Study fuels debate over Philadelphia tax break

    Anyone who was around Philadelphia in the ’80s has to be impressed by the transformation of Center City.


    Back then I was working at KYW Newsradio’s City Hall bureau, and if ventured out at night for bite to eat, I found the buildings surrounding Penn Square dark and forbidding. I was lucky to find a pizza shop open.

    Philadelphia’s downtown renewal has a number of causes — the new Convention Center and surrounding hotels among them. But no single thing government did was more powerful than the 10-year real estate tax abatement granted new construction in the city.

    It was enacted in the late ’90s with no almost debate, but it’s believed to have fueled enormous construction activity. Over time, it’s fueled controversy as well. Did it cost the city and school district millions of dollars to benefit wealthy condo and homeowners? Or will it, in the end, be a revenue boon because it spurred construction that otherwise never would have happened?

    Survey says: it worked

    A new study gives a definitive answer: The abatement caused construction in Philly to soar while it sagged in the suburbs, and has generated plenty of revenue that will make the new city property tax transformation called AVI easier to take.

    Can you believe it? The study was funded by the building industry, so you have a right to skepticism. But it was conducted by Kevin Gillen, who seems to have been studying property taxes in Philadelphia since he was 11.

    The guy is a obsessed with data, and loves to refine and analyze it again and again until he thinks it yields truth and meaning. In short, when Kevin Gillen talks about property taxes, people listen.

    When I spoke to Gillen about the report, he said that, as an economist, he doesn’t usually like tax breaks for specific industries. But, he said, the tax abatement made sense for Philly because construction costs in Philadelphia are among the nation’s highest, and not many people can afford expensive housing.

    “I like to joke that we have the cost of construction of New York, but we have Baltimore’s rents and house prices,” Gillen said. “If we did not have that condition, the abatement would not be necessary and I would certainly not be for it.”

    The other side

    But there’s growing sentiment in City Council to cut back on the abatement. Council members see the school district, which depends on property tax revenue, going broke while wealthy yuppies in and around Center City get huge tax breaks.

    “I believe that it’s clear to everyone that the abatement is not based on need, and that it is, in some cases, costing critical resources for the school district,” Councilman Wilson Goode Jr. told me. He also said he’s not convinced by Gillen’s report that the construction boom is strictly due to the tax abatement.

    “The report shows a corelation in terms of time (between new construction and the tax break), but it does not show causation,” Goode said.

    Goode has a bill in Council now to dramatically reduce the abatement altogether. He notes that no one from the Building Industry Association and the Greater Philadelphia Association of Realtors, who funded Gillen’s study, showed up at the bill’s public hearing to make their case.

    He says the building boom is great, but government policy ought to be more targeted toward affordable housing. He’d prefer to see other incentives and credits to encourage that kind of construction.

    Gillen said, yes, he hears the complaint that abated properties are often for the affluent.

    “That’s actually a valid critique of the abatements,” Gillen said. “But, to me, that’s an argument for not eliminating, but for extending and expanding it so we do get more workforce and affordable housing built.”

    Gillen’s report notes that the abatement has been used for more affordable housing construction that you’d think, but he’d like to see more.

    Currently the city has to offer the abatement to anyone. But with state-authorizing legislation, Gillen said, the city could limit abatements for high-end housing, and offer more in struggling communities.

    In any case, Gillen’s report is worth reading. You can find it here.                           

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