Expect changes to Philadelphia 10-year tax abatement by year’s end.
That was the prediction made by Philadelphia City Council President Darrell Clarke, who endorsed modifying the tax break on Thursday.
“Is a 10-year, 100% tax abatement still needed in the city of Philadelphia? I would say absolutely not,” Clarke said during an interview with Vincent Thompson on WURD radio’s Political Source.
Clarke’s comments set the stage for the first session of City Council on Sept. 12 after a months-long summer break.
The Democrat, who represents the 5th District, said he was encouraged that “all interested parties” have expressed a “need and a willingness to be a part of the debate.”
But Clarke stopped short of saying the abatement would cease to exist — a dream of some affordable housing activists in the city, who say the abatement fuels gentrification and is a handout to developers.
“I’m not saying that the 10-year tax abatement will come to an end,” Clarke said. “I’m saying there may be some changes.”
Clarke spokesman Joe Grace declined to reveal specific changes to the subsidy that the council president would endorse in a followup interview with the Tribune.
A handful of council members have already proposed legislation taking on the abatement, from tweaking it to killing it.
Yet for all the bluster around the issue from some council members, City Council has neither held hearings nor voted on any legislation proposed during the last 18 months.
That’s expected to change, Clarke said, noting the abatement was costing the city and school district money.
“I will be surprised, in all honesty, if we don’t have a vote,” Clarke said during the WURD interview.
Clarke said during the WURD interview that his top legislative agenda also includes addressing poverty, the zoning code and gun violence.
The 17-member body is entering the final months of its 4-year term. So Clarke’s deadline is significant: Any lingering legislation from this current cohort will die after the final Dec. 12 council session. A new council will take office in January.
In place for more than two decades, the citywide tax abatement program exempts property owners from paying all city and school taxes for a decade on the added value from new construction or rehabilitation of residential and commercial properties.
But a property owner must still pay taxes on the value of the land.
Rob Wonderling, president of the Chamber of Commerce for Greater Philadelphia, said in an email that the 10-year tax abatement has attracted hundreds of million of dollars of new investment to the city and created jobs.
The chamber nonetheless supported reforming the program, which included shortening the duration of the tax break and reinvesting some of the revenue in job creation, underserved neighborhoods, and public safety, among other things.
“But as the city changes, every program should be reviewed and reconsidered,” Wondering said.
A spokesperson for the Building Industry Association of Philadelphia said the industry group had no comment about potential changes to the tax break.
A 2018 study of the city’s abatement from the Kenney administration found the long-term benefits of the abatement outweigh the short-term loses in revenue. The study found that new construction accounted for about 53% of all abatements in 2017.
Mike Dunn, a Kenney spokesman, said in an email that the administration was “absolutely open to discussions with Council members on revising the abatement,” but the mayor’s support for any changes depend on the specifics of the proposal.
In fiscal year 2019, the estimate for foregone property tax revenue from the 10-year tax abatement was $48 million for the city and $61 million for the school district.
District 8 Councilwoman Cindy Bass, a Democrat, said her legislation, which would eliminate the controversial tax break altogether, was the “most equitable form of tax reform that we can have in the city of Philadelphia right now.”
“We’ve just been giving away these [city] services to people without cost to people who enjoy the exact same services as those who are paying,” Bass said. “There is a time when it was needed and there is a time for it to go away.”
At-large Councilwoman Helen Gym said in an email that changing the subsidy would provide a fairer tax policy. Gym has has introduced legislation that would chip away at the amount of exempted property taxes every year, among other changes.
“It’s long past time for an end to the tax abatement as we currently know it and I’ll be supporting a radical overhaul of this subsidy whether it’s through one of my bills or a consensus bill,” said the Democrat.
At-large Councilman Allan Domb, a Democrat who owns a real estate brokerage firm, said he was concerned about the negative financial impacts of suddenly eliminating the abatement, such as on job growth. He has proposed legislation to pare down the size the exempted real estate taxes during the final years of the tax break.
As some financial indicators predict an economic downturn and slower real estate market, Domb said there are many unknowns when it comes to tinkering with the abatement.
“Nobody really knows the impact,” he said about changing the abatement. “Who wants to take the risk?”