City Council recalls Philly construction tax in favor of compromise with Kenney

City Council withdrew its controversial construction tax Thursday, announcing that it had reached an alternative compromise with Mayor Kenney on a plan to fund affordable housing in the city.

In place of a 1 percent tax on new construction, Council members and Kenney agreed to contribute the real estate tax revenue from properties with expiring 10-year tax abatements to the city's Housing Trust Fund. The compromise came as Kenney, who had voiced concerns about the construction tax, faced a deadline Thursday to determine whether to veto it.

"It was an eleventh-hour concern, so understanding the significant need, we have over the last couple of days worked on a compromise that moves the needle forward," Council President Darrell L. Clarke said Thursday.

Council also added more affordable-housing money beyond the deal with Kenney, allowing for developers to get zoning bonuses if they make contributions to the Housing Trust Fund.

Both additional funding sources will raise $21 million for affordable housing in the current fiscal year, and $71 million in the next five years, Council estimated. Kenney administration officials said, however, that the amount would materialize only in the best-case scenario.

Contributions that developers would make in exchange for a "zoning bonus" to increase the height, floor area, or density of their developments, are dependent on voluntary participation.

The mayor's office committed  to contributing to the Housing Fund the amount of real estate tax revenue raised by properties with 10-year tax abatements in the first year after the tax break expires. This year, that amount was more than $19 million; it dips in the following years, corresponding to decreases in construction during the recession. Over five years, the real estate tax revenue from expiring tax abatements totals about $52 million.

"All of us share the same goal — ensuring that residents have access to housing options no matter what their financial situation," Kenney said in a statement Thursday. "This new revenue will be a reliable way to achieve that goal."

The agreement is not yet finalized; Council is expected to vote on the amended legislation at its next meeting.

Councilwoman Maria Quiñones-Sánchez, a cosponsor of the construction-tax bill, said she agreed with the compromise but hoped that even more money could be found to support affordable housing. The construction tax, if it had become law, was expected to raise more than $100 million in the next five years.

"We're committed to work with the administration to close that gap," Quiñones-Sánchez said.

The Philadelphia Building and Construction Trades Council and the Chamber of Commerce for Greater Philadelphia hailed the agreement in a statement that called the construction tax "deeply flawed."

Beth McConnell, the policy director of the Philadelphia Association of Community Development Corporations, said her organization — which supported the tax — is also pleased with Thursday's outcome.

"We've been pounding the table, asking for this," she said. "We've also been asking for this to be annual, permanent, and dedicated."

McConnell said her organization also supports a change to the tax-abatement program — which Clarke said Council plans to explore.

"There need to be changes in the 10-year tax abatement," he said Thursday. "What that ultimately will be, will be discussed over the next several months."

Staff writer Chris Brennan contributed to this report.