Business tax cuts and housing bonds: Mayor Cherelle Parker and Philly Council reach $6.8 billion deal for the next city budget

After two days of nearly around-the-clock negotiations, Philadelphia City Council members on Thursday afternoon gave preliminary approval to a $6.8 billion city budget and almost all of the legislative proposals related to Mayor Cherelle L. Parker’s signature housing plan.

In the end, lawmakers green-lit wage and business tax cuts proposed by Parker in March as well as the mayor’s request for $800 million in borrowing authority to support her Housing Opportunities Made Easy, or H.O.M.E., initiative, which aims to create or preserve 30,000 housing units.

“At a time of real uncertainty in our country, this budget makes substantial, bold investments in the programs we need most to make Philadelphia the safest, cleanest and greenest big city in America,” Parker said in a statement.

Looming over the negotiations were President Donald Trump’s repeated threats to cut federal funding to so-called sanctuary cities, including Philadelphia, that decline to assist federal immigration enforcement. Those cuts have not yet materialized, however, and budget negotiations largely proceeded as usual.

Council President Kenyatta Johnson had hoped to advance the budget and housing legislation out of committee Wednesday, but he and Parker’s team reached an impasse in negotiations over Council’s role in overseeing how the bond money got spent.

He sent lawmakers home at 1 a.m. Thursday after lengthy closed-door negotiations, called them back hours later for a full day of meetings, and had to employ procedural tricks to ensure the major proposals stayed on track to pass before the start of the next fiscal year July 1.

Council will convene again on June 12 for a final vote on the package.

The final sticking point was a provision Council added to the H.O.M.E. bond authorization that gave lawmakers additional oversight on how the money is spent.

Once that issue was resolved with a compromise version of the oversight language, it became clear that Parker largely got what she wanted from her second budget since she took office last year.

Johnson, who also assumed his office last year, stressed that he and Parker worked together on the budget.

“We’re working in partnership with the administration on the H.O.M.E. program,” he told reporters Thursday. “It’s a great accomplishment today in terms of how we’re going to address the housing crisis here in the city of Philadelphia.”

Many expected Johnson to insist Parker accept more aggressive cuts to the business income and receipts tax. But he said Thursday that Parker’s plan — which involves modest cuts at first, but an unusual 13-year schedule of reductions that will take effect without additional action from future Councils — was “a step in the right direction.”

“The tax cuts that we have put forward, working in partnership with the mayor, are codified,” he said, “so it definitely signals that the city of Philadelphia is open for business.”

Parker was eager to dismiss the notion that the administration walked away from the budget negotiation table with more than Council, saying “nothing frustrates me more” than when people try to drive a wedge between the city’s legislative and executive branches.

Parker said she failed to get Council to agree to some of her goals, and that negotiations were not “kumbaya at all times.”

“It wasn’t an us-versus-them, or an ‘I won,’ or a ‘he won,’” she said. “If anyone tells you that Mayor Cherelle Parker got everything she wanted out of this budget process, I know they weren’t anywhere near it.”

The negotiation logjam broke Thursday afternoon when the Finance Committee approved an amendment to the housing bond authorization bill that included a compromise version of a provision ensuring Council’s oversight of bond spending.

Council had initially proposed the creation of a project review team — consisting of two legislative appointees and one administration appointee — that would review any changes to how Parker’s administration plans to distribute the bond proceeds in the coming year.

After the amendments, the project review team will have two mayoral appointees and two Council appointees who will deliberate on any changes to annual H.O.M.E. funding that come to less than 10% of the spend. If an alteration to the H.O.M.E bond’s annual budget spending affects more than 10%, Council would have to approve the change with legislation.

Lawmakers will also be apprised of how each Council district will be affected by H.O.M.E-related spending on a quarterly basis.

Parker’s team also notched a big win in negotiations when it got Council to include language that will allow 1,000 parcels of city-owned land to be fast-tracked for development. That means legislation will not be needed to approve the sale of these properties — a requirement that slows down the disposition of land and sometimes removes tracts from consideration entirely.

The three committees that advanced the legislation Thursday did so with rapid-fire voice votes, making it difficult to hear if any individual members voted against the bills. Council will take a final roll-call vote on all the proposals at its next meeting, putting all members on record.

On Thursday, Councilmember Kendra Brooks said she was voting against all tax and budget legislation this year. Brooks does not sit on the committee that approved the H.O.M.E. bond authorization.

She issued a joint statement with fellow Working Families Party Councilmember Nicolas O’Rourke, who was absent Thursday, saying the closed-door negotiations “led to a budget that fails to address critical needs in our communities and ignores the dire consequences of federal cuts,” pointing to a lack of new funding for reproductive healthcare, mobile mental health crisis teams, and other issues.

Councilmembers Jamie Gauthier and Rue Landau, progressive Democrats often aligned with Brooks and O’Rourke, applauded the passage of the housing plan and, surprisingly, voted in favor of the wage and business tax cuts.

“As leaders of City Council’s Housing Committee, we look forward to working with Council President Johnson, Mayor Parker, and our colleagues to build and preserve safe, stable, and affordable housing — especially for those most burdened by this crisis," they said in a joint statement.

One of the biggest surprises of the final budget deal is that Parker’s original schedule of cuts to the wage tax and the business income and receipts tax, or BIRT, were adopted without amendments.

The local chambers of commerce lobbied intensely over the last year for a rapid and substantial reduction in the BIRT, which includes two taxes: one on business’ gross receipts, or total revenue collected in Philadelphia, and another on net income, or profits.

Parker’s plan will lower the gross receipts rate from 0.1415% to 0.141% next year, and it includes a series of annual cuts until the levy is fully eliminated in 2039. Her plan lowers the net income tax from 5.81% to 5.71% next year, before eventually coming down to 2.8% in 2039.

» READ MORE: Why Mayor Cherelle Parker is asking Council to approve a tax cut that will take effect in 2038

Parker’s wage tax cut schedule is five years, with the rate for city residents falling from 3.75% to 3.74% next year before reaching 3.7% in 2029. The rate for people who live outside Philly but commute into the city will go from 3.44% to 3.43% next year, and will fall to 3.39% by 2029.

Parker’s multiyear tax cut schedule was not unprecedented, but it was unusually long for BIRT. The mayor has said the lengthy timeline was needed to signal to businesses that they could invest in the city in the long run.

But it also allows her to tout the passage of significant tax cuts while preserving revenue during her administration. About half of the scheduled reductions — including the most substantial ones — will come after Parker leaves office if she serves two four-year terms.

While the tax cuts are designed to provide relief for companies operating in Philadelphia, Council on Thursday also advanced a Parker bill that is likely to cause major headaches, especially for small businesses.

» READ MORE: Why a popular tax break that helped Philadelphia’s small businesses may be going away

The bill will eliminate a tax break that allows businesses to exempt their first $100,000 in revenue from taxation under BIRT. That exemption, which took effect a decade ago, has allowed tens of thousands of businesses to forgo filing and paying the complicated tax.

But after a Massachusetts-based medical device manufacturer sued the city last year, claiming the tax break violates the Pennsylvania constitution, the city Law Department determined the plaintiffs would likely prevail in court.

Parker then begrudgingly asked Council to eliminate the exemption while proposing that the city spend $30 million — the amount of revenue expected to be gained due to the loss of the tax break — on relief programs, including grants and technical assistance.

Landau said the exemption factored into her decision to vote for the tax cuts.

“I have heard firsthand how impactful removing the BIRT exemption will be which is why it’s important to make sure we’re doing everything we can to mitigate the impact of losing this exemption,” she said in a statement.

Council added an additional $17 million over two years to help businesses make the transition.

The tax cut debate was at the center of tense behind-the-scenes drama within Council. Councilmembers Isaiah Thomas and Katherine Gilmore Richardson — two members of Johnson’s leadership team who have championed recent tax cut proposals — “aggressively advocated” for Johnson to make deeper cuts a top priority, Thomas said.

Meanwhile, Councilmember Curtis Jones Jr. said it’s likely that Trump’s threats to cut federal aid played a role in Parker and Johnson deciding not to go further.

“There’s a lot of uncertainty at the federal level, and we need every bit of revenue until we see how the winds of change coming from Washington affect us,” he said. “I think that whenever you go through this type of budgetary process and everybody’s a little bit angry, it’s probably a good budget.”

Staff writer Fallon Roth contributed to this article.