Changes to Philly’s 10-year tax abatement could come before the end of the year

With less than a month left in the current City Council term, a push is underway to change Philadelphia’s controversial 10-year tax abatement for new construction.

Two bills will be introduced Thursday that would reform the existing abatement, according to sources familiar with the legislation. Their introduction will set off a rush of negotiations and deliberations to get to a final vote before Council’s last meeting of the year on Dec. 12.

While several other proposals to change or eliminate the abatement have previously been introduced, the bills coming Thursday focus on limiting the abatement for new residential construction while leaving the tax break untouched for commercial properties and rehabilitation projects, according to sources familiar with their content. The bills, first reported by PlanPhilly, will be introduced on behalf of Council President Darrell L. Clarke.

“Following months of review and collaboration, members of City Council are considering scenarios concerning changes to the city’s tax abatement policy as it pertains to new residential constructions in the short and long term,” Clarke said in a statement Wednesday.

The tax break, which exempts owners of all newly built or rehabilitated properties from paying taxes on the value of the new construction for the first decade after it is complete, was implemented as a development incentive. Its supporters say it pays for itself by expanding the city’s tax base over time. Its critics say it takes much-needed tax money away from the city and School District, and accelerates gentrification and its impact on long-term residents.

Clarke has said this year that changes to the abatement were a top priority for Council. In a statement Wednesday, he said he spent time working with his colleagues as well as Mayor Jim Kenney “to find common ground on important reforms.”

One of the bills would cap the value that can be exempt from taxes under the abatement; Council commissioned a report by Econsult Solutions Inc. that examined the potential impact of various caps between $200,000 and $500,000, according to sources familiar with it.

The other bill would phase out the abatement, reducing it by 10% each year it is in effect. It would be a 100% break in its first year and 90% in the second year, decreasing to 10% by the final year.

Both proposals would apply only to new construction of residential properties, leaving the abatement for commercial and industrial properties unchanged.

“The good news here is that we’re leaving the commercial abatement — which is a job creator — we’re leaving that in place,” said Councilman Allan Domb. “And I think that is very, very important, because we do need to increase the number of jobs in the city.”

Sources said the bills also would not amend the abatement for rehabilitation projects, in an effort to encourage property owners to revitalize existing buildings instead of letting them fall into disrepair or demolishing them and rebuilding.

Kenney’s office received drafts of both bills Wednesday afternoon and had not yet reviewed them, said spokesperson Mike Dunn.

“The mayor remains committed to further discussions with our colleagues on City Council about the future of the abatement, including proposals that would see it modified, and we expect a robust debate,” Dunn said in a statement.

Kenney has said that he supports leaving the abatement intact because it serves as a development incentive, but also said this year that he would sign a bill amending it if Council passed one.

Councilwoman Helen Gym, an advocate of changing the tax break, said she was proud Council is poised to act on the issue before the end of this term and said she is open to considering either bill.

“This is the first time that the tax abatement has seen some evolution in almost two decades, and there’ll have to be some robust discussion internally about how people want to see it evolve,” she said.

Four new members will join Council in January, including Kendra Brooks of the Working Families Party, who ran on a platform to eliminate the abatement.

“If people are interested in reform, they probably want to move on it now,” said Gym, who endorsed Brooks. “I think if we wait until January, you’re likely to see a push for a full repeal of it.”

While Brooks’ arrival, along with three Democratic newcomers, may place pressure on Council to pass more progressive policies, Council members interviewed Wednesday said the current negotiations are not due to a rush to make changes before the new members arrive. Passing legislation at the end of a term is typical, they said.

“All bills die” at the end of the year, Councilman Kenyatta Johnson said. “And that’s what I think it’s more about, as opposed to new members coming in.”