Philadelphia moves toward creating new construction tax, changes to tax abatement program

Philadelphia is poised to enact a new tax on residential construction and to make major changes to the city’s property tax abatement program under a deal struck by City Council President Darrell L. Clarke and Mayor Jim Kenney’s administration that paved the way for three bills to win approval from a Council committee, reports The Philadelphia Inquirer.

The legislation would be a major victory for Clarke, who has proposed using the revenue from the new construction tax and future reductions in the real estate tax break to finance $400 million in bonds for an ambitious antipoverty and affordable-housing plan he is calling the Neighborhood Preservation Initiative.

The development industry, Kenney, and his political backers in the building trades unions were initially skeptical of the changes, which they feared would slow economic growth in the city, The Inquirer reports. But the administration on Dec. 1 testified in support of the legislative package after reaching a compromise with Clarke that will exempt commercial properties from the construction tax and delay the implementation of reductions in the tax abatement, according to a City Hall source with knowledge of the deal who was not authorized to discuss it publicly.

“The administration appreciates the dialogue we’ve had with City Council on these bills,” Kenney’s deputy mayor for planning and development, Anne Fadullon, told lawmakers. “We believe it’s a good balance of bills.”

The bills now head to the Council floor, where they could come up for final votes as soon as Dec. 10, at Council’s last meeting before its holiday vacation.

The new construction impact tax, which was introduced by Councilmember Cherelle Parker on behalf of Clarke, would take effect in January 2022.

Finance Director Rob Dubow said the tax is projected to generate about $15 million in revenue by its second year and would eventually rise to about $30 million per year. But if the new tax or other factors lead to a 25 percent slowdown in residential construction, the tax would only produce $11 million in its second year, before rising to about $22 million in its fourth year, he said.

The two other bills aim to amend the city’s tax abatement program, which since the 1990s has incentivized development by allowing property owners to pay no real estate taxes on the value of new construction or renovations on commercial or residential buildings for 10 years.