Philadelphia’s tax break for newly constructed and rehabilitated properties has been controversial since it began two decades ago.
But no effort to abolish or alter the 10-year abatement program has been successful.
That could soon change. A majority of candidates running for City Council would like to change or abolish it, according to an Inquirer survey of candidates. Several said changing it would be their first order of business if they were elected.
Voters appear to share their sentiments. An Inquirer poll of registered voters last month found that 57 percent said the abatement is bad for the city, while 25 percent said it is good.
The abatement is a hot topic in the run-up to the May 21 primary for mayoral and City Council races. But it’s possible that change could come even before elected candidates take office in January 2020. Several bills introduced in Council this session would reduce or eliminate the tax break, and Council President Darrell L. Clarke has repeatedly said it’s time for change.
Mayor Jim Kenney, who as an incumbent is favored to win a second term, supports keeping the abatement intact. But he has acknowledged that Council members favor change, and said he would sign legislation to change it if passed.
The abatement currently allows owners of newly constructed or rehabilitated properties to pay no taxes on the improvements for 10 years. Its supporters say it is a needed development incentive that ultimately raises money for the city as the tax breaks expire. Critics say that the city is forgoing critically needed tax revenue, and that it is unfair for owners of new homes to have tax breaks while longtime residents pay full bills and struggle to remain in their homes as neighborhoods gentrify.
Councilman Allan Domb, who is also a real estate developer, said the city must balance the economic impact of the abatement with residents’ feelings about it.
“While economically it might be great for the city to have it, the fact that … real estate taxes have gone up so dramatically for some people, they feel it’s unfair,” he said. In some neighborhoods, taxes jumped more than 10 percent from 2018 to this year, with a fresh round of increases due with the new assessments.
Domb introduced a bill that would scale back the abatement in its last three years, making it the equivalent of an 8½-year tax break. Domb said the modest adjustment would address demands for change. More drastic changes, he said, might come with the risk of a major slowdown in development.
Other pending bills include a proposal from Councilwoman Cindy Bass to eliminate the abatement altogether. Councilwoman Helen Gym’s proposals include a resolution for Council to consider geographic boundaries for the abatement and a bill eliminating the school portion of the abatement, so property owners still would pay school taxes on the full value of the property; one that gradually reduces the abatement by 10 percent a year; and another bill that would cap the value of abatements.
“This is a big conversation of where our city is going, how it’s going to look over the next 10 to 20 years, and we have an opportunity to have a say in that visioning for it,” Gym said. “But there are too many families all across the city of Philadelphia who believe and fear … that growth means displacement and that they won’t be a part of that growing Philadelphia.”
City Council passed the 10-year abatement in 2000 as a means of encouraging development — and the city has experienced a building boom since it began.
Councilman Kenyatta Johnson, who is running for reelection in the 2nd District, said he is worried that rapid residential development, aided by the abatement, is speeding gentrification in such neighborhoods as Point Breeze, which he represents.
“The residential [abatement] is what my neighbors have an issue with, because they feel like it’s unfair. They lived in the neighborhood all their lives," he said.
Johnson said he would support changing the abatement to apply to commercial development, but not residential. Such a change would require a change in state law. Johnson is running against challenger Lauren Vidas, who also indicated in The Inquirer’s survey that she supports reforming the abatement.
Deja Alvarez, a Democrat running for an at-large City Council seat, said she would like to eliminate the abatement to help residents in gentrifying neighborhoods and to more quickly raise revenue for schools.
“I’m not saying I want to stop progress, but there’s a difference between progress and gentrification," she said.
Last year, the Kenney administration commissioned a study of the abatement and possible tweaks to it. The report, by the real estate consulting firm Jones Lang LaSalle, examined 10 scenarios, including eliminating the abatement immediately, changing its length, and capping the abatement amount for residential properties. The alternatives, the report found, all “result in less revenue and fewer jobs in the long term, compared to the existing program.”
Harrison Morgan, a spokesperson for Kenney’s campaign, said the mayor “remains open to discussing the abatement’s future with both current and future members of Council. Encouraging inclusive growth in our neighborhoods while maximizing revenue for the school district is the mayor’s priority.”
Justin DiBerardinis, a Democrat running for an at-large Council seat, said the policy was needed to encourage development when the abatement was put into place. But now he’d like to eliminate it.
While it was “the right policy” for the 1990s, he said, "I don’t think there’s any way it can be the right policy for the Philadelphia of 2019.”
DiBerardinis said he would propose different tax breaks, such as an abatement for low-income or working-class first-time homeowners, and a break for new construction that "is pursuing the highest standards of sustainability and preparing this city for the reality of climate change.”
Republican at-large candidate Dan Tinney said he thinks the abatement has become “a victim of its own success." Tinney, a member of the steamfitters union, said he would like it to remain as is, noting that the city benefits from increased real estate transfer taxes, wage taxes, and other revenue as a result of construction projects the abatement attracts.
“A lot of buildings wouldn’t have gotten built if it wasn’t for that tax abatement,” he said. “And it’s over 10 years old so that money right now is flowing into the general fund and the school district. So it’s going to be positive for revenue for the school district; it’s just going to take time.”
Domb acknowledged that opinions are strong on both sides; some have criticized his proposed legislation as changing the abatement too drastically, while others have told him it doesn’t change it enough. He said Council may need to make one reform, and reevaluate it in a few years.
Gym, meanwhile, said she is hopeful that Council members and candidates are talking about the issue.
“I think that the tax-abatement conversation is probably the most important conversation that City Council should have," she said, “and needs to have this spring and this session."