A reduction of Philadelphia’s 10-year tax abatement for commercial development is on the table after City Council Majority leader Cherelle Parker introduced a bill to trim the incentive long at the center of an ongoing debate over inequality in the city. The abatement change could replace a 1% construction tax proposed as a funding mechanism for a $400 million package of housing and community development programs.
City Council President Darrell Clarke began discussions about the bill with a speech that took aim at real estate industry leaders that have fought the proposed construction tax and battled against changes to the residential abatement before that.
“I’m disappointed in the pushback [to] the need and willingness to do something to make sure that our entire city benefits in a meaningful way to keep pace with the significant market-rate development that has been happening in our communities,” he said.
Over the next decade, the reduction to the commercial abatement would generate about $83 million in revenues for city services and schools, according to City Council. If approved by the legislative body and signed by the mayor, $45.6 million would go to schools and $37.5 million for city services.
According to Council estimates, the proposed 10% reduction to the 10-year abatement’s value would generate roughly the same amount of money as the construction tax proposed by Clarke in October. The Council president introduced the 1% tax along with a measure that would push back the implementation of the residential abatement reduction to 2024. That reduction— which essentially halves the abatement’s value— is slated to go into effect at the start of the new year if no action is taken.
“Everyone must pay their fair share [to] address these deep-seated problems,” Clarke said in a release. “The residential and commercial development community, which has benefited greatly from the existing tax abatement program, must be part of the solution.”
Mayor, Domb, Gym voice concerns
Through a spokesperson, Mayor Jim Kenney said that the administration had not heard about the bill prior to its introduction Thursday and would review it. The administration sounded a note of opposition noting a potential to “negatively impact the city’s ability to attract businesses as commercial and industrial property development does.”
“This concern is heightened by the COVID-19 pandemic, which has put a significant strain on Philadelphia’s commercial real estate market — with many businesses reducing or eliminating their footprint and, in some instances, leaving for the suburbs,” spokesperson Mike Dunn said in an email. “A proposal like this could potentially deter new tenants who would normally get an abatement on fit-outs of commercial space, for example.”
Councilmember Allan Domb, a real estate entrepreneur who, in 2019, introduced a bill to reduce the abatement by 15% withheld comment on the measure now under consideration. While he said he needs to take a good look at the bill before weighing in, he expressed concern about losing jobs.
“I don’t want us to have to be in a situation where an office building doesn’t get built or something and jobs don’t get created,” Domb said. “In general, our biggest goals have to be to continue to focus on creating good-paying jobs and we should not get in the way of creating those jobs in any area,” he said.
Councilmember Helen Gym also wants to take a closer look. Gym was a vocal driver for last year’s reduction to the residential abatement and has long criticized the policy as unfair. But while jobs are Domb’s concern, Gym’s is education.
“Tax abatements are as much about school funding as they are about development and the direction of our city,” Gym said. “My interest will be in ensuring that any steps that we take don’t unintentionally hurt schools and are purposeful about thinking through school funding strategy efforts as we move forward.”
Clarke emphasized that he is not anti-development, but in his eyes, something has to give.
“We understand the need to increase opportunities in development and real estate across the city because it does stimulate the local market,” Clarke said.
But the development, he said, isn’t benefiting many parts of the city where poverty levels remain among the highest in the nation and people live in fear of gun violence amid soaring levels of homicide.
“I don’t think people understand the devastation that has happened in these neighborhoods across the city of Philadelphia way before the pandemic,” Clarke said. “The simple reality is the people in those communities aren’t getting the jobs, the people in those communities aren’t getting an opportunity to live in new developments because they are way priced too high.”
Over the next decade, the two abatement reforms – commercial and residential – should give an estimated $190.8 million in additional revenues for schools and $156.2 million for city services, according to Council estimates.
WHYY is one of over 20 news organizations producing Broke in Philly, a collaborative reporting project on solutions to poverty and the city’s push towards economic justice. Follow us at @BrokeInPhilly.