City study examines future of 10-year tax abatement

A new city analysis of Philly’s controversial 10-year tax abatement program deemed the program less beneficial than it was three years ago, and mulled ways that it might be modified.

The study, which was conducted by real estate firm Jones Lang LaSalle (JLL), and was released Thursday, examined the effects of the abatement program. The program exempts commercial and residential property owners from having to pay taxes on new construction or major renovations for 10 years. The idea behind the program is to support and welcome new construction into Philly, fostering growth and ensuring a payoff for the city when the 10 years are up.

But the benefits of the program, which seemed so great when it was first conceived in 2000, may not hold the same weight they did even three years ago, when the last analysis was conducted, according to Thursday’s study.

“Improvements in the economy and local real estate market since 2014 mean that the impact of the abatement program has changed,” JLL said in Thursday’s analysis.

“In JLL’s prior study, keeping the current abatement program in place generated 50 percent more in net present value over 30-years than eliminating the abatement completely. Now, those same cases are only 25 percent apart,” the study said.

In recent years, the idea of changing the program—or eliminating it altogether—have been tossed around, especially by critics of the tax abatement, many of whom claim it benefits wealthy developers while depriving schools of much-needed funding.

Thursday’s study examined some of those changes, including one proposed during a City Council meeting this week by Councilwoman Helen Gym, to eliminate the tax break only for taxes owed to the school district, according to PlanPhilly.

JLL determined that completely eliminating the abatement would generate an additional $7.8 million for the district, but that eliminating just the school district section of the abatement could generate $9.2 million for the district over the next five years.

Other changes the study analyzed included limiting the abatement to certain areas of the city, though the study contended that’s, “unlikely to spur development in neighborhoods with low usage now.”

Another suggestion, to gradually reduce the abatement over time, could lower, “ the risk of development loss and related tax revenue loss,” by giving developers time to adjust to the new changes, JLL wrote.

However, the study noted that any modifications to the abatement would likely result in a loss of new construction around the city.

“There is no single “best” way to refine the abatement. Each option involves tradeoffs that policy makers need to weigh and consider,” the study said.

• Changes to Philly construction tax break under review [PlanPhilly]
• Overview of 2018 abatement study [Phila.gov]