Protest against construction tax planned even as amendments are in the offing

Some affordable-housing advocates are preparing to protest the details of legislation — set to receive a hearing in City Council on Wednesday — that would levy a one-percent construction tax on commercial and residential development, with the money routed to a new section of the city’s Housing Trust Fund that could be spent on projects for residents earning up to 120 percent of area median income (roughly $105,000 for a family of four).

Meanwhile, amendments are circulating for introduction at the hearing that would exempt small renovation projects, as well as not-for-profit entities including major property owners like the University of Pennsylvania.

Other aspects of the legislation would remain unaltered. Revenues from the proposed construction tax, unlike money in the existing Housing Trust Fund, could still be accessed by for-profit developers. The new funding can still be used for a down-payment assistance program, as well as for construction of workforce housing.

But housing activists say at least some portion of the money should just be sent to the Housing Trust Fund as is, where half of every dollar must be spent on housing for families at 30 percent of area median income (or $30,000 for a household). In a city with a poverty rate over 25 percent, they say that there are too many very-low-income Philadelphians in need of aid to create a new funding stream targeted toward workforce housing for more financially stable residents.

“They aren’t putting any language in the bill to help those [in poverty], but they are putting money aside to help people making over $100,000 a year,” said Max Ray-Riek, of the HIV/AIDS activist group ACT UP. “There’s so much that could be done: Supportive housing for those who live under bridges in Kensington, for those in shelters for years, those who are sick with HIV, or on the [Philadelphia Housing Authority] wait list because there isn’t a stable source of affordable-housing funding for low-income renters.”

On Tuesday, letters were delivered to City Council officers expressing concerns about the new sub-fund for higher-income residents. They were co-signed by groups including ACT UP, Reclaim Philadelphia, Disabled in Action, and Decarcerate PA.

Civil-disobedience training is to take place Tuesday evening in advance of the hearing and the bill’s potential first reading before the full City Council on Thursday.

“We are thrilled with this legislation, but we want to make sure it’s fair,” said Nora Lichtash, executive director of the Women’s Community Revitalization Fund. “But a lot of people in Philadelphia earn way less than 120 percent of area median income. That’s pretty high… We want to see some funds for those making the city’s median income of $37,000.”

Requests for comments from Council President Darrell Clarke’s office, which crafted the construction-tax legislation, and co-sponsor Councilwoman Maria Quiñones-Sanchez did not immediately yield any response because both were tied up in budget negotiations.

The product of a compromise between Clarke and the powerful Building Industry Association (BIA), which represents residential developers, the construction-tax legislative package has received pushback from other groups.

Commercial real estate developers were unhappy that the tax would hit all construction in Philadelphia, whereas earlier legislation introduced by Quiñones-Sanchez would have placed the affordable-housing burden solely on residential developers. Landlord groups protested that the tax would hit those who were simply renovating their properties in between tenants, while neighborhood civic associations expressed frustration at not being consulted about the more powerful voluntary inclusionary zoning bonuses that could bring more height and density to some areas.

“This is a true compromise: Not everyone is going away happy, as a matter of fact almost everyone is going away mad,” Councilman Mark Squilla said at the April  press conference at which the legislation was introduced. “That tells me this is a true compromise. I’m getting calls from all sides. Everyone is angry about this, so we are close to being in the right place.”

Amendments did circulate in City Hall on Monday, but they do not address the problems affordable-housing groups have with Clarke’s effort. Instead, they assuage some of the concerns raised by powerful nonprofits such as the city’s universities and organizations like the Pennsylvania Apartment Association—East and the Homeowners Association of Philadelphia (HAPCO), a landlords group.

Assuming the new amendments are adopted at Wednesday’s hearing, the legislation would not apply to property improvements worth less than $100,000 over a twelve-month period. It also would not apply if a construction project were not eligible for the ten-year property-tax abatement or if the developer did not seek it.

As introduced, the construction tax would have to be paid up front, when building permits were issued. But to address concerns from smaller developers and landlords about the front-loaded costs of the tax, only half the amount owed would be due when a building permit was issued, with the other half owed when the certificate of occupancy was issued after the structure was complete.

In addition, the implementation date would be pushed back from July 2018  to January 2019, to give developers more time to accommodate the changes.

“We are for it with the changes,” said Harvey Spear, president of HAPCO. The Apartment Association said it was “pleased” to see the changes although it was “still evaluating the entire proposal.”

Commercial developers, meanwhile, appeared unreconciled with the bill. The Building Owners & Managers Association’s Richard McClure conceded that the amendments took some “sting” out of the bill, but said that the legislative effort would still constrict growth.

The amendments also would ensure that the legislation does not apply to entities that are exempt from real estate taxes. That exempts some of the largest property owners in the city, like the University of Pennsylvania and Drexel University. But affordable housing developers and community development corporations say they will still be taxed despite this tweak. 

“The non-profit exemption does NOT address our concern about taxing affordable housing,” writes Beth McConnell, policy director for Philadelphia Association of Community Development Corporations. “LIHTC projects aren’t tax exempt so they’d have to pay the tax. As would a Habitat for Humanity funded ownership home, for example.”*

The Philadelphia Association of Community Development Corporations says it wants 50 percent of the proceeds earmarked for residents earning 30 percent AMI, and a 100 percent tax rebate for projects targeted toward lower-income families. McConnell’s group has been largely supportive of Clarke’s proposed construction tax nonetheless, but activist organizations with less political clout and legislative acumen now see protest as their best avenue for effecting change.

The affordable-housing groups planning protests in the coming days have seen the amendments and said they were not mollified by the proposed changes.

“City Council says they are concerned about poor people, but really everyone is just concerned about homeowners,” said Nancy Salandra of Liberty Resources, which advocates for people with disabilities. “Without committed revenue for people below 30 percent AMI, nothing is going to get built for them. You need subsidy to build for our people, and they aren’t going to do it unless they are forced to do it.”

*This article has been updated to accurately reflect PACDC’s concerns with the bill and its amendments. 

WHYY is your source for fact-based, in-depth journalism and information. As a nonprofit organization, we rely on financial support from readers like you. Please give today.

Want a digest of WHYY’s programs, events & stories? Sign up for our weekly newsletter.

Together we can reach 100% of WHYY’s fiscal year goal