Lvt Council May 06 2009

413 S. 10th Street Philadelphia, PA 1947 Phone: (215) 545-6004 Fax: (215) 545-4929

www.ourcommonwealth.org www.urbantools.org [email protected]

Henry George Foundation of America

Land Value Taxation in the Context of the Current Budget Discussion I am the director of the Henry George Foundation, a non-profit educational foundation that has been working with cities since 1926, and is based at 413 South 10th Street, Philadelphia, PA 19147. I am here because of our concerns about the real budget gap, and the hard choices that must be made to plug that gap. Because of the varying scenarios presented by council, the administration and others, there is still no clear way forward. Therefore, we’d like to put our idea into the mix, and show how it could work. Wage taxes are regressive in Philadelphia; they should be a last option, until more lowincome protections are enacted. Sales taxes are regressive, but have the advantage of exempting food and clothing. The property tax appears attractive on the surface; as it is the basis of a small percentage of city tax (though the main source of school tax). Yet, serious and concrete concerns about valuation exist and must be addressed. The new values, while appearing to be a vast improvement, are still in the “rough cut” stage and are far from a final result. The Foundation would suggest that aspects of the council and administration’s plan could be enacted for this year, giving municipal government time to establish protections from bad tax policy, bad property valuation, and too few tools to protect taxpayers. We propose a bridge. For example, that bridge could be the sales tax increase. The impact on working and poor families can be directly ameliorated by adopting the land value tax using the current values. Why and how? As the only recent academic study of land versus building values for the residential sector (Drexel, Lebow College of Business 2002; Philadelphia valuations as studied by Professors McCain, Jensen and Meyer) demonstrated that the BRT numbers for residential land and building values were essentially accurate: “At this time, however, we feel justified in drawing the conclusion that, on the basis of our estimates, the BRT proposed ratio of 18% for land to total value does not appear to be highly inaccurate. The established ratio of 21.2 for all residential properties is not materially different from the original BRT value. This establishes confidence that the research performed by the City Controller's Office (published in the Appendix A of the Tax Structure Analysis Report) is accurate (or that there is little reason to suggest that the findings would change in any major way, could all properties have been examined). In short, the conclusions made about the residential properties in this study are consistent with the suggestion that about 4 in 5 Philadelphia residential properties would see savings under the proposed shift to Land-Value Taxation. BRT data would have to be upgraded significantly to improve on these conclusions.”

We all eagerly await the BRT new data in certified form, with protections for vulnerable homeowners. Until that time, Philadelphia must make choices. Although LVT should be (and has been) implemented with a gradual shift to an emphasis on land taxes, study indicates that 78% of residential properties in Philadelphia would see a tax

reduction, most of them will be over-stressed by the sales tax, the traditional property tax or any other type of tax. With this one-time proposal there will be correlating tax relief for those neighborhoods who have frankly felt the brunt of poor tax policies in the past such as Olney, Northeast, Kensington, Port Richmond, Wissinoming, Kingesessing and many more neighborhoods. There is no doubt that the poor and the middle classes will benefit from this proposal. We chose District 7 as a template for how the program would work, although the outcomes for other districts are similar, and I have prepared them as well. If the current figures accepted by both Mayor and Council are correct, the average sales tax increase for a typical family making $25,000 a year will be $81. The average decrease for a District 7 residential parcel will be $71. This outcome with LVT essentially negates the sales tax increase on a family.

Our city faces immense fiscal challenges in the very near future. New taxes and tax rates from some forms of taxation must be counterbalanced by new approaches that maintain

revenue flow without resorting to policies that have put Philadelphia at a disadvantage. LVT can help Philadelphia in this effort. This adaptation is rightly construed as an “annual event.” A sensible system of new assessments can make the property tax fair and transparent, while LVT can help make the property tax progressive. I urge Council to arrange a more in-depth series of hearings on the issue of land value tax at its earliest opportunity before adopting this FY2010 budget. Thank you. Joshua Vincent