City Council Poised to Modify Real Estate Tax Abatement Program: Limited time to Express your Views
BACKGROUND: Approximately 20 years ago, Philadelphia enacted a real estate tax abatement program designed to spur real estate development in the City. Under that program, new construction, as well as improvements to residential, commercial, and industrial properties, are eligible for a 100% exemption from real estate taxes on the improved portion of a property (i.e., not the assessed value of the underlying land), for a period of 10 years. Recently, the abatement program has been under attack. The principal argument against the existing program is that it is no longer needed (i.e., development will take place with or without the abatement), and it is costing the City too much in foregone real estate taxes, 55% of which goes to the School District. Additional criticism is that it encourages gentrification, and disproportionately benefits developers and luxury home/condo buyers. Mayor Kenney has stated for the record that he favors no change to the current abatement program, but that if Council passes a reform measure, he will sign it.
PROPOSAL: On November 21, the last day that legislation could be introduced in City Council in time for passage before the next (and arguably more abatement-hostile) Council convenes in January, an abatement reform bill was introduced. Bill 190944 would modify the existing abatement program for abatement applications applied for on or after July 1, 2020, but only with respect to new residential construction. It does not change the existing program of 10 years of 100% tax abatement on the improved portion of the property for rehabs and commercial and industrial properties. For new residential construction, the new program would still run for 10 years, but the value of the abatement would be reduced over time, starting at 100% exemption on the improved portion of the property in the first year, but decreasing by 10% in each subsequent year, so that in the tenth year, the abatement is only 10% and, thereafter, the exemption terminates. Notably, the Bill has a "Periodic Evaluation Requirement," requiring the retention of "an independent expert," at least once every three years, to evaluate the specific impact on the real estate market resulting from the modifications to the abatement program, as well as the overall impact of the unchanged exemptions for rehabs and commercial and industrial properties.
OPPORTUNITY TO WEIGH IN: Fifteen of Council's 17 members were co-sponsors of Bill 190944. On Tuesday, the entire Council membership, sitting as the Committee of the Whole, held a 4-hour hearing, during which, among other things, many amendments were suggested. None of the suggested changes were presented for a vote, and the original version of the Bill was unanimously voted out of Committee. Council's last voting session in 2019 is next Thursday, and it is expected that the Bill will be voted on at that time, after a public hearing. Under Council rules, a bill can be amended on the floor prior to a final vote without sending that bill back to its committee for a further hearing, and it is still possible that this Bill will be amended.
Many members of the CCRA Board believe that the abatement program should be modified. However, given the very limited time between the Nov. 21 introduction of this legislation and the expected Dec. 12 final vote (an obstacle compounded by the intervening Thanksgiving holiday), as well as the numerous possible permutations and combinations of any reform, we were skeptical that a timely consensus could be achieved. Should you wish to weigh in, there are several ways to do so. You can testify at City Council on Dec. 12. The hearing is likely to start at 10:00 am and it would be best to call the Office of the Chief Clerk (215-686-3410) in advance to get your name on the list. Alternatively, you can call or email any Councilperson. Your call or email is likely to be handled by a staff person, but it should be conveyed, at least in summary form, to the Councilperson you are directing it to. Click here for contact information for all Councilmembers. Residents of CCRAville are represented by either Kenyatta Johnson (2nd District) or Darrell Clarke (5th District), and there are seven At-Large Councilmembers who represent the entire City, rather than a specific District.
ADDITIONAL READING: For you policy wonks, on April 20, 2018, Controller Rebecca Rhynhart released a report about the abatement program, looking at its geographical concentration, distribution of its benefits, and developer profitability. Her report also evaluated some potential changes to the program. And in January of this year, the City released a new study of the abatement prepared by the consulting firm Jones Lang LaSalle, which analyzed the impact of 10 different reform scenarios, while also considering a geographic requirement to abatement eligibility.