The Philadelphia City Council recently voted to change a tax abatement policy that has been in effect for twenty years. These changes are designed to reduce new residential construction tax breaks by 10 percentage points every year for 10 years, going into effect at the beginning of 2021.
The tax incentive began in the 90s as a way to encourage development in Philadelphia, as well as expand the city’s housing stock, and boost the local economy. Before the incentive, the city had been experiencing urban population less for decades. At first, the abatement provided tax breaks just for existing buildings, but was eventually expanded to include rehabilitation projects and new construction.
The changes in the tax-abatement policy were proposed partially because it is believed that it’s unnecessary to continue stimulating development in Philadelphia.
Understanding the details of the bill is imperative in order to know if and how it will affect you and your business. Here is everything that you need to know about the 10-year tax abatement changes:
- There were 15 cosponsors to the bill, which swiftly moved through the Council after being introduced. The bill was passed with a 17-0 vote.
- Many residents and advocacy groups have attempted to get the abatement to be eliminated for years, based on the idea that it was keeping tax revenue from the schools, as well as causing gentrification. They appeared in opposition to the bill, claiming the bill did too much to appease developers and that the abatements should be ended altogether or phased out much quicker.
- Both developers and members of the real estate industry have been fighting against abatement changes. They feel the abatement has caused Philadelphia’s development to soar and that the tax base has grown because of it.
- The passed bill states that each abatement will be phased out individually. What this means is that the value of the tax break the first year will be 100%. Each following year, it will reduce 10%.
- After the ten year period, the value of the tax break will have been reduced by half.
- The bill will not go into effect until the beginning of 2021. This date was won as a concession to the development industry by Mayor Jim Kenney, who told legislators he would veto the legislation if the date wasn’t pushed back.
- A review of the abatement is required every three years in order to determine how the policy changes have affected the housing market. This will help to ensure the changes are matching the bill’s goal of inclusive growth. If they are not, the city council will be able to make small changes until it does.
- The tax break does not change things for rehabilitation projects or commercial constructions. For the entire decade, they will continue to receive a 100% tax break on their added value.