Philadelphia Daily News from Philadelphia, Pennsylvania on July 29, 1998 · Page 7
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Philadelphia Daily News from Philadelphia, Pennsylvania · Page 7

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Wednesday, July 29, 1998
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Page 7
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WEDNESDA PAGE 7 any ijeess (o(o Philadelphia," Street said. "To run the risk of opening North Philadelphia to speculation was in our view irresponsible." Asked why he chose a sweeping exemption of liens across his district instead of targeting liens in areas likely to develop soon, Street said he made his decisions in the midst of a busy legislative calendar in April 1997. "We didn't have time to fine-tune this," he said. Street's 5th Council District is a trove of properties owned by deadbeats from vacant lots and abandoned homes to boarded-up commercial strips. Records show it is home to more tax-delinquent properties than any other Council district roughly 16,400 properties with unpaid taxes totaling $46 million. Street's exemptions left fewer than 1,000 tax delinquent properties from his district in the bond sale. Using conservative assumptions, a Daily News analysis shows that the bond sale could have earned the city and School District about $5 million more if it had included the properties that Street exempted. Street's move also spared hundreds of tax deadbeats in his district the hassle of battling professional tax collectors and the threat of losing their properties. Meanwhile, tax delinquents in other parts of the city have either caved in to the collectors or are facing an 18 percent penalty on top of their tax debt. Those who still refuse to pay will soon be slapped with foreclosure actions that will lead to the sale of their properties. The Wall Street bond sale came at a time when the city's backlog of long-overdue taxes had reached $337 million. City officials estimated that the Revenue Department could collect no more than 40 percent of the money in five years. The bond sale was a Rendell administration idea to turn tax deadbeats into an asset. Here's how it worked: After a property owner fails to pay taxes for several years, the city files a hen against the property. That means the property can't be sold until the taxes are paid. To make these liens attractive to Wall Street investors, city officials bundled the liens on 33,591 properties. The taxes that were owed on that bundle amounted to $106 million. Bond rating agencies lopped $30 million from the $106 million, to account for taxes that will never be collected. Fees for lawyers and other professionals brought the final value of the city's lien bundle to $72 million. The city sold its bundle of liens to the quasi-public Philadelphia Authority for Industrial Development. Using the liens as collateral, the authority then sold bonds to investors, who get their money back, plus interest, over seven years. Meanwhile, the authority also Going after deadbeat taxpayers fff 5WC?P DEADBEAT rgjjS TAXPAYER SHERIFF SW jST Deadbeats who I 1 V ' I ignore tax COLLECTORS I collectors face I lMLt'JLi5"' 1 Squeeze vsv foreclosure and Ifff'fth deadbeats. Money sale of their f ' is used to repay ?& ft V-property, wmmmmmmmammmmmmmm bond investors. . CW T" 1 BOND CITY AND I I B T. INVESTORS SCHOOLS j"l h ; Buy PAID bonds. Money from vV 1 J 3 Principal and sale of bonds J S Es mW- interest repaid over SSicf f n I 7 years. VU hired private tax collectors, who can squeeze tax deadbeats more efficiently than the city's Revenue Department. The money that the deadbeats cough up is used to pay the bond investors. Tax securitization, as it is called by investment bankers, had been successfully used in New York City, New Haven, Conn., Jersey City and Washington, D.C. When the Daily News first asked Rendell administration officials about Street's role in the bond sale bill in City Council, the officials said they knew nothing of the Council president's exemp tions for properties in his district. "He didn't request it of me," said City Solicitor Stephanie Franklin-Suber, who guided the bill through Council last year and has managed the complicated bond program ever since. Said Finance Director Ben Hayl-lar: "He absolutely didn't instruct that his district be removed from the portfolio." Ralph Saggiomo, the Paine Webber investment banker who helped put the bond sale together and is now working on a similar deal for Puerto Rico, had no comment. Sources said the Rendell administration which pushed for the bond sale knew what Street was doing, but never publicly opposed him over the exemptions. "I think it was an accommodation that they had to make with him to get the bill through," said one Council member, requesting anonymity. Street himself said he told the administration he would exempt the properties after his discussions with constituents and community development groups. "I don't want anyone to think that John Street sat there and acted unilaterally," said Street. He added that city officials told See TAX LIENS Page 68 Upcoming notices expected to boost late-tax revenue This is the second year of the seven-year tax lien bond project. City Finance Director Ben llayllar is satisfied, but not entirely happy. Private tax collectors have squeezed $13 million out of tax deadbeats through standard dunning techniques, Hayllar said, "But I would have liked to collect more." Hayllar expects the situation to change shortly, when the three tax collection companies hired by the Philadelphia Authority for Industrial Development start sending out foreclosure notices. "It's only when you get foreclosure notices that owners take this process seriously and you start to really collect," Hayllar said. "The reasons we haven't done that so far is that with 33,591 properties, nobody anticipated how long it would take to set up. In the first wave later this summer, there will be several thousand foreclosure notices," he said. City Solicitor Stephanie Franklin-Suber said officials are working out details of the foreclosure process with the courts and Sheriff's Office. For years, Hayllar said, many tax deadbeats believed that they could easily get away without paying real estate taxes. The foreclosure process, which ends in sheriffs sale, will be a dramatic wake-up call for many. "We don't want anyone to lose their property," Hayllar said. "But the real threat is that they are now in a serious legal process and they need to make an agreement to start paying." Mark McDonald

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