It was no surprise that a recent study concluded that the city's generous 10-year tax abatement program was a boon for Philadelphia. After all the study was commissioned by the Building Industry Association of Philadelphia.
The study suggests that without the abatement there would be virtually no new housing construction in Philadelphia. Housing in the suburbs has declined while it has exploded in Philadelphia, the report states. Moreover, it says, Philadelphia has gained $48 million in additional tax revenues from properties whose abatement has expired and millions of more dollars are in the pipeline from properties whose abatements will expire in the future.
What's most telling is what the study doesn't say. It doesn't begin to answer the question of how much of Philadelphia's housing growth is attributable to the abatement. To state that the city is now receiving $48 million more from retired tax abatement programs is to imply that none of those properties would have been built without the generous tax breaks, that building construction would have come to a screeching halt, notwithstanding that increased housing in major cities is part of a national trend.
Nor does it ask what the result might have been if the abatement was reduced to five years or was a declining amount each year - for example, 100 percent in year one, 90 percent in year two, 80 percent in year three, etc.
Is it possible that the city has been paying more than it needs to? How does Philadelphia's growth rate compare to Baltimore, Boston, New York, and Chicago? Do they have such generous tax-abatement policies? The only city that I am aware of with anything comparable to Philadelphia's generous program is problem-plagued Atlantic City. We don't compare ourselves to Atlantic City, do we?
The issue isn't whether people will move and build in Philadelphia if you financially entice them. Of course some will. The issue is how much money is needed to entice them to act. Do we need to entice them as much now as we did in the late 1970s when the city first implemented an abatement? Interest rates were high then, nighttime Center City was a morgue, and people rushed back to the suburbs after work. A financial fix was in order then.
When a three-year abatement policy was passed in the early '80s for new residential construction, the Planning Commission testified that the program should have a "sunset provision." Not surprisingly, the sun never set. It rose even higher. In 2000 the abatement was expanded to 10 years.
No sunset, to be sure. And yet no comprehensive independent study has shined a light on the effectiveness of these programs.
While the abatement is targeted to property owners, it's really a subsidy to the construction industry, particularly the building unions whose rates are higher than in the suburbs. Since builders have higher costs in Philadelphia, they need to charge more for their homes. In order not to scare buyers away, the abatement provides a new homebuyer with a 10-year tax break so his or her monthly net cost is more affordable.
The construction unions, builders, and homeowners make out quite handsomely. Long-term homeowners are left holding the bag. There are no financial incentives for their being loyal residents. And then there are the city's schoolchildren. The abatement not only includes the city portion of the real estate tax, but that tax is also the district's primary local funding source. In short, students with a woefully inadequate number of nurses and counselors, and far too many rundown school buildings, are subsidizing the construction industry. That's shameful.
I'm not suggesting we do away with abatements and incentives. But let's recognize that Philadelphia no longer needs to give away the store to attract people to live and work here.
Make no mistake about it, the forces for the continuation of this generous giveaway program are very powerful - developers, unions, lawyers, and bankers. For a City Council that often talks about equity, fairness, and children, here's a place to show its mettle. Let's shine some light on these programs and let's start by getting all the facts.
Phil Goldsmith has held several positions in Philadelphia, including managing director from 2003-2005. firstname.lastname@example.org