The threat of a mayoral veto drove Philadelphia City Council to inject a last-minute change into a bill to reform the 10-year property tax abatement, setting up a final vote on the proposal next week.
On Thursday, City Council advanced a proposal to phase out the subsidy incrementally for residential construction, with the legislation going into effect on Dec. 31, 2020.
City Council originally planned for the legislation to go into effect on July 1, 2020, but Mayor Jim Kenney lobbied legislators to push back the start date by six months, saying in an early morning letter he would use his veto pen to kill the proposed bill if they ignored his request.
“Please know that if Council were to pass this Bill as currently proposed I will not sign it, and it will not become law,” Kenney said. “If that were to happen, I look forward to working with you and the other members of the new Council on this issue in 2020.”
Kenney contended the earlier date would negatively impact development projects currently on track to move forward next year and result in a deluge of building permit requests in the run up to the date. The new date would give his administration more time to transition to the proposed laws.
Council President Darrell Clarke, the main sponsor of the bill, hedged to save his proposal, saying in his own letter to Kenney that the amendment was a compromise in light of the administration’s previous request to move the start date even further back to July 2021.
“That’s called good government,” Clarke said on the floor of the council chambers inside City Hall.
Clarke said Kenney’s ultimatum would not sour their political relationship, but dodged questions about how it might affect the full council.
“It didn’t damage his relationship with me,” he said. “That’s all I can speak about.”
The proposal would reduce the overall tax break by nearly half and generate an estimated $270 million in city revenue over a decade. If passed, it would be the most significant change to the subsidy since it was adopted in its current form in 2000.
At-large City Councilwoman Helen Gym, a Democrat, was the lone legislator to vote against the amendment.
“It’s embarrassing for our Mayor and City to freak out about tax subsidy reform while residents are being displaced and schools crumble,” Gym tweeted.
“It’s been a two decade free ride for development community on a 10 year abatement that is the most expansive in the nation,” she continued.
While Clarke collected enough co-sponsors for his bill to overcome a mayoral veto (12 votes), City Council did not have enough time left in its term to do that. The last meeting of this City Council’s term is Dec. 12. Any bill not passed into law before the end of this year dies, and the new City Council sworn in next month will have to decide whether to revive it.
Councilwoman Cindy Bass, a Democrat who previously proposed a bill to end the tax abatement, she was “disappointed” by Kenney’s veto threat.
Bass contended Kenney unexpectedly leapfrogged legislators with his ultimatum, saying most council members believed the proposal’s original start date was too soon. But legislators agreed to hold their amendments to the reform bill until a new council convenes next month, hinting the push to reform the abatement program could stretch into the new year.
“Now we’re only having a partial conversation,” she said.
The amended proposal received a first reading on Thursday. City Council is expected to have a final vote on the legislation next Thursday.
Under the proposal, owners of new residential properties would pay no property taxes in the first year, 10% in the second year, 20% in the third year and so on until they are paying the full tax assessed on the property.
Under the proposed bill, an independent expert also would evaluate the impact of the tax abatement on the real estate market for residential and commercial properties, as well as draw up recommendations for future modifications every three years.
The 11th-hour compromise thwarts the opportunity for the four new City Council members elected in November to influence reforms to the tax abatement and potentially further diminish the decades-old subsidy.
Kendra Brooks, a member of the Working Families Party who won an insurgent campaign for an at-large seat, and Jamie Gauthier, a Democrat who won the election in the 3rd District, both ran on platforms to repeal the tax abatement.
While the Kenney administration supported changes to the tax abatement, an administration official this week said the draft bill would trade short-term revenues for long-term losses.
Clarke’s bill was estimated to increase real estate tax revenues by $56 million by 2030, but lead to a loss of more than $15 million and cut construction volume by 28,000 new properties by 2040, Kenney administration officials said. The current tax abatement has boosted construction, investment, and tax revenue in Philadelphia, Kenney administration officials have maintained.
City Council also advanced a companion bill to increase the city’s homestead exemption to $50,000 from $45,000 over the objections of the Kenney administration. The program is for homeowners who use their property as a primary residence and reduces the taxable portion of a property’s assessment by that amount.
Increasing the homestead exemption will cost upwards of $15.4 million, $8.5 million of which the school district would lose out on, Kenney administration officials said this week at a council committee hearing.