New Abatement Cut, Coupled with Previous Residential Abatement Reform, Would Generate $347 Million in New Revenues for City Services and Schools
Philadelphia, PA – Legislation was introduced in Council today to reduce the real estate tax abatement for commercial construction, a reform that, coupled with a previous reduction to the tax abatement for residential construction, will combine to generate $347 Million in new revenues for essential city services and Philadelphia’s public schools.
The new tax reform would reduce the abatement by 10 percent for new commercial or industrial construction. Over the next 10 years, this reform of the commercial tax abatement will generate an estimated $83 Million in revenues for city services and schools.
Last year, City Council approved a sweeping reform to the real estate tax abatement for new residential construction. That reform, signed into law by Mayor Kenney, rolled back the residential abatement on new construction by 10 percent per year, and will generate an estimated $264 million in new revenues for city services and schools over the next decade.
The two tax abatement reforms combined together will generate an estimated $347 million in new revenues for the city and School District of Philadelphia. The revenue from the reforms will also help pay the debt service for a planned $400 Million bond issue to address a wide array of economic and racial disparities and needs revealed by the COVID-19 pandemic.
“The COVID-19 pandemic has revealed deep disparities in our city and society,” said Council President Darrell L. Clarke. (5th District) “We need more affordable housing for our citizens. We need renter protections for people facing evictions. We need more funding for our schools so our children receive a quality education. Everyone must pay their fair share in address these deep-seated problems. The residential and commercial development community, which has benefitted greatly from the existing tax abatement program, must be part of the solution.”
The commercial tax abatement reform legislation, introduced today by Council Majority Leader Cherelle L. Parker (9th District) at the request of Council President Clarke, would reduce the 100 percent abatement on new commercial construction to 90 percent for projects that apply as of January 1, 2021.
Revenues from real estate taxes paid in Philadelphia are split between the city, which receives 45 percent of revenues, and schools, which receive 55 percent. If the commercial tax abatement reform is approved by Council and signed by the mayor, it will generate an estimated $45.6 Million for schools, and $37.4 Million for city services.
The residential tax abatement reform, which is already slated to go into effect on January 1, 2021, will generate $145.2 Million more in revenues for schools, and $118.8 Million for essential city services.
Both abatement reforms combined will generate an estimated $190.8 Million in additional revenues for schools and $156.2 Million for city services over the next decade.
Earlier this Fall, Council leaders introduced legislation creating a 1 percent construction tax, coupled with a delay in the residential real estate tax abatement reform, all as a way of helping to finance a bond issue of up to $400 Million to pay for thousands of new units of affordable housing, additional protections for renters from evictions, and other services badly needed to address economic and racial disparities revealed by the COVID-19 pandemic. That legislation remains pending.
Council leaders are in negotiations with the Kenney administration over the best way to finance that bond issue to pay for these essential resources for city services and to improve public education in Philadelphia.
“Strengthening Philadelphia’s tax base, growing our economic pie, and creating access to the kinds of opportunities that will allow us to do so much – especially for people in marginalized communities – must be our number 1 priority,” said Cherelle Parker. “Now is the time to double down on housing preservation, neighborhood revitalization and commercial corridor revival. COVID-19 has heightened these challenges. We must be intentional about investing in our neighborhoods because they are the lifeblood of our city.”
The Council legislation around tax abatement reform, and the negotiations around a large bond issue to pay for critically needed investments in city neighborhoods, comes at a time when the COVID-19 pandemic has left tens of thousands of Philadelphians unemployed, pushed more city residents into poverty, and exacerbated Philadelphia’s chronic problem of more than 400,000 residents living in poverty.
Just last week, Council gave final approval to a $10 Million appropriation that will help fund the Poverty Action Fund, a joint public-private partnership between the city, the business and non-profit communities to devise action steps to help lift 100,000 people out of poverty over the next four years.
“Philadelphia City Council is committed to public-private partnerships that measurably reduce poverty for thousands of Philadelphians. In the New Normal, all of our neighbors deserve access to quality affordable housing and thriving commercial corridors built upon family-sustaining jobs,” added Councilmember Maria Quiñones Sánchez (7th District).
When Council first announced plans for a $400 Million bond issue this Fall, it cited the need to fund thousands of units of affordable housing, resources to protect renters from eviction, funds to clean neighborhood commercial corridors, and many other urgent needs of citizens revealed by the pandemic.
“Our citizens need help and city resources and they need it now – not years from now,” Clarke said. “We need to think creatively and act boldly to generate the kinds of resources necessary to make sure people have an affordable place to live, access to healthy foods and health care, and their children receive a quality education in our schools. There is literally no time to waste and we need every hand on deck. This abatement reform legislation is a step in the right direction.”
Read the legislation: CP Clarke Commercial Abatement Reduction.11.18.20
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