City Council approves Philly construction tax and changes to property tax abatement in busy year-end session

City Council on Thursday passed a new 1% tax on residential construction to help finance Council President Darrell L. Clarke’s initiative to fight poverty and increase access to affordable housing.

The approval of the new tax, which will take effect in January 2022, came in Council’s last meeting of the year, a busy session in which lawmakers also adopted major changes to the property tax abatement program, a controversial zoning map for the Strawberry Mansion neighborhood, and legislation aimed at protecting Black and brown workers in the service industry who were laid off during the coronavirus pandemic.

During the meeting, which was held virtually, Councilmember Mark Squilla excused himself to attend to a personal issue. Minutes later, Squilla announced in a statement that he had tested positive for COVID-19 and is experiencing mild symptoms, becoming the first councilmember to contract the virus.

“This virus and the infection are no joke, and I want to emphasize that to my fellow residents in Philadelphia,” Squilla said. “While I don’t know exactly how I contracted COVID-19, I do know that I’ve been taking all the appropriate precautions — wearing a mask, maintaining a social distance when I have to go outside, and generally being cautious.”

The new construction tax, which was approved, 14-3, was part of a package of three bills that passed despite opposition from the development industry, thanks to a deal brokered by Clarke. The tax was opposed by Council’s two Republicans, Brian O’Neill and David Oh, as well as Allan Domb, a Democrat and condominium magnate.

The tax is projected to generate about $15 million in revenue by its second year, and would eventually rise to about $30 million per year, city Finance Director Rob Dubow said during a committee hearing. But if residential construction slows down by 25%, the tax would produce only $11 million in its second year, before rising to about $22 million in its fourth year, Dubow said.

The two other measures in the package deal with the real estate tax abatement program, a 10-year tax break for new construction and improvements that has been criticized by progressives and school-funding advocates as a giveaway to wealthy property owners and a catalyst for gentrification.

One of the abatement bills, also by Clarke, cuts by 10% the value of the tax break for commercial property owners and was approved unanimously. The other, by Councilmember Bobby Henon, passed in an 11-6 vote and delays the implementation of a bill approved last year that would cut in half the value of the abatement for residential properties.

Domb was joined in opposing Henon’s bill by progressive Helen Gym and Council’s four first-term members: Kendra Brooks, Jamie Gauthier, Kathy Gilmore Richardson, and Isaiah Thomas.

In last week’s committee vote, Councilmember Derek Green voted against the Henon bill as well as Clarke’s construction tax. But on Thursday, he voted in favor of both.

The new tax and the changes to the abatement are all scheduled to take effect in January 2022.

Under Clarke’s plan, revenue from the new tax and part of the revenue increases expected from the abatement changes will be used to finance $400 million in city bonds to fund his Neighborhood Transformation Initiative.

Clarke also sponsored the new historic preservation and zoning overlay for Strawberry Mansion. The North Philadelphia neighborhood where he grew up is drawing increasing interest from developers, leading to concerns in the largely Black community that gentrification will make the neighborhood unaffordable.

Builders and house-flippers have opposed the legislation, which bans roof decks and imposes other building standards in the area, saying Clarke is merely using the overlay, a tool meant to protect the character of neighborhoods with historically significant architecture, as a guise to fight off developers.

Local leaders, however, said new development threatens the area’s preponderance of ornate rowhouses and leaves the residents of the once-thriving African American community with little say in the future of their neighborhood. They noted that primarily white areas like Society Hill have also implemented historic preservation overlays.

The bill passed unanimously in keeping with the tradition known as councilmanic prerogative, in which all lawmakers default on land-use decisions to the preferences of the member whose district includes the area in question.

Also Thursday, Council passed a measure aimed at combating the proliferation of untraceable “ghost guns,” a package of bills aimed at increasing transparency on the demographics of companies that get city contracts, and legislation designed to ensure that the thousands of hospitality-industry workers laid off due to the pandemic will be first in line to get their jobs back if their employers recover.