Philadelphia to analyze business tax breaks

Mayor Kenney agreed to hire someone to assess the city’s business tax breaks, which account for hundreds of millions in foregone revenue each year.

On Thursday, Kenney signed a bill that will require the Commerce Department to oversee a study on the city’s various tax exemption, abatement and credits and present the findings to City Council by mid-2018.

The bill, sponsored by Councilman Alan Domb, followed a Pew Charitable Trusts report last year that said that between 2010 and 2012, the city forgave an average of $110 million annually in business incentives and $106 million in industry tax exemptions. The report, which was based on the most recently available tax data, questioned whether the job creation and construction that came from those tax breaks outweighed the cost to the city’s $4 billion annual budget.

Philadelphia has a total of 21 business tax-reduction programs, eight of which took effect after 2012 and were not evaluated in the Pew report.

Pew said that abatements on new construction and building improvements to commercial and industrial property accounted for one of the biggest chunks of foregone revenue, averaging $53.3 million in years 2010 through 2012.

On Thursday, moments after signing the bill to evaluate such tax breaks, Kenney said property tax abatements are “effective” and that he does not want to get rid of them.

“They basically created most, if not all, of the residential, commercial development that we’ve seen,” Kenney said.

The city currently does not analyze its tax exemption programs in a joint report. However, even without the bill signed Thursday, the city was going to have to soon disclose its tax abatement agreements, including the amount of taxes that were abated, as part of new government accounting guidelines. Government Accounting Standards Board (GASB) statement No. 77 calls for governments to disclose all tax abatement agreements for tax periods beginning December 2015. 

Marisa Waxman, deputy Revenue Commissioner, said that there will be some overlap in the information collected for the city’s new disclosure requirements and the bill the mayor signed Thursday.

“GASB 77 is more of a ‘what,’” Waxman said Thursday. “His legislation is going to take us to the ‘so what’ and help us figure out ‘what next?’”

The city’s Commerce Department will handle the hiring of the vendor who will do an analysis of the city’s existing incentives for the economic impact study. The department will also oversee a comparison of the city’s tax incentives to those in other cities.

“As a City government, we have a principal duty to the taxpayers to effectively manage and maximize their tax dollars,” Domb said.

The final report, due June 30, 2018 to City Council, is expected to include recommendations for the city. 

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