No property taxes, no problem: Study finds controversial abatement has been positive for Philly

When Philadelphia’s City Council ushered in sweeping property-tax relief in the late 1990s, politicians, developers, and many residents saw the move as much-needed relief for a city in decline, one that had been losing population, jobs, and homeowners for years.

At the time, the suburbs were booming, and Philadelphia needed help. So City Council offered up a 10-year tax abatement for residential and commercial real estate — both new construction and improvements to preexisting structures — hoping to spur revival of a city that developers had long avoided.

Since the tax abatement - which waives taxes for property improvements - was implemented in 2000, the program has been a point of contention. Critics, including the now-downsized Philadelphia Coalition Advocating for Public Schools (PCAPS), argue that the abatement has deprived the city's fragile public schools of millions of dollars in tax revenue, while others say the relief is just too generous. Politicians and developers, meanwhile, say the program has revitalized the city in an unprecedented way, boosting development and increasing the ability to own homes here.

Now, with the abatement in its 17th year, the Building Industry Association of Philadelphia has released a report touting its benefits. A study of the city’s property-tax rolls conducted by Kevin Gillen, senior research fellow at Drexel University's Lindy Institute for Urban Innovation and a member of the BIA's board of directors, found that the abatement has been a major boon to the city, increasing home values, adding tax revenue, and facilitating significant amounts of construction. 

New Housing Construction in Philadelphia vs. the Suburbs

Since the start of the abatement program in Philadelphia in 2000, overall home-building activity has increased almost fivefold, while falling by an average of 11 percent in the Pennsylvania suburbs.
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According to the report, home-building activity in Philadelphia jumped 376 percent since 2000, while falling an average of 11.3 percent in the suburbs.

“The numbers speak for themselves,” Brian Emmons, president of the Building Industry Association, said in an interview.

“Look at the people moving into the city, at the taxes being generated by those folks," said Emmons, a division vice president at Horsham-based luxury-home builder Toll Bros. "… A lot of those people are putting their kids in the school system, and the school system is getting stronger because of people moving into the city.”

Abated Properties by Type

About nine out of every 10 abated properties in Philadelphia are either single-family houses or condos.
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Since its implementation, the report found, nearly 20,000 properties across the city have taken advantage of the program, with 15,000 of those currently holding active tax abatements. The majority of the properties, Gillen found, are single-family homes — more than 6,800 in total — followed in number by  condominium units, then hotels and apartment buildings.

The study's findings, based on data from the city's Office of Property Assessment, dispel a notion that has persisted since the abatements began: that the program gives incentives for the construction of luxury buildings and benefits the wealthy. Gillen’s analysis shows that the bulk of abated properties are not only single-family homes, but also that 67 percent of them — more than 9,000 in all  — have assessed values of less than $400,000.

Just 2.8 percent of properties, the study found, have assessed values of $1 million or more.

"There are so many misunderstandings about the abatement," Gillen said in an interview. "People think it is for million-dollar condos, for only new construction, that it robs the school system, and that it does not generate tax revenue. I think this report can contribute to an informed debate."

Perhaps the most fervent opposition to the tax abatement has been from those who believe the program deprives the School District of Philadelphia of revenue — money, critics say, that could have been used to avoid school closures and employee layoffs earlier this decade.

To fund its nearly $3 billion budget, the Philadelphia School District is supported by federal and state funding and relies heavily on property taxes, as well as occupancy taxes, city money, and other contributions. In 2014, PCAPS, now scaled down to a smaller task force, argued in a white paper that the abatement cheated the school system out of nearly $50 million that year. In an era of budget shortfalls and problems, that money, the group said, was vital.

"It's clear that the city has made some gains, but what really threatens those gains is the poor quality of the schools," said Ron Whitehorne, 74, a former Philadelphia teacher who is a member of PCAPS's task force. "If we are going to be able to sustain the kind of gains made in the last 10 to 15 years, we have to address the schools, and the only way to do that is to stop the tax abatement."

With one of the most robust programs in the country, Philadelphia has a plan that allows for abatements on newly constructed or renovated properties, waiving city real estate taxes for 10 years on all property improvements - whether renovation or new construction. Property owners are still responsible for taxes on land or for the non-renovated portions of the residence. For instance, a renovated kitchen could qualify for a  tax abatement, but taxes would be owed on the rest of the property.

Commercial properties also qualify, though Gillen found that residential use constituted 96 percent of all tax-exempt structures.

For currently abated properties, the study found, significant tax savings do initially exist. Owners of the 15,000 structures now in the program are paying in property taxes about 28 percent of their total value — saving at the moment a total of $87.9 million in taxes, while paying $34.7 million on land and non-renovated real estate.

And that's on top of the taxes already realized by the city from expired abatements.

According to Gillen, Philadelphia is currently earning about $48.1 million in annual property taxes from properties with abatements that have lapsed. By the time all abatements expire in 2026, he projected, the city will realize a total of $169.4 million in annual real estate taxes.

Tax Revenue From Expired Abatements

Last year, Philadelphia received $48.1 million in real estate taxes from properties with expired abatements. By 2026, after all currently abated properties are no longer tax-exempt, that figure is expected to rise to $169.4 million.
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"These taxes would not be in the city if it wasn't for the abatement," said  Councilman Allan Domb, a real estate broker known as the Condo King. "... And a percent of that goes to the public school system."

"I think we have a program that has worked really well," Domb said. "Building is up 376 percent; that's a home run for us. We just hit a grand slam; why would we change how we play baseball?"

Adding a total of $12.2 billion in property value, the abatement program has transformed Philadelphia, advocates say — or at least parts of it. The study found that the greatest concentration of abated properties is in Center City, University City, Manayunk, and the river wards. Southwest Philadelphia, North Philadelphia, and Northeast Philadelphia, in comparison, have had significantly smaller concentrations, drawing further ire from critics.

As an incentive for more building in lower-income neighborhoods, Domb last year proposed to City Council a 20-year abatement for properties valued at $250,000 or less. The measure has languished in committee. 

"I'm working on other ideas; I don't have solutions," Domb said. "But let's work on these neighborhoods. It's better to incentivize the public to do things than for a government to come in and build houses. If it's not a 20-year abatement, maybe it's something else."

For now, at least, home buyers say the abatement helped with their decision-making. Josh Winigrad, 28, moved into the city in 2016, choosing his residence specifically because it was an abated property. 

"Without the tax abatement, I could not have had a place as nice as this," Winigrad said of his $325,000 condo at the IceHouse in Fishtown, a project in which builder James Maransky redeveloped long vacant structures under the abatement program.

"Would I have possibly moved somewhere in the suburbs instead? If there wasn't the tax abatement, I certainly would have considered doing that," Winigrad said. "The abatement drove me to Philadelphia, and to a developing neighborhood."