A new report from the liberal think tank “Good Jobs First” on how subsidies and tax breaks affect school districts nationwide found that Philadelphia ranked second in the nation for hypothetical losses to tax abatements, incentives and other subsidies, with an estimated total loss of $61.9 million in tax year 2017.
The study pins the blame on “economic development tax incentives granted to corporations,” and the report will likely add fuel to the fire of rising calls to end the 10-year tax abatement. In September, City Councilwomen Cindy Bass and Helen Gym co-sponsored legislation to end Philadelphia’s 10-year tax abatement on new construction and upgrades of existing real estate.
“When the tax abatement is concentrated in the city’s wealthiest neighborhoods, and the dilapidated condition of our public schools create a public health crisis, that is the very definition of inequality,” Gym said in a September announcement of her legislative priorities.
But the School District of Philadelphia said the report only shows one side of the equation.
“There is no question that the School District of Philadelphia bears one of the largest burdens in the country of the upfront costs of these incentives for business. However, this study only looks at one side of the ledger, so it is impossible to comment on the net impact of these incentives,” School District spokesman Lee Whack said in a statement. “For example, do tax breaks result in increased activity with benefits that outweigh the value of those tax breaks? The study doesn’t answer that question.”
Economist Kevin Gillen, a member of the Building Industry Association of Philadelphia, called the report “a very narrow, one-sided analysis.”
“I don’t deny that there is genuine anger about the abatement, but I think it is misunderstood,” Gillen said. He noted that a 2017 study commissioned by the BIA found that homeowners with expired abatements paid $48.1 million in tax revenue a year, an 11 percent increase to the city’s tax base. They also found 376 percent real estate growth in Philadelphia since the abatement was implemented in 2000.
“They assume that all of this development 100 percent would have happened anyway, and they also ignore the other revenue,” Gillen said, citing benefits like developers hiring contractors and construction workers who pay wage tax; plus associated business taxes, sales tax, real estate transfer taxes, and the projects ultimately bringing in new residents who in turn will pay wage and other taxes.
Statewide, across 414 school districts in Pennsylvania, the estimated net loss to tax incentives grows to $98,089,085. Hypothetically, those funds could hire 2,028 new teachers in the commonwealth, Good Jobs First estimated.
The report found an estimated $1.8 billion in losses to tax breaks across 5,600 school districts nationwide (the 40 percent of 13,500 districts nationally who complied with new accounting rules by reporting the estimated value of tax incentives). The largest estimated loss was $96.7 million in the Hillsboro School District, Oregon, outside Portland, due to tax break arrangements granted to computer-processor giant Intel, which has offices in the town.
A May 2018 study commissioned by the city found that the abatement, enacted in 1997 and implemented in 2000, is still making helping to make money for Philadelphia through new development. The study found that while ending the abatement would direct more funds to the School District for about 18 years, “after that it would be a net negative because of lost development,” the city’s Finance Department said.
In 2017, 15,359 properties or three percent of 580,000 parcels in the city had active tax abatements in 2017. New construction accounted for 8,185 of those properties – about 53 percent – while the other half was existing housing that had been upgraded or stabilized, according to the Finance Department.
City Controller Rebecca Rhynhart also undertook a review, which found that 59 percent of tax abatements are located in just six percent of Philly neighborhoods, and while properties valued over $700,000 make up just seven percent of abated properties, they receive more than 51 percent of the benefit of all abatements.
The “New Math for School Finance” was based on data from comprehensive annual financial reports (CAFRs). The School District’s CAFR broke down the hypothetical losses of $62 million in tax year 2017 as follows:
-$6.8 million for residential rehab and construction
-$27.3 million for commercial/industrial rehab and construction
-$17.6 million for new residential construction
-$1 million for new or improved residential
-$9.2 million to business investing in “Keystone Opportunity Zones.”