Tax abatements: Do they rob a generation of Philly kids?

This article was originally published in The Notebook. In August 2020, The Notebook became Chalkbeat Philadelphia.

Yesterday I was listening to "Radio Times" on WHYY discuss property tax abatements, which are coming to the end of their 10-year term. One strand largely absent in the dialogue was the impact of property tax abatements on school district financing.

Property taxes are the bread and butter of public school financing. This is the way our schools are funded in the Commonwealth and in most places around the country. This method of school financing has been the subject of numerous lawsuits around the country alleging gross inequity between tax wealthy districts and tax poor districts. But for now, this is largely what we’re stuck with here in Pennsylvania.

Last fall, the Philadelphia Inquirer’s Patrick Kerkstra did an excellent in-depth analysis of the city’s tax abatement program. Although the city has arguably reaped benefits from tax abatements (wage/sales taxes, development, residential sales, etc.), the School District has suffered immeasurably from the program with little recompense from the city.

In its newspaper version, the Inky published a chart of the tax impact on the city and schools. I asked about specific numbers and the Inquirer graciously provided me with raw data on the estimated forfeited amount of property tax revenue. Keep in mind that these numbers are only on one-third of the abated properties that exist. That’s because Econsult, which did the study, assumed that two-thirds of housing would not have been built/redeveloped without the abatements. The school numbers are a 60% calculation of the amount that would have transferred to the schools (this is because since 2007, the City has divvied up the local property tax revenue as 60% for schools and 40% for the City).

Here’s what the cost of abatements:

• Since 2008:
  City = $84,727,393 in total lost revenue
  Schools = $50,836,436 forfeited
• By 2012:
  City = $181,406,923 in total lost revenue
  Schools = $108,844,154 forfeited
• By 2016 (peak loss):
  City = $239,932,516 in total lost revenue
  Schools = $143,959,509 forfeited

Between 2016 and 2025, the total amount lost for schools declines. The District will begin to see profits from the program in 2025 when we get the first check for $1.6 million . . . after 26 years. By 2025, all three of my children will have graduated from high school – a generation, in my opinion, robbed.

Robbed partly because the City largely has not compensated for the losses or engaged in serious dialogue about ways to offset the cost of losing millions of dollars a year. In fact, this year, the City is delivering $10 million less to the schools due to anticipated reductions in property tax collection.

To its credit, in 2007, City Council voted to transfer a little less than 2% of real estate taxes to the school district, resulting in roughly $20 million additional dollars a year. However, keep in mind that this was the first city increase since the state takeover, and nowhere in the city’s five year plan is there discussion of options for additional revenue generation to the schools.

Other cities, as the Inquirer points out, target their abatement programs to minimize financial costs:

“Some national abatement researchers say the city is giving away the store to the wealthy.

"Philadelphia is being overly generous. It makes absolutely no sense," said C. Kurt Zorn, an Indiana University professor who did a national study of abatements in 2005.

Abatements offered by other cities usually have significant restrictions. They can be used only in low-income neighborhoods, for instance, or the discounts are capped.

Not so in Philadelphia.”

The City notes that there are boosterish revenue projections for the district after 2025, but here’s the problem: Property tax revenues are just about the only funds we’re legally entitled to. Anything else we have to beg and scrape for – and I mean beg and scrape. It’s painful to look at the next 16 years as potentially a "lost generation" for public school financing. We won’t recoup that money; and we’ll suffer the consequences for its loss.

And telling kids to wait 26 years for profits that may or may not come down the road is a lot to ask when our kids need books, our teachers are underpaid, our classrooms are overcrowded, our libraries have been shuttered, and the best we get, is "the School District will get theirs," according to Mayor Nutter.

We don’t normally think of property tax abatements and school financing, but the next time the issue comes up, let’s not forget the impact on school funding for this generation of school children.