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Tax on new construction advances despite Kenney concerns, scorching criticism from building trades

The 1 percent tax, which would be placed on most new construction could raise up to $19 million a year for affordable housing, proponents of the bill said, at a time when the city is experiencing a dire affordable housing shortage.

Angelita Ellison testified before City Council members Wednesday about the difficulty finding affordable housing in Point Breeze. Council is considering a 1 percent impact tax on all new construction.
Angelita Ellison testified before City Council members Wednesday about the difficulty finding affordable housing in Point Breeze. Council is considering a 1 percent impact tax on all new construction. Read moreJULIA TERRUSO/ Staff Writer

A tax on new construction to fund affordable housing moved one step closer to passage Wednesday despite pressure from the city's building trades to abandon the plan, concerns from the Kenney administration about its effect on businesses, and criticism from housing advocates who said the levy could end up benefiting wealthier Philadelphians.

The 1 percent tax, which would be placed on most new construction, could raise up to $19 million a year for affordable housing at a time when the city is experiencing a dire shortage, proponents of the bill said.

"We think this is going to give a significant boost to our entire city, not just Center City, where the market is going through the roof," Council President Darrell L. Clarke said. "I think it's an awesome program. It's Philly-first. While we're excited about new people in the city, at some point we have to address the needs of people who are here."

In a fiery letter to Council, however, John "Johnny Doc" Dougherty, head of the city's building trades unions, on Wednesday called the tax "ill-conceived" and its timing "dumb."

It "would have the net effect of ending the recent prosperous run of new construction that is transforming neglected sections of the city," Dougherty wrote.

Dougherty said the unions are open to "radically altering or eliminating" the 10-year tax abatement but argued that the 1 percent tax was anti-business and could deter new business, including possibly Amazon, from setting up shop in the city.

The letter had little impact on Council's Finance Committee, which voted, 6-3, to advance the measure to the full Council for approval.

Councilmen Allan Domb, Bobby Henon and David Oh voted against the bill.

The revenue generated by the tax would go to the Housing Trust Fund and could be used by nonprofit or private developers to build housing or rental units for people making up to $105,000 per year (120 percent of the regional area median income of $87,500 for a family of four). The money also could be used for a down-payment assistance program the city hopes to create and for housing preservation.

In addition, developers could choose to pay more money into the fund in exchange for zoning bonuses.

Several advocates of the tax worried the income threshold was too high to benefit Philadelphians who struggle the most to find affordable housing.

"We've been fighting for three years to try to get more money into the Housing Trust Fund," said Nora Lichtash, executive director of the Women's Community Revitalization Project. "The great news is, legislation was introduced to try to do that. … The bad news is it's going to mean big bucks, but there's no guarantee it will go toward affordable housing."

Lichtash's group, along with Community Legal Services, the Philadelphia Association of Community Development Corporations, and a half-dozen agencies, argued in testimony Wednesday that 50 percent of the benefits of the tax should go toward Philadelphia's poorest — people making 30 percent or less (about $26,000) of the area median yearly income. The city's median income is $37,000.

Councilwoman Cherelle Parker said the higher threshold can help strengthen "middle neighborhoods," which make up most of the Ninth Council District she represents.

"People don't realize that affordable housing is preserving the housing that you currently have," said Parker, who voted for the tax. "Folks think about new development as affordable housing, but I think that's very shortsighted, and it doesn't take into account neighborhoods with aging infrastructure, so we want to ensure Philadelphians have access to revenue to improve and preserve our existing housing stock."

As the city experiences one of its biggest development booms in recent history, the availability of affordable housing has suffered. A study by the Federal Reserve Bank of Philadelphia found that between 2000 and 2014 one-fifth of the city's affordable units were lost. In the years since, average rent and median home prices have increased in most neighborhoods. At the same time, 42 percent of renters in the Philadelphia Metro area make less than 50 percent of the area's median area income, a HUD study found.

The Philadelphia Housing Authority has a lengthy wait-list for people seeking public assistance. When a new PHA development opened up in Strawberry Mansion three years ago, 400 people applied for 12 units, some lining up at 1 in the morning.

The tax would go into effect in January 2019 and would be assessed on the total cost of construction  or improvements as reported on building permits.

Members of Kenney's administration cautioned against the bill on Wednesday.

David Perri, who heads the Department of Licenses and Inspections, said the value of a project, as reported on a permit, can fluctuate widely over the course of construction. Perri also said his staff didn't have the capacity to go through every building permit (about 22,000 are issued in a year) to ensure the tax is enforced properly.

Harold Epps, director of the Department of Commerce, said the tax could stifle development, "create more scarcity and further exacerbate affordability problems," and affect Philadelphia's chances at Amazon's HQ2. The city is one of 20 the company is considering.

"This type of legislation hampers the business environment, works at odds with our business attraction efforts and makes it more difficult to grow jobs in Philadelphia," said Epps, who asked for more time to evaluate alternative solutions.

Councilman Bill Greenlee pushed back on a delay.

"We keep hearing, 'We need more time and we need to look at this longer,' " Greenlee said. "I guess my point is, folks are waiting for affordable housing, too."

Mayoral spokeswoman Deana Gamble said the testimony of Epps and Perri "represent the mayor's stance."

Under the bill passed out of committee Wednesday, nonprofits such as museums and universities would be exempt. But affordable housing built with federal low-income housing tax credits would be on the hook for the tax.

That would include a development like Project HOME's recently opened Ruth Williams House at 2415 N. Broad St. in North Philadelphia. The $24 million development would have required Project HOME to pay $240,000 if the tax were in effect. In eight hours, more than 1,000 people lined up for the 88 apartments, Jennine Miller of Project HOME said at the hearing, asking for an exemption or tax credit for affordable housing developments.

The hearing lasted four hours and included more than 20 speakers. Among them was Angelita Ellison, 35, who asked Council members to adjust the income threshold to ensure families living below the poverty line, like hers, are prioritized. Ellison lives in her mother's two-bedroom home in Point Breeze, where she shares a room with her 12-year-old son. She's been trying to find a place of her own for years.

She works as a seasonal clerk for LIHEAP, making $14.91 an hour. Most of the two-bedroom apartments in the neighborhood are around $1,200, more than she can afford.

"I've been in that house for 16 years, I keep looking for somewhere I can move us to," Ellison said in an interview. "I want to do better for me and my son, but it feels like every day it keeps getting more expensive."

Staff writer Holly Otterbein contributed to this article.