A court ruling against Philadelphia requiring a nearly $50 million payment to major commercial property owners threatens recent strides attained by the city’s cash-strapped school district.
Common Pleas Court Judge Gene Cohen ruled in favor of some large commercial property owners who had argued that their 2018 tax assessments were unfairly spiked. The decision orders Pennsylvania’s largest city to repay $48 million, with $34 million coming from the School District of Philadelphia.
Philadelphia’s school district would lose $34 million if a court ruling on tax assessments stands.
School District of Philadelphia
School district spokeswoman Megan Lello said losing $34 million would have a “significant impact” on the district’s operations. The City of Philadelphia assumed control of its public schools in July 2018 nearly 17 years after one of the nation’s largest districts was taken over by the state. Mayor Jim Kenney committed $1.2 billion to the district last year to help it combat a projected $900 million deficit projected in 2023.
“The School District of Philadelphia is disappointed with the decision,” Lello said in a statement. “The most unfortunate part is that the ruling could jeopardize the hard-won progress the District has made over the last three years to improve academic outcomes for the children of Philadelphia.”
Strengthened governance from the mayor-controlled board of education and Philadelphia’s fiscal upswing led Moody’s Investors Service to upgrade the school district’s underlying bond rating in December to Baa3 from Ba2. It assigned a stable outlook. The two-notch upgrade put Philadelphia’s district into Moody’s investment-grade category for the first time since 1977.
Mayoral spokesman Mike Dunn said the city is “very likely to appeal” Cohen’s ruling, which affects $14 million of Philadelphia’s real estate tax revenue. He noted that 2019 and 2020 property assessments are not impacted because they comply with the court’s interpretation of the uniformity clause in the Pennsylvania constitution.
“They are contesting the city’s right to revalue their grossly undervalued high-end properties,” Dunn said.
“By seeking to lower those values to what are in many cases 2014 levels, the owners of high-end commercial properties are trying to disproportionately shift the tax burden to residential property owners,” he said.
Uncertainty about Philadelphia’s plans for increased school district spending contributed to S&P Global Ratings downgrading the city’s general obligation debt last year to A from A-plus. Moody’s Investors Service rates Philadelphia GO debt on par with S&P at A2 and Fitch Ratings has the city one notch lower at A-minus.
Philadelphia is slated to issue $297.5 million of general obligation bonds through a negotiated sale in late July. The deal is led by underwriters Bank of America Merrill Lynch and Ramirez & Co.