About 60% of Philadelphia property owners enrolled in the city’s biggest tax break for homeowners will see increased property tax bills next year under a compromise tax plan hashed out by City Council members and Mayor Jim Kenney’s administration late Wednesday night, an Inquirer analysis found.
The increases are being driven by the first citywide property reassessment in three years, which saw residential values jump 31% on average, and Council members have fought to soften the impact on homeowners.
Under the tax plan that came together in last-minute city budget negotiations, the property tax rate of 1.3998% would stay the same. But the homestead exemption, which reduces the taxable value of owner-occupied homes, would increase from $45,000 to $80,000.
Without an increase in the homestead exemption, 96% of owners enrolled in that program could have seen higher tax bills, The Inquirer found. Kenney initially proposed increasing the exemption to $65,000, which would have led to taxes going up for 84% of those properties.
At Wednesday’s virtual committee meeting, lawmakers also approved cuts to the wage and business taxes, and amended Kenney’s $5.6 billion budget proposal to include several substantial funding increases, including $15 million in rental assistance, $5.8 million more for the public defenders’ office, and an extra $5 million for police forensics.
The approval by the Committee of the Whole, which includes all Council members, set up a final budget vote at Council’s June 23 meeting, the last before lawmakers adjourn for the summer.
This year’s focus on taxes was prompted in part by the first citywide property reassessment in three years, which saw residential property values increase 31% on average and much more in rapidly gentrifying areas.
Kenney in April proposed increasing the homestead exemption to $65,000, and some lawmakers, including Councilmembers Kenyatta Johnson and Brian J. O’Neill, have since pushed to increase it to its legal maximum of $90,000. Under that plan, only 40% of owners with homestead exemptions would have seen their property taxes increase, The Inquirer analysis found.
But a majority ultimately supported the $80,000 compromise, primarily out of concern for the tax break’s impact on the School District of Philadelphia, which gets 55% of property tax revenue.
The increase in the homestead exemption will cost $47.8 million in next year’s budget.
Johnson said the budget deal “represents investments in Philadelphia to move our city forward,” applauding its investments in antiviolence spending and the elements of his “Save Our Homes” property tax relief plan that made it into the final compromise. Those measures, he said, will “help reduce the property tax burden for homeowners throughout Philadelphia and make property taxation fairer and more transparent.”
The most surprising news on the final day of negotiations was the last-minute majority that emerged to cut the business income and receipts tax on net profits from 6.2% to 5.99% — the result of a vocal lobbying effort by the city’s chambers of commerce. The business tax cut will cost the city $13.6 million next year.
Councilmember Isaiah Thomas, who introduced the cut, said he was motivated by one question: “How do we put people in a position to provide a quality living for themselves as well as their family?”
The compromise plan also included a small cut to the wage tax, proposed by Councilmember Katherine Gilmore Richardson, lowering the rate from 3.8398% to 3.79% for city residents, and from 3.4481% to 3.44% for people who work in Philadelphia but live outside the city limits. Overall, those cuts amount to a $20.5 million reduction in next year’s budget.
The talks came down to the 11th hour: Council needed to move the taxing and spending legislation out of committee before its Thursday morning meeting in order to approve the budget by the time the current budget expires at the end of the month. The new budget would start July 1.
Members of the Kenney administration worked with lawmakers to approve the budget in a process overseen by Council President Darrell L. Clarke that was notable for its unusually low level of friction between the executive and legislative branches.
Philly is the only large U.S. city with a municipal legislature that is still meeting remotely, and Council members conducted the negotiations in a series of phone calls.
“I had to charge up my phone like five times today,” Clarke said in a speech at 11 p.m., “but it’s all good.”
Almost all the committee votes Wednesday night were unanimous voice votes, but progressive Councilmembers Helen Gym, Kendra Brooks, and Jamie Gauthier voted no on the wage and business tax cuts.
The budget deal represents a win for the business community, which has for several years seen its influence in City Hall wane as the city’s progressive movement has grown in power.
“Tonight we saw bold leadership from City Council,” said Sue Jacobson, chair of the Chamber of Commerce for Greater Philadelphia. “Their decision to cut taxes for job creators is a clear signal that Philadelphia is committed to restarting its economy after COVID and increasing the number of people working in the city.”
Council’s progressive trio of Gym, Brooks, and Gauthier were largely sidelined from the final round of negotiations over taxes. Many of their spending priorities, however, made it into the final budget, including rental assistance and quality-of-life issues like abandoned car removal. Brooks’ signature “wealth tax” proposal never received a vote.
In a speech explaining her votes against the wage and business tax cuts, Gym said: “We have spent far too much time catering to powerful interests and the Chamber, rather than the 100,000 families in the School District of Philadelphia.”
Gauthier said she voted against the tax cuts because they benefited large corporations and weren’t targeted for small or minority-owned businesses, despite a lobbying campaign that emphasized their benefit for disadvantaged businesses.
“The tax cuts were always pitched to us as about small business,” Gauthier said. “These are cuts that would benefit much larger businesses, too, and at a time when we’re trying to rebound.”
Meanwhile, several members who are considering running in next year’s mayoral race played central roles in the negotiations, including Majority Leader Cherelle L. Parker and three members who have long championed reforming the business tax: Derek Green, Allan Domb, and Maria Quiñones-Sánchez.
“This was not an easy budget,” Parker said in a statement that highlighted boosted funding to policing and quality-of-life issues. “We are approving property tax relief measures to mitigate the effects of the reassessments. We’re approving reductions in wage and business taxes — to provide badly-needed relief to small neighborhood businesses.”