of Increase vs Decrease by Tax Class ............. 21 Figure 18: AXI Residential Percentage Increase vs Decrease by Council District ................................................................................. 22 Figure 19: AXI Non-residential Percentage Increase vs Decrease by Council District ................................................................................. 23 Figure 20: AXI Residential Average Dollar Difference by Council District .............................................................................................. 24 Figure 21: AXI Non-residential Average Dollar Difference by Council District .............................................................................................. 25 Figure 22: AXI Residential Total Dollar Difference by Council District .......................................................................................................... 26 Figure 23: AXI Non-residential Total Dollar Difference by Council District .............................................................................................. 27 Figure 24: LVT Total Dollar Difference by Neighborhood ................ 28 Figure 25: LVT Average Dollar Difference by Neighborhood ........... 29 Figure 26: AXI Total Dollar Difference by Neighborhood................. 30 Figure 27: AXI Average Dollar Difference by Neighborhood ........... 31

Land Value Taxation Presentation for the 2009 Philadelphia Tax Reform Task Force Center for the Study of Economics | www.urbantools.org

Page 2

Introduction The Center for the Study of Economics is pleased to speak again before the Mayor’s Task Force. Testimony provided by many others and ourselves has clearly narrowed the menu of choices to a few basic concepts: Philadelphia’s taxes are not progressive, they are too high, and they are confusing and repellent to capital and labor. As Paul Levy said in earlier testimony we as a City must find a way to implement taxes on subjects that are immobile. If that is where the taskforce moves, then we must repeat: land is immobile; buildings as an expression of capital investment are mobile. We believe that the facts and the theory point to a gradual shift and implementation of tax policy to one that removes most distortions that effect personal, commercial and policy choices. To that end, we are happy to present summaries of our research into land value taxation, and an alternative that relieves lower-end values properties of the burden of taxation, while maintaining revenue flows. Using our BRT database from April 2009, we believe these simulations will provide a clear picture of how land value taxation and the assessment exemption for improvement alternative1 will work: 1. 2. 3. 4.

By Citywide By Class By council District By Neighborhood

11

Land Value Tax (LVT) is a way of taxing land using a change in tax rates. For example, a drop of 10% in the building tax rate would require that revenue loss be made up by an increase in the tax rate on land values. The direct effect is to put a greater reliance on publicly created value (land) rather than privately created wealth (buildings, commerce, or wages). A higher tax on land has the acknowledged effect of removing the distortions on markets that traditional taxes create. Assessment Exemption on Improvements (AXI) is slightly different. Put simply, a blanket permanent abatement of a certain dollar amount on a building is put into effect. The overall tax rate then rises accordingly, with a greater impact on land value. For example, if a building is worth $50,000 and the AXI is $50,000, there will be no tax on the building. If the building were worth $500,000 then the owner would pay tax on $450,000. This has the effect of sometimes dramatically reducing tax burden on lower valued properties, most often residential properties

Land Value Taxation Presentation for the 2009 Philadelphia Tax Reform Task Force Center for the Study of Economics | www.urbantools.org

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City-Wide Values Using current BRT assessments, the city has to work with a total taxable value of $12.1 Billion, with $5.1 Billion of non-taxable value. The value of taxable land is $2.9 Billion and the taxable value of buildings is $9.2 Billion. The current combined tax rate applied to both land and buildings for city and school purposes is 82.64 mills. As many have thus far noted, this tax system of equal tax rates on land and buildings creates a disincentive to build, rehab, or otherwise invest in real estate inside Philadelphia’s borders. The 10-year tax abatement is an explicit acknowledgement of the high cost of construction in Philadelphia serving as a barrier to it. We believe there are alternatives.

Figure 1: Citywide Real Estate Assessment Totals

Land Value Taxation Presentation for the 2009 Philadelphia Tax Reform Task Force Center for the Study of Economics | www.urbantools.org

Page 4

Land Value Taxation (LVT) The Center proposes two revenue neutral alternatives in these simulations. The first, land value taxation, (or LVT) employs tax rates of 171.684 mills on land value and 54.417 mills on building values, to provide revenue-neutrality. These rates would garner 50% of revenue from land, and 50% of the revenue from buildings2. Figure 2 demonstrates revenue-neutrality for both alternatives compared to the current system.

Figure 2: Revenue Neutrality among Options

2

These revenue split rates are identical to the Controller’s Tax Structure Report (2001) and the Tax Reform Commission Report (2003) simulations of land value taxation

Land Value Taxation Presentation for the 2009 Philadelphia Tax Reform Task Force Center for the Study of Economics | www.urbantools.org

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LVT Impact by Tax Class Land Value Taxation (LVT) is the option discussed at the previous task force hearing on May 21, 2009. Figure 1 compares LVT to the current total and average tax impact, both of which come out approximately the same.

Figure 3: Overall Impact of LVT vs. Current Tax

Land Value Taxation Presentation for the 2009 Philadelphia Tax Reform Task Force Center for the Study of Economics | www.urbantools.org

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Figure 4 represents the change by class of property in Philadelphia. As every study or simulation of the past 20 years affirms, residential properties see a reduction in tax incidence, while commercial and industrial properties – the sectors that have already departed the city–see an increase in liability.

Figure 4: LVT Percent Increase vs. Decrease by Tax Class

Within each class of real property, the shift will result in greater or lesser tax liability for each parcel. In Figure 5, the green portion of the columns represents the parcels that see a reduced tax bill; the red portion will see an increase. Land Value Taxation Presentation for the 2009 Philadelphia Tax Reform Task Force Center for the Study of Economics | www.urbantools.org

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Figure 5: LVT Count of Increase vs. Decrease by Tax Class

Within each class, the annual dollar change in tax incidence is presented in Figure 6. As theory would predict, residential property is most capital intensive on the building side of the equation, and therefore would enjoy a greater reduction. The simulation demonstrates that outcome.

Land Value Taxation Presentation for the 2009 Philadelphia Tax Reform Task Force Center for the Study of Economics | www.urbantools.org

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Figure 6: LVT Total Dollar Difference by Tax Class

Figure 7 provides the same outcome, but on an annual average basis. Citywide, these changes may appear modest, but the simulation can be changed in policy to effect greater or lesser impact.

Land Value Taxation Presentation for the 2009 Philadelphia Tax Reform Task Force Center for the Study of Economics | www.urbantools.org

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Figure 7: LVT Average Dollar Difference by Tax Class

Figure 8 demonstrates the annual percentage class change for each class. Both Class 1 and Class2 (Residential and Hotels/Apartments) show a significant annual savings. Land Value Taxation Presentation for the 2009 Philadelphia Tax Reform Task Force Center for the Study of Economics | www.urbantools.org

Page 10

Figure 8: LVT Average Percent Change by Tax Class

LVT Impact by Council District Council districts are an easily recognizable part of the Philadelphia cityscape. As such, the Center has grouped its findings in this manner.

Land Value Taxation Presentation for the 2009 Philadelphia Tax Reform Task Force Center for the Study of Economics | www.urbantools.org

Page 11

Figure 9 is clear that the Residential sector benefits greatly from LVT no matter the district. In general, the lower-valued residential properties in councilmanic districts (Districts 6, 7 or 9) fare better .

Figure 9: LVT Residential Percentage Increase vs. Decrease by Council District

Land Value Taxation Presentation for the 2009 Philadelphia Tax Reform Task Force Center for the Study of Economics | www.urbantools.org

Page 12

Non-Residential Properties in the 10 (Figure 10) council districts see less of a direct benefit, as many are land intensive and less capital-intensive. Many are blighted, abandoned or are not put to best use.

Figure 10: LVT Non-residential Percentage Increase vs. Decrease by Council District

Land Value Taxation Presentation for the 2009 Philadelphia Tax Reform Task Force Center for the Study of Economics | www.urbantools.org

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Broken out by Save or Increase by parcel (Figure 11) , the Council Districts again see benefit with LVT.

Figure 11: LVT Residential Count of Increase vs. Decrease by Council District

Land Value Taxation Presentation for the 2009 Philadelphia Tax Reform Task Force Center for the Study of Economics | www.urbantools.org

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Non-residential parcels (Figure 12) vary more by council district. Yet, the changes are widely varied in many districts.

Figure 12: LVT Non-residential Count of Increase vs. Decrease by Council District

Land Value Taxation Presentation for the 2009 Philadelphia Tax Reform Task Force Center for the Study of Economics | www.urbantools.org

Page 15

Figure 13 represents the average annual change per parcel in each council district. Established high value or up and coming districts (3, 5 or 8) experience little or no change in tax liability, here expressed as an average.

Figure 13: LVT Residential Average Dollar Difference by Council District

Land Value Taxation Presentation for the 2009 Philadelphia Tax Reform Task Force Center for the Study of Economics | www.urbantools.org

Page 16

Figure 14 representes the non-residential annual average shift with land value taxation. The reality of business taxation in Philadelphia should show that the property tax would be preferable to the Business Privilege Tax.

Figure 14: LVT Non-residential Average Dollar Difference by Council District

Land Value Taxation Presentation for the 2009 Philadelphia Tax Reform Task Force Center for the Study of Economics | www.urbantools.org

Page 17

Assessed Exemption of Improvements (AXI) If Philadelphia were to move to a property tax (or preferably) a land value tax to increase competitiveness, consideration must be given to the large number of retired homeowners on fixed incomes, owners of lower-valued residential (or commercial) real estate and renters. There are several traditional pathways to provide ameliorations (See Supplements). Our proposal here illustrates what we call Assessment Exemption on Improvements (AXI). AXI exempts a dollar amount of the taxable building value of a parcel. For the purposes of creating our simulation, CSE has chosen to exempt $10,460 (which is the median assessed value of taxable buildings in Philadelphia). By reducing the taxable building assessment, the tax rate would be 124.522 mills (as opposed to 82.64 mills), and thus the revenue would be the same. Such a property tax system has been used in the past in other jurisdictions. For example, in Vancouver, British Columbia, land values were assessed at 100% of market value, while buildings were assessed at only 50% of market value. Our AXI proposal is simpler to understand, with powerful effects: enacts a permanent, universal abatement on a dollar amount of building value which will proportionally exempt the greater part of a building from property tax, while a higher-valued parcel (Liberty Place, say) will see a statistically insignificant building abatment, while seeing some increase on the land portion. The principles of vertical equity and ability-to-pay come into play. We expect and hope that further research will be authorized by this task force or by city government. Granular examination of the data under AXI and LVT simulations will demonstrate the feasibility of these programs, both under current assessments and under AVI.

AXI Impact by Tax Class As Figure 15 demonstrates, AXI provides significant tax relief for residential properties while maintaining revenue levels, and suggests a way to shift additional revenue from mobile labor and capital tax bases onto the property tax without across the board impacts on all classes of property.

Land Value Taxation Presentation for the 2009 Philadelphia Tax Reform Task Force Center for the Study of Economics | www.urbantools.org

Page 18

Figure 15: AXI vs. Current Tax, Total and Average by Tax Class

Land Value Taxation Presentation for the 2009 Philadelphia Tax Reform Task Force Center for the Study of Economics | www.urbantools.org

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Figure 16 shows the outcome by class of our AXI proposal. Note that the percentage amount of parcels that save increases fairly substantially. Compared with Figure 4, the results favor classes 2 and 3, while improving classes 4 and 5. Grey sections represent tax-exempt.

Figure 16: AXI Percentage Increase vs. Decrease by Tax Class

Land Value Taxation Presentation for the 2009 Philadelphia Tax Reform Task Force Center for the Study of Economics | www.urbantools.org

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Figure 17 Shows the parcel count changes with classes. Classes 1 through 3 see a majority decrease, while 4 through 6 experience an increase.

Figure 17: AXI Count of Increase vs. Decrease by Tax Class

Land Value Taxation Presentation for the 2009 Philadelphia Tax Reform Task Force Center for the Study of Economics | www.urbantools.org

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AXI Impact by Council District The shift under AXI by council district is more pronounced in favor of residential properties (Figure 18) compared to LVT in Figure 9.

Figure 18: AXI Residential Percentage Increase vs. Decrease by Council District

Land Value Taxation Presentation for the 2009 Philadelphia Tax Reform Task Force Center for the Study of Economics | www.urbantools.org

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Figure 19 is non-residential shift with AXI by council district. Savings by commercial properties, in generally less-desirable areas, are significant especially compared with Figure 9, the LVT shift

Figure 19: AXI Non-residential Percentage Increase vs. Decrease by Council District

Land Value Taxation Presentation for the 2009 Philadelphia Tax Reform Task Force Center for the Study of Economics | www.urbantools.org

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Figure 20 shows the annual average residential change by council district. All districts see savings, with lower valued districts seeing dramatic reductions.

Figure 20: AXI Residential Average Dollar Difference by Council District

Land Value Taxation Presentation for the 2009 Philadelphia Tax Reform Task Force Center for the Study of Economics | www.urbantools.org

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Figure 21 shows the resulting average shift in burden onto non-residential classes.

Figure 21: AXI Non-residential Average Dollar Difference by Council District

Land Value Taxation Presentation for the 2009 Philadelphia Tax Reform Task Force Center for the Study of Economics | www.urbantools.org

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Figure 22 indicates the total residential dollar change under the AXI proposal by council district. Economically at-risk districts (such as District 6 and 9) see great benefit.

Figure 22: AXI Residential Total Dollar Difference by Council District

Land Value Taxation Presentation for the 2009 Philadelphia Tax Reform Task Force Center for the Study of Economics | www.urbantools.org

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Figure 23 represents the total non-residential change by Council district using the AXI alternative

Figure 23: AXI Non-residential Total Dollar Difference by Council District

Land Value Taxation Presentation for the 2009 Philadelphia Tax Reform Task Force Center for the Study of Economics | www.urbantools.org

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-$2,835K

Land Value Taxation Presentation for the 2009 Philadelphia Tax Reform Task Force Center for the Study of Economics | www.urbantools.org -$152K

Point Breeze

-$51K -$60K -$22K

Powelton Fishtown University City

$73K $86K

East Falls West Mount Airy Cedar Park

Schuylkill

Fairmount

$395K

$1,046K

$983K

$1,000K

Chestnut Hill

$156K

$55K

Brewerytown

Belmont

$33K $21K

West Kensington

$10K

$3K

Hartranft Pennypack Park

$1K

Wissahickon Park

$10K

-$79K

Poplar

$0K

-$101K

North Central

Germantown

-$139K

Cobbs Creek

-$127K

Fairhill

$0K $0K -$207K

Mill Creek

-$142K

-$180K

Strawberry Mansion

-$161K

-$198K

Haddington

-$234K

Kensington Hunting Park

Allegheny West

-$213K

Tioga

-$185K

-$219K

Logan

-$207K

-$236K

East Germantown

Riverfront

-$253K

Grays Ferry

-$267K

Ogontz

-$319K

Harrowgate

-$320K Bridesburg

-$595K East Oak Lane

Marconi Plaza

-$340K

-$440K Kingsessing

-$537K

-$697K

Fox Chase Manayunk

-$695K

-$697K

Wynnefield

-$756K

Cedarbrook East Mount Airy

-$813K -$820K

Pennsport Rhawnhurst

-$817K

-$932K

Wharton Byberry

-$848K -$879K

Overbrook

-$966K

Holmesburg

-$953K

Eastwick

-$964K

Elmwood

West Torresdale

-$967K

South Philadelphia

-$1,176K

-$978K

Bustleton

-$1,044K

Pennypack

-$1,145K

-$1,000K -$1,145K

Roxborough

-$1,197K

Somerton Lawncrest

-$1,306K -$1,331K

Frankford

Juniata Park

-$1,346K

Olney

-$1,236K

-$1,478K

Richmond Center City West

-$1,488K

-$1,707K

West Oak Lane

Girard Estates

-$1,870K

-$2,000K

Tacony

-$2,199K

-$2,760K

Center City East

-$2,835K

Mayfair

-$3,000K

Oxford Circle

Sum of LVT $ Difference

LVT and AXI by Neighborhood

LVT Neighborhood Residential Shift Overview: Total $ Difference

Sum of LVT $ Difference

$1,046K

Figure 24: LVT Total Dollar Difference by Neighborhood

Page 28

-$551

Land Value Taxation Presentation for the 2009 Philadelphia Tax Reform Task Force Center for the Study of Economics | www.urbantools.org -$32 -$37 -$25 -$45 -$30 -$22 -$15

East Germantown Logan Tioga Kensington Hunting Park Strawberry Mansion Point Breeze

-$14 -$25 -$17 -$37 -$51

Fairhill Mill Creek North Central Poplar Powelton

Hartranft

Fairmount

Chestnut Hill

Schuylkill

$150

$109

$48 $39

Belmont

$20

West Mount Airy Cedar Park

$21

$5

$11

East Falls

Brewerytown

West Kensington

$168

$286

$400

Pennypack Park

$1

$2

Germantown

$200

Wissahickon Park

$0

-$37 Cobbs Creek

University City

-$10

-$21

Allegheny West

Fishtown

-$18

Riverfront Haddington

-$46

-$45

Harrowgate

Grays Ferry

-$57

-$131

-$88

-$31

$0 $0 -$37

Ogontz

Bridesburg

East Oak Lane

Marconi Plaza

Kingsessing -$206

-$131

Manayunk

-$82

-$131

Fox Chase

Wynnefield

-$137

-$184

-$114

-$89

East Mount Airy

Cedarbrook

Rhawnhurst

Pennsport

-$180

-$107

Wharton Byberry

-$101

-$160 Overbrook

Holmesburg

West Torresdale

-$106

-$112

Elmwood -$222

-$119

South Philadelphia

Eastwick

-$128

Bustleton

-$113

Roxborough

-$145

-$126

Juniata Park

Pennypack

-$123

Lawncrest

-$166

-$118

Frankford Somerton

-$135

Olney

-$111 -$149

Richmond Center City West

-$116

-$183

Girard Estates

-$112 -$145

West Oak Lane

-$186

Tacony

-$246

-$551

-$600

Center City East

-$400

-$246

-$168

-$200

Mayfair

Oxford Circle

Avg. LVT $ Difference

$428

LVT Neighborhood Residential Shift Overview: Avg. $ Difference

Avg. LVT $ Difference

$428

Figure 25: LVT Average Dollar Difference by Neighborhood

Page 29

-$15M

-$10M

Land Value Taxation Presentation for the 2009 Philadelphia Tax Reform Task Force Center for the Study of Economics | www.urbantools.org -$1,504,114 -$1,448,632 -$1,388,820 -$1,295,060 -$1,269,177 -$1,075,732 -$995,094 -$928,027 -$868,346 -$837,562 -$836,101

Strawberry Mansion Grays Ferry Fairhill Fox Chase East Mount Airy Schuylkill Marconi Plaza North Central Somerton Poplar Brewerytown

-$364,270 -$255,096 -$120,201

Hartranft University City

$3,228,977 $3,512,368

Center City West Chestnut Hill

$2,707,529

$1,038,272

$215,987

$16,581

$427

$5M

Center City East

West Mount Airy

Riverfront

Pennypack Park

Wissahickon Park

-$368,968

East Falls

$0M -$1M

West Kensington

-$373,959

-$1,511,339

Powelton

-$1,596,722

Mill Creek East Oak Lane

-$437,083

-$1,631,578

Hunting Park

Fairmount

-$1,653,036

Bridesburg

-$511,138

-$1,658,201

Byberry

Cedar Park

-$1,796,535

Cedarbrook

-$709,895

-$1,839,078

Harrowgate

-$762,739

-$1,891,631

Belmont

-$1,935,951

Manayunk Allegheny West

Bustleton

-$1,986,243

Roxborough

-$2,284,912

Rhawnhurst

-$2,052,438

-$2,308,626

Fishtown

Point Breeze

-$2,418,193

Eastwick

-$2,116,155

-$2,528,101

Pennypack

-$2,749,853

Ogontz Wynnefield

-$2,130,803

-$2,888,845

Tioga

Germantown

-$2,972,018

Haddington

-$2,140,417

-$2,980,928

Logan

-$2,156,636

-$3,026,494

Pennsport

Kensington

-$3,201,429

West Torresdale

-$2M -$2M

Holmesburg

-$3,473,314

-$4,008,229

East Germantown

Kingsessing

-$4,236,191

-$5M

Wharton

-$4,574,880

Overbrook

-$5,061,606

Elmwood

-$4,576,762

-$5,360,624

South Philadelphia

-$5,369,720

Cobbs Creek

-$5,962,120

Juniata Park

-$5M

Girard Estates

-$6,091,329

-$6,702,265

Olney

Frankford

-$6,731,661

Mayfair

-$6,369,368

-$6,907,977

Tacony

Lawncrest

-$6,963,255

Richmond

-$7,965,930

-$10,499,294

-$10M

West Oak Lane

Oxford Circle

Sumof AXI $ Difference

AXI Neighborhood Residential Shift Results: Total $ Difference Neighborhood

Sum of AXI $ Difference

$4M

Figure 26: AXI Total Dollar Difference by Neighborhood

Page 30

-$688

-$526 -$488

Overbrook Wharton

Land Value Taxation Presentation for the 2009 Philadelphia Tax Reform Task Force Center for the Study of Economics | www.urbantools.org -$181

Chestnut Hill

Center City West

$389

$303

$576

$488

Center City East

$142

$285

$0

West Mount Airy

Riverfront

-$198

-$73

$500

Pennypack Park

Wissahickon Park

University City

Hartranft

-$125

West Kensington

-$63

-$139

-$370

-$285

-$78

East Falls

Powelton

Fairmount

Cedar Park

Bustleton

-$188

Belmont

-$109

-$190

-$393 Brewerytown

Poplar

-$157

-$345

-$154

Somerton

North Central

Marconi Plaza

-$298

-$249

East Mount Airy Schuylkill

-$244

-$154

-$361

-$415

Fox Chase

Fairhill

Grays Ferry

Strawberry Mansion

East Oak Lane

-$287

Mill Creek

-$365

-$251

-$678

-$438

-$330

-$276

-$473

Hunting Park

Bridesburg

Byberry

Cedarbrook

Harrowgate

Allegheny West

Manayunk

-$204 -$215

Roxborough

-$315 Point Breeze

Pennypack

-$464

-$405

Holmesburg Germantown

-$414

-$318

-$404

-$563

-$473

Kensington

Rhawnhurst

Fishtown

Eastwick

Wynnefield

-$583

-$334

Tioga Ogontz

-$334

Haddington

-$507

-$333

Pennsport Logan

-$350

-$473

West Torresdale

East Germantown

-$371

-$564

South Philadelphia

-$298 -$404

Kingsessing

-$588

Elmwood

-$434 -$573

-$656

Girard Estates

Cobbs Creek

Juniata Park

-$551

-$657

Lawncrest Frankford

-$674

-$599

-$688

Olney

Mayfair

Tacony

-$521

-$621

West Oak Lane

-$500 -$551

Richmond

-$624

-$1,000

Oxford Circle

Avg. AXI $ Difference

$1,528

AXI Neighborhood Residential Shift Results: Avg. $ Difference Neighborhood

$1,500

$1,000

Avg. AXI $ Difference

$1,528

Figure 27: AXI Average Dollar Difference by Neighborhood

Page 31

Conclusions and Recommendations 1. A healthy city or jurisdiction relies on property tax. It is the last redoubt of tax revenue in a recession. It is the most stable tax. Move the city towards real property tax. Philadelphia’s current menu of taxes that hurt the city makes the case that taxes on wages and business should be replaceable by a real property tax. The “three-legged stool “proviso of good tax policy has never been found more wanting than at present.3 2. To make the real property tax responsive to city revenue needs and fulfill the canons of taxation: a. It should bear as lightly as possible on production -- least impeding the growth of the general fund, from which taxes must be paid and the community maintained. b. It should be certain -- offering the least opportunity for abuse and corruption, and the least temptation for evasion. c. It should bear equally -- giving no one an advantage, nor putting another at a disadvantage. 3. To accomplish that, we recommend that AVI be implemented as soon as possible. 4. Before the AVI comes into effect, the current property tax should be turned into a land value tax (LVT), or an assessment exemption for improvements (AXI) as soon as possible as a way to improve the distribution of burden of the current property tax. AXI may require city or state enabling legislation. 5. The Task Force should include the reform of the property tax into its final report, requesting a more intensive study of both alternatives presented to the task force today. 6. Our alternative programs allow for greater reliance on the property tax without hurting low and fixed income property owners. Our alternative is an attempt to introduce ability-to-pay and vertical equity into Philadelphia’s chaotic tax system. Final Definitions: 1. Land Value Tax (LVT) is a shifting of the current flat millage rate into a higher tax rate on assessed taxable land and assessed taxable buildings. 2. Assessment Exemption for Improvements (AXI) is a permanent across the board dollar-amount abatement for all taxable buildings. The effect on lower valued buildings is of a greater percentage drop in tax liability on the building. The abatement for a much higher valued building would be correspondingly less. As higher-end construction has enjoyed extant abatements and other tax forgiveness programs, and brings greater rental and market price returns, it is our position that the AXI program directs tax relief for the most at-risk neighborhoods and citizens.

3

“Tax students, especially at the state level, ply their trade by invoking one metaphor above all others: the three-legged stool. It rests on the claim that a sound and successful tax regime for any government needs to rely on a three tax bases: income, property and sales. This is repeated so often that it passes today without much examination.”State Tax Notes, Vol.35, No.6, 2 February 2005, pp.377-381 Dr.H. William Batt

Land Value Taxation Presentation for the 2009 Philadelphia Tax Reform Task Force Center for the Study of Economics | www.urbantools.org

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Supplemental Material See the following supplements submitted to the task force for more background information: 1. David Brunori: To Preserve Local Government, It's Time to Save the Property Tax, 1998 2. Bill Batt and Joshua Vincent 2007: Use and desirability of standard property tax relief measures. Testimony before Pennsylvania General Assembly: Tools to Make the Pennsylvania Property Tax More Progressive 3. Wallace Oates and Robert Schwab: The Impact of Urban Land Taxation: The Pittsburgh Experience, 1996 Lincoln Institute of Land Policy 4. Letter from Mayor Stephen Reed, Harrisburg, PA to Mayor James Ruberto of Pittsfield Mass, October, 2006 5. "Final Report: Valuation of Land and Improvements in Philadelphia" By Roger A. McCain, Paul Jensen, and Stephen Meyer, Drexel University, 2002

Land Value Taxation Presentation for the 2009 Philadelphia Tax Reform Task Force Center for the Study of Economics | www.urbantools.org

Page 33

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