Thursday, February 16, 2006

The Ten-Year Tax Abatement: Another Perspective

A recent article in the Daily News asks Philadelphia to “[c]onsider the ten-year tax abatement as a long-term investment in the city's future that already is turning a profit.” As an example, the article presents the 940-unit Waterfront Square development on Columbus Boulevard at Penn Street as exhibit “A”. The complex will fill 10 acres that lay vacant for many years before a group of developers put a plan into action. Based on a projection of $600 million in construction costs, the developer approximates that the five-tower development will generate around $12 million in wage taxes and $12 million in real-estate transfer tax on the sales. There's also the additional wage and sales taxes that will be paid by the estimated 60 percent of the buyers moving to Philadelphia from outside the City. The developer projects another $10 million a year in transfer tax on future sales within the development. Finally, 11 years from now – after the 10-year abatement has ended – as the first of these condos become subject to the full property tax, their value will be substantially higher than it is today.

Now, multiply that by the 7,000 to 9,000 new units planned for in greater Center City and elsewhere in the City. Quite an impact. This is not to say the tax abatement shouldn't be adjusted down the road; however, we shouldn’t move too hastily to eliminate a mechanism that has promoted explosive new home construction and generated significant amounts of revenue, notwithstanding temporarily forgone property tax revenue.

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