Philly’s 10-year tax abatement and construction tax are back on the agenda. Here’s what’s different this time.
It's a familiar debate, but the political dynamics have shifted.
Philadelphia City Council will once again consider changes to the 10-year tax abatement and a 1% tax on construction — two controversial topics that are familiar subjects of debate in City Hall.
But the dynamics have shifted this year: Council has become more progressive; the coronavirus pandemic set off an economic crisis and strained the city budget; and Council and Mayor Jim Kenney’s administration are working to confront systemic racism and help poor communities of color.
These changes increase the sense of urgency on all sides of some of the toughest policy battles in recent years and sets up a fight over whether the city can increase revenue and fight poverty without suffocating the construction industry.
City Council members introduced legislation Thursday to delay planned reductions to the 10-year tax abatement until 2024, along with a bill that would implement a 1% tax on construction to fund affordable-housing programs.
Some construction-industry leaders said Thursday that pairing the two bills represents a trade-off they can support, and Council President Darrell L. Clarke said Kenney supports the plan. But progressive activists and Council members are likely to fight delays to the abatement reduction.
Clarke, who sponsored the construction-tax bill, projects that it would generate at least $20 million annually to fund a $400 million bond for affordable housing, eviction prevention, rental assistance, investments in neighborhood commercial corridors, and other programs. He held a news conference Thursday in North Philadelphia to unveil the ambitious plan alongside other Council leaders and affordable-housing advocates.
“There is no time to wait," Clarke said. “Poverty is growing, and these needs are urgent. We need to act now to fund programs that will create a more prosperous future for every Philadelphian, rather than a select few."
Councilmember Cherelle L. Parker, who cosponsored the bill, said the construction tax would help residents who “want to see government directly impacting your life."
“I told you it wasn’t going to be easy, it might even be a little contentious,” Parker said. “But [the legislation is] developing real solutions to problems that you, residents of the city of Philadelphia, raised and not people that live in the suburbs but have a loud voice and simply add noise to Philadelphia’s problems.”
A construction tax may fare better than it did in 2018, when it passed Council on a 9-8 vote and was then withdrawn in favor of a compromise that directed money from expiring tax abatements to affordable-housing initiatives. Council has since gained more progressive members likely to support the new tax, and Clarke coupled it with the three-year extension of the tax abatement to appease the construction industry.
Ryan Boyer, business manager of the Laborers' District Council of Metropolitan Philadelphia and Vicinity, opposed the tax in 2018 but said Thursday Council has done a better job this year communicating and by offering the abatement extension.
“I don’t love the construction tax, but I think that is a meaningful compromise and it’s like government: You don’t get everything you want," he said.
Kenney, an ally of the building trades unions, had opposed the construction tax in 2018. But Council is now more confident of his support, and a spokesperson said this week that the administration looks forward “to reviewing the proposals, and to further conversations.“
Still, the tax has opponents.
“This bill will only serve to dissuade future investment in Philadelphia, reducing jobs and further eroding our ability to pay for the services Philadelphians need now and in the future,” said Ben Connors, president and CEO of the General Building Contractors Association. “We cannot tax our way out of this problem. We must grow.”
Developer Carl Dranoff said he supports the compromise but has concerns that the construction tax would remain in effect once the abatement changes begin in 2024.
“I hoped that these two ordinances would be linked together so that you couldn’t decouple them,” Dranoff said. “Because three years from now when they are decoupled … it could be harmful.”
Progressive activists and Council members, meanwhile, are likely to fight the proposed delay in reductions of the tax abatement, which they would prefer to eliminate entirely.
The changes, which are currently set to take effect in January, would offer a 100% tax break on new residential properties for the first year after construction is complete, followed by a 10% decrease in the benefit for each of the following nine years. Councilmember Bobby Henon introduced the bill Thursday that would move implementation to 2024.
Councilmember Kendra Brooks, who took office this year and campaigned on eliminating the abatement, introduced a bill in June that would end the tax break; she criticized Henon’s bill.
So did Councilmember Jamie Gauthier, calling the construction tax “a great idea that will provide much-needed funding for affordable housing efforts — but we shouldn’t have to extend the abatement in order to fund it. At a time when communities of color are being disproportionately impacted by the pandemic and the economic downturn, it feels immoral to renew our commitment to a tax break that has been shown to hurt them.”
The construction industry will also cite the impact of the pandemic. Leo Addimando, president of the Building Industry Association (BIA), said his group supports the construction tax, and also supported it in 2018. But the BIA had opposed changes to the 10-year abatement and lobbied last year to limit the reductions to it. Addimando said he was pleased that a three-year delay would give the industry time to recover from the pandemic economy.
“These new proposals taken together we think are a fair further compromise," he said. “given what COVID has done to the city.”