Clarke against proposed real estate tax amendment bill

Philadelphia City Council President Darrell L. Clarke told a panel of state lawmakers Thursday that he opposed a bill that would amend the state constitution to allow Philadelphia to impose different tax rates on commercial and residential real estate.

Although he would like the General Assembly to be allowed to establish classes of property - currently forbidden by the state constitution's uniformity clause that requires all real estate to be treated the same - he said the current bill could tie the city's hands in harmful ways.

"It is inflexible. It is unfair to homeowners. And if it becomes law, I seriously doubt whether Philadelphia would ever implement the authority granted to it," Clarke told members of the House Finance Committee, who were joined by additional Philadelphia delegates to Harrisburg.

The hearing at the Pennsylvania Convention Center was on a bill that could lead to a constitutional amendment that would allow Philadelphia to tax real estate "used for business purposes" at a rate as much as 15 percent higher than nonbusiness real estate, but only if the city's wage tax and business taxes were reduced by a corresponding amount.

The bill has been pushed by the Philadelphia Growth Coalition, which includes major landlords, chambers of commerce, and labor unions.

The group, echoing city tax commissions in 2003 and 2009, believes that shifting the balance of taxes away from wages and business profits will promote job growth in Philadelphia, which has lagged other major cities.

Clarke said City Council researchers could not find any other state that required reductions in unrelated taxes as a condition for allowing more than one class of real estate.

The bill's sponsor, John Taylor (R., Phila.), who was at the hearing, told Clarke that the bill was a "nonstarter" without the requirement of corresponding tax reductions. "It's going to be very difficult to do as it is," he said.

The proposed amendment, which would have to be approved by two consecutive legislative sessions and by voters, would "handcuff local tax policy" by requiring the business-tax reductions and under certain circumstances forcing tax increases on homeowners, Clarke said.

He also cited as a problem the likelihood that rental properties would be classified as business real estate, resulting in higher taxes that could be passed on to renters. Boston, Chicago, and Washington have multiple classes of property, but tax all residential properties at the same rate, whether owned or rented, he said.

Not all business owners favor the amendment.

Jeffrey N. Brown, chief executive of Brown's Superstores Inc., which has five ShopRite stores in the city, said higher real estate taxes, even if accompanied by lower business taxes, would hurt low-margin businesses such as his that own significant amounts of real estate.

"The primary beneficiaries would be the tenants of the most expensive, large Center City office space," Brown said in a letter Clarke shared with the Finance Committee.

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