Philadelphia Property Tax: Biased Against the Poor

The City of Philadelphia Controller's Office just released a report that trashes the city's efforts to accurately re-assess the value of its property.

The AVI's values are widely inaccurate and three times worse than industry standards for accuracy.

We already knew that the city was planning to shift taxation from commercial properties to residential. Residential taxes were going to go up a lot -- however homeowners would receive some relief from the $15,000 homestead exemption. Tax increases would be passed on to renters - possibly 100,000 renting households would face an average increase of $100-$200/year due solely to the AVI. Large commercial properties are the biggest gainers with the top 1% of them facing an average tax cut of $304,000!

However now with the Controller's report we learn that the property tax system was already biased against low-valued houses and that AVI will increase this bias. The tax system has over-valued low-value houses and under-assessed high-value houses. For all we know this has been happening for the past forty years -- since the last major overhaul!

What this means is that low-income Philadelphia residents are over-paying their taxes and the upper income residents are under-paying.

I don't know how much low-income residents have been overpaying - it could be as high as an average of 40-100%. There is a price-related differential of 1.78 for single family properties with the AVI (or 1.72 before). If I take a city with two types of houses - $300k houses that are assessed at $150k - and $50k houses that are assessed at 200% of value - you get a Price-Related Differential of 1.75.

If you have two houses
$300,000 - assessed price of 50% = 150,000
$50,000 - assessed price 200% = 100,000

mean ratio = 1.25
weighted mean = 250,000/350,000=0.71

So the PRD is 1.24/0.71 = 1.75
see this fine example on calculating the PRD

What this means is that if either house was more accurately assessed you would have a smaller PRD. So, unless the report is wrong, we have systematic injustice for Philadelphia residents.

The report found that with the AVI if a zip code is 1% more black than average, then the average valuation as compared to market value (and thus tax) is increased by 0.66% (this compares to an increase of 0.31% under the old system). This is a linear relationship, so an area that is 40% more black than average (eg. 85% black) will be paying 26.4% more.

The report also found that with the AVI if a zip code has a 1% increase in median income compared to the average, then the average valuation as compared to market value is decreased by 1.55% (compared to 1.33% under the old system). So rich areas (and white areas) are paying less.

This is crazy. The system was already massively biased against low-income and black residents. But now the AVI is going to increase this bias.

We must stop the AVI and get the city to do a fair valuation of its housing stock that stops the discrimination against the poor and blacks!

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The report also argues that the city lacks data and records about property that would help it assess property value.