A new report from The Pew Charitable Trusts estimates that Philadelphia should be able to collect about 30 percent of the unpaid real estate taxes and late penalties owed by delinquent property owners over several years. Based on the $515.4 million that was due as of April 2012, the collectable amount would come to roughly $155 million.
To collect the money, however, Philadelphia's tax collectors would have to use all of their statutory powers, including foreclosure, more strictly than in years past and ensure that delinquent owners stick to their catch-up installment payments once they are agreed to. The other 70 percent is likely to be uncollectable according to the study.
Of 36 cities reviewed for the study, Delinquent Property Tax in Philadelphia: Stark Challenges and Realistic Goals, Philadelphia had a higher delinquency rate than all but four of them in 2011, the last year for which statistics were available.
In Philadelphia, 9 percent of 2011 property taxes went uncollected in that year. The median delinquency rate in the 36 cities was 4.1 percent. Among 14 cities (including Philadelphia) that have poverty rates over 25 percent, the median delinquency rate in 2011 was 6 percent. In the previous three years, Philadelphia's rate had been virtually the same as the median for those high-poverty cities.
“Reversing the city's history of property tax delinquency could produce millions of dollars each year in additional revenue, and even alleviate a bit of the burden on other taxpayers,” said Thomas Ginsberg, a researcher at Pew and author of this and other reports on city finances. “But it will be a complicated political and administrative challenge to change what some city officials and others have called ‘a culture of nonpayment.'”
Many of the cities with lower delinquency rates adhere to stricter timetables than Philadelphia for imposing enforcement measures against delinquent property owners—timetables usually set by the state—and are more willing to take properties away from owners who do not pay, the study found. At the same time, these cities tend to have lower percentages of poor people, stronger real estate markets, and higher shares of homeowners who pay their taxes automatically through mortgages.
To address the delinquency problem, Mayor Michael Nutter and City Council have taken various steps in recent months and years, including pushing more properties to foreclosure, proposing and enacting new laws at the state and local level, and naming a new city tax collections officer. In addition, city officials report improved performance in 2012 over 2011, in terms of collecting both current and delinquent taxes.
The collectability analysis was conducted for Pew by Kevin C. Gillen, a senior research consultant at the University of Pennsylvania Fels Institute of Government.
As part of that analysis, Gillen assigned a collectability score to each of the 102,789 parcels that were listed as delinquent in April 2012. The score was based on characteristics of individual parcels that make it more or less likely that taxes could be recovered. Among them were the location and condition of the parcel, the age of the delinquency, the property's value and debt, and whether the property is owner-occupied. No information was readily available about the financial situations of the owners themselves, another factor that could affect collection rates.
The study also found:
- Philadelphia's delinquency rate worsened markedly since 2006 through the recession, as it did for all high-poverty cities. In the past two years, the city has improved its record on collecting property taxes, boosting the total amount of delinquent collections from $48.8 million in Fiscal 2011 to $70.9 million in Fiscal 2012 for city services (excluding the amount for schools, which is counted separately).
- For every one percentage-point cut in the delinquency rate in Philadelphia, the city would be able to raise an additional $13 million annually without increasing the tax rate. Or it could lower the tax rate by about one cent on the dollar and still raise the same amount of revenue.
- Compared to laws governing delinquency collection in some other places, the Pennsylvania statutes governing Philadelphia give city government a lot of discretion in deciding when to initiate foreclosures or what kind of catch-up payment plans to offer. In the past, Philadelphia has tended to use this discretion to delay taking action, put up fewer properties for sale, or let delinquents repeatedly enroll and default on payment plans, all of which has caused delinquencies to accumulate over the years. (As of April 2012, owners of roughly one in six delinquent properties were paying on installment plans; they owed $57.6 million in taxes and penalties.)
Read more and access the report PDF.
The Pew Charitable Trusts is a nonprofit organization that applies a rigorous, analytical approach to improve public policy, inform the public and stimulate civic life. Pew's Philadelphia research initiative provides timely, impartial research and analysis on key issues facing Philadelphia for the benefit of the city's citizens and leaders.www.pewtrusts.org/philaresearch