Harrisburg considering amendment on Philly commercial property taxes

Harrisburg considering amendment on Philly commercial property taxes

Author: Marco Cerino/Thursday, October 11, 2018/Categories: News and Views, Philadelphia

Legislation before the House and Senate would amend the state Constitution and allow for Philadelphia to charge higher real estate taxes for business properties than residential properties.

This is the second consecutive session with such legislation. As required to alter the Pennsylvania Constitution, it must pass a second time and then be approved by voter referendum.

This session’s bills have been introduced by two Philadelphia legislators, Republican Rep. John Taylor and Democratic Sen. Anthony Williams. They seek to help spur job growth in the area.

“Despite the fact that everything in Philadelphia looks booming, we have an anemic job growth rate, which lags behind every other major city” Taylor said. “Combined with our poverty rate, we’re not doing as well as we should.”

Shifting the Tax Burden

The bill proposed by Taylor would have business properties taxed higher, by 15 percent, than other real estate in the city. However, this increase must be met with an equal reduction in other business taxes.

This measure would break the “Uniformity Clause” that keeps Philadelphia’s commercial and residential real estate taxes level. Businesses operating in Philadelphia pay a variety of other taxes, on things ranging from receipts, profits, and wages. These would drop to match the increase in property taxes paid by business owners. From Comcast to corner stores, every dollar paid would be matched by a dollar saved.

“It’s designed to shift the burden from the business taxes that seem to discourage people from locating in Philadelphia,” Taylor said.

In addition to moving money on tax returns, this bill also seeks to stabilize the tax burden across the city. Philadelphia has enjoyed a building boom, both in commercial and residential real estate, helped by tax abatements on new properties. In some neighborhoods, this means existing homeowners have seen their property taxes jump on re-assessed properties.

Williams hopes new legislation will help ease growing concerns among his constituents.

“More and more responsibility is falling on homeowners, and sin taxes, which fall upon poor people,” he said. “The idea is to get a better balance so everybody can pay their fair share more appropriately.”

The City’s Call

While the legislation would affect certain laws in Philadelphia, it would change nothing if passed. To amend the constitution, voters would need to approve it through a referendum question. This would appear in May 2019, on the same ballot as primary elections in Philadelphia for mayor and City Council.

If citizens pass the referendum question, the onus would fall on the city to create new legislation to alter the tax levels and by what percentages.

The proposed 15 percent isn’t a hard and fast number, Taylor acknowledged.

In this matter, City Hall appears divided. Mayor Jim Kenney (D) supports the legislation. In a statement released by his office Tuesday, he called the proposed amendment “…the best proposal out there to create flexibility for serious tax reform that will promote job growth. It has the potential to make our tax structure more competitive with other big cities when it comes to business attraction, and that in turn will spur employment. We remain committed to supporting it.”

City Council leadership has repeatedly come out in opposition of the measure. In a letter to the Philadelphia delegation in Harrisburg, Council President Darrell Clarke (D-District 5) wrote that the tax shift only affects businesses and offers nothing in residential property tax relief.

“The last thing homeowners in this City need is legislation that only provides tax benefits to business properties while they struggle to pay ever increasing property taxes on their homes,” Clarke wrote.

Clarke testified in 2016 before the House Finances Committee. Not only was he reticent to take on the power the proposed amendment would grant, he was concerned the language could “tie the City’s hands in harmful and counterproductive ways.”

He also pointed to City Council’s reductions of business taxes that have saved businesses almost $6 billion over 20 years, along with the new Five Year Plan forecast to add half a billion to that total.

Have these savings led to the job growth the legislation’s authors seek? That’s debatable. While Clarke didn’t address those goals in his testimony, things have gotten better in Philadelphia since 2016.

According to the Bureau of Labor Statistics, the unemployment rate dropped from 7 percent in June 2016 to 5.7 percent in June 2018, the largest decrease in the metro area. Overall, the region saw unemployment drop from 5.3 percent to 4.3 percent in that timeframe.

However, Philadelphia retains the highest unemployment rate measured in the Delaware Valley and is much higher than the national rate of 4.2 percent, down from 5.1 percent in June 2016.

What’s Next

As the legislative calendar winds down, the fates of these bills remains uncertain. On Wednesday, a dozen amendments were proposed to the House bill, which would offer exemptions for apartments and other leased properties, along with those for veteran-owned businesses and others. Williams’ identical bill has remained in the Senate Finance Committee for virtually the entire session.

Taylor will be leaving Harrisburg after three-plus decades of service to Northeast Philadelphia, where he grew up. While not overtly sentimental, he hopes this legislation will create benefits that last.

“The building boom is going strong,” he said. “We want to make sure that in 20 years, the office buildings that are going up are going to be full and, frankly, we want to make sure the residential units going up in Center City are going to be full.”

Marco Cerino is a staff writer for The PLS Reporter based in Philadelphia. Have a question, comment or tip? Email him at marco@mypls.com.