As planning for the city’s budget wrapped up last week, the age-old question of how to address rising costs and developing needs with insufficient tax revenues was asked yet again.
Central to the questions around tax revenue is the city’s long-standing tax break for new construction: The 10-years of property tax abatement for all qualifying new construction. That policy has driven investment in home building across the city, driving demand in upcoming neighborhoods like Point Breeze and Port Richmond, and fueling mini booms in established neighborhoods like Chestnut Hill.
But as real estate booms in center city and outer neighborhoods, is a tax abatement necessary, particularly given the dire state of some of the city’s schools? We’ll get back to that in a moment.
City Controller Rebecca Rhynhart looked into that question in an analysis of the property tax abatement policy she released last month.
According to that report, since 2000, the city has forgone $1.05 billion in tax revenues. In 2017, 14,343 qualifying homes received a benefit of $93 million in tax benefits. That’s an enormous amount of revenue the city has decided to pass up.
While Rhynhart’s office was clear that the findings show tax abatements benefit largely well-to-do developers building homes in some of the city’s most affluent ZIP codes, it also conceded that many of the new homes built might never have been possible without the abatement. Her office noted that more than 12,000 properties that had expired 10-year-tax abatements were assessed at more than $83 million in tax value.
As this question was asked, a series of stories in the Philadelphia Inquirer and Daily News revealed widespread lead and asbestos contamination in the city’s schools, a state of neglect that school district officials said would take $3 billion over the next 10 years to address.
With these sort of financial needs, is it time to repeal the tax abatement?
City Council debated tax abatements last week. Council President Darrel Clarke has called for a 1 percent construction tax. Fearing such a tax could frighten off new business – including the still possible new headquarters for online retailer Amazon – Councilman Allan Domb proposed tweaking the abatement to a seven-year full abatement, with a 25 percent reduction phase-out over three years following (75 percent in year 8, 50 percent in year 9, etc.).
The city plans to look at a number of ways to balance the problem.
“The broad conclusion is that there is still economic value in the abatement,” City Finance Officer Rob Dubow said in testimony before Council. “Eliminating it would lead to a reduction in jobs and development, although not as much a reduction as it would have been five years ago. There is no perfect way to adjust it, but the report will show our options in detail.”
Can Philadelphia have Amazon and clean schools? The tax abatement as we know it likely needs to change. But it’s going to take a smart tax policy, one that finds a balance that is often elusive in this city.