A refreshed tax abatement policy would serve as powerful evidence of the incoming Parker administration’s commitment to the principle of equitable development, writes John Kromer.
What’s the best way to overcome Philadelphia’s long-standing affordable housing crisis? Many people who are aware of this problem, from policymakers to housing consumers, understand that any solution must involve a sustained commitment of public capital. But no one seems to have a good idea about how to raise the money.
As we look for solutions, it might be helpful to answer a few questions.
How serious is Philadelphia’s affordable housing problem?
The scope and impact of this critical problem have been well-documented. A recent Inquirer article cited the long waiting lists for city-sponsored repair programs that provide funding to address unsafe and unhealthy conditions in occupied homes.
A housing market analysis published in the city’s most recent housing plan emphasizes “the need to bolster the production and preservation of affordable housing stock, as rents and home prices continue to rise.” Meanwhile, allocations of federal funding from the American Rescue Plan, which had provided $21 million to Philadelphia through the Whole-Homes Repair Program, are scheduled to end this year.
How has the city responded?
The city’s most noteworthy response to this crisis is the $400 million Neighborhood Preservation Initiative, launched in 2021. Through this program, City Council and the Kenney administration have provided substantial new funding for a variety of well-executed housing production and preservation strategies. About half that amount has already been spent or committed, according to the Neighborhood Preservation Initiative dashboard.
In November 2021, voters approved an amendment to the city’s Home Rule Charter mandating that 0.5% of the city’s annual general fund appropriations be allocated to the city’s Housing Trust Fund, which provides financing for new affordable housing construction, the preservation of existing occupied housing, homelessness prevention programs, and related activities.
The “New Earnings” line item in the city’s fiscal 2023 Annual Action Plan includes $27.9 million in funding from this source. While a major infusion of new funding is welcome, budgeting by charter amendment, which limits the ability of municipal administrators to make responsible fiscal management decisions on a year-to-year basis, is bad public policy and a bad precedent for the future.
Tax-the-rich plans, such as the “wealth tax” on stocks and bonds that Councilmember Kendra Brooks proposed last year, are not going to be effective ways of addressing the challenge of funding affordable housing. Based on the Pennsylvania Constitution’s “uniformity clause,” the obligation to pay a tax of this kind would fall on middle-income households, as well as on the wealthy.
What solutions would be better?
The most effective solution to this problem is not a new tax; it’s a realignment of the city’s 10-year property tax abatement policy.
As in the past, properties that are currently receiving the abatement will be generating new tax revenue for the city after the abatement period ends, starting in the 11th year. So for that initial year and for nine years afterward, the city’s share of the new tax proceeds should be allocated to the Housing Trust Fund.
The city has already reallocated tax revenue in this way, on a more limited basis. A 2018 Council ordinance mandated that, for properties that had reached the end of the 10-year abatement period, the new revenue received in the 11th year — but only the 11th year, and only in fiscal years 2019 through 2023 — should be assigned to the Department of Planning and Development to support affordable housing activities.
As an example of the effect of this legislative mandate, the department received $6.87 million in fiscal 2022 tax revenue generated by properties with abatement periods that had ended in the previous year, to be added to the Housing Trust Fund budget. Because the 10-year period for this group of properties began during the Great Recession, when housing development activity was at an exceptionally low level, revenue generated during subsequent years would be much higher.
The 2018 approach should be extended and expanded. This time, however, the allocation of new funds should extend for 10 years following the end of the abatement period and should involve the city’s portion of property tax revenues only, so that the School District could receive its full share of these revenues (55 cents of each dollar).
Property owners’ tax bills would not be affected; taxes on formerly abated properties would just be allocated differently.
With this reallocation of the city’s share of post-abatement revenue during the coming years, the amount of money allocated to the trust fund would vary annually, based on changes in real estate development activity. But the level of funding would be substantial.
This administrative change could also be implemented quickly. A refreshed tax abatement policy would serve as powerful evidence of the incoming Parker administration’s commitment to the principle of equitable development.
John Kromer, former city housing director, is the author of “Fixing Broken Cities: New Investment Policies for a Changed World.”