Mayor Cherelle Parker will propose cutting taxes and borrowing $800 million for housing in Philly’s next city budget

Mayor Cherelle L. Parker’s proposal for the next city budget will include cutting Philadelphia’s business tax, spending $100 million more on a new drug recovery center in Holmesburg, and borrowing $800 million for a major housing initiative, according to people who were briefed on what will be included in the mayor’s budget address to City Council on Thursday.

The mayor will also propose increasing the real estate transfer tax and repealing the construction tax when she delivers her high-profile speech in Council chambers, kicking off three months of negotiations between the administration and lawmakers over the fiscal year 2026 city budget, which takes effect July 1.

The Inquirer learned details of the mayor’s $6.7 billion proposal from multiple sources who attended administration briefings on the plan. They shared the information on the condition of anonymity because the mayor’s team did not give them permission to disclose it publicly.

Here are the highlights.

In her first budget proposal, Parker punted on engaging in the decades-long debate over Philadelphia’s unusual tax structure and proposed no tax rate changes. This year, she’s entering the fray.

Parker is proposing a small cut to the city wage tax and major changes to the business income and receipts tax, or BIRT. Those proposals broadly align with the recommendations from a report released two weeks ago by the Philadelphia Tax Reform Commission, which was convened by Council and called for the complete elimination of BIRT in eight to 12 years.

BIRT has two tax rates — one on businesses’ profits and another on businesses’ total revenue, regardless of whether they turn a profit. Parker wants to lower the net income tax on profits from 5.81% to 5.71% next year, and the gross receipts tax from 0.1415% to 0.141%. Those cuts would cost the city $9.2 million next year.

» READ MORE: Mayor Cherelle Parker didn’t want to talk taxes in her first year in office. That’s about to change.

The mayor wants to continue making annual cuts to BIRT, with the goal of eliminating the gross receipts portion and cutting the net income portion in half by 2039.

But there’s also some bad news for Philly businesses in Parker’s tax plans. Citing “legal constraints,” the administration is moving to eliminate a tax break known as an exclusion that effectively allowed all businesses with revenue below $100,000 to forgo paying BIRT.

» READ MORE: What you need to know about the Philly business ‘double tax’ that some city leaders are trying to kill

That proposal, which was likely prompted by a recent legal challenge to the exclusion, would roughly quadruple the number of businesses that must file BIRT returns, producing major headaches for companies across Philadelphia — especially small businesses — at a time when city leaders are trying to make the tax code more business-friendly.

The legal constraints cited by the administration likely stem from a lawsuit filed last year by Zoll Medical Corp., a Massachusetts company that contends the exclusion is illegal under the Pennsylvania Constitution’s “uniformity clause.” It is possible the city is preparing for the likelihood that it will not prevail in that case.

A lawyer for Zoll declined to comment. The case is pending in Common Pleas Court.

Parker is making housing policy a centerpiece of her second year in office in pursuit of her goal of building or repairing 30,000 homes in her first term.

To that end, she plans two $400 million bond issuances — costing $166 million in debt service in the next five years — to support a variety of new and expanded programs. The administration also wants to increase the real estate transfer tax to help pay for the housing initiative, from 3.278% to 3.578% of the sale price or assessed value of a property.

Parker initially planned to unveil her housing plan last fall, but the rollout has been repeatedly delayed. Most of the details of the mayor’s housing policy proposal will not be presented Thursday, and Parker instead plans to go into greater detail in a speech later this month with her newly appointed director of the initiative, Angela D. Brooks. One detail that did emerge Wednesday is that the Philadelphia Office of Planning and Development would receive an $11 million boost over five years to add 32 staff members to execute the new policies.

The administration has also told Council members that it plans to target the programs to lower-income residents because the private market is largely providing for so-called workforce housing. That means Parker’s proposals will largely be focused on those making between 30% and 60% of area median income (AMI), or between $34,410 and $68,820 for a family of four.

In addition, several City Hall sources confirmed that the Parker administration plans to scrap the 1% construction tax, which was championed by former Council President Darrell L. Clarke as a means to pay for myriad housing and community development programs in 2019. Council members were told that the tax was not bringing in much revenue, just $3 million or so annually.

Parker is also set to propose nearly $300 million in additional spending over five years to support construction and operations at the city-run drug addiction recovery house in Northeast Philadelphia, which opened in January and is a key part of her signature plan to end the open-air drug market in Kensington. About $100 million of that money is in this year’s budget.

Council already approved $100 million in funding last year to kick-start building on the site, which is adjacent to the city’s jail complex. When the facility is complete, it is expected to hold more than 600 recovery beds, doubling what is currently available in recovery houses citywide.

Only part of the Northeast complex at Riverview is open now. As of late February, fewer than 50 people were being housed there, according to city officials who testified recently before members of City Council. Patients can be referred to the site after completing a 30-day inpatient treatment program elsewhere, and then can live at Riverview for up to one year.

» READ MORE: How Philly’s new recovery house will serve hundreds of people with substance use disorder

Of the additional funding Parker is expected to propose Thursday, $75 million is capital funding that would go toward continued construction and upgrades at the site, a former personal-care home. An additional $216 million would cover the costs associated with operating the site over the next five years.

The budget proposal includes several other investments in the mayor’s Kensington plan, including funding to expand the city’s nascent “wellness court,” where people arrested for openly using drugs can be diverted to addiction treatment. The court currently operates one day a week, and the proposed spending would allow it to be open five days a week.

Parker is also expected to propose a handful of new investments in public safety, quality-of-life initiatives, and preparedness for next year, when tourists are expected to descend on the city for several major events, including the 250th anniversary of American independence.

The new spending on public safety includes:

Additionally, Parker’s proposal is expected to allocate $100 million over the next year to prepare for 2026, amid concerns that the city has not dedicated sufficient resources to prepare for a year in which Philly will also host the MLB All-Star Game and part of the FIFA World Cup. It includes money for tourism organizations, police and fire supplies, and the beautification of a handful of public spaces.

» READ MORE: Philly’s 250th celebrations risk falling short without more funding and vision, planners say

Staff writer Fallon Roth contributed to this article.