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Philly City Council to weigh reduction in commercial tax abatement

The new proposal comes amid debate over a 1% tax on new construction. City Council President Darrell L. Clarke criticized developers for pushing back against his plans.

City Council President Darrell L. Clarke speaks about his proposed tax reforms at a news conference in October in North Philadelphia.
City Council President Darrell L. Clarke speaks about his proposed tax reforms at a news conference in October in North Philadelphia.Read moreTIM TAI / Staff Photographer

Philadelphia City Council will consider reducing the city’s 10-year tax abatement for commercial development, a measure that could replace a previously proposed 1% construction tax as Council looks to fund antipoverty initiatives.

Council President Darrell L. Clarke, who said he hopes to float a $400 million bond to invest in affordable housing and other initiatives in the city’s poor neighborhoods, criticized developers in a rare speech during Thursday’s Council session. He accused them of pushing back hard against tax changes that would help Philadelphia’s neediest residents, and said they have long benefited from many generous tax breaks.

“I’m disappointed in the pushback … to do something to make sure that our entire city benefits in a meaningful way to keep pace with the significant market-rate development that has been happening in our communities,” he said.

Clarke added that concerns about gentrification and lack of economic opportunity for residents in many of Philadelphia’s neighborhoods “have been magnified as a result of the pandemic and the recent unrest. And a lot of people have recognized things that we have known for a long, long time.”

Electricians union leader John J. Dougherty, in turn, accused City Council of playing politics, and said building trades jobs can help lift Philadelphia residents out of poverty. Dougherty said in an interview Thursday that he would like any debate about tax changes to be delayed at least six months, as the coronavirus pandemic continues and federal tax and business climates could change when President-elect Joe Biden takes office.

“I’m open to a discussion that has everything on the table, but I’m also open to a discussion that is based on facts and not politics,” Dougherty said.

Their opposing stances represent the crux of the debate over Philadelphia tax incentives: Some say they are needed to create jobs and grow the city’s tax base over time, while others say they reduce tax revenue needed to fund schools and support needy residents.

And the latest maneuvering comes as Council is running out of time to implement tax changes this year; there are only two more scheduled full Council meetings left before Dec. 31.

Last month, Clarke presented his plan as a compromise that balanced the interests of developers, the construction industry, and the city. At that time, he presented the 1% tax on new construction and paired it with legislation to delay planned reductions to the residential tax abatement until 2024. He also said he had the support of several leaders in the construction industry and Mayor Jim Kenney, who has been an ally of the building trades unions.

Now, the 1% tax on new construction could potentially be replaced by Clarke’s new bill to reduce the commercial abatement. Some stakeholders are expressing skepticism.

Mike Dunn, a spokesperson for Kenney, said the administration had concerns that it could hurt the city’s ability to attract businesses.

“This concern is heightened by the COVID-19 pandemic, which has put a significant strain on Philadelphia’s commercial real estate market — with many businesses reducing or eliminating their footprint and, in some instances, leaving for the suburbs,” Dunn said.

The bill introduced Thursday would reduce the value of the 10-year abatement for new commercial construction from a 100% tax exemption to one of 90%. Clarke’s office estimated it would generate $83 million over the next decade, an amount roughly equal to what the construction tax would raise. Both bills remain pending in Council.

Ben Connors, president and CEO of the General Building Contractors Association, said his group is committed to working with the city but noted that “we must find another way to fund the affordable-housing problems of today without sacrificing the employment base of tomorrow.”

Councilmember Cherelle Parker echoed Clarke, noting that any development in Philadelphia needs to help its residents.

“Ordinary Philadelphians need to benefit from that in a very substantive way, and they need to see it and touch it and feel it,” Parker said.

The 10-year tax abatement for both residential and commercial properties has long been controversial. City Council voted to reduce the residential abatement last year, but the commercial portion was left intact.

The construction and development industries also successfully fought a 1% tax on new construction in 2018, when Council passed the tax but later withdrew it in favor of a compromise with Kenney.

The residential abatement changes are currently set to take effect in January, but officials have cited the economic impact of the pandemic as a reason to delay them.