Despite criticism from some senior city officials and blistering opposition from the building trades unions, a proposed 1 percent tax on construction to fund affordable housing passed out of City Council's finance committee Wednesday by a 6-3 vote.
“The ill-conceived tax would have the net effect of ending the recent, prosperous run of new construction that is transforming neglected sections of the city,” John Dougherty wrote on behalf of the Philadelphia Building & Construction Trades Council.
“It makes zero sense,” added Dougherty, who also heads the International Brotherhood of Electrical Workers Local 98.
The new tax would raise revenue to build subsidized housing for residents with incomes up 120 percent of area median income, or over $100,000 for a family of four.
Mayor Jim Kenney has not yet 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 testified before the committee with critiques of the legislation.
“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.”
Despite the opposition, only council members Bobby Henon, Allan Domb and David Oh voted against the bill, which could come up for a first reading before the full council vote as early as Thursday.
Although the construction unions have been quietly lobbying against the tax since it was introduced, Dougherty’s Wednesday letter made their opposition loud and clear. The letter circulated as council members took a lunch break from the lengthy committee hearing.
The letter did not solely focus on the construction tax. Dougherty also attacked council members over their recent clashes with the building trades over minority-hiring provisions in city projects. Amendments before the committee included a provision giving a 25 percent construction-tax rebate to developers who promise to hire minority workers.
"What we find so ironic is that the Building Trades receives very few hiring recommendations for kids of color from City Council,” wrote Dougherty. “In fact, the requests from Council members for us to host fundraisers for them or make campaign contributions to them outnumber recommendations of qualified minority kids by a margin of 50 to 1."
While Council President Darrell Clarke’s office refused to comment on the letter, other council members appeared stunned by the missive. “I would talk to the building trades about that, but I don’t want to comment on it,” said Councilman Mark Squilla, a co-sponsor of the construction tax. “That’s a very strong letter.”
But some in City Hall said it was spine-stiffening.
“This letter helped secure votes for the construction tax,” said one council official, who would speak only on condition of anonymity. “There were a couple of people who were iffy, but don’t like to be bullied.”
Dougherty also emphasized in the letter that the construction tax could scare off Amazon, which is considering Philadelphia as one of the final 20 locations for its proposed second headquarters, a criticism Epps echoed in his testimony.
Clarke asked Epps whether he had reason to believe Amazon was still considering Philadelphia. Epps evaded, saying, "We have had recent conversations. I can only say we are more encouraged."
In his wide-ranging letter, Dougherty went on to say that the building trades unions were not opposed to reforming or eliminating the 10-year property-tax abatement. He said his union has hired the research firm Econsult Solutions Inc. to examine every abated property over the past five years to ensure they were keeping up with their permits, taxes, and licenses.
Earlier in the day, a bill introduced by council member Helen Gym that would have effectively halved the abatement was put on hold, meaning that reform will not pass before the council adjourns for the summer.
Clarke also disputed the idea that more time was needed to consider the legislation. Council member Maria Quinones-Sanchez sparked this debate last June, when she introduced a mandatory inclusionary zoning bill, which ultimately died but led directly to the construction-tax proposal.
"There's been a lot of discussion, we worked with the industry, we backed off of [mandatory] inclusionary zoning," Clarke said. "These people need housing, this notion of keep waiting, keep waiting, keep waiting [will not do]."
Proposed amendments to the bill, which PlanPhilly reported on Tuesday, were altered before passing out of committee.
In an email obtained by PlanPhilly, Richard Feder of the city's Law Department warned that a proposed amendment to exempt renovations under $100,000 from paying the tax was illegal. "The "$100,000 exemption is flatly unconstitutional as violative of uniformity," Feder wrote. "If it stays in the bill, it will definitely lead to litigation."
Instead of employing language naming a specific amount, the bill has been changed to exempt "improvements associated with preparing an existing residential rental unit for turn-over to a new tenant."
A clause also has been added that would require the Office of Property Tax Assessment to issue regulations to clarify "in plain English the types of construction activity that qualifies as an improvement. That is meant to indicate precisely what kinds of projects will be subject to the tax, and will provide a clear idea of what projects would be subject to both the construction tax and the 10-year tax abatement."
Dozens of affordable-housing activists attending the hearing demanded that City Council earmark a portion of the tax's revenues for Philadelphians in poverty, but their efforts failed to sway the committee.
They did get a small win, however, as the bill was amended to allow the tax's revenues to go toward preserving already-existing affordable housing, not just building new units.
Several council sources told PlanPhilly that allowing proceeds from the new tax to be used for relatively higher-income, middle-class households was meant to secure the vote of committee member Cherelle Parker and other members who represent neighborhoods on the outskirts of the city that have been facing declining fortunes but are not considered impoverished.
Those neighborhoods were the middle- to working-class areas that kept Philadelphia healthy relative to other Rust Belt cities during the late 20th century, and Parker has been leading the charge to secure policy interventions aimed at maintaining their stability.
Quiñones-Sanchez said that she sympathized with the goals of housing advocates who want to see the construction-tax money targeted to lower-income residents, but now is not the time.
“Let's get the money first, then fight about it,” she told PlanPhilly.
This article has been updated to reflect the afternoon's developments and the committee's vote.