Builders back changes to 10-year tax break as Philly City Council mulls next steps

By: - October 8, 2019 6:30 am

By Michael D’Onofrio

PHILADELPHIA — The building industry is ready to support changes to the city’s 10-year-tax abatement but remains dead set against ending the tax break, the head of a development industry group says.

The Philadelphia chapter of the Building Industry Association backs legislative adjustments that would gradually reduce the 100 percent property tax break in the final years of the decade-long program, BIA President Jim Maransky said.

The tax abatement has been “extremely valuable” since it was put in place in 2000, he said. Without an abatement to blunt sky-high high building costs, the city’s building boom would bust.

“Throwing a large tax on [a new development] in year one would lop side a lot of projects and they wouldn’t get built,” Maransky said.

Maransky spoke during an interview following the BIA’s 18th annual Builders Conference at the studios of public radio station WHYY-FM recently.

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Among the “best proposals” floated in City Council to tweak the abatement, Maransky said, were those that maintain the full property tax break during the first few years and then phase in a percentage of property taxes until the abatement sunsets.

Gary Jonas, president of the real estate company The HOW Group, agreed. The early years of financing any development project were critical, he noted.

When it comes to any changes to the abatement, Jonas said, “We’re looking for predictability from an industry standpoint.”

Their comments came at a time when City Council appears determined to change the abatement.

A handful of City Council members have already proposed legislation that would phase in property taxes for abated properties, effectively reducing the length of the abatement by a few years. Councilwoman Cindy Bass, a Democrat, has proposed ending the abatement entirely.

Kevin Gillen, an economics and real estate expert at Drexel University, cautioned any changes to the abatement will have short- and long-term consequences.

As Philadelphia’s red hot real estate market — which Gillien described as the “biggest golden boom-market in living memory” — shows signs of cooling, altering the abatement will determine how the market responds to that downward trend.

“Whether or not we’re going to have a soft or hard landing, I think, depends very heavily upon the future of the abatement,” he said.

Gillen also pushed back against critics of the abatement, saying the tax break has failed to attract national homebuilders to the city.

Large national homebuilders accounted for a mere 1.8% of all home building inside Philadelphia since 2010, according to Gillen’s research. The figure was paltry compared to other large cities, including Boston (27 percent), New York City (18.5 percent) and Baltimore (7.4 percent).

“So here’s my question to the abatement critics: If there’s windfall profits to be made in the city in the abatement, why are we not attracting national capital?” Gillen asked. “They certainly do it in our region, but they don’t want to cross into the city.”

The tax abatement program, which has existed in different forms dating back to the mid-1970s, exempts property owners from paying all city and school taxes for a decade on the added value from new construction or rehabilitation of residential and commercial properties. A property owner must still pay taxes on the value of the land.

Other business and union leaders, as well as some City Council members, attended the BIA conference and offered their views on the future of the 10-year tax abatement.

Jim Snell, business manager of the United Association of Steamfitters Local 420, said the union was both “for the abatement but we’re also for modifying the abatement.” He did not endorse any proposals.

“It’s something that I don’t feel should go away,” he said.

At-large City Councilman Allan Domb, a Democrat with pending legislation to change the abatement, called for carving out separate abatements for different projects, with the best reserved for job-creating commercial projects, followed by multi-family residential buildings.

At-large City Councilwoman Helen Gym, another Democrat who has proposed bills to alter the abatement, said the tax break has done a “dramatic amount to restructure” the city and has led to a booming economy for certain business sectors.

But the abatement was hyper-concentrated in certain parts of the city and was denying much-needed funding for public schools. Change to the abatement was inevitable, she said.

“When abatements don’t change, they don’t evolve,” she said, adding, “An abatement is a tool, it’s something we can refine.”

Michael D’Onofrio is a reporter for the Philadelphia Tribune, where this story first appeared.

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