Preparedness & Recovery

Mayor's Budget Wish List: Higher Property Taxes, Transfer Fees to Fund Extra $1 Billion for Schools

In the poorest big city in the country, which has lived through four property tax increases in the last decade alone, that could lead to political fallout.

by Holly Otterbein and Claudia Vargas, Philly.com / March 1, 2018

(TNS) - When Philadelphia Mayor Jim Kenney announced last year that he would seize control of the city’s schools, he promised to cover much of their nearly $1 billion budget deficit.

On Thursday, he will attempt to make good on that pledge — with more than a little help from taxpayers.

At his annual budget address in City Council’s chambers, he will ask lawmakers to raise property taxes. He will also propose increasing the real estate transfer tax and putting the brakes on planned cuts to the wage tax.

In the poorest big city in the country, which has lived through four property tax increases in the last decade alone, that could lead to political fallout. At the same time, education activists are expected to celebrate Kenney’s financial plan as going a long way toward fulfilling his campaign pledge to improve the city’s underfunded schools.

Councilwoman Helen Gym, a prominent public schools advocate before becoming a lawmaker in 2016, called Kenney’s budget “an unprecedented investment into our public schools, ensuring for the first time a long-term commitment toward financial stability for Philadelphia schoolchildren.”

Kenney will recommend boosting property taxes by 6 percent, as well as raising the real estate transfer tax by 8.5 percent. The wage tax would be reduced at a slower pace than previously projected, going from 3.89 percent to 3.84 percent for residents by 2023.

The mix of tax changes — plus an additional $100 million from the city’s general fund — would bring in an extra $980 million for schools over the next five years, the Kenney administration said. The total city budget would rise to $4.7 billion — up from $4.4 billion last year — if the mayor gets his full wish list.

The biggest chunk of money for the education system would come from a hike to the school portion of the property tax, which is expected to raise $475 million over five years. The full real estate tax rate would go from about 1.40 percent to roughly 1.48 percent.

For a homeowner with a property valued at the city average of $113,000, that would mean a $95 increase in the annual tax bill, to $1,676. If the homeowner has a homestead exemption — a tax break on primary residences — the bill would increase by about $70.

To ease the impact, Kenney will also propose expanding the homestead exemption — from $30,000 to $40,000 of assessed value.

City Council and the mayor have maintained a good relationship, but that doesn’t mean his budget proposal is a slam dunk. He is pushing more taxes one year before he and Council members are up for reelection, which is never an easy task.

Some, such as Allan Domb, have signaled they might not support the plan.

“Before any tax increases occur, we should collect all delinquent taxes from those who choose not to pay,” said Domb, who was nicknamed the “Condo King” because he owns numerous properties throughout Philadelphia. “How do we increase taxes on our citizens if we do not collect from those who choose not to pay?”

Other lawmakers seemed more open.

Councilwoman Cherelle L. Parker said she was “pleased that we are moving in the direction of putting the School District of Philadelphia on the path to financial self-sufficiency.”

Councilman Derek Green said, “The Kenney administration has attempted to balance various interests in order to fund the School District and reduce the deficit created by the lack of fair, formula-driven funding from the state.”

The School District’s budget hole largely stems from massive increases in pension, health-care, and charter-school costs.

Some city legislators may see Kenney’s proposal as allowing the state government to shirk its responsibility to fill part of the School District’s budget gap. In November, Council President Darrell L. Clarke said that the city would not let Harrisburg “off the hook” even as it took back control of its public schools.

During a news briefing Wednesday, city Finance Director Rob Dubow was asked whether the state should bear some of the cost of the deficit. “We would love for the state to cover some of it,” he said. “But we don’t think we can rely on that.”

The state-created School Reform Commission in November voted to dissolve itself. A new school board, composed entirely of local officials, will take its place later this year. Kenney has pledged that means “the buck will stop with us.”

The mayor’s budget is also likely to reinvigorate a debate over the city’s 10-year tax abatement.

Todd Wolfson, a member of the “Our City Our Schools” campaign to abolish the SRC, said now was the time to end the tax break on new construction and building improvements: “Corporations that are getting massive tax breaks and not paying for our schools need to pay for them.”

Likewise, Councilwoman Maria Quiñones-Sánchez said she “would have liked to see more of the burden shared by corporations in the city” in Kenney’s plan.

At least one thing is all but guaranteed: Some way or another, Council will tweak Kenney’s proposal.

In his final year in office, Mayor Michael Nutter sought a property tax increase of 9.3 percent. Council ended up approving a lower figure of 4.5 percent, in addition to a higher parking tax and use-and-occupancy tax on businesses.

In 2016, Kenney signed Philadelphia’s soda tax into law, partly to expand pre-K throughout the city. The rate was slightly less than he had originally requested.

“We know that we have responsibility to fund the schools. During the next couple of months, we will have discussions on the best way to do that,” Councilman-at-large Bill Greenlee said. “It’s too early to commit to anything.”

Other highlights of Kenney’s plan include: setting aside $225 million over five years for upcoming labor contracts; increasing the Police Department’s budget by $18 million, to $709 million, to pay for increased wages and hiring new officers, and a capital investment of $10 million to replace fire vehicles and ambulances, as well as an undisclosed amount set aside for building a new training facility for firefighters.

The mayor is also calling for a $20 million boost in funding for programs that address homelessness and the opioid crisis. But the plan also includes cuts — $26 million in budget reductions to more than a dozen departments. Roughly half of that would come from the city’s prison system.

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