Monday, November 30, 2015

Gold Standard: Ted and Barbara's tax deal

As City Council considers increasing real estate taxes to help balance the city budget, rowhouse owners may fret about a hike. But Ted and Barbara Arsonson won't have to any lose sleep because, regardless of the increase, it won't cost them one cent. Not next year, the year after, or the year after that.

Gold Standard: Ted and Barbara's tax deal


As City Council considers increasing real estate taxes to help balance the city budget, rowhouse owners may fret about a hike. But Ted and Barbara Arsonson won't have to any lose sleep because, regardless of the increase, it won't cost them one cent. Not next year, the year after, or the year after that.

Ted and Barbara just bought a Center City condo for a tad over $12 million, reportedly the highest amount ever paid for a city residence. And under the city tax-abatement program, they'll owe no real estate taxes for 10 years.

And they aren't the only ones who won't have to worry about that tax hike. According to the Board of Revision of Taxes, there are more than 13,500 properties that qualify for an abatement.

Buildings like the Cira Centre near 30th Street Station, which houses law firms and financial advisers, or others at the Navy Yard, which Urban Outfitters and Tasty Baking now call home, or high-rise condos at Rittenhouse Square, where the Aronsons will now live, or thousands of other properties in Queen Village, Chestnut Hill, Northern Liberties or Society Hill, qualify as well.

And there are more lucky recipients of exemptions from the real-estate tax. Some of the city's largest and most prosperous institutions, notably hospitals and universities, are tax-exempt because they're nonprofits.

According to the BRT, the market value of all these properties - tax-abated and tax-exempt - exceeds $16.6 billion. In short, more than 30 percent of the city's $55 billion in real-estate market value isn't on the tax rolls.

If all those properties were taxed, it would mean another $122 million revenue for the city, which, coincidentally, is about the size of the budget gap the city is now struggling with, and another $183 million for the school district, which receives 60 percent of the city's property tax revenues.

I'm not suggesting we do away with the abatement program or that nonprofits be taxed. But I believe it's time to have a robust public discussion over whether the current abatement policy should be adjusted and whether nonprofits, most notably hospitals and educational institutions, shouldn't borrow a page from their colleagues in other cities and increase their contributions.

While the 10-year tax abatement may have been justified to jump-start Philadelphia's housing boom when it was first initiated in 1997, can it still be justified in its current form when condos going for millions are given a free ride for a decade while the owner of a rowhouse in Kensington has to suck it up?

Perhaps it's time to implement a declining-scale abatement so each year the exemption decreases, not unlike programs in other cities. Or perhaps there should be a cap on the amount of a property's value that's exempt.

The status quo is, obviously, favored by influential developers whose projects are being subsidized by the public.

As for our hospitals and universities, they do have the option of making payments in lieu of taxes, known as PILOTs. But total contributions in Philadelphia are less than $1 million a year, with some of the major schools stiffing the city entirely.

Compare this to Boston, where 13 colleges pay the city $8.4 million a year - Boston University $4.9 million all by itself. Still, a task force established by Boston's mayor is recommending that the nonprofits contribute up to 25 percent of what they would otherwise owe in taxes.

Certainly, many of our hospitals and universities are great institutional citizens, making valuable contributions to the city in terms of jobs, their purchases of local goods and their support of the arts and other important projects. But the same can be said of many of our for-profit businesses, like Citizens Bank or PNC (where I once worked) or Aramark and many others, which are not tax-exempt and contribute mightily to the city.

The Nutter administration recently met with representatives of some of Philadelphia's nonprofit institutions and is in a fact-gathering process, according to press secretary Doug Oliver, who told me the administration wants to make sure it doesn't make decisions that "unintentionally choke the economic activity that the city needs so badly."

Fair enough. But with so much of city property exempt from taxes, fairness also requires that we think about our middle class taxpayers who will be "choking" as they're asked to swallow the entire tax load.

Phil Goldsmith writes "The Gold Standard" column for It's Our Money ( He was the city's managing director, 2003-2005.

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Every year, city government spends slightly more than $4 billion. Where does all that money come from? More importantly, where does it go? Are we getting the most bang for our tax buck? “It's Our Money” is a joint project between Philadelphia Daily News and WHYY, funded by the William Penn Foundation, designed to answer these questions.

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