Mayor Nutter defends 10-year property tax abatement program:

I’m way behind on my reading of the Sunday Inquirer, but I finally got around to the piece by Patrick Kerkstra that Alan says was so prominently discussed at last night’s town hall meeting.  Clearly there are some vast differences of opinion between the backers and opponents of the city’s ten-year property tax abatement on all new and renovated construction.

All of this seems to be centered around a study by the group Econsult that states, as one its base assumptions, that at least a third of the construction that occurred since the abatements started would have started anyway.  Therein lies the rub.  Opponents of the abatement who see it as taking away funding from services like the libraries are running with the information cited in the Inky article which says that:

…according to an analysis conducted for The Inquirer, the abatement program has been, so far, a fiscal drain.

Even with all other tax revenues from Philadelphia’s real estate renaissance factored in, the city has collected $19 million less since 1997 - just shy of $2 million a year - than it would have had the program not existed, according to a study by the economic-consulting firm Econsult Corp. and staffer Kevin Gillen, also a Wharton School fellow.

…

By 2015, their analysis shows, abatements will have kept $96.8 million out of the city’s coffers - about $5.4 million a year. That is a relatively small portion of the total amount the city spends. This year’s budget, for example, is $4 billion.

Others, like schools advocate Helen Gym writing on Young Philly Politics, look at the much more substantial costs to the school district, again based on Econsult’s mathematical model:

Here’s what the cost of abatements will be for the schools:

* since 2008: City = $84,727,393 in total lost revenue
Schools = $50,836,436 forfeited

* by 2012: City = $181,406,923 in total lost revenue
Schools = $108,844,154 forfeited

* by 2016 (peak loss): City = $239,932,516 in total lost revenue
Schools = $143,959,509 forfeited

Between 2016 and 2025, the total amount lost for schools declines. The District will begin to see profits from the program in 2025 when we get the first check for $1.6 million . . . after 26 years. By 2025, all three of my children will have graduated from high school - a generation, in my opinion, robbed.

Theirs is a stronger argument given that the schools genuinely seem to have gotten the short end of the stick when it comes to revenue forgone by the abatement program.  So the argument goes, the schools don’t benefit from the increased wage and business taxes that the city receives from those who move in because of the abatements.  If anything, as my colleague Alan pointed out, some public schools may have to provide services to children who are living in new or renovated houses that don’t pay very much in property taxes.  (Though it seems that most of those benefitting from the abatement program are empty nesters or wealthy couples who can afford to send their children to private school.)

However, Mayor Nutter, as you can see from the video above as well, takes issue with the cold hard calculus of the math formula used by Econsult:

“They did a mathematical analysis, and that’s fine, but it has nothing to do with the reality of the marketplace,” said Nutter, who worked briefly for Econsult after resigning his City Council seat to run for mayor. “Unless you’ve sat across the table from a developer trying to get a deal done, you don’t know how important abatements have been.”

(Yikes, I’m sure library proponents would have the same thing to say about the mathematical analyses that determined which branches would get closed.)

The truth… or the solution… seems to lie somewhere in the middle.  Hence all of the proposals to roll back some of the abatement, perhaps to 80% of the value of the improvements or new construction instead of 100%.  This is also where I have to make the obligatory mention of the land value tax advocates who feel that all of this controversy would just go away if the city switches to determining property taxes based 100% on the value of the land rather than 75% “improvements” (buildings, etc.) and 25% land.  We can explore that proposal later if anyone wants.

One of the interesting takeaways from this article is the insight into Phillies left fielder Pat Burrell’s locational decisions.  Burrell gets singled out because he’s one of the few professional athletes to purchase a residence in the City and because he is currently enjoying a $37,284 discount on his property taxes because of an abatement.  For a guy who made $50 million over the life of his contract, however, it appears that $37 Gs were not the deciding factor:

“The bottom line is, the abatement played no role in Pat’s decision to live in the city,” said his attorney, Edward Hayes. ” . . . He’s always been a Center City person.”

Indeed, before buying his abated condo, Burrell lived in unabated Center City apartment buildings, so City Hall has long had the benefit of his wage taxes. For him, Hayes said, the city’s attractions matter far more than any tax break.

Burrell has company. In a 2006 Center City District survey of new residents, abatements ranked dead last on a list of 16 amenities that drew them to Philadelphia. Far more important, they said, were restaurants, shopping and cultural attractions.

So the question to you is: after reading the Inky article and both sides of the abatement debate, are you in favor of them as is?  Do you think they should be modified?  Do you think the abatements should stop for any new constructions?

Alternatively, have you or someone you know benefited from the 10-year tax abatement?  Are you planning any major improvements to your house or plot of land that you otherwise would not if the abatement were not available?