Controller Report: OPA is Getting Worse at Assessing Land

(Image: Philadelphia Controller)

A new analysis from Controller Rebecca Rhynhart confirms a problem we've been flagging here for a while now with the City's assessments, which is that the Office of Property Assessment's method of assessing land values is totally broken.

This matters for fairness and uniformity reasons, and it also has important land use policy consequences. If we're systematically under-assessing certain types of land, that's the equivalent of giving a tax break to speculators and owners of underutilized properties in high-value locations—the exact opposite of what we'd want to encourage.

What the analysis shows is that OPA just isn't really bothering to try to capture the location effects, and is just making land a set fraction of total property value, leading to some very weird outcomes at the block level that many people had observed anecdotally, and are now being confirmed by this Controller report.

Here's the key section, which is worth quoting at length:

Philadelphia’s property assessments for single-family residential properties are comprised of a land value portion and a building value portion. In a properly functioning system, land and building values should be determined independently. Prior to tax year 2017, the OPA relied on an outside expert on Philadelphia’s land values to provide land value estimates for properties across the city. This process resulted in land prices per square foot remaining consistent for properties in each other’s vicinity and overall land values that varied by lot size. For tax year 2017, however, the OPA changed its process for calculating land value, impacting nearly all residential properties.

In evaluating the 2017 land reassessments, our office determined that the land value for many residential properties depended on the total value of the property. Instead of identifying the true value of land from location to location on a per square foot basis, it appears that the OPA often applies a fixed percentage, typically 15% or 30%, of total value to determine land value. This means that if the OPA assessed a property’s total value at $100K, its land value portion was set at either $15K (15%) or $30K (30%). We found these fixed percentages in about half of all single-family residential properties (excluding condos), whereas prior to tax year 2017’s reassessment, it occurred in only 88 properties citywide. This shows that land values are set not based on a property’s location or lot size, but rather using a method that lies outside the generally accepted best practices for land valuation. It’s important to note that these findings do not necessarily translate to land values for vacant properties.

They also discovered major systematic differences in land assessments for abated versus non-abated properties, with a difference of about $23 a square foot in up-charge for abated properties compared to non-abated properties. Regardless of how you feel about the status of the 10-year tax abatement, the right policy lever to use for changing what abated property owners pay is tax rates—not making up fake values.

The report concludes "it’s clear that the OPA’s new land value process is worse today than when it used an outside land valuation expert" and they strongly recommend that OPA release more information about their "current process and models for land valuation, as well as maps of land values across different neighborhoods of the city." We hope that as the administration freezes the current assessment process to inspect the ongoing problems, as the Inquirer recently reported, they'll prioritize achieving uniform land assessments based on square footage and location, and remove the bad land use policy incentives OPA is creating.

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john cur commented 2019-01-18 18:54:02 -0500
There may be “rules of thumb” used to estimate land values (e.g. 20% of total value). My rule is that these often are inaccurate. Judicial precedent established that a taxpayer can’t appeal just part of total value (land or improvements) if the total value is fair and uniform. Taxable land with abated improvements may be or should be an exception.
Vacant land is or was more difficult to estimate value due to a lack of comparable sales in a largely developed city. With some effort and analysis the OPA could do better, at least to achieve uniformity within a given location. CAMA lacks common sense and Evaluators are often not given adequate time to review hastily done computer projections.
Just as important would be eliminating unconstitutional erroneous real property statutory tax exemptions which create egregious unfairness to our taxpayers.