By Michael D’Onofrio
PHILADELPHIA — As City Council members weigh significant changes to Philadelphia’s 10-year tax abatement, the real estate industry has mobilized to water down the bill.
A City Council committee on Tuesday will take up a proposed bill to phase out the subsidy incrementally, which would reduce the overall tax break by nearly half and generate an estimated $270 million in city revenue over a decade.
The draft bill, proposed by Council President Darrell Clarke, would grant property owners the full 100 percent tax abatement in the first year, then cut the size of the subsidy to 90 percent in the second year, 80 percent in the third year, 70 percent in the fourth year, and so on.
The bill would not affect the abatement for commercial properties. It would go into effect in July.
The Building Industry Association of Philadelphia came out against Clarke’s proposal on Monday and began shopping around its own proposals to council members.
Jim Maransky, BIA president, warned in an email to council members on Monday that Clarke’s bill would torpedo the city’s delicate real estate economy, where a balance of rental prices, consumer demand and the tax abatement have created favorable conditions to spur development.
“Philadelphia is in its real estate development Goldilocks Zone,” he said.
“If demand evaporates even a little bit or if the incentives lever is pushed to increase costs even in the slightest, the construction-favorable financial conditions we see will disappear, and the cranes we all enjoy watching today will slowly fade from the skyline.”
In a draft bill sent to legislators, the BIA lobbied for maintaining 100 percent of the subsidy through five years before reducing the tax break to 80 percent in year six; 60 percent in year seven; 40 percent in year eight; 20 percent in year nine; and 10 percent in year 10.
The BIA leaders also lobbied council members to put off implementing the changes for a year until July 2021 and include language to prevent the filing of obstructionist zoning appeals they say are designed to delay and sink projects.
“We know our industry has benefited from the abatement, and we are willing to support changes that will increase revenue to the city and schools as long as they don’t destroy the local construction economy,” said BIA Treasurer Gary Jonas.
Joe Grace, a Clarke spokesman, declined to comment about the industry’s proposals.
“We’re looking forward to the hearing where the bill and any of these issues or matters will be debated publicly,” Grace said.
After years of inaction and stalled legislation to alter the tax abatement, Clarke’s bill has momentum behind it. Fourteen council members cosigned the legislation when it was introduced in November, enough to pass the bill (nine votes) and overcome a mayoral veto (12 votes).
But council members can introduce amendments during the committee of finance hearing on Tuesday or during the full council meeting on Thursday.
Tuesday’s hearing paves the way for the legislation to be introduced on first reading on Thursday, setting up a potential final vote on Dec. 12, the final council session for the current term. Any legislation not approved by City Council on Dec. 12 will die.
A new City Council will take over in January.
Clarke has pledged to modify the tax break before year’s end. Many council members have proposed changes to the abatement during this four-year term, but none have succeeded.
The proposals including eliminating the abatement altogether; gradually phasing out the subsidy at different levels; and carving out an exception for school taxes. All these proposals have stalled, failing to even receive a council hearing.
The legislature’s makeup will move left with the addition of Working Families Party member Kendra Brooks, a progressive councilwoman-elect who became the first third-party candidate to win an at-large seat on the 17-member council. Brooks will fill one of the two at-large seats set aside for minor parties, which Republicans traditionally have held.
The tax abatement program, adopted in its current form in 2000, exempts property owners from paying city and school taxes on the added value from new construction or rehabilitation of both residential and commercial properties for a decade. Abatement recipients do pay taxes on the value of the land.
A report last year commissioned by the Kenney administration found that the tax abatement program remained a long-term net positive for the city. The subsidy was projected to generate more development, jobs and tax revenue than if the program were modified or the incentive decreased, according to the report.
The tax abatement remains a political flashpoint. While real estate developers embrace it, affordable housing advocates and long-term residents say the subsidy fuels gentrification, is a handout to developers, and denies much-needed funding for the school district.
The city has experienced a real estate renaissance in recent years, as proponents of the tax abatement say, but development has been concentrated in certain parts of the city, leaving others behind.
More than 15,600 properties received tax breaks through the program as of March 30, or 4 percent of the city’s real estate. The average property receiving a subsidy was valued at $1.1 million, while the middle value on the list was $443,000. Forty-five properties receiving tax breaks are valued at more than $50 million.
Michael D’Onofrio is a reporter for the Philadelphia Tribune, where this story first appeared.