What better way to encourage the creation of so-called “affordable” housing than to impose an onerous tax on new construction? While that approach might appear counterproductive, it’s exactly how the Philadelphia City Council has chosen to try to alleviate the city’s affordable housing crisis. Instead of easing restrictive zoning laws, the city council has proposed a 1% tax on new construction that council members say will finance affordable housing elsewhere. It brings to mind an employment tax recently passed by the Seattle City Council with a similar goal of providing more services to the city’s homeless (whose numbers will no doubt expand as more jobs are eliminated).
Opponents of the tax have criticized it as “ill conceived”, arguing that it could make life more difficult for developers and end the “impressive run” of new construction that is helping transform some of the city’s grittier neighborhoods. John Dougherty, a union leader who heads the International Brotherhood of Electrical Workers Local 98, said the tax “makes zero sense,” according to Plan Philly.
But the finance subcommittee of the Philadelphia City Council, in a burst of short-sightedness, decided to go ahead with it. In a 6-3 vote, the council decided to pass the tax, which will purportedly raise revenue for the city to build subsidized housing for residents with incomes up to 120% of the median income for the area – or more than $100,000 for a family of four.
They probably should’ve checked to see how that worked out with the soda tax, which has consistently missed its revenue projections:
Philadelphia Mayor Jim Kenney hasn’t said whether he will support the proposal should it pass the full council. But both Commissioner of Licenses and Inspections David Perri and Commerce Commissioner Harold Epps have blasted the tax in public testimony, arguing that the tax is directly at odds with its stated goal, and that it also would pose a collection challenge from a logistical standpoint.
“While we agree that we must ensure the continued availability of affordable housing, we are very concerned there will be unintended consequences to this legislation,” said Epps. “This type of legislation hampers the business environment, works at odds with our business-attraction efforts, and makes it more difficult to grow jobs in Philadelphia.”
Perri’s line of criticism was more technical, questioning the means by which the tax would be collected. As currently proposed, the amount of tax that must be paid on a project would be determined by the “total value of construction” estimated in the building permit. Perri called that mechanism “highly subjective and impossible to verify.”
“Almost 20 years ago, the Department of Licenses and Inspections moved away from calculating building-alteration permit fees based upon estimated values of construction due to reporting inconsistencies and disputes,” he wrote.
Perri also argued that the Revenue Department does not have the resources “to review the more than 22,000 building permits that are processed each year.”
After Amazon threatened to cease construction on a new building in Seattle after that city adopted a controversial employment tax, Dougherty pointed out that Philly would risk driving away Amazon – which named Philly as a finalist for its HQ2. Local unions have said they wouldn’t oppose a reexamination of Philly’s 10-year property tax abatement for developers, and they even hired a lobbying firm to examine every abated property in the city over the past five years to see if they’re keeping up with their permits.
Several amendments to the measure have been proposed, including one that would award a 25% construction-tax rebate to firms that meet certain requirements to hire minority workers. Another would have exempted projects under $100,000 – though some experts said this would be illegal under federal law. Affordable-housing advocates have demanded that the plan set aside funding for helping Philadelphia residents living in poverty. After meeting resistance from councilmembers from the city’s outskirts, the bill was eventually modified to allow some of the funds raised by the tax to be spent repairing “affordable” homes in some of the city’s outer neighborhoods that have been declining but are not considered impoverished.