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What does the land tax mean to you, a resident of Philadelphia?
The land tax is a new concept for many. But it encapsulates the very best in new thinking for the city. The Mayor and Council have been working hard to provide tools and strategies to revive the city, not kill it. LVT may be confusing at first this will be a good idea for Philadelphia.
LVT is a flexible form of the real property tax. In Pennsylvania, land and building assessments are determined separately. That mean we have an opportunity to see how much tax falls on each component of someone's home or business. In Philadelphia (with a rate of 82.64 mills) 22% of real property tax revenue comes from land. So what?
That means that about 78% of your revenue comes from buildings. In other words, if someone fixes up their house or commercial building, their assessment goes up accordingly and their tax bill goes up accordingly. That's a disincentive to go ahead with such a project. If buildings are taxed less, the city will have more and better buildings. The city therefore taxes a commodity - buildings - that can (and has) fled our cities and towns in increasing numbers since the end of the Second World War. When LVT is used and promoted by a city, individuals take the plunge and maintain their properties.
As implemented in the Pennsylvania cities that use this program, LVT is designed to be revenue-neutral to the taxing jurisdiction. It is not a tax hike; again it is a flexible form of the real property tax.
Philadelphia has senior citizens and many poorer people. LVT is far more preferable to senior citizens than the standard property tax. Since senior citizens keep up their homes, and since, therefore, most of their tax bill comes from the structure itself, they would assuredly see a decrease in their taxes with LVT. For families just starting out, a lowered tax bill means lower monthly mortgage payments. Compared to the usual senior/low-income property tax relief programs, one does not have to apply for it. It's across the board.
Although cities and towns do not have enabling legislation to enact Homestead Exemptions, it is a specter hovering over Pennsylvania's towns and cities. The notion that urban centers should increase taxes on commerce and incomes to provide tax relief for homeowners is possibly well-intentioned , but economically suicidal. When older downtowns need to market their friendliness to business, those efforts will fail if there are higher tax rates on income and/or sales than in the surrounding jurisdictions. Again, LVT provides the tax relief without new taxes.
Harrisburg, Pa., has employed and marketed LVT to great success. They have pushed the idea hard, especially to homeowners and homesteaders. In 1982, Harrisburg had 4,200 vacant structures. Today, there are less than 500. In Philadelphia neighborhoods it is reasonable to expect that this process would be repeated. Since Philadelphia has a desirable location for those seeking older homes, it will reduce the penalty for fixing up homes, especially historic structures that need massive re-investment.
Philadelphia has too much under-used, potentially profitable (for both business and government) land. Turning our city into farmland is a rustic idea, but also a white flag of surrender. A program of higher tax rates on land will provide an incentive to develop or to sell to someone who will. There is a supply of vacant land in Philadelphia: nearly 37,000 parcels. The situation is especially egregious when it is understood that the current city tax system does indeed:
LVT is enacted within existing frameworks of planning, zoning and abatement/exemption programs. For example, a program to exempt improvements to houses for a period of years is a good one. Yet what if some homeowners or business owners have already fixed up their homes before the program takes effect? The possible resentment of "missing the boat" can be lessened by a general (albeit smaller) program of tax reduction for all improvements. Also, when the period of exemption is over, LVT will cushion the financial blow from a sudden increase in taxable building/improvement value.
Most important, LVT is a tax abatement: one that applies to all. No citizen has to go to City Hall to fill out applications and forms. The tax structure does it for them.
Although LVT should be (and has been) implemented with a slow, gradual shift to an emphasis on land taxes, homeowners and many businesses will see an immediate reduction in their tax bill: Numbers from the City show that 73% of ALL taxable properties in the city will at least some tax savings. Companies that provide the most employment will see the biggest rewards. Homeowners in still-stable neighborhoods (like middle-class Northeast) will see large percentage decreases. Taxes on people owning vast tracts of unused land in North and West Philadelphia - people who surely don't live there - will see increased tax liability; they will finally bear the tax burden that productive citizens and companies have been paying all these decades. It should also be kept in mind that many properties that pay are absentee owners. They have little or no stake in maintaining an attractive, economically competitive community.
Philadelphia does receive federal, state and county aid to assist in redevelopment. Usually, this is a signal for speculators to buy up all available land and sit on it for speculative purposes. A land tax will make it less easy to hold onto land that should and could be developed more quickly.
As it stands now, Philadelphia gets 22% of its real property tax revenue from land. For a town in economic competition with surrounding county land and towns, that's not an effective way for the city to get the highest and best use of its land. For example, with two-rate land taxation, a drop in the building rate by 40% would raise the revenue from land to a more sensible 50%. A sensible, sober first move, but by no means the only option
In one move, the city would signal its friendliness to development (and re-development), cutting taxes for those who have already made their stake in Philadelphia well as greatly enhance its economic development arsenal.
From all standpoints, it would appear that Philadelphia would be able to take advantage of land value taxation.
For further information on the Land Value Tax, please call the Greater Philadelphia Association of REALTORS® at (215) 925-2607. We are the "Voice for real estate in Philadelphia since 1908."