Philly's New Assessment Rollout Making The Property Tax Hike Even Harder To Swallow
Philadelphia’s first new round of property assessments since before the pandemic was always going to hurt, but the city’s handling of the update has caused yet another wave of backlash for the way it treats property owners.
The Office of Property Assessment has a local reputation for a lack of uniformity that has resulted in seemingly arbitrary valuations, even after a major overhaul in the past decade. Now, though economic realities may justify what's shaking out as a 31% spike in home prices since the last assessment in 2019, the OPA faces blowback from citizens — and, as demonstrated at the OPA’s budget hearing on May 13, the Philadelphia City Council.
Councilmember Jamie Gauthier, whose 3rd District is one of the two council districts that saw the biggest increase in values, called the management of the process by Mayor Jim Kenney’s administration “unconscionable” at the hearing, the Philadelphia Inquirer reports. Other council members took specific issue with the suddenness of the rollout, which saw Kenney’s office announce the new assessments had been completed on May 9, four days before they were released on the city’s online database.
“We wanted to be mindful of getting numbers to council as quickly as possible,” OPA Chief Assessment Officer James Aros Jr. told Bisnow in an interview May 12. “Not only the aggregate numbers, but to get the first set of individual values on the web as quickly as possible, to be as transparent as possible.”
Along with consistency, transparency was perhaps the biggest concern raised by multiple audits of OPA last decade, culminating in a scathing 2019 report from the City Controller’s office, which took place only a year after the implementation of a major overhaul called the Actual Value Initiative. Residents have complained for years about having no way to understand how their properties’ valuations were calculated, as multiple members of council recounted at the OPA hearing.
OPA, CAMA And The Limits Of The New System
The pandemic is only one reason for the gap between assessments in 2019 and today. The first-time integration of the Computer Assisted Mass Appraisal system, first proposed in 2006, was already expected to require a year of paused assessments to implement. Then, the pandemic worsened the delay, the city’s announcement stated.
CAMA’s chief purpose was to normalize the value of properties in the same area and holding similar characteristics, addressing a common complaint that neighboring properties with similarly sized lots and houses often had wildly divergent valuations. Early, anecdotal results suggest CAMA may have succeeded in that regard.
“I know a few people who have been doing some analysis of what has come out so far, and it does look like assessments are more accurate overall between similar properties,” said Jon Geeting, engagement director for political advocacy group Philadelphia 3.0. “It looks like by that metric, the new system got it more right than in the past.”
But the extent to which CAMA improved uniformity is impossible to judge for certain, since it was implemented alongside other changes to how property values are calculated, Aros said.
“There is no specific metric or performance analysis where we could strip out CAMA specifically and say, ‘This is specifically attributed to CAMA,'” he said.
CAMA, or any computerized appraisal system, is dependent on the input data administrators feed it. That means it is hampered by the years of citizen mistrust its officers feel compelled to address. Persistent questions about the relative value of a property’s land versus the building atop it led to OPA taking a flat 20% of a lot’s combined land and improvement value and assigning it to land, regardless of what percentage of a lot’s value it actually represents.
“Residential properties are being set at 20% for this reassessment, and that’s to make it more understandable and easy for owners to figure out how their land value was calculated,” Aros said.
Officially, only the land under residential properties has been set at a 20% ratio of the overall volume, but updated property records for commercial buildings like Cira Centre, Brandywine Realty Trust’s hybrid life sciences/office building at the eastern edge of University City, and Center City office tower 1835 Market St. also show land as accounting for 20% of the properties’ overall values.
The new calculations may be easier to explain to the average homeowner, but setting land as a constant percentage of property values across the city could have the effect of artificially depressing the assessed value of lots with buildings much smaller than zoning allows in desirable areas. Aros acknowledged that obsolete or poorly maintained buildings could drag the value of a plot down below what it would be worth as an empty lot.
“It’s effectively a tax subsidy to underbuild lots,” Geeting said. “As a policy, it’s not good for the city to have an incentive structure like that. We even saw assessments go down for underused properties in in-demand neighborhoods, like auto shops in Fishtown. Some vacant lots did go up in value, and without more comprehensive data, it’s hard to get a full picture.”
In addition to uniformity, OPA benefits from using CAMA by being able to reassign staffers to more specialized tasks, Aros said. A new division was launched this year to use recent property sales as an additional data point for figuring out market value, but the group’s work was not included in valuations for tax year 2023.
What Of The Property Owners?
Another issue was persistently raised at the council budget hearing, one that threatens to compound all the other frustrations: Though individual property assessments are now available online, property owners are not able to initiate one of the two available forms of appeal — an informal First Level Review from OPA itself — until they receive the official notice of their property’s valuation in the mail, which Kenney’s office said could take until Sept. 1.
The other avenue of appeal, the Board of Revision of Taxes, does not require receipt of the official OPA letter or an FLR decision to be initiated, but the deadline to file a BRT appeal is Oct. 3. For property owners without the knowledge or ability to find their new assessments online, the OPA letter could be the first they hear that their property value has risen.
Many areas of the city in which valuations have risen the most sharply, in some cases doubling or tripling, are also areas where residents are most likely to experience barriers to digital access, according to the controller’s initial review of this year’s assessments. A handful of ZIP codes in North Philadelphia and West Philadelphia have the highest concentration of properties that more than doubled in value since 2019.
“The lack of communication around an assessment increase that disproportionately impacts Black and Brown neighborhoods, and the lack of a plan for systemic outreach, shows that this administration is not centering racial equity as much as it proclaims,” Gauthier said at the hearing.
Hard copy notices should be sent to all owners by Sept. 1, Kenney’s office announced, and FLRs typically take two to 10 months to complete, which may take longer than owners have to file their tax returns, the Inquirer reports. OPA has the flexibility to adjust deadlines for FLR, but a change to the BRT deadline would require legislation, a city spokesperson said.
An owner can appeal an assessment for a handful of reasons: if they believe that comparable properties have been valued differently; if they believe that an assessment was based on incorrect data in a property record; or if they believe an assessment is simply too high. About 40% to 50% of appeals to BRT are successful, the Inquirer reports, but in a round of assessments that saw the average residential property gain 31% in value after three frozen years, winning an appeal for a simple overvaluation may not be realistic.
“I’ve appealed [assessments] in the past and been denied, so it’s not something I’m considering this year,” said Babb Properties founder Kim Avant-Babb, who owns several rental properties in the Point Breeze and Graduate Hospital neighborhoods of the city and offers consulting services to other small landlords.
With inflation hurting the average citizen’s buying power, Kenney and city council are well aware of the desperate need that low-income homeowners will have for relief from skyrocketing tax bills. Kenney proposed using the entirety of the estimated $460M increase in tax revenue on tax relief, $200M of which would go to increasing the size of the homestead exemption, as well as adding funding to the Longtime Owner Occupants Program and the senior citizen property tax freeze. Funding will also be needed to increase outreach and make as many residents aware of the relief programs as possible.
The larger chunk of proposed tax relief proposed by the Kenney administration would be a $260M cut to the city wage tax, long a target of ire for the business community. But the cut would only amount to $70 per year for a Philadelphian with a $50K annual salary, Geeting said, making it a curious use of resources when property tax bills are set to jump by thousands for some.
“All the tax reform commissions for the last 30 years have recommended a general shift from business and wage taxes to property and real estate taxes, and because of the market value uplift that everyone’s seeing in real estate over the last few years, that’s kind of making the shift happen,” Geeting said. “But it’s just tough working with wage tax cuts.”
Some would also rather see a tax revenue increase be spent on funding city services, especially considering the fact the federal stimulus that stabilized the city budget for Philadelphia will run out in the coming years.
But of the potential uses being debated for the increased tax revenue, none have been proposed to offset the impact on commercial property owners, including landlords dealing with yet another element of pressure to sell to larger investors hungry for single-family rentals, Avant-Babb said.
“As an investor, it’s a good thing for the value of the property to go up, but my income hasn’t gone up because rents haven’t gone up [as fast],” she said. “There isn’t time to make the adjustment on the income side.”