It’s no secret that City Controller Alan Butkovitz is no fan of the city’s Actual Value Initiative.
Last week, Butkovitz released a report he said showed just how big a blunder it is, and that it is even more inaccurate than the city’s current assessment system.
The controller has maintained the city’s move to assess city properties at 100 percent of their market values isn’t fair, uniform or even reasonable.
Butkovitz asked economist Robert Strauss, a professor at Carnegie Mellon University, to evaluate the city’s new assessment numbers under AVI.
Philadelphians are in for “a rude shock,” Strauss said in a May 8 news conference in the controller’s office. He called AVI a “well-intentioned policy change” that was not implemented properly.
Looking at Office of Property Assessment records and 30,000 sales records, Strauss found AVI to be riddled with errors and incomplete data. Butkovitz said AVI is skewed against minority neighborhoods. These problems, he said, stem from the fact that the city didn’t spend the time or money to reassess properties correctly and fairly.
Strauss said he looked at more home sales than OPA did to reach his conclusions. In AVI, data is missing or doesn’t make sense, Strauss said. AVI, he said, “would not be a term paper that would lead to a passing grade.”
Individual examples of reassessment muffs are not hard to find, and Office of Property Assessment representatives have said errors were anticipated.
But the mistakes in valuations were expected to be in a range of 15 percent either way. In other words, if a house sold for $100,000, then it would assesses anywhere from $85,000 to $115,000.
Strauss said he found that range to be much, much wider, which the controller said is the opposite of what AVI was supposed to do —– make assessment values close to market values. Strauss said the difference between property sales prices and assessments were as high as 112 percent —and sometimes 800 percent.
The city’s chief assessor, Richie McKeithen, stands by AVI.
“I’m suspecting he used a lot of data we wouldn’t have used,” McKeithen said of Strauss. “That’s why his results are so skewed versus ours.”
McKeithen said OPA didn’t use foreclosures or sales within a family, and didn’t use sales figures that didn’t reflect properties’ current conditions.
For example, he said, a property in very bad shape might have sold for $50,000 some years ago, but the buyer fixed it up so that it’s now worth $350,000.
The professor’s report also showed:
• There is evidence the more expensive properties are assessed at lower levels than less expensive properties.
• The median level of assessments rises in areas as they have increases in black residents. It falls in areas that have more white residents.
• OPA conducted a citywide assessment of more than a half-million properties using statistical models, but such modeling is “only as good as the data about the property characteristics used to predict the 2014 values.” Strauss found 30 percent of properties don’t have information about the number of stories or are coded as having “zero stories.”
Strauss said almost 30 percent of the property records he examined showed no information about bathrooms.
McKeithen said the citywide reassessment had started before he arrived in August 2010.
He said OPA increased staff from 130 to 218. Budget was increased to pay the new workers and for new computers and training. He said OPA conducted field inspections of every residential property.
He said he resented the statement that OPA didn’t put enough time into AVI. As an assessor, he said, you always want more time.
City Councilman Mark Squilla (D-1st dist.) said he’s taking a closer look at the Strauss report, but added that, if the data is wrong, the results will be wrong no matter what system is used to reassess properties.
“Garbage in, garbage out,” he wrote in a May 10 email to the Northeast Times.
In light of the professor’s findings, Butkovitz says the city has three alternatives: First, use last year’s data and clean it up. Second, use the new data and clean it up. Or, third, pretend there’s no problem.
Strauss advised the city to fix AVI before implementing it because it will pay in the long run if taxpayers agree they’re being taxed fairly. He said elected officials are prone to say they’ll fix it up later, but, he added, they might not still be in office later.
Even if the city has to borrow money to get assessments right, it should do that instead of just pretending they’re right, Butkovitz said. Doing nothing has its costs, the controller said. If the city loses a lot of assessment appeals, it could lose $245 million in tax revenues. Over four or five years, that revenue loss could top $1 billion, Butkovitz said.
“Spending $30 million to avoid a $1 billion loss, that’s prudent,” the controller said.
Butkovitz said he spent $27,500 for Strauss’s report.
Will the controller’s figures put the kibosh on AVI?
Councilwoman Maria Quinones Sanchez (D-7th dist.) said she shares concerns about some of the assessments, but doesn’t think AVI will be stopped. And, although it might have to be adjusted for the next few years, she said it’s an improvement over the city’s current assessment method.
“The [AVI] system is not perfect, but it’s a whole lot better,” she said. ••