President of City Council
Members of City Council
December 5, 2002
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Title
December 5, 2002
TO THE PRESIDENT AND MEMBERS OF THE
COUNCIL OF THE CITY OF PHILADELPHIA:
I am returning herewith as disapproved Bill No. 020537-A, passed by the Council on November 21, 2002.
Council passed three inconsistent bills on that day -- the above-referenced bill, and Bill Nos. 020577 and 020579. Bill No. 020537-A and 020577, with some narrow exceptions, would effectively impose a “cap” on any real estate tax assessment increases for City tax purposes, regardless how much the value of a particular property may actually have increased. Bill No. 020537-A would impose a ten percent maximum on any assessment increases; Bill No. 020577 would impose a four percent maximum on any increase. Bill No. 020579 would authorize the Revenue Department to grant “deferrals” of any increase in real estate taxes due to an increase of more than fifteen percent in the assessed value of real estate. Bill No. 020537-A purports to be immediately effective. Bill No. 020579 would be immediately effective. Bill No. 020577 would be effective only upon the enactment of authorizing legislation by the General Assembly.
I am sensitive to the concerns of Philadelphians who are struggling in this hard economy, just as their governments are. They are fighting to balance their budgets, just as we fight to balance the City’s budget. But we cannot help Philadelphians solve their problems by creating new ones. While our fiscal prudence over the past several years has put us in a much stronger position than most, we cannot jeopardize our city¹s fiscal health by embracing reckless new tax cuts that will blow a hole in our budget and cause enormous pain to Philadelphians who count on City support to help educate our kids and keep them safe after school, to revitalize our neighborhoods, and to keep our streets safe from crime and drugs.
The various tax bills now before me are inconsistent. Because I believe Bill No. 020579 represents the soundest of the three proposed approaches, I am today signing that bill. Because Bill No. 020577 would not be effective without additional legislation from the General Assembly, I can allow that bill to go into law, and request that it be considered by the Tax Commission recently approved by City voters. If appropriate, at a later date the City can support state legislation that would make it effective. I must disapprove Bill No. 020537-A, however, as it is inconsistent with the foregoing legislation, and is ill-advised.
An increase in tax liability is always painful to endure, for any taxpayer. A substantial increase in real estate taxes can be particularly difficult to endure for many taxpayers, as the increase in real estate value often is not accompanied by a family’s increase in income, making it particularly difficult for some taxpayers to budget for the increased tax liability. Sudden, unexpected increases are particularly difficult to account for in the short run, given the nature of most homeowners’ financial responsibilities. It is for these reasons that I directed the Finance Director, even as these legislative responses were being considered, to develop and offer a program whereby larger increases can be deferred or paid over time for one year, without penalty.
This is not a new problem. Council has responded to this problem over the years. Consequently, the number of citizens appealing assessment increases is not as large as it has been in the past, when real estate values have increased substantially. Because of ordinances of City Council, the Revenue Department currently offers an outright freeze on real estate tax increases to low income senior citizen taxpayers. Also pursuant to ordinance, the Revenue Department offers the opportunity for installment payments to other low income taxpayers, and a more generous installment payment plan for low income seniors who may not meet the stricter eligibility requirements for an outright freeze. Moreover, the Revenue Department offers other payment plans to taxpayers who demonstrate a genuine inability or substantial difficulty in paying.
Bill No. 020579 is consistent with these approaches, in that it authorizes the Revenue Department to defer all or part of certain large tax increases to taxpayers, based on a variety of factors, all designed to measure a taxpayer’s ability to pay. It is for this reason that I am signing Bill No. 020579.
Bill Nos. 020537-A, however, is inconsistent with the approach taken by Bill No. 020579, in that it provides for outright forgiveness of taxes otherwise lawfully owing to the City, and at a level inconsistent with the level authorized for deferral of taxes by Bill No. 020579. Both of these bills simply cannot become law at the same time, as they cannot rationally stand together. Council, by its actions, clearly has asked me to make the necessary choice.
Although an individual homeowner certainly may, at times, have difficulty in making timely payments, overall we should be extremely proud to live in a City where real estate values are escalating. Increasing real estate assessments reflect the fact that many of our neighborhoods are on the incline; they are very desirable places to live, and the values of the homes we own reflect that. One of the hoped-for benefits of our gradual reduction in City wage tax is an increase in real estate values and real estate tax revenues; the City cannot afford to forego these increased revenues that flow from increased values.
I will not belabor here the points I extensively laid out in my November 21 speech; suffice it to say that our budget is already stretched thin, and it would be irresponsible for me, as Mayor of all of this City, to allow those who experienced a substantial increase in the value of their homes to avoid their proportionate share of responsibility for paying for critical City services. I fully recognize that our tax assessment system is far from perfect and far from perfectly fair; indeed, I look forward to working with the new Tax Reform Commission, created by this Council and approved by the voters, to study ways to fix some of the inequities in our tax assessment system. But, critically, I am convinced that the solution to perceived inequities in the tax assessment system is not to freeze those inequities and thereby further exacerbate them. Two taxpayers with relatively equally valued homes should share relatively equal tax burdens; Bill No. 020537-A, however, would artificially freeze the tax liability of some homeowners relative to others. That is not fair to those paying full value, or fair to the taxpayers in general who pay for needed City services.
Finally, the assessment cap imposed by Bill Nos. 020537-A goes beyond the power of this Council. As the City Solicitor explained in his September 24 memorandum to all Councilmembers, state law requires that real estate taxes be calculated based on assessments actually returned by the Board of Revision of Taxes, and not on an artificially and inequitably reduced level. Indeed, Bill No. 020577 recognizes this lack of authorization, in that it expressly predicates its “cap” on the passage of authorizing state legislation. Moreover, the Home Rule Charter requires that we -- the Mayor and the Council together -- adopt a balanced budget at the start of the fiscal year. We did so. The Solicitor explains in his memorandum, however, that we are now legally precluded from ordaining a reduction in tax revenues once that fiscal year has begun, for to do so would be to allow the Council and the Mayor to artificially balance a budget, only to legislatively “imbalance” it moments after the year had begun.
For these reasons, I cannot approve Bill Nos. 020537-A. I commend this Council for focusing needed attention on this important problem, and for passing Bill No. 020579, a responsible response to this problem. I am proud to continue this administration’s strong record of implementing responsible, targeted tax relief that keeps our books in balance and meets our commitments to the citizens we serve.
Respectfully submitted,
John F. Street
Mayor
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