A patient checks into a hospital with an ailment. After a few days he’s suffering from totally new symptoms, complications from a wrong diagnosis, incorrect drugs or errors in treatment. It’s called an “iatrogenic,” or doctor-induced, illness. But this isn’t about mistakes in health care, but rather how this obscure term applies to local public policy.
Philadelphia’s primary ailment is poverty, the highest among America’s 10 largest cities. Children grow up without opportunity, without all the skills needed to compete in the 21st century economy. More than 80 percent of renters in the city, 127,000 households, make under $35,000 a year, devoting disproportionate amounts of income to housing, leaving less for food and clothing. Federal subsidies are declining. Along comes the opioid crisis, and we get a surge in homelessness. Meanwhile, homeowners with limited means can’t afford repairs, so their properties deteriorate. Diminished purchasing power causes quality grocery stores to avoid many neighborhoods.
Poverty is neither fate nor a fact of life. Poverty ballooned beginning in the 1970s as Philadelphia hemorrhaged more than 300,000 jobs during the next three decades. From 1970 to 2015, the city added 100,000 people living in poverty — 2,200 per year born, falling into, or arriving in poverty. But during that same period, Philadelphia lost more than 500,000 working-class and middle-income residents – about 11,000 per year –as our suburbs expanded jobs by 110 percent. So Philadelphia’s high poverty rate results in part from losing five times as many working and middle-class residents as new poor people were added. This does not minimize the magnitude of poverty, it only highlights that this is a problem of jobs.
Mayor Kenney’s focus on education contributes to the cure, equipping young people with skills. But this presumes available jobs – lots more of them — in a city that is growing slower than 23 of America’s largest cities. Since the recession, most American cities have outperformed the national economy. Even cities like New York and Boston, that lost the same percentage of manufacturing jobs as we did, rebounded, adding, respectively 14 percent and 24 percent, more jobs than they had in 1970. Philadelphia has 24 percent fewer jobs. Cities with higher rates of job growth usually have lower rates of poverty.
We lag not only in jobs, but in housing production. What we call a boom in Center City and University City places us 62nd in housing production among the nation’s 100 largest counties. But the disparities between areas of growth and those with continuing job and population decline are painful for all to see.
What cures are local officials prescribing in the absence of federal and state resources? There’s a proposal to increase the transfer tax to make it more expensive to buy and sell real estate. There’s a proposed 1 percent surcharge on all development; that’s at a time when the city controller recently reported that due to low incomes, the economics of housing production doesn’t work in 70 percent of the zip codes in the city. There are plans to curtail wage tax reduction when study after study has demonstrated that this tax is a major impediment to faster job growth.
As residents face both a 4 percent real estate tax hike and assessment increases averaging 14 percent (double or triple that in reinvestment neighborhoods), lawmakers are floating proposals to increase the homestead exemption from $30,000 to $45,000.
Protecting homeowners always seems like a good thing. Currently, there are 211,139 homeowners in Philadelphia benefiting from the homestead exemption, which at $30,000 each, removes an aggregate $6.4 billion from the city’s taxable base. Increasing it to $45,000 removes an additional $2.8 billion, for a total of $9.1 billion exempted from taxes. That translates into $133 million in forgone tax revenue, but which gets made up by raising the rate on all other properties in the city.
Without recognizing it, the $133 million homestead exemption becomes one of the city’s largest housing programs – larger than the Community Development Block Grants and larger than the $97 million forgone through the much-criticized 10-year tax abatement.
Now, here comes the induced illness. There are 277,707 renter-occupied households, a 52 percent/48 percent owner-renter split for Philadelphia’s 580,205 households. But below incomes of $40,000, a majority of households are renters. Owners of rental properties treat real estate taxes as an expense passed on to tenants. Higher property taxes thus mean higher rents, an issue that the homestead exemption not only doesn’t address, but exacerbates by adding expenses to already cost-burdened low-income renters.
Should we raise the proposed development surcharge to 2 percent to address this induced affordability challenge? Why not focus on a real cure: growing jobs and raising incomes so families can afford rents and home repairs and the tax base expands without raising rates? Perhaps we should consult a different doctor, focused on making the city’s tax structure more competitive and conducive to growth.
Paul R. Levy is president and CEO of the Center City District.