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Philadelphia trying to squeeze school funds from tax delinquents

By the Notebook on Aug 16, 2013 05:38 PM

by Patrick Kerkstra for the Notebook and PlanPhilly

As bad as the School District’s projections for this fiscal year already are, the actual bottom line could turn out even worse if the City of Philadelphia fails to deliver on its promise to squeeze an additional $28 million out of tax delinquents over the next 10 months.

That cash -- a key element of the hastily assembled and still incomplete bailout package put together this summer -- has been overlooked amid labor strife and the political wrangling between the mayor, City Council and the state.

And unlike the District’s hoped-for $130 million in projected labor savings and the $45 million one-time state grant, the pumped-up tax collections are already reflected in the District’s budget. That means that if those dollars don’t materialize, the District will have to make up the losses with further cuts or unanticipated revenue from another source.

The $28 million in improved collections isn’t at the mercy of politics or contract talks. But it is dependent on the work of new leaders within city government who are attempting to change in less than a year a municipal culture that has tolerated mass tax delinquency for a very long time.

About 18 percent of all properties in Philadelphia – nearly 100,000 - are in arrears on their property taxes, a staggering figure that is worse than any big city in the nation except Detroit. Collectively, those properties owe more than $500 million in taxes, interest and penalties. Of that total, more than half is owed to the School District.

Such widespread delinquency also saps the property values of neighboring homes, weakening the tax base by $9.5 billion, according to an analysis performed for PlanPhilly and the Inquirer by economist Kevin Gillen, the region’s leading property values expert and a consulting economist with the University of Pennsylvania’s Fels School of Government.

The combined impact of poor collections and a delinquency-damaged tax base on the School District is enormous. For instance, if the city in 2012 had matched the outstanding property tax collection performance of Boston or Baltimore, the schools would have received $57 million more -- in one year alone.

But the city’s collections weakness is a decades-in-the-making shortcoming that cannot hope to be fixed on a one-year timeline. Indeed, the Nutter administration will likely be hard-pressed to meet its goal of $28 million more for the schools this fiscal year (that figure was later unilaterally bumped to $30 million by Gov. Corbett).

Most of the projected enhanced collections for the School District – $19 million worth – are expected to come from improved property tax collections. The rest is budgeted to arrive from other taxes that the city collects on the District’s behalf: $3.5 million from the liquor-by-the-drink tax, $3 million from the school income tax, and $2.5 million from the Use & Occupancy tax. Securing those dollars for the District is the “absolute priority” of a rejuvenated effort to overhaul the city’s collection systems, said Thomas Knudsen, who was named in April to the newly created position of chief collections officer.

Knudsen, formerly the District’s chief recovery officer, has a proven record of collecting money from people who owe. During his 10 years as head of Philadelphia Gas Works, Knudsen dramatically improved the utility’s collection rate, helping it become a profitable venture.

The city has a new revenue commissioner as well, Clarena Tolson, who said that her department was setting aside – for the moment – longer-term collection strategies in favor of raising immediate dollars for the School District.

“School starts in September, and we have to make sure that we have taxes that can start to flow right now to support the challenges the District has,” Tolson said. 

When asked whether the target of $28 million was realistic, Knudsen replied, “We’re shooting in that direction. We’ve looked at the numbers. We think they are doable.”

Collecting an additional $28 million would represent an overall 3.25 percent improvement over the amount the District originally budgeted to receive in city taxes this fiscal year. But the anticipated gains in some tax categories are considerably larger. Knudsen and Tolson are projecting that enhanced collections will yield 10.8 percent more cash from the unearned income tax and 6.7 percent on the liquor tax.

To accomplish that, the city is considering a host of new enforcement initiatives. In June, for instance, the city collected $500,000 in delinquent liquor taxes for the District by threatening to revoke the business licenses of bars, Tolson said. Those funds don’t count against the promised $28 million, because they were recovered in the last month of last fiscal year. But the tactic – which is a new one – shows that the city is trying novel approaches to deliver for the District, Tolson contends.

Experts who have studied the city’s collection practices think the targets are ambitious – perhaps too ambitious for the District to fully count on.

In June, the Pew Charitable Trusts Philadelphia Research Initiative released a study of the property tax delinquency system that concluded that the city should be able to collect at least $155 million of what it is owed over a period of several years. The study did not specify how much could reasonably be collected in the first year of a new effort, however, and the study’s authors consider the city’s $28 million target to be quite ambitious.

“We’re not saying it’s impossible,” said Thomas Ginsberg, a Pew project manager and the coordinator of the study. “But it’s hard.”

Gillen, the economist who created the collectability model for the Pew study, said that “reducing the city’s delinquency rate is an absolute fiscal necessity in the long run” but warned that expecting $28 million for the schools alone in the first year “may be questionable.”

One of the challenges in reaching the property tax target is that, by law, the city and schools split property tax revenue – 55 percent goes to the schools, the rest to the city. So in order to reach the target of $19 million in enhanced property tax collections for the District, the city will have to extract from delinquent and past-due taxpayers a grand total of $34 million in additional real estate taxes: 55 percent ($19 million) would go to the District, while 45 percent ($15 million) would remain in city coffers.

Making the job harder still is the fact that the General Assembly has failed to enact two pieces of legislation designed to enhance the city’s collections capability. The city had expected that those proposed laws – which would make it easier for the city to garnish the paychecks of delinquents and to lien property delinquents who own outside of Philadelphia – to be signed into law by now.

Instead, the General Assembly recessed for summer without taking up the legislation. The hope is that the laws will be passed soon after the legislature returns, but even if they are, the city will have lost several months’ time to use those tools in a crucial fiscal year.

“They’re important,” Tolson said, when asked about the bills. “That’s why we made that request. However, we’re not stopping all our other efforts or using them as excuses not to meet some goals. We’re working voraciously.”

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Comments (29)

Submitted by Poogie (not verified) on August 16, 2013 3:13 pm
The main issue is whether the delinquent taxpayer is a politician, relative of a politician or someone who has bribed a politician. That probably covers about 90% of the tax cheats. In theses case they are not going to pay squat and will laugh at the poor children of Philly. The other group are the hard working persons suddenly down on their luck who have no connection to a politician. These people will be squeezed so hard the pits will squeak because the people living off the milk that flows form the teat called Philadelphia need that cash. In either situation none of money will get much further than the pocket of the first politician in the chow line. So Philly Schoolchildren loose coming and going.
Submitted by OhHeyIts2013 (not verified) on August 16, 2013 5:20 pm
A dog can be "loose". The children would "lose". Anyway, if I didn't pay my taxes, I wouldn't be surprised to have a collection agency on my doorstep within the year. Why, hardworking or not, do you think people should be given second or third chances. Christ, there are people (individuals, not builders or lenders or the political ilk) who haven't paid taxes for 25 years. When you impose no consequences, there can be no global enforcement. Enforce the laws.. Otherwise, what you seem to imply is that paying taxes is only required at the convenience of the tenant.
Submitted by Anonymous (not verified) on August 16, 2013 5:19 pm
Why does the PFT care? They think that money belongs to them? It belongs to the taxpayers of this city!
Submitted by tom-104 on August 16, 2013 5:56 pm
No, a lot of it belongs to the banks.
Submitted by Anonymous (not verified) on August 16, 2013 8:47 pm
I remember a guy named Mayer Krain spoke before the city and SRC back in 2006 saying there was about $260 million owed the School District. Mayor Street set up in 2007 for Mayor Nutter to start colling the back taxes. Why has it taken so long?
Submitted by Headstart teacher (not verified) on August 16, 2013 8:53 pm
Because Nutter has an agenda and its sure not for the schools in Philly.
Submitted by Joe K. (not verified) on August 16, 2013 9:57 pm
Bingo !!
Submitted by Anonymous (not verified) on August 16, 2013 9:59 pm
The real estate tax issue goes beyond the collection of delinquent taxes. Has anyone considered the ramifications of the 10 year tax abatements that have been allowed in this city over many years. These properties include many luxury high rise condos where one would think the owners could afford to pay for the city services provided to them. The monies that could have been generated by everyone paying their fair share would help alleviate the current school funding crisis. With regard to tax dilinquents, properties in tax default are sold by the local government in other cities and states. Philadelphia should have been more aggressive years ago onstead of starting now. Shame on our city!
Submitted by Anonymous (not verified) on August 16, 2013 9:39 pm
The tax abatements in place will stay. You don't change the rules in the middle of the game. Most of the high rise condos would have never been built without them. Their construction provided a lot of jobs for trades unions. They are filled with people paying city wage taxes. Forget it.
Submitted by Anonymous (not verified) on August 16, 2013 9:55 pm
I understand that abatements will stay. They should never have been allowed in the first place. Other residents have faced continuous tax increases in order to generate revenue to pay for those who do not pay.
Submitted by Anonymous (not verified) on August 16, 2013 10:45 pm
You might want to focus your attention on all the welfare queens who have never paid any taxes in their lives and not a few buildings in center city that got a break in order to create some jobs.
Submitted by HS teach (not verified) on August 16, 2013 10:25 pm
Here we go. Clinton ended wellfare in 1996. You are 17 years too late.
Submitted by Anonymous (not verified) on August 16, 2013 10:50 pm
Don't tell the millions of people who have been living on it since then about that.
Submitted by HS teach (not verified) on August 16, 2013 10:44 pm
Turn off the Fox News.
Submitted by Anonymous (not verified) on August 17, 2013 1:51 pm
Listen to. This american life on ss disability. It is the new welfare. Or dont listen if you fear facts and knowledge detracting from your rhetoric.
Submitted by HS teach (not verified) on August 19, 2013 9:05 am
I heard it. Unfortunately, NPR is not doing better than faux noise: http://mediamatters.org/research/2013/03/22/this-american-life-features-...
Submitted by Anonymous (not verified) on August 19, 2013 3:18 pm
Even if you took this completely biased Media Matters spin on the story (and it doesn't even attempt to rebut the more than doubling of SSI beneficiaries as a % of pop over the last 20 years), it still doesn't refute the statement is SS disability has replaced welfare. The point is welfare is alive and well in the US. One of its main cash delivery mechanism just took on a new name. Still over $100 billion a year being paid out. The only difference is now you need a pliant Dr to vouch for some condition like back pain. Double credit for scoring a Medicaid paid pain pill prescription in the process and selling it on the streets for cash.
Submitted by HS teach (not verified) on August 19, 2013 3:00 pm
Well, there are only two ways to deal with poverty: we require that Waltons of this world pay their workers livable wage, or we can subsidize them by providing welfare for people who either work for non-livable minimal wage or choose not to, because don't see a point in working for so little. As a society we chose the latter, essentially providing welfare for the corporations. There is of course the third way: let poor uneducated people and their children lay down and die. I don't know what your religious beliefs are, but mine won't allow me to live in peace with myself if this is happening in our country.
Submitted by Kent Brockman (not verified) on August 16, 2013 10:55 pm
I'm not sure impoverished families down on their luck is the best place to find extra money.
Submitted by Anonymous (not verified) on August 16, 2013 10:29 pm
Sure. Down on their luck for three generations.
Submitted by Headstart teacher (not verified) on August 16, 2013 10:56 pm
This is a whole other battle. Lets try and fix one social ill at a time, shall we?
Submitted by Kent Brockman (not verified) on August 16, 2013 11:59 pm
Agreed.
Submitted by Joe K. (not verified) on August 18, 2013 1:44 pm
Read Bill Moyers this week. He talks about the need for "People Power" to push back on the rich and the profits they make from robbing the poor of badly needed money for education. He "Gets It."
Submitted by anonymous (not verified) on August 19, 2013 2:10 pm
I would like to read Bill Moyers. Can you please attach a link so readers can easily read the source?
Submitted by HS teach (not verified) on August 19, 2013 9:04 pm
It's a show, not article: http://billmoyers.com/episode/encore-how-people-power-generates-change/
Submitted by Jonathan R. Verlin (not verified) on August 17, 2013 7:54 am
Ha! They're doing exactly what I said they'd be -- more than a year ago! http://www.jverlin.com/page4/page13/page27/page27.html
Submitted by Anonymous (not verified) on August 18, 2013 12:06 pm
Ha! A legend in his own mind.
Submitted by Anonymous (not verified) on August 18, 2013 4:03 pm
I think your post came a day after CRO Knudsen announced he would be doing exactly that. Not exactly what I'd call prescient of you.
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