New PA Ruling Could Threaten Philly's Real Estate Income

Posted on Oct 03 in Philly Newsby adminPrint

Pa. ruling on assessment math could threaten Philly’s real-estate income

Article From: Philly.com
By: Catherine Lucey

NEW STATE property- assessment data could cost the city big bucks in tax appeals, according to a local real-estate attorney.

City officials must figure out how to deal with a ruling from a state board that means the percentage used by the city to determine the assessed value of properties is suddenly way too high.

Philip Korb, of the Ballard Spahr firm, says this could prompt numerous residential- and commercial-property owners to seek a break in their taxes.

“[This could be] a real blow to the city financially,” Korb said.

Let’s try to explain:

The city uses a “fractional” system, assessing Philadelphia’s roughly 450,000 residential and 125,000 commercial properties at 32 percent of their market value and then applying a tax rate.

The 32 percent figure has to come close to a state-determined percentage known as the “common level ratio,” which shows how the area’s assessed values compare with market values. After years of that number coming in near 32 percent, this month it dropped to 18 percent.

Korb said this means you could appeal your tax bill, seeking the 18 percent rate to be applied to calculate your assessed property value. And that could almost halve your tax bill.

“If this state-imposed ratio stands, and taxpayers flood the appeal process, the city’s tax revenues could be reduced catastrophically,” Korb wrote in an email.

It was not clear yesterday why the ratio had changed so drastically. A call to the State Tax Equalization Board, which sets the ratios, was not returned.

The city could appeal the ruling, but officials yesterday did not say how they plan to proceed. They can’t adjust the tax rate up to accommodate lower property assessments, because under city law, tax rates cannot be changed during the same fiscal year.

Frances Beckley, chief counsel to the Revenue Department, said the city could fight appeals on the grounds that market values set for most properties are too low.

“Most people’s property is grossly undervalued,” Beckley said, before adding: “There’s no denying that it’s a risk. It’s hard to predict what will happen.”

The deadline has passed to appeal 2011 property-tax bills. Property-tax appeals for the 2012 tax year are due Oct. 3.

Finance Director Rob Dubow noted that the Nutter administration is trying to shift to a system that uses “actual values” or 100 percent valuations for properties, coupled with lower tax rates. This would make the fractional assessments and the “common level ratio” a thing of the past. They hope to change to a new system by the end of 2012.

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