Can Pa. Constitutional Amendment Bring Jobs Back To Philly?

by Tony West
A broad-based coalition announced Friday it will push legislation in Harrisburg to give Philadelphia the power to tax commercial real estate more heavily than homeowners’ real estate. If it succeeds, it will change the Pennsylvania Constitution and make history.

The legislation would modify the Commonwealth’s uniformity clause to enable Philadelphia to enact a plan to assess real-estate taxes on business properties at a rate 15% higher than the rate on non-business, residential properties and to devote this money dollar for dollar to reduce wage taxes and businesses taxes.

This may look like a Bernie Sanders-inspired raid on rich capitalists. In fact, it is a program designed by local real-estate moguls. They are the ones who own these business properties. And they want to be taxed more. They are begging us to do it to them.

It aims to cut the wage tax over the next 10 years below 3% and slash the net-income portion of the Business Income & Receipts Tax in half. The payoff? An estimated 50,000 to 100,000 new city jobs in the next decade, its supporters predict.

Although this constitutional amendment is exclusively for Philadelphia (as the only City of the 1st Class), the measure can only be acted on by the State General Assembly. Thus, the ardent backing of Mayor Jim Kenney and a few City Council members, while sending a firm message, does not mean anything legislatively.

This campaign must be waged by the Philadelphia delegation in Harrisburg. And a strong showing of Philadelphia State lawmakers stood among the lineup of two dozen civic leaders at City Hall.

The legislation is sponsored by State Reps. John Taylor (R-Northeast), Bill Keller (D-S. Phila.) and Dwight Evans (D-N. Phila.) in the House. State Sen. Anthony Williams (D-W. Phila.), who is known for his bipartisan chops, will lead the charge in the Senate. Taylor & Co. will drop the bomb when the House reconvenes Mar. 14.

First among equals is Taylor. He and his fellow Northeast Republican colleague Martina White face the daunting task of selling the amendment to their caucus in the State House, which is not solicitous of the needs of Philadelphia and leery of any bill containing the words “tax increase”.

The bill provides sweeteners for crucial moderate Republican legislators in the suburbs. Every worker – both those living in the city and those who live in Pennsylvania suburbs and work in Philadelphia – gets a significant increase in take-home pay by reducing the wage tax. Enabling legislation can ensure wage and business taxes are reduced only to the extent that new commercial real-estate tax revenues come in, so there will be no overall tax increase.

This proviso is a must, said Taylor. Without it, the measure has no chance of passage. As Keller, standing by Taylor’s side, noted, “Politics is the art of the possible.”

The goal is to crack a conundrum that has bedeviled all Philadelphia leaders since the 1970s: how to bust the State Constitution’s “uniformity clause”, which compels all kinds of real estate to be taxed at the same rate.

For decades, reformers have been assailing this rule, which, they charge, shorts the revenue potential from business properties, leaving homeowners to bear more of the burden. And in Philadelphia, a lot of homeowners are broke or close to it, due to our unenvied poverty ranking among US cities.

These reformers want “income that can move” (“jobs and businesses) to be taxed less, encouraging them to stick around. “Income that can’t move” (real estate) should be taxed more.

But nobody wants working-class Philadelphians to pay more real-estate taxes. Those who own land where the big bucks are being landed should therefore pay more for their land, argue the bill’s sponsors.

Their reasoning is that if more businesses and more workers locate in the city, then their office space will have more customers and they will see more rental income.

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While the battle must be waged in Harrisburg, many private-sector Philadelphia real-estate leaders have been brewing this business heresy (“tax us more, please”) for many years now. Make no mistake: This pitch is coming from the top dogs in our private sector.

Jerry Sweeney, CEO of Brandywine Realty Trust, one of Philadelphia’s top real-estate pros, is instrumental in this proposal, which mustered three different business councils and the top labor leaders. He led the press conference in City Hall. They have banded together as the Philadelphia Jobs Growth Council.

Sweeney says his coalition “believes the single unifying goal of the city should be to create jobs and make Philadelphia a top-10 job-creator nationally. But until we help ourselves to change our dysfunctional tax system and grow our tax base we will never stop lurching from budget crisis to budget crisis. Under our proposal, the business and the real-estate communities are saying we believe and we are prepared to pay more to make this city grow.”

“We haven’t yet regained the job levels we had in 2000 and are still 28% below 1970 job levels,” said Paul Levy, executive director of the Central Philadelphia Development Corp. and a coalition leader. “This isn’t the fate of other old cities. New York City has 6.5% more jobs than it held in 1970; Boston is up 16.2%. Philadelphia has only grown at 1.1% per year. Forty percent of the working residents of Philadelphia’s neighborhoods need to reverse-commute to the suburbs each day to find work. This is no way to revitalize neighborhoods, grow our economy or create opportunity for our residents.”

Other business groups signing on are African American Chamber of Commerce, Building Owners’ & Managers’ Association, Committee of 70, Economy League of Greater Philadelphia, General Building Contractors Association, Greater Philadelphia Chamber of Commerce, Greater Philadelphia Hispanic Chamber of Commerce, International Brotherhood of Electrical Workers Local 98, Metropolitan Regional Council of Carpenters, Greater N.E. Philadelphia Chamber of Commerce, Parkway Corp., the Building & Construction Trades Council, PREIT, PRWT Services and Service Employees Int’l Union Local 32BJ.

The City has long realized it has a problem with its wage and business taxes. Studies since 2003 have recommended they be reduced. And they have been inching down; but the pace is agonizingly slow. Currently the wage tax stands at 3.92% for city residents and 3.4915% for non-resident workers. No other major American city taxes wages like that – with the unappealing exception of Detroit.

“What’s new is that business leaders and commercial landlords are stepping forward to support a commercial real estate tax increase up-front, as an investment in growth, and a bipartisan coalition of representatives from our Harrisburg delegation has agreed to sponsor the legislation,” Kenney noted.

Philadelphia’s influential building trades are on board, making it hard for local politicians to oppose this move.

“Construction cranes are a sign of progress. We need to see them in far more sections of the city,” said Patrick J. Eiding, president of the Philadelphia Council AFL-CIO. “Working people support this plan because it will create more jobs and simultaneously lower their taxes.”

Changing the Commonwealth’s Constitution is a marathon, not a sprint.

“It is never easy,” said Taylor. “But it has been done several times in the last two decades when compelling ideas create bipartisan support.

“The Commonwealth’s legislative calendar creates the possibility right now that this legislation can be introduced and passed before the end of the calendar year. Then, following requirements of the State Constitution, it would have to be introduced in the new legislative session in 2017. If all goes well, it could pass next year and move to the required referendum stage within 2017,” he explained. “That means two years from now, Mayor Kenney and City Council could take advantage of this legislation to implement comprehensive tax reform for Philadelphia.”

It is unclear what opposition this measure will face in Harrisburg. But it already has triggered dissent on Philadelphia City Council.

The day before the Philadelphia Jobs Growth Council revealed its plan, City Council passed a resolution sharply criticizing it. The resolution is known to reflect Council President Darrell Clarke’s views.

Calling Taylor’s and Williams’s legislation “radical” and “unprecedented,” the resolution stated, “It is the complete opposite of what is needed because it would only restrict the City’s flexibility.” Council called instead for a constitutional amendment that would give Philadelphia complete discretion in setting all municipal tax rates, with no strings attached to how the revenues raised may be spent. Council specifically “opposes any provision in such an amendment that would mandate a reduction in other business or wage taxes as a condition of implementing different real-estate tax rates for different classes of property.”

But City Council casts no votes in Harrisburg.

Although the proposed legislation applies only to Philadelphia, if it should go into effect and produce results for this city, other municipalities around the state will take keen note.