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Philadelphia developers just killed a bill to cap the city’s controversial tax abatement. Will City Hall now reduce the tax break?

Philadelphia City Council will soon consider legislation that would amend the city’s controversial 10-year tax abatement by gradually reducing the size of the tax break. But a different proposal was killed before it could be introduced, following last-minute lobbying efforts by developers.

City Council President Darrell Clarke presides over a City Council meeting at City Hall in Philadelphia on Thursday, Oct. 31, 2019.
City Council President Darrell Clarke presides over a City Council meeting at City Hall in Philadelphia on Thursday, Oct. 31, 2019.Read moreTIM TAI / Staff Photographer

A lobbying effort by developers and building trades unions killed a proposal Thursday by City Council President Darrell L. Clarke to cap the controversial 10-year real estate tax abatement for new construction, an incentive that has drawn the ire of progressives and neighborhood advocates weary of gentrification.

Council instead will move forward with a less ambitious reform package that would roughly halve the value of the tax break for residential properties over the 10 years that it is in effect. Clarke said he would try to pass that legislation before the end of the year, and several members voiced support as the bill was introduced by Councilwoman Cindy Bass.

A cap on the abatement for residential properties, which had also been expected to be introduced, would have limited how much value could be exempt from property taxes. Developers feared it would end the construction of condos and luxury housing. After 36 hours of negotiations, Clarke decided not to introduce it.

The tax abatement, adopted two decades ago to spur growth after decades of decline in the city, has become a lightning rod as Philadelphia started growing again and gentrifying. Efforts to change or abolish the program pit labor and builders against progressives and school advocates, who say it’s a giveaway.

The recent leftward tilt of city politics pushed abatement reform to the top of Council’s agenda.

Councilwoman María Quiñones-Sánchez said that Mayor Jim Kenney, who opposes efforts to alter the abatement, played a role in killing the cap proposal, which she supported.

“I hope the administration will reconsider it next year,” she said.

Kenney, however, said he played no role except to relay to Clarke what he was hearing from labor and developers. “She doesn’t know what she’s talking about," Kenney said. "I talked to Darrell Clarke. He’s the only Council member I talked to.”

Some confusion occurred, the mayor said, after he gave Clarke what turned out to be incorrect information.

“I was under the impression that a couple segments of the [building] sector were interested in the cap, and I told him,” Kenney said. “When I found out that that was not the case, I called him and said, ‘I was wrong....They’re not interested. Do what you want.’”

The building trades were instrumental to Kenney’s election in 2015.

“I think the abatement has worked over 20 years.... It is responsible for the development we have seen,” Kenney said. “If they want to tweak it and play it with it, go ahead. I don’t [have a] vote."

His work to block reform, however, could anger progressives. Liberal groups want it eliminated, and some incoming Council members campaigned on that.

» READ MORE: Changes to Philly’s 10-year tax abatement could come before the end of the year

Clarke told reporters that “there is not support for the cap bill,” and declined to elaborate. He said the other bill is the first time that Council has had a chance to change the abatement.

“One of the things that we like to do is focus on things that can actually pass,” he said.

Bass introduced the bill on Clarke’s behalf. It would reduce the tax break by 10% each year it is in effect. New construction of residential properties would be eligible for a 100% abatement in the first year, 90% in the second year, and so on, decreasing to 10% in the 10th year after construction.

“This day and this bill is long overdue,” Bass said.

The changes would generate $264.7 million in additional tax revenue for the city and School District in the next 10 years, based on an analysis by Econsult Solutions, Inc..

The bill would not change abatements already in effect, and would not change future breaks for commercial properties or rehabilitation. Those projects would still receive 10-year exemptions on 100% of their new building value. Lawmakers said it was important to keep the abatement for job-creating commercial developments.

The bill could still face opposition; the business and development community is expected to lobby against it, and progressive groups could criticize Council for not considering more ambitious reforms. They are likely to push for further reform next year, when Working Families Party candidate Kendra Brooks joins Council along with three others.

Councilwoman Helen Gym said she supported the bill, but said it is only a first step in reconsidering tax subsidies.