Mayor Kenney must secure the $20 million per year that the 1 Percent Construction Impact Tax (CIT) (Bill No. 180351) will generate for affordable housing. At a time when affordable housing in Philadelphia faces increasingly complex problems of gentrification and displacement, the mayor should not exercise his first mayoral veto to stop legislation that merely claws back a small portion of the 10-year real estate tax abatement that new property owners receive no matter how wealthy they are.
The tax abatement incentivizes new construction and rehabilitation of properties by waiving property taxes on such properties for 10 years. Bill No. 180351 is labeled the 1 Percent Construction Impact Tax (CIT) because it would impose 1 percent tax on the cost of new and rehab construction in Philadelphia. The revenue would be used to support affordable housing through the Philadelphia Housing Trust Fund.
A look at the development of the new high-rise at 1213 Walnut St. shows what the CIT would mean for the city. The 26-story luxury apartment building with top-notch amenities, including a sky-terrace dog park, charges monthly rents of $1,800 for a studio and $4,600 for a penthouse. It's an ideal place to live for people and pups; however, it is unfair that Philadelphia taxpayers subsidize $16 million of property taxes for those apartments — 10 years of property tax abatements of $1.6 million per year. If the CIT had been in place before 1213 Walnut St. was built, the city would have taken back about $1.25 million. That is less than one year of the building's yearly tax abatement, still leaving the developer with a juicy $14.75 million in tax savings over 10 years.
Consensus is growing among policymakers that it's time to modify the tax abatement. Philadelphia's development market is booming and doesn't require the same subsidies that it did 17 years ago, when the abatement was launched. The CIT is a modest start, and not the end of the discussion about changes in the abatement. Councilwoman Maria Quiñones-Sánchez, one of the bill's proponents, calls it "a compromise of a compromise."
The mayor should take advantage of this compromise. He should sign the bill and provide the Housing Trust Fund with additional revenue to help the low-wage workers who spend more than half of their incomes on rent, the seniors who live in unsafe conditions because they can't afford basic maintenance on the homes they've owned for decades, and the moderate-income families that want to build their nest in the city and pay their fair share of property and wage taxes.
The Kenney administration argues that the CIT will slow market rate construction, costing the city tax revenue and jobs. However, an equitable analysis of the CIT recognizes that reducing subsidies for the wealthy and shifting it to low- and moderate-income households would create economic activity where the city now needs it the most. When a family spends less on rent, they spend more locally on food, transportation, medical expenses, and clothing. Healthier and safer homes mean fewer missed days of school for kids due to illness, and fewer lost days of work for parents. This security better prepares children for higher education and for entering the workforce.
The CIT and its support of affordable housing are critical to the success of Mayor Kenney's other priorities. If the children of low- to moderate-income families are constantly moving due to housing insecurity — or they go home each night to overcrowded and unhealthy conditions — they are less likely to benefit from universal pre-K and community schools.
If the mayor wants to ensure that his Rebuild initiative leads to equitable development and not to gentrification, he must buttress the improvement of parks, recreation centers, and libraries with additional support for affordable housing so that the rising property values, home prices, and rents near the enhanced public spaces do not displace longtime residents.
On top of these enduring social benefits, the direct spending of the CIT in the local economy multiplies in the neighborhoods. According to a 2016 analysis by Econsult Solutions, for every dollar the Housing Trust Fund invested in its first 10 years, $11.30 of spending was generated in tax revenue, jobs, and spending on local goods and services.
It is the height of inequity to tell families desperate for affordable housing that Philadelphia can't afford to invest more in them, especially as the city gives away millions of dollars via the 10-year tax abatement for property owners to build more terraces in the sky for well-heeled pets. Mayor Kenney, please be consistent and equitable, and sign the Construction Impact Tax bill.