As Philadelphia City Council considers next year’s budget in the coming weeks, it also will consider altering the city’s successful 10-year property tax abatement program for new construction.
No doubt, the 18-year-old tax break on new residential and commercial construction as well as major improvements to existing structures perked up the city’s real estate market. According to a report from the Building Industry Association, home-building activity in Philadelphia jumped 376 percent between 2000-2017. During the same period, suburban construction declined by 11 percent.
A lot has happened in the city in 17 years: not only more home building but an increase in construction, jobs, and population.
Sadly, some things have stayed the same, including the city’s high poverty rate and gaps in education spending and quality. These things require resources. That’s why there’s renewed debate about the wisdom of continuing the tax abatement. Critics say end the program because it robs money from the School District and favors the already wealthy. Supporters say ending it could freeze development and construction.
We believe there’s a third way: Mayor Kenney and Council could consider low-risk revisions, such as reducing or capping abatements for certain categories, including higher-priced properties. (The BIA report says that nearly 70 percent of abated properties are valued below $400,000.)
Council has commissioned its own report on abatements. Meanwhile, a recently released analysis by City Controller Rebecca Rhynhart outlines six different scenarios for adjusting the tax abatement, from ending it altogether to eliminating it for certain zip codes or property values. Her report notes that properties placed on the tax rolls after their 10-year abatements expired produced an estimated $83 million in tax revenue in 2017.
It’s always difficult to resolve but for arguments, such as: But for the abatement would these homes have gotten built and ultimately become tax-paying properties?
It doesn’t have to be a zero sum game. The mayor and Council could cap abatements for the most expensive projects, eliminate abatements entirely for those properties, or gradually reduce their tax breaks over time.
Council should take on fine tuning of the abatement program in the same spirit it did in successfully protecting longtime residents from being taxed out of their homes in gentrifying neighborhoods.
A recent Federal Reserve Bank of Philadelphia report found that even as property values and taxes rose in the past two years, longtime residents stayed in their neighborhoods. That’s in large part due to programs that sheltered them from rising taxes. There has been some discussion of raising the thresholds on those programs to include even more homeowners, which makes sense.
Council should consult with real estate experts as it discusses changes to the abatement program so as not to impede the city’s momentum. Sensible growth and development from Center City to outlying areas should be expanded.
In some ways, Philadelphia has a problem it hasn’t had to deal with in a long time. After decades of decline, it must manage growth. Part of that job is ensuring no one is left behind.