AVI sparks debate over 10-year abatement
GAIL BRUNSON loves her South Philly neighborhood - the good, the bad and the in-between. She's lived on the same block of Ellsworth Street near 15th all her life. Brunson, 72, remembers when the crack epidemic hit and her neighborhood began to wither away. She was one of a few who stuck it out, but problems continued as squatters and drug users took over vacant homes.
This story has been updated.
GAIL BRUNSON loves her South Philly neighborhood - the good, the bad and the in-between.
She's lived on the same block of Ellsworth Street near 15th all her life. Brunson, 62, remembers when the crack epidemic hit and her neighborhood began to wither away. She was one of a few who stuck it out, but problems continued as squatters and drug users took over vacant homes.
Those once-vacant lots are now dotted with two- and three-story brick homes, thanks to a 10-year real-estate tax abatement established in 1999 that provides for property-tax exemptions on new residential construction.
Though she's happy the neighborhood has improved, Brunson questioned the fairness of the abatement. "Don't I get credit for hanging in there?" she asked. The abatement has been the subject of debate as the city moves to reform its property-tax system through the Actual Value Initiative.
As elected officials consider relief measures for homeowners under AVI and ways to raise money for the struggling school district, some argue it's time to tweak the abatement, which they say aids wealthy homeowners and developers. Others contend that changes to the abatement will crush development.
Councilman Wilson Goode Jr. initially sought to cut the abatement to five years, but yesterday amended his bill to keep it at 10 years and add a $250,000 cap - 61 percent of abated properties are valued at higher than that amount. A Council analysis of AVI shows that the more than 15,000 abated properties in the city make up $6.8 billion in nontaxable property value.
"By capping it at that level, our analysis shows, it will impact an overwhelming majority of abated properties by forcing them to pay their fair share and incentivize affordable development," Goode said. "You have properties worth millions with an exemption, and there are certain levels of an abatement that shouldn't exist."
The abatement has been lauded for sparking a surge in construction, chasing out blight and repopulating neighborhoods - particularly those surrounding Center City. Under an abatement for new construction, property owners pay taxes only on land. There is a separate abatement that applies to improvements.
The abatement was part of the reason Josh Greenhalgh, 35, moved his family into a cozy rowhouse on Ellsworth Street near 17th in 2005. On the block of Ellsworth where Brunson lives, nine homes have abatements.
"The proof is in the pudding," said former Councilman Frank DiCicco, who led the charge to extend the abatement, adding that formerly vacant properties are now on the tax rolls. "By eliminating or reducing it, we run the risk of putting the brakes on residential construction."
When the abatement went into effect in 2000, 1,333 building permits were issued - up from 367 in 1999, according to a report conducted by Kevin Gillen at the University of Pennsylvania's Fels Institute of Government. Gillen said it encouraged developers to build in Philly, where construction costs of $128 per square foot are the fourth highest in the country.
That's why developer John Westrum started building here and has built about 1,000 units. Westrum said he understands concerns raised by longtime homeowners, but noted that those moving in are bringing revenue and paying wage taxes, and that new construction creates jobs, meaning more money for the city.
According to Gillen's analysis, under AVI, the previously abated properties will contribute $10.5 million a year. Goode said with the cap, the city could get $31 million. Goode hopes his bill would encourage more development of affordable housing.
Gillen noted the Philadelphia Housing Authority is the largest user of the abatement and said expanding it could increase construction of affordable homes.
Councilman Jim Kenney said he is considering introducing a bill that would restore the current abatement should Goode's bill pass and development slow.
In some cases, homeowners living in abated properties may get a double tax break with a homestead exemption, which would knock $30,000 off a homeowner's assessment, and some may pay no taxes.
Greenhalgh pays $918 in property taxes, but with a homestead exemption, his tax bill could be as low as $62. Brunson pays $969, and her new tax bill with a homestead exemption could be as high as $1,463. Both homes are assessed around $140,000.
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