If City Council President Darrell Clarke has his way, Philadelphia’s 10-year property tax abatement on residential construction will be dramatically different by the end of this year.
Clarke is seeking to introduce two changes to the abatement on Thursday, PlanPhilly has learned. This week’s Council session is the last where new legislation can be introduced if it’s to be passed by the end of this term before a new City Council takes seat in January with new members who campaigned to kill or radically restructure the tax break.
“Following months of review and collaboration, members of City Council are considering scenarios concerning changes to the city’s tax abatement policy as it pertains to new residential constructions in the short and long term,” Clarke said.
What’s Clarke proposing? One of the bills will be a per-unit cap on the value of the abatement, according to three City Hall sources.
The exact value for cutoff is not yet clear — $300,000? $500,000? — but residential developers are opposed on grounds it would slow the market in for-sale properties.
None of these changes would affect commercial and industrial properties, which have separate 10-year tax abatements. Philadelphia’s office market is not as healthy as its housing market, and the city still regularly loses the competition with the suburbs for companies.
“I am pleased that we are not touching commercial properties. Those are the job creators and we need jobs in the city,” said Councilmember Allan Domb, who has proposed more conservative changes to the abatement.
Clarke’s second bill would wind down the abatement down slowly. In the first year, property owners would get a 100% tax break, but that incentive would decrease by 10% each year — essentially halving its current value. (It is currently unclear how rehabilitation work, which is also covered by the abatement, would be affected.)
A similar proposal was first made by Councilmember Helen Gym earlier this year.
“There is ample evidence that the 10-year tax abatement, left unchanged, is now working against the best interest of our city’s financial future,” said Gym. “Tax subsidies are tools that must evolve as our economic needs change.”
The tax abatement was a hot-button issue in this year’s elections. It’s unpopular with many long-term residents, who bristle at the idea of neighbors in newer, larger houses not paying real estate taxes. Education advocates like Gym say it robs public schools of funds, because more than half of each real estate tax dollar goes to the school district.
But real estate developers say the abatement counterbalances Philadelphia’s high construction costs, and enables the building boom that has transformed the city and bolstered the municipal budget.
Tom Scannapieco is the developer behind some of the highest-end condo buildings in the city. He believes his end of the market would be gutted by a cap on the abatement’s value, hindering the city’s ability to compete with the suburbs for wealthy residents.
“They would be shooting themselves in the foot,” said Scannapieco. “There has never been a successful ground-up high-rise condominium building built in Philadelphia without the 10-year tax abatement.”
Many developers see changes to the abatement as inevitable, even as they work behind the scenes to delay it as long as possible. The influential Building Industry Association (BIA) says the idea of a phase-down is acceptable, but a cap will be fiercely opposed.
“Any kind of cap is a non-starter … because it discriminates against for-sale construction,” said Leo Addimando, vice president of the BIA, which represents residential developers.
“If you are going to reform the program, you should keep it at 10 years and have a more gradual burn off,” said Addimando.
City Hall insiders have been remarkably tight-lipped about the proposals, which were cooked up in the inner-sanctum of the Council President’s office in consultation with the Kenney administration.
Starting last week, sources say Clarke began briefing small groups of legislators to evade sunshine laws — which require any meeting with a quorum of members to be open to the public. Staffers have been excluded from these meetings, too.
Mike Dunn, a spokesperson for Mayor Jim Kenney, said Wednesday that the administration “just received drafts of both bills and hasn’t reviewed them.”
“I can reiterate that the Mayor remains committed to further discussions with our colleagues on City Council about the future of the abatement, including proposals that would see it modified, and we expect a robust debate on the topic in the coming weeks,” Dunn said.
A rush to get it done before Council changes
The bills must be first heard by a committee, then sent to a full Council session for a first reading, and then finally given a second reading at different Council session, where lawmakers can put it to a vote. That leaves Clarke with a very narrow window to push his legislation.
“They’d like to introduce something by Thursday. That’s the goal,” outgoing Republican Councilmember Al Taubenberger told PlanPhilly. “That will leave plenty of time for a vote.”
The rush comes before the composition of Council moves to the left as a result of November’s election. The Working Families Party’s Kendra Brooks, who claimed one of the two seats traditionally held by Republicans, campaigned on her intent to end the property tax abatement.
In an interview on WHYY’s RadioTimes following the election, Councilmember Helen Gym spoke about pushing to change the tax abatement during the current session, and seemed to see the chamber’s coming leftward shift as leverage.
“I think if we do it now, we’ll see reform,” Gym told WHYY’s Mary Cummings-Jordan. “If it waits until January, we will see a hard push for repeal.”