AVI and the Formation of the Philadelphia Crosstown Coalition

AVI and the Formation of the Philadelphia Crosstown Coalition

BY JEFF HORNSTEIN

In its nearly 50-year history, QVNA has on occasion formed or joined coalitions with other civic associations to exert influence on issues of importance beyond our neighborhood. Examples include: the epic battle to prevent the construction of the Crosstown Expressway down South Street; the fight to prevent a casino from being sited along the Delaware River in Pennsport; and the successful effort to demand formal neighborhood participation in the drafting of Philadelphia’s reformed Zoning Code.

Typically coalitions form around a single issue, a campaign is waged, and when the issue is resolved, the coalition dissipates. This was the case with the Crosstown Expressway and “Casino Free.” However, perhaps because Zoning Code Reform (ZCR) was truly a citywide effort, impacting every single neighborhood. And perhaps because it was a campaign for something rather than simply against something, the group of civic organizations that initially demanded a seat at the ZCR table formed a durable organization that has long outlived the initial issue. That organization is the Philadelphia Crosstown Coalition, and I am honored to serve as its chair.

The nucleus of “The Crosstown,” as it is commonly called by many, included QVNA, Logan Square Neighbors Association, Society Hill Civic Association, and Center City Residents Association. It soon grew to comprise about 10 organizations. Its representatives sat at the ZCR table for nearly four years and hashed out some very technical details about how to classify the many land uses that shape the very fabric of our city and its very diverse neighborhoods. When the code was signed into law by then-Mayor Michael Nutter in 2012, the civic leaders who participated felt like they had achieved something pretty big and important - true citizen input into a very complex policymaking process.

Soon thereafter, a group of us were sitting around a conference table in a law office in center city that had become the de facto war-room of the coalition, and someone said “Well that was gratifying, what’s next?” And as I recall, I said something about a then-obscure proposal by the Nutter administration to overhaul the city’s property tax system, the so-called “Actual Value Initiative” or AVI. Though no one had really heard this three-letter term before, I assured everyone it would be as impactful, if not more so, than Zoning Code Reform.

We quickly rebranded ourselves as the Crosstown Coalition of Taxpayers (CCT) and began to solicit information about AVI. We knew that Nutter had taken aim at the Bureau of Revision of Taxes (BRT), an opaque agency responsible for not only assessing property values, but also for hearing appeals of its valuations. Regardless of one’s views on the BRT’s efficacy, one thing was clear: there hadn’t been a true citywide property reassessment in many years. Despite profound changes to the real estate landscape in the city, homes in neighborhoods like Queen Village were assessed for purposes of taxation at values wildly at odds with market values. For example, my home on the 300 block of Queen Street was valued by the BRT at $75,000, though I paid roughly four times that; the valuation hadn’t changed for at least a decade. The CCT began to analyze the data and realized that the assessments were an absolute mess, totally inconsistent across neighborhoods, across comparable properties, in pretty much every way possible. Since a city’s creditworthiness is, in part, based on the aggregate value of its real property ratables, it makes sense to get it right.

So at first many of us were in favor of AVI – let’s just make sure our assessments are done professionally and accurately. Nutter sensibly split the assessment and appeal functions, placing the former in the newly created Office of Property Assessment (OPA). He hired Richie McKeithen, a smart and experienced guy from D.C. with a good reputation, to be his chief assessment officer. So far, so good.

The CCT met with McKeithen in August 2012 and asked lots of questions about the process of reassessing the nearly 600,000 properties across the 135 square miles of Philadelphia, from the Great Northeast to South Philly, from the Delaware waterfront to Cobbs Creek – that is, a massive, highly variegated set of neighborhoods, some of which were growing, others declining, others virtually stagnant – at least from the point of view of real estate markets.

My notes from that meeting state: McKeithen and his team graciously fielded nearly 1.5 hours of questions from the civic leaders, on both the technical aspects of the assessment process, as well as policy issues. McKeithen pledged that his office would do its best to educate taxpayers about the entire process of assessment, emphasizing that his office’s function was to implement policies, not make them.

McKeithen was also quick to state that his office is responsible for determining property values in the City of Philadelphia, but is not responsible for determining the property tax rate or tax policy. He urged the members of the coalition to educate the citizenry that the two are separate matters, and not to fuse discontent about tax rates to the work of his department.

We were fortunate to have a veteran retired mass appraisal consultant among our ranks, so we knew exactly what questions to ask. We learned that McKeithen was under tremendous pressure to assess all 579,000 properties in less than two years, and that Nutter intended to implement the new tax regime all at once. Our expert was incredulous when he heard this, noting that Boston, a city about one-third of the size of Philadelphia, had taken four or five years to do a similar job and had rolled out the new system in phases. McKeithen admitted he’d had problems finding qualified staff, initially seeking 220 staff, but in the end only able to hire 167 people.

McKeithen explained to us the methodology by which mass appraisal works. He made it clear that his methods differ from those used by a “fee appraiser” from a mortgage company, for example. Mass appraising nearly half a million residential properties for the purpose of assessing property taxes is a very different exercise than doing a single property for the purposes of determining a mortgage. His goal was to get “as comparable as possible,” taking into account as many factors as possible. In the end, though, McKeithen noted, homeowners would have the opportunity to dispute the OPA’s assessment of their individual properties via the appeals process. (And in fact, in the year after the implementation of AVI, there were nearly 100,000 appeals.)

We also learned that the mass appraisal scheme required the OPA to create and utilize relatively arbitrary micro-markets, which it called “Geographical Mapping Areas” or GMAs. The OPA created more than 200 GMAs, a far higher number than other cities typically used, and we believed this would have serious implications regarding the standardization of appraisal methods. At base, appraisal is a process of estimating, using some combination of comps and statistical models, about what a property ought to sell for in a so-called arm’s-length transaction (that is, one that is entered into freely by both parties - not a foreclosure or some other type of “forced” sale). With mass appraisal in a city like Philadelphia, several problems emerge – in some neighborhoods very few, if any, properties had changed hands in recent years, at least in an arm’s-length transaction; Philadelphia also has a very high rate of intergenerational property transfers, making any objective valuation incredibly difficult. Finally, Philadelphia has a massively differentiated real estate market, in which some areas see major growth, while most see decline or stagnation. Like boundary-drawing of any type, the GMA process was inevitably going to be controversial, and the CCT’s opinion was that too many GMAs would lead to more inconsistencies than fewer GMAs. (Turned out we were right, by the way, as our exhaustive 2013 report detailed.)

Meanwhile, Nutter was holding pressers claiming AVI would restore “fairness” to the property tax system, that people in wealthier neighborhoods (like those then represented by the CCT) were “underpaying” property taxes, while people in poorer neighborhoods were “overpaying.” When we were impolitic enough to ask for data to support these claims, hizzoner got quite defensive. We soon came to understand that it was true that many properties in gentrified neighborhoods like Queen Village were valued for taxation purposes well under market value – per my own example above – but that there was little evidence of the converse: we never found examples of properties in poorer neighborhoods that were paying taxes beyond their value. (Shockingly, the mayor was playing “class warfare” politics.)

Once the CCT started asking questions and making the rounds in City Council, two things became clear: that Nutter was intent on implementing AVI, including a new tax rate, regardless of whether the assessments were complete, and that the financial implications of moving to a new “fairer” system were going to be quite large for many Philadelphians. While property taxes provide a stable source of revenue for both city government and the School District, they are not levied according to one’s ability to pay them, so the CCT became particularly concerned that seniors and people on fixed incomes, of which there are hundreds of thousands in Philadelphia, would be very disproportionately impacted.

It quickly became apparent to me, then serving as president of QVNA, that Queen Village, which had gentrified in the 1990s, was going to see some very significant property tax increases, and that while many of our residents could absorb them, many could not. To put this in personal perspective, again: when AVI was implemented my property taxes increased more than threefold, overnight. I was relatively lucky; some QV residents saw increases in the order of 5x or even 10x. Now, was it “fair” for me to have paid a pittance on my $325,000 home for years prior to AVI? Fair or not, all (or at least the vast majority) of us paid what the city asked us to pay; it wasn’t our fault that we were “under-assessed” as the mayor repeatedly put it. (Interestingly, despite Nutter’s assertion that AVI would be “revenue neutral,” AVI shifted about $300 million in property tax burden from commercial to residential property – that is, high-value office towers saw property taxes go down, while the typical rowhome in a growing neighborhood saw increases.)

Seeing the looming problem, the CCT began pushing City Council to do two things: First, to delay the implementation of AVI until we had a full picture of the assessments, so we could determine whether they were, in fact, more equitable than the “broken” old system. And second, we wanted to make sure there were programs in place to mitigate the impact of massive property tax increases on those who could not afford them, particularly seniors and long-term homeowners on fixed incomes. We recruited legislative champions. Councilman Mark Squilla stepped up to the plate as a first-term member and introduced a bill calling for a one-year delay in implementation. Other members of council introduced the Longtime Owner Occupant Program (LOOP) and deferral programs to cap property tax increases for those least able to pay.

The CCT mobilized thousands of citizens to contact their council members. Our battle cry – “Do AVI right, not recklessly!” In the end, WE WON! AVI was delayed and LOOP was implemented. (And, by the way, with (relatively) accurate property tax assessments, the city’s ratables increased threefold, and its credit rating is at historic highs.)

With two victories under our belt, and a coalition that by the end of the AVI fight numbered 21 civic associations, we decided to formally incorporate into a citywide 501c3 organization, the Philadelphia Crosstown Coalition (PCC). I became PCC chair in July 2017, and I am proud to report that there are now 34 member organizations spanning most parts of the city, with active committees dealing with Zoning & Land Use, Affordable Housing, Parking & Transportation, and Public Education.

Learn more at www.philacrosstown.org.