Philadelphia city council to consider delaying tax abatement changes, adding a new construction tax

Philadelphia city council to consider delaying tax abatement changes, adding a new construction tax

The moves would set up a renewed fight over whether Philadelphia should focus more on stimulating development or increasing its own revenue.

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October 15, 2020

The Philadelphia City Council will consider delaying reductions to the 10-year tax abatement for three years, as well as adding a one percent tax on new construction that would fund antipoverty initiatives, reports The Philadelphia Inquirer.

The moves would set up a renewed fight over whether Philadelphia should focus more on stimulating development or increasing its own revenue.

Proponents of the controversial 10-year abatement say it creates jobs and helps long-term growth of the city’s tax base, while opponents say it costs the city millions of dollars per year in revenue and accelerates gentrification. And while advocates for a construction tax say it would fund affordable housing and other initiatives, developers warn it would stifle their industry.

Both bills have the support of Council President Darrell Clarke and are expected to be introduced Oct. 15.

The tax, levied on the cost of construction, would generate at least $20 million per year, according to a source with knowledge of the plan. The city would then issue a $400 million bond to support programs such as affordable housing, rental assistance, workforce development, and investments in commercial corridors.

The construction industry successfully lobbied against a 2018 effort to implement a one percent tax on construction. The bill narrowly passed City Council and was then withdrawn in favor of a compromise with Mayor Jim Kenney, who is an ally of the building trades unions.

The new plan is similar to the 2018 bill and would take effect in July, according to a copy of the legislation obtained by The Inquirer.

Developers have been rushing to propose construction projects ahead of the changes, which would exempt 100 percent of the value of new construction from property taxes the first year after it is complete, followed by a 10 percent reduction in the tax break every year after that.

As of Oct. 1, the city had received only 500 applications for new residential construction, city spokesperson Mike Dunn said, compared with 2,800 applications processed last year.

Despite objections from progressive activists last year, the tax abatement for commercial development remains intact, exempting 100 percent of new value from taxes for a full decade.

Delaying changes to the residential abatement could face opposition from those activists as well as progressive City Council members who have advocated for its total elimination. Councilmember Kendra Brooks introduced a bill in June that would entirely eliminate the 10-year abatement for both residential and commercial construction.