by Bob Warner
Over the past 20 years, the city of Philadelphia has given up more than $1 billion in potential real estate taxes, a tax break to reward property owners for new construction or renovations to existing buildings. The so-called tax abatement program is alternately praised for spurring new development in the city or criticized for diverting badly-needed resources from the city and School District.
City Council member Cindy Bass, who represents Chestnut Hill, Mt. Airy, Germantown and more neighborhoods in North Philadelphia, is leading an effort to abolish the abatement program altogether. She predicts Council will vote this year for significant cutbacks if the program is not phased out entirely.
“We need the money, is the bottom line,” Bass told reporters last week. While she expects developers and building trade unions to lobby for continued tax subsidies of some sort, she said, “I believe that we will have the support to drastically reduce the 10-year tax abatement.”
The city’s Office of Property Assessment provided a digital list of 14,672 buildings exempted under the abatement program in 2019. While the property owners are still required to pay taxes on the value of the land and original buildings, there’s a 10-year exemption for all new construction and improvements, assessed by the city at $9.7 billion this year.
The city’s annual property tax rate is set just short of 1.4 percent of assessed market value, so the total cost of those 14,672 exemptions is $136.2 million in reduced taxes this year. Under the split set by City Council, 55 percent of real estate revenues go to the School District and 45 percent to the city, so the abatement program is costing the schools $74.8 million and the city $61.4 million this year alone.
Putting those numbers in perspective, the abatement subsidy is costing the School District about 2.4 percent of its current $3.15 billion budget, and costing the city about 1.8 percent of its $3.44 billion general fund spending.
It’s more than the controversial city beverage tax raised in its first two years.
Bass’s most significant complaint is that most of the abatement money is going to projects in Center City and surrounding neighborhoods, often for construction that could have happened without subsidies, with relatively little development in the blighted neighborhoods that are most in need of new investment.
“We as Philadelphians all made a sacrifice when tax abatement came along,” Bass said. “We all said we will pay our taxes and probably have a bump, a slightly higher amount, in an effort to get growth in the city of Philadelphia, to get neighborhoods to grow. Our entire city will be lifted.
“But what’s happened is, there’s been growth only in certain neighborhoods surrounding Center City. For other neighborhoods there hasn’t been the level of growth that we had hoped, that we expected to see.”
The city’s real estate data documents the problem.
Looking at the number of abated properties by zip code, the most active area in the city has been zip code 19146, running from Center City south to Tasker Street, west of Broad, with 2,489 construction projects completed in the past 10 years. The exempt property in that zip code alone comes to $951 million this year.
Taxpayers are giving up even more: $1.8 billion in exemptions on 611 properties in the Center City zip code 19103, including Rittenhouse Square and the new Comcast building, which has a $243 million exemption all by itself.
By comparison, Chestnut Hill’s zip code, 19118, counts 95 properties qualifying for tax exemptions this year on property valued at $49 million. Mt. Airy zip code 19119 has 111 properties, valued at $33 million, receiving abatements, and Germantown zip code 19144 has just 52 projects with exemptions, on property valued at $62 million.
In Chestnut Hill, the biggest current exemption, for $7.8 million, goes to the Wyndmoor Gardens apartment complex at 219 East Willow Grove Ave., owned by the HOW Group of Conshohocken. HOW executive Gary Jonas said the complex had redone its kitchens and baths and was adding new apartments, but he questioned how the city had come up with such a high valuation.
Most of the Chestnut Hill properties with 10-year exemptions appear to be new or renovated single family homes, with abatements ranging as high as $1.6 million. The homeowners must still pay taxes on the value of the land, usually 20 to 30 percent of overall market value, according to the city’s estimates.
Local developers credited Bass for initiating a debate on the future of the abatement program – “long overdue,” according to Ken Weinstein of Philly Office Retail, based in Mt. Airy.
But Weinstein and others said the program should be scaled back and retargeted, not abolished entirely.
“It should be restricted to geographic areas where blight is still a problem, and removed from hot neighborhoods that don’t need this anymore.” Weinstein said.
Weinstein said he needed tax abatements 20 years ago to help finance restoration projects like the Trolley Car Diner and the Cresheim Cottage Café (now the restaurant Jansen) on Germantown Avenue in Mt. Airy. He said the subsidies are no longer necessary to support construction in communities like Chestnut Hill and upper Mt. Airy, with the possible exception of renovation projects to preserve older buildings.
Bass’s proposal to eliminate the program would not affect those properties already receiving abatements. They would keep their tax breaks until their 10-year exemption periods run out. But her bill would prevent new construction or renovations from receiving exemptions, on whatever date Council sets for the program to end.
Bob Warner is a former writer for the Philadelphia Inquirer and Daily News. He is now on the Local’s board of directors. He can be reached at firstname.lastname@example.org or 267-443-3502.