Cash-strapped Philly schools hoping to tackle tax deadbeats
By Benjamin Herold for NewsWorks, a Notebook news partner on Feb 18, 2013 03:18 PM
If Philadelphia's legions of property tax deadbeats suddenly paid the $541 million they owe, the beleaguered Philadelphia School District could save any of the 37 schools targeted for closing that it cared to.
And restore a nurse, art teacher, and librarian to every school in the city.
And erase a projected $200 million deficit for next year.
It's not going to happen.
But the School Reform Commission, with an assist from the city, is poised to take a small step in the right direction. Together, they hope to rustle up about $12 million a year in new revenue for city schools through improved collection of delinquent taxes.
On Thursday, the SRC will vote on a policy that would prevent tax deadbeats from getting new contracts from the District. The policy would also allow the District to withhold payment from existing vendors who fall behind on any of their city taxes.
A recent spot check found that half of the vendors seeking capital contracts from the school system in December owed back taxes to the city.
A wave of initiatives
The proposed policy is just one piece of a renewed push by city leaders to overhaul the way Philadelphia collects taxes.
Mayor Michael Nutter's much-discussed new Actual Value Initiative involves reassessing how much every property in the city is worth, trying to peg those valuations accurately to market values.
Under AVI, some residents will pay more property taxes, more than half of which go to the city school system. But others will pay less. By design, AVI won't lead to any new revenue for the city or its schools.
A new crackdown on tax deadbeats, however, might. The proposed District policy is part of a package of efforts intended to improve Philadelphia's notoriously poor collection of all its delinquent taxes to the tune of $260 million in the next several years. A total of $48 million of that money would go to the struggling city school system by 2017.
"We want to ensure that [vendors] are paying their fair share to ensure that the District and city are getting the tax dollars that they're entitled to," said Matthew Stanski, the district's chief financial officer.
"Obviously, we need the revenue."
A big problem
Over the last two years, the District has been hit hard by poor planning and massive reductions in federal and state aid.
Last spring, city schools endured round after round of painful budget cuts as District officials sought the hundreds of millions of dollars needed to balance their books.
In November, the SRC borrowed $300 million just to pay the District's bills.
And officials say that, without drastic measures, the District faces a cumulative $1.35 billion shortfall by 2017.
To help plug that budget hole, Superintendent William Hite proposed closing 37 city schools in December. As opposition to the plan has heated up, critics have accused the District of focusing too aggressively on austerity measures while only halfheartedly pursuing more revenue.
Any change in that equation is welcome, said Anne Gemmell, the political director of the activist group Fight for Philly.
"I think [the proposed policy] a great step in the right direction," she said.
But Gemmell also noted that the city has a limited ability to generate revenue for its schools. She argued that Philadelphians need to form a united front in advocating for more funding from Harrisburg, still the single largest source of revenue for the School District.
"At some point, we have to stop asking each other for five dollars and start going to the state, who has the constitutional responsibility to fund public education," said Gemmell.
The District receives 54 percent of all Philadelphia property tax payments, all of the "use and occupancy tax" paid by city businesses, and a 10 percent sales tax on liquor sold in the city.
But thousands of Philadelphia residents and businesses fail to pay those taxes, costing the District tens of millions of dollars each year.
Historically, school officials haven't bothered to check whether the vendors who receive District contracts are among the deadbeats.
At the urging of SRC member Joseph Dworetzky, though, the District implemented a new pilot program at the end of last year. Working with the city's revenue department, District officials began screening all vendors looking to do business with the school system.
In December, they found that 13 of the 26 vendors seeking to be pre- or re-qualified for District contracts were tax delinquent.
"It seems to be a culture of some businesses not complying with taxes," Stanski said. "We're going to try to do our part to ensure that they become compliant."
A new partnership
The Nutter administration says the city welcomes the District's help.
"Neither organization wants to do business with entities that owe the city or the School District tax funds," said Mark McDonald, the mayor's press secretary.
The city already screens its own vendors for tax compliance. And earlier this month, Nutter announced a five-year, $40 million plan to improve delinquent tax collection. When it comes to those "trifling and raggedy people" who are able to pay their taxes but choose not to, said Nutter, the city is "going to chase their little asses down."
The District's new policy is just a small part of that effort. By itself, it probably won't generate much revenue, said Stanski. But it will send an important message:
"If you're delinquent on your taxes, get up to date, because it's money for children."
Information sharing is key
Here's how the policy would work in practice:
In order to submit a bid for a District contract or respond to a request for proposals for professional services, all vendors will be expected to provide a certificate of tax compliance from the city Revenue Department.
District staff would be required to notify the SRC whether a recommended vendor is compliant on their city taxes before the commission votes to award a contract.
And each month, Stanski's office would send to the city revenue department a list of all vendors who have been paid by the District in the preceding weeks. Revenue would flag anyone who has fallen behind on any city taxes, and the District would consider withholding future payments from that vendor until its tax debts are settled.
"We're partners with the city, and we'll do our part to ensure that everyone is paying all of their taxes," said Stanski.
School officials, believing that improved tax collection efforts will generate $12 million a year in new school revenues, have already plugged that number into the District's five-year financial plan.
McDonald said the District's effort "meshes well" with what the city is trying to do.
McDonald said he was unable to comment on whether Philadelphia's 80-plus public charter schools, which also receive hundreds of millions in taxpayer funds and regularly contract with vendors who may be tax delinquent, might be able to form a similar partnership with the city.
This story was reported through a partnership in education coverage between WHYY/NewsWorks and the Notebook.