Philly is poised to boost property tax relief and cut business taxes thanks to a last-minute compromise

Many Philadelphians are likely to see property tax relief amid soaring real estate assessments, as well as cuts to wage and business taxes, thanks to a compromise between City Council members and Mayor Jim Kenney’s administration that was approved in a key committee vote late Wednesday night.

Under the tax plan that came together in last-minute negotiations over the city budget that begins July 1, the property tax rate of 1.3998% will stay the same, but the homestead exemption, which reduces the taxable value of owner-occupied homes, would increase from $45,000 to $80,000.

At the virtual committee meeting, lawmakers also amended Mayor Jim Kenney’s $5.6 billion budget proposal to include several substantial funding increases, including $15 million in rental assistance, $5.8 million more for the public defenders’ office, and an extra $5 million for police forensics.

» READ MORE: How the pandemic, progressives, and property assessments are fueling a debate over Philly’s taxes

The approval by the Committee of the Whole, which includes all members, sets up a final vote on the budget at Council’s June 23 meeting, the last before lawmakers adjourn for their summer breaks.

This year’s focus on taxes was prompted in part by the first citywide property reassessment in three years, which saw residential property values increase 31% on average and much more in rapidly gentrifying areas.

Kenney in April proposed increasing the homestead exemption to $65,000, and some lawmakers including Council members Kenyatta Johnson and Brian O’Neill have since pushed to increase it to its legal maximum of $90,000. But a majority ultimately supported the $80,000 compromise, primarily out of concern for the tax break’s impact on the School District of Philadelphia, which gets 55% of property tax revenues.

Johnson said the budget deal “represents investments in Philadelphia to move our city forward,” applauding its investments in anti-violence spending and the elements of his “Save Our Homes” property tax relief plan that made it into the final compromise. Those measures, he said, will “help reduce the property tax burden for homeowners throughout Philadelphia and make property taxation fairer and more transparent.”

The most surprising news on the final day of negotiations was the last-minute majority that emerged to cut the business income and receipts tax on net profits from 6.2% to 5.99%, the result of a vocal lobbying effort by the city’s chambers of commerce.

Councilmember Isaiah Thomas, who introduced the cut, said he was motivated by one question: “How do we put people in a position to provide a quality living for themselves as well as their family?”

The compromise plan also included a small cut to the wage tax, carried by Councilmember Katherine Gilmore Richardson, lowering the rate from 3.8398% to 3.79% for city residents, and from 3.4481% to 3.44% for people who work in Philadelphia but live outside the city limits.

The talks came down to the 11th hour: Council needed to move the taxing and spending legislation out of committee before its Thursday morning meeting in order to approve the budget by the time the current budget expires at the end of the month.

Members of the Kenney administration worked hand in hand with lawmakers to approve the budget in a process overseen by Council President Darrell L. Clarke that involved an unusually low level of friction between the executive and legislative branches.

Philly is the only large U.S. city with a municipal legislature that is still meeting remotely, and Council members conducted the negotiations in a chain of phone calls.

“I had to charge up my phone like five times today,” Clarke said in a speech at 11 p.m., “but it’s all good.”

Almost all of the committee votes Wednesday night were unanimous voice votes, but Council members Helen Gym, Kendra Brooks, and Jamie Gauthier voted no on the wage and business tax cuts.

The budget deal represents a win for the business community, which has for several years seen its influence in City Hall wane amid momentum for the city’s progressive movement.

“Tonight we saw bold leadership from City Council,” said Sue Jacobson, chair of the Chamber of Commerce for Greater Philadelphia. “Their decision to cut taxes for job creators is a clear signal that Philadelphia is committed to restarting its economy after COVID and increasing the number of people working in the city.”

Council’s progressive trio of Gym, Brooks, and Gauthier were largely sidelined from the final round of negotiations over taxes. Many of their spending priorities, however, made it into the final budget, including rental assistance and quality-of-life issues like abandoned car removal. Brooks’ signature “wealth tax” proposal never received a vote.

In a speech explaining her votes against the wage and business tax cuts, Gym said: “We have spent far too much time catering to powerful interests and the Chamber, rather than the 100,000 families in the School District of Philadelphia.”

Gauthier said she voted against the tax cuts because they benefited large corporations and were not targeted for small or minority-owned businesses, despite a lobbying campaign that emphasized their benefit for disadvantaged businesses.

“The tax cuts were always pitched to us as about small business,” Gauthier said. “These are cuts that would benefit much larger businesses, too, and at a time when we’re trying to rebound.”

Meanwhile, several members who are considering running in next year’s mayoral race played central roles in the negotiations, including Majority Leader Cherelle Parker and three members who have long championed reforming the business tax: Derek Green, Allan Domb, and Maria Quiñones-Sánchez.

“This was not an easy budget,” Parker said in a statement that highlighted boosted funding to policing and quality-of-life issues. “We are approving property tax relief measures to mitigate the effects of the reassessments. We’re approving reductions in wage and business taxes – to provide badly-needed relief to small neighborhood businesses.”

The budget deal will receive a first reading at Council’s next meeting at 10 a.m. Thursday before moving on to second reading and final passage the following week.