Philadelphia Property Tax - How to Help Renters
Mayor Nutter's proposal would cost over a hundred thousand households that rent in Philadelphia $50-$200/year.
How can these households be helped?
1. A Lower Property Tax Rate
If the city stops transferring part of the overall tax burden from commercial and industrial properties to residential, then the rate would be lower. However, if we want to reduce the tax rate enough for people renting houses that are worth around $80,000 - then we actually need to not only stop this transfer but reverse it. We probably need to get the rate down to 1%.
The advantage of this solution is that it is relatively simple - and you could just use the Use and Occupancy tax to make up for the difference (though small businesses would be really hurt, unless there was an exemption - in which case large businesses will scream bloody murder). The other downside is that this is a terrible way of targeting the savings. Most of the savings would go to upper and upper-middle class residents.
2. Rent Controls
I don't see this happening. Are they more effective in the short run than the long run? I'm wondering about this because they don't reduce the cost of being a landlord.
3. A Property Tax Rebate
Minnesota has a property tax rebate system for renters and homeowners that is much larger ($1600 vs $650 for PA) than PA's program, and has a much higher income cutoff.
I'm not sure if this would need state legislative approval. If it doesn't, then this is probably the BEST solution for both renters and homeowners.
It turns out that it would need state approval. The clause requires that if Philadelphia wanted to do a tax rebate, it could only do so if the state reimbursed it for the loss of revenue (weird logic - might be intended more to stop the state from doing its own rebate).
4. A Property Exemption
I used to like this idea, but now I'm thinking that a Property Tax rebate for landlords and renters (based on household income) is FAR better.
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Property Tax - impact on Rent
In my triplex in West Philly, the property tax is about 14% of the rent. Our property tax is going up 110% in 2014 (so in 2013 it was only 6.5% of our rent).
If you rent a property at a 10:1 price to rent ratio (the property's value is ten times that of the total annual rent) then the property tax will be 13.4% of the rent (the tax rate is 1.34%). For instance on a $100k property you will be paying $10k in rent and $1340 of that will be property tax. The 10:1 price to rent ratio is the Philadelphia average (and the US national average as well).
Means-tested Gentrification Relief
The State legislature passed a bill that allows Philadelphia to do means-testing in its gentrification relief. This is a great idea, as without the means-testing the majority of the gentrification relief would go to people who are in the top 20-30% of income earners.