Time for Philly to study how and who it taxes | Editorial

City Controller Rebecca Rhynhart is right to take a new look at the city’s real estate tax abatement program.

Credit City Controller Rebecca Rhynhart for wanting to examine the impact of the city’s 10-year tax abatement on its finances.

Whether the tax abatement should be scaled back is a worthy debate. But any decision about the program should be done in conjunction with an independent and broad examination of all the city’s tax policies.

After all, in addition to looking to curb the abatement program, Mayor Kenney wants to increase property taxes by 6 percent; raise the real estate transfer tax by 8.5 percent; and slow the minuscule cuts to the wage tax from 3.89 percent to 3.84 percent for residents by 2023. If approved, Kenney’s general fund spending will have increased by 17 percent, or $600 million, in just two years. State spending has increased 3.3 percent during the same period, while other cities are averaging 2 percent annual increases.

Kenney’s proposed tax hikes would come on top of four property tax hikes during Mayor Michael Nutter’s eight-year tenure as well as a host of other increases, including to the sales, parking, and hotel taxes.

To be sure, Philadelphia faces constant budget pressure, due in part to cuts in state and federal funding and heightened demand for pension and education funding. But the city’s need for new revenue must be balanced with the impact of its overall tax burden.

Is there a more fair, efficient, and fiscally sound way?

Center City District president Paul Levy and Brandywine Realty Trust president Gerard Sweeney have long advocated increasing property taxes on commercial real estate, while lowering the job-killing business and wage taxes.

Likewise, as a mayoral candidate, Kenney often talked about his plan to do zero-based budgeting to find savings. (That would mean ignoring what was spent the previous year and starting from scratch to identify the cost and resources needed to perform various functions, such as trash pickup.)

Both of those ideas deserve serious consideration.

Rhynhart, a former Kenney administration official, plans to release a report next month that analyzes the impact of adjusting or ending the tax abatement program, which waives city taxes on increased real-estate values generated through new construction or renovations. She said the study would consider options such as limiting the tax break to improvements valued at $500,000 or lower, or continuing it only in neighborhoods most in need of investment.

Scaling back or ending the abatement program may add to the city’s coffers. But any decisions about it should not be made in a vacuum, or with an eye just on increasing revenues.

By most accounts, the tax abatement program helped spark the development boom that has transformed Philadelphia. A report by Drexel University’s Kevin Gillen said the abatement program increased home building in the city by 376 percent. The program has supported untold construction jobs, as well as generated wage and sales taxes.

Studying one element, like the abatement, provides useful information. But it’s been more than a decade since the city thoroughly examined its overall tax policies. A respected and independent firm — preferably from outside Philadelphia — should conduct a rigorous analysis before making recommendations to bolster the city’s taxing policies.