.

In this capacity (as an official in New York), among other things, I did a study of the property tax in New York City which covered all of the 84O,000 parcels of property, which came to the conclusion that a higher tax rate on land than on buildings would be a distin3t improvement over the existing policy. It was not heeded by the then administration in New York City (which was several years ago) to the distinct disadvantage of the city, but which has since gained a little greater support. And, I am delighted to be one of the advocates here in Philadelphia.

My purpose in being here this afternoon is not to give you a piece of testimony. My colleague, Larry Spancake (also of the Center for Local Tax Research, and an economist for that organization), has presented some remarks on the subject. Rather, I would like to deal with some of the questions raised during this hearing I would like to answer, firstly, the last question raised previously in an effort to clear some basic misconceptions a lot of people have about the property tax.

Let's look at the guy who owns the $150,000 house. What you have is maybe a ~O,0O0-$50,00O house on a location that because of other people's investment (including the taxpayers) made to improve the neighborhood, has become a $100,000 location; and, in that location, it turns out that today the norm for properties is $150,000 And, probably, the $150,000 house needs to be improved. Actually, it is not even as good as that. It may be that what he is sitting on is a $10,000 shack on maybe a $150,000 value lot. It then becomes inappropriate for that kind of improvement to be on that location, in the very same way we hardly see mansions (even rich mansions) in downtown locations occupied by the very rich. The very rich have given up their individual mansions on Fifth Avenue (in New York) which have been replaced by office towers because it is inappropriate for the former kind of development for that kind of location. I would imagine that comparable locations here -- perhaps around Rittenhouse Square -- have also given way to larger kinds of development than the original ones.

Now, what this is saying is that there is an appropriate level of development for the value of a location. At a certain point, a certain kind of inappropriate development should no longer be there.

Why should we worry about gentrification in a city which, to the naked eye, looks very much as bad as any other city (including my own) when you have acres and acres of vacant, underused, abandoned and delinquent property. The fact that a couple of neighborhoods are getting better should be cause for some rejoicing.

"Relocation" may be a neutral term. People may not choose to move or may choose to move. Others may be pushed out for' various reasons (good or bad); and, there are some bad effects of relocation. Gentrification, on the other hand, is not a "dirty word" What this represents is that some locations in some areas (and, I would add, happily so) are becoming "better" -- more attractive to more people than they used to be. I wish that most all of Philadelphia, just as I wish most of the South Bronx, were ready for gentrification. It is not. But, there are some fringe areas which are getting better in New York, in Boston, in Philadelphia and in Washington, D.C. I follow this closely all around the country, and it is a process that has not been managed at all.

Typically, a location which has intrinsic value because of its closeness to center city becomes a more desirable location ~o people who are not there than to people who are. And, so, different kinds of people may be moving in. Now, that in itself is not bad.

What is bad is the case where someone bought a shack, kept it a shack and is driving out the tenant by not providing services, only waiting for the tenant to move out so he can improve the property or wait for somebody else's money to come and improve the property. In other words, the bill that you are considering -- which would place or begin to place a higher burden of taxation on locations and a lower one on improvements -- would be a first order of defense against the worst effect of gentrification while providing an incentive for the best effects (which are not what drive people out but provide incentives for appropriate development at the right level). Not to make everyone put up mansions, but to make sure that somebody is not making money out of not investing -- which is what happens to poor people today, and, not just in Philadelphia but in every city where gentrification seems to be a problem.

Let me go on to some of the other questions raised. There seems to be great concern about office buildings getting "away with something"; you mentioned "Girard", etc. The fact is, office buildings pay a disproportionate share of property taxes in every city where they are now located, for a very good reason. They are located on the most valuable property, downtown. A typical office building in the typical city (and Philadelphia is far from typical) is a use of a location Which is far more than an edifice. A good office building represents an appropriate development of that very valuable location. If that location is not paying its fair share into the municipal treasury, I will bet you (without having studied the data) that it is because of a very poor assessment of that very valuable location that that building is sitting on. Chances are, if you have assessments like we do in New York, and Boston does, any most other cities, you have assessors who are very good at looking at rent rolls and capitalization figures, and they pay very little attention to the real facts of the market value of land. They also do not move it up as they should on a regular basis.

I would like to see a proper assessment of land values. I know that is not in your bill, but a proper assessment of land values would retrieve for the city all and more of what would be forgiven if there occurred untaxing of improvements or taxing the improvement less.

Several other speakers expressed concern over the future and what this bill was going to mean, suggesting that since assessors do such a lousy job already how could they be expected to do a better job called for if you are really going to tax land in a real way. I find it very odd that people are readily able to accept that argument.

If a poor job of assessment is being done, it should not be continued. And, I understand that this council and others in the city have been very much up in arms about the poor job, the rather poor job, that has been done in assessments. However, wherever we see poor assessment being done, invariably we see that the worst assessments are on land. And, when I say the worst, I mean not just the lowest but the ones where there is less relation to value on a persistent level. The wildest inconsistencies and variations will occur in land values. Now, one of the by-products of the legislation you have before you is that there will be a real incentive on the part of government to assess land properly where you are going to be deriving a good portion of revenue from it. And, assessors who have been getting away with not assessing land properly --and, in a recession land values may come down -- are neglecting their duty. There would then be a premium on good land assessment, and it would be something that the city would be able to understand as a firm revenue base.

One of the things affecting the city is that it does not predict its revenue properly. One reason it does not is because revenue from real estate is added on after all other collections are estimated, which is when the rate is set based on how much revenue is going to be needed. That is really doing things in the reverse. We know how much revenue the real property tax would provide if we know what our assessment base really is. We can know that with the proper assessment of land. And, we then don't have to depend on the assessor as was suggested for making the distinction between the well improved or poorly maintained house. We ought to discourage the assessor from doing that anyway.

It should not be the business of a public official to go into a home to determine whether a homeowner put in a new toilet or fixed his roof or added an extension on the house. And it should also not be the business of anyone to say whether more revenue is to be derived from someone else's hard work and investment. If there has been a change in the value of a location, provided by the community or by others, that location value can be derived.

Now, if you are afraid of kicking anyone out of that house because their land value has increased, fine. Don't kick them out. Let him stay there forever without paying a dime in increased taxes. And, Philadelphia and Pennsylvania can adopt a law similar to one just passed in New York State that would allow the increase in taxes to become a lien on the property to be paid only at the time when it is sold. Those old folks who cannot keep paying their taxes on their very valuable house because they don't have the income are going to be able to pay the tax when it is sold for the price it really commands. Or, if they aren't going to sell it, their heirs will. Then, the property will be able to pay the tax. The principle of ability to pay in the property tax goes to the property; it is the property that has to have the ability to pay, not the current occupant of the property.

It is a mistake to look at a property on the basis of who and how it is currently being occupied in terms of its ability to pay. It is the property's ability to pay (and that is based on its value, which is a known quantity). Specifically, the land will have to pay. The current use, which may include a building or not, is almost irrelevant. If you want to include it to a certain extent on commercial property because you don't want the Girard people to get away with anything, well, fine. Tax whatever you want --tax pornography shops, tax office buildings, tax parking lots. I really don't care. The property tax is based on the ability of the property to pay and not on its income, but on its worth. People pay taxes on their income. Let's not turn the property tax into another species of an income tax.

I certainly do not want to free anybody from taxes without freeing somebody else, and I am absolutely in sympathy with the movement against any specialized abatement for particular purposes. I think abatement of taxes is a waste; you then have a system which encourages only certain kinds of use.

One of the things suggested earlier was that parking lots downtown are good and pornography shops are not. Well, I am not for pornography and against parking, but I would like to suggest that in terms of the property tax, pornography and parking are two manifestations of the same thing. And, both manifestations are a poor use of property, inappropriate for a good location. What they do is provide the quick return on valuable locations without having to make any investment in that location. You run a porno shop in a shack and, of course, a parking lot would be vacant land. So, if an operator wants to hold on to property without investing in it, you can rent it to either a pornography shop or other such uses. How about parking?

Do we need one small vacant parking lot in the middle of downtown? No. We do not. Parking should be within buildings or multi-story. There is room for parking. What there is not room for is speculation in vacant land in valuable locations. And, that is why a parking lot represents every bit as much as a porno shop such poor use, even though one use looks good and one use may deserve a great deal of public scorn. What the tax on land would do would make inappropriate uses unprofitable. It should be unprofitable to operate a porno shop as well as a vacant parking lot in a valuable downtown location. If the current operator could not afford to invest, he would sell that valuable property to someone who could make that appropriate investment.

Now, where do you want the "mom and pop" stores? Do you think the mom and pop store should be across the street from Wanamakers, or do you want the mom and pop store in the location it should be in. The only reason it would be across from Wanamakers is because they got a very good deal on the land. Either they own it or have a long-term lease. Chances are, what they are sitting on is their land and not their merchandise. That is what they are making a living out of. Now, in a neighborhood which has small houses, what better place for such a store. In that location, the mom and pop store is better off from a tax on land values. They don't have to be afraid of fixing up their store, and they don't have to be afraid of the building being torn down to make way for a luxury highrise. I think that could be very much in favor of a tax on land rather than on the improvements. So, the small user in a neighborhood that is les~ than the most valuable location would benefit from this tax.

Many such enterprises are threatened by the current policy of taxing improvements more and land less. I understand that you are not concerned with assessments here; but, if you have a law which taxes land higher there is going to be a movement to see to it that land assessments are properly done. And, it is not a difficult or an expensive thing to do.

What we are suggesting, in any event, is that a higher tax on land puts a premium on a proper assessment of the most significant aspect of the assessment package. And, once you have a good assessment of land it really doesn't matter how or how much anything else is assessed, because you will have the tax base which can support the needs of the city and which can be determined with certainty.

Thank you.