As we seek solutions to our school funding crisis,
we must remain focused on finding a long-term fix and avoid knee-jerk policy
decisions. We all want a quality, fully funded public education system in
Philadelphia. Harrisburg's move to cut state funding, coupled with rising
pension and health-care costs, has contributed to a budget gap of about $300
million, which Mayor Nutter and City Council are scrambling to close.
We must formulate comprehensive reform so that we
don't find ourselves scrambling for new short-term revenue sources year after
year. This year, we have considered many proposals, including extending the
sales-tax increase, increasing taxes on cigarettes and alcohol, and reforming
the use-and-occupancy tax, but we have yet to find a long-term solution.
Some say we need to consider scaling back the
10-year property-tax abatement. They argue that the abatement benefits wealthy
new residents at the expense of our public schools. The abatement, they say,
subsidizes market-rate housing for a population that doesn't need a subsidy,
and although it may have been pivotal in spurring Philadelphia's recent
development resurgence, it has outlived its usefulness. Critics reason that
people will continue to flock to Philadelphia, reflecting a national trend of
young professionals moving to urban centers. Thus, shouldn't everyone pay his
fair share, especially those who can afford it?
However, before we consider altering the 10-year
tax abatement, we need hard data regarding its benefits and the expected
outcomes of any proposed reform. Would the city increase its revenue by scaling
back the abatement? How much revenue would it raise per year? Would the
increased revenue put a dent in the School District funding gap? Would
development slow down as a result? If development slows, how many jobs and how
much ancillary tax revenue will we lose?
We must have the answers to these questions and
many others before we move to scale back a policy that has coincided with
Philadelphia's biggest real-estate boom in many of our lifetimes.
Hard data is especially important given the
apparent positive impact of the tax abatement. Available information suggests
that the abatement has ushered in a level of realestate construction growth
that many consider miraculous.
According to a report prepared by economist Kevin
Gillen, a senior research consultant with the University of Pennsylvania's Fels
Institute of Government, immediately following the creation of the abatement,
construction increased by 263 percent, with Philadelphia experiencing more
housing starts than the suburbs each year since the early 2000s. Between 2009
and 2011, during troubled economic times, Philadelphia enjoyed a 64 percent
increase in housing development, while the suburbs saw a decrease.
Correlation does not prove causation, but these
numbers certainly suggest that the tax abatement contributed to the
construction boom, and that we should carefully examine the potential negative
effects of any proposed reform.
Some see this issue as a matter of equity. They
ask why wealthy homebuyers get a tax break while working-class Philadelphians
are paying their fair share.
However, it's important to keep in mind that
everyone benefits when new development generates revenue that the city needs to
provide much-needed services to all Philadelphians. Developers pay
business-privilege taxes, while workers and new residents pay wage and sales
taxes. New residents shop in the city, supporting local businesses, which in
turn create tax-paying jobs. Development projects create employment and
business opportunities for existing residents, as developers hire skilled
workers, contractors, architects, lawyers, Realtors, and other professional
service providers.
The abatement's fiscal impact, direct and
indirect, approaches tens of millions of dollars per year. This revenue funds
city services and our public schools. Scaling back the tax abatement is
unlikely to raise more than a few million dollars per year, which suggests that
the costs of the proposed reform would far outweigh the benefits of the
abatement.
Remember also that affordable-housing units are
eligible for the 10-year tax abatement as well. In the Second Council District,
I am working on three mixed-income home ownership initiatives, and I am
supporting several proposals for large-scale development projects that will
offer affordable rental options for senior citizens. These projects will
receive, and heavily rely upon, the 10-year tax abatement.
When it comes to the city budget, we must make an
informed decision, especially when the stakes are this high. The available
information suggests that the risks outweigh the potential benefits when it
comes to scaling back the 10-year tax abatement.
City Councilman Kenyatta Johnson represents
Philadelphia's Second Council District. E-mail him at kenyatta.johnson@phila.gov.
Source: Philly.com
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