Can Higher Real-Estate Taxes Save Philly Jobs?

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BY TONY WEST/ Most Philadelphia neighborhoods are job deserts. And in the long run, a large city cannot survive as a place to live if it does not also offer places to work.

This was the gist of a report released by the Center City District which caught the eye of Philadelphia’s decision-makers. It has added steam to an already-tense debate over one of the biggest problems facing City Council this fall: what to do about real-estate taxes.

Using creative data tools to count both workers and jobs by City Council district, the report makes clear while Philadelphia has a vibrant private employment sector, it is unevenly distributed across the city. It found just two “employment nodes,” Center City and University City, “account for half of all private-sector employment in Philadelphia.” There are 129 jobs per acre in Center City but only 4 jobs per acre in the rest of the city.

“The good news is Philadelphia has a very strong and successful ‘eds and meds’ sector,” explained CCD Executive Director Paul Levy. “The bad news is it can’t be enough to sustain the whole city’s workforce.” As a result, more than 40% of Philadelphia’s workers leave the city each day for work.

In the end, these workers are likely to leave the city for good, Levy argued. While strong growth around Center City, Penn and Temple, and the Navy Yard helped the city as a whole gain population from 2000 to 2010, half the city’s council districts lost residents.

The report did not just diagnose a problem; it offered a prescription: Change our tax system. It noted “66% of our local tax revenue comes from taxing highly mobile wages and profits. By contrast, comparable taxes in New York City comprise only 34% of the mix…. While Philadelphia derives only 17% of municipal tax revenues from real estate, New York City gets 41%.”

The CCD report was a calculated shot across the bows of City Council. It is no coincidence that body is just now sitting down for a fall session to come up with ways to implement a massive reform in real-estate taxes known as the Actual Value Initiative.

The city’s current property-assessment method, which can be  kindly described as fanciful, is badly broken. Mayor Michael Nutter is pushing to base it on a clear percentage of true property values, as soon as these can be determined. The AVI is supposed to be revenue-neutral. Even so, many property-owners would see their taxes go down while some would see their taxes go up sharply. However, the revenue-starved Administration would like to capture more income from real estate in general.

CCD’s report provides ammunition for this argument. It is not falling on deaf ears.

Since 1995, the City has been gingerly trying to wean itself from its wage tax, which businesses hate. The chairs of Council’s Finance Committee, Bill Green, and Commerce & Economic Development Committee, Wilson Goode, Jr., have been pressing for an extreme makeover of its business taxes. Goode has ordered 20 copies of the report for the City’s new Jobs Commission.

“It echoes the sentiments of previous reports that this City relies too heavily on mobile taxes for revenue. The only way to stem historic job loss is to change what we tax. There is no other valid remedy,” he said.

Councilwoman Maria Quiñones Sánchez’s 7th Dist., centered in Kensington, is typical of the problem highlighted by the CCD report. A century ago, it was a powerhouse of factories that sustained walkable rowhouse neighborhoods. The industrial land is still there, but the manufacturing jobs have withered.

An immediate step to put more weight on property taxes would complicate the AVI discussion, Quiñones Sánchez pointed out. Quiñones Sánchez is a coauthor with Green of bills that would rethink the City’s mobile business taxes. Part of the problem is that much revenue is not captured by a business-profits tax, since large national companies can set up their books so they report little or no profit in the city. This would level the playing field for truly local businesses, she argues.

The Councilwoman has not given up on manufacturing in Kensington. “The average manufacturing job pays $50,000 a year,” she noted. Starting next year, the city will begin to phase out the net-profits tax on manufacturers who sell their entire product outside the city.

But it is difficult for Philadelphia to do the obvious thing by incentivizing manufacturing real estate with lower rates. That’s because the Pennsylvania Constitution has a “uniformity clause” which compels all real estate to be taxed at the same rate. For this reason, while a move to shift the tax burden toward real estate won’t nick the occupants of an office tower much, land-intensive employers might be hard hit by it.

There are a couple of fiddles the City is empowered to make, such as the 10-year tax abatement. “But that’s an all-or-nothing thing,” Quiñones Sánchez said. She wants to see the uniformity clause changed; but that will require years of heavy lifting by the Philadelphia delegation in the General Assembly.

Perhaps a shift toward a Land Value Tax would help, she said. This method of taxation is already legal in Pennsylvania and is relied on by many cities.

Councilman Bob Henon’s 6th Dist. along the Delaware River is another area that has seen manufacturing jobs vanish. It has 49,535 workers – but only 26,707 private-sector jobs. Less than 10% of its residents have found a job in the district.

“I don’t have a solution for this,” Henon admitted, “but we need to have a discussion about keeping businesses. Why should we overburden businesses with a complicated tax structure when they can move three miles across the river and save $3 million?

“But it’s not only taxes,” he continued. “If you’re a business, considering Phila­delphia, and you Google it, 75% of what you read is negative.” To draw businesses, Henon said crime and poor schools must be addressed, as well as the pipeline of job training to equip the city workforce for available jobs.

Levy agrees with all these points. But they require complex, long-term investments with unreliable funding. Changing the tax structure, on the other hand, is a step we can take right away.

Councilman at Large David Oh, who chairs the Global Opportunities & Creative Innovative Economy Committee, also downplays the importance of business taxes as an issue. While he admits jobs have migrated to the suburbs because of taxes, simply changing the taxes won’t bring them back, he maintains. New businesses are looking for the right fit more than for an optimum tax break. And there are simple steps that can be taken. “It’s more important, for instance, that our airport get direct flights to Asia and South America; right now, we have none,” he said.

Although Goode is a strong advocate of a shift toward a real-estate revenue base, he acknowledges the road toward it won’t be short and easy. “It takes a tremendous amount of political will – and a majority of City Council – to either reduce taxes through budget cuts and/or raise revenue from one tax in order to lower another tax. There will be public opposition to budget cuts or tax increases just to shift the tax burden away from mobile taxes,” he said.

Councilwoman at Large Blondell Reynolds Brown offered a polite but firm response to the CCD report. “It is a great guidepost,” she said. “I highly appreciate how research drives public policy. It presents a strategic perspective on one course of action – but that is not the only course we can follow. You cannot view a complex issue through one prism.”

Reynolds Brown characterized the CCD report as “business-funded,” rather than coming from a nonprofit like the Pew or William Penn Foundation. The Councilwoman called for a “collaborative” approach to job-building that is not weighted in favor of any one group – business owners or property owners. “Change is incremental,” she said.

She cited efforts to grow green jobs, and community commercial corridors like State Rep. Dwight Evans’s Ogontz Avenue, as other approaches of equal importance. “This report is a good tool, but it will not be my only tool,” she stressed.

Business-funded or not, CCD is emerging as an essential resource for studying urban issues far beyond its main beat, the Center City business and residential communities. The reason is basic: CCD invests in research, at a time when tight budgets leave other city planners strapped. Levy explained, “CCD has had a full-time research person on staff for over a decade looking at employment, housing and retail trends. In 2010 we had already done a report showing how many people from Philadelphia and across the region worked downtown. So this was the next logical step: simply looking at where else in the region Philadelphians went to work.”

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