Opinion piece in the inqy, sums up the argument everyone has been having about this city for the last 20 years. Philly could be so great if only . . .
Tax hikes won't make Phillly a Gateway City
Real estate professionals call those places where businesses and investors want to be "Gateway Cities."
Those cities have readily accessible airports, great universities and hospitals, strong public transportation, and world-class arts, sports, and entertainment. Philadelphia has all of these, but it is missing one crucial component: a business environment that encourages firms to locate here.
New York, Boston, Washington, and Chicago have all faced challenges similar to Philadelphia, but they reinvented themselves and are now places where companies want to be.
When Philadelphia made Baldwin locomotives, Stetson hats, and Philco radios, it was the place to be. After some tough economic times, Philadelphia began transforming itself in the last two decades by rolling back many of the business-killing taxes that have plagued our city. Unfortunately, we have reversed direction.It is quite clear at this point and time that that is not going to happen.To get back on the right path will take bold leadership, hard work, and some sacrifice. That leadership must begin with the Nutter administration.
While I agree with the gist of the article that Philly lags in business formation and needs to fix this problem, he neglects to mention that the gateway cities he mentions are all known as high tax places. Ever heard of "Taxachussetts"? Quite recently Illinios raised its income taxes from 3% to 5%, and their pensions are still funded at only 14% of where they need to be - a whopping 86% deficit. As a matter of fact, I would say that in the past three years Philly's been making up alot of the lead that Chicago has on us. Philly's a bit of an anomoly in that it's a high tax city in a low tax state, so we have very high taxes compared with our suburbs, but in comparison to other large cities our total state and local taxes aren't really out of the ballpark for anyone who's not in poverty (impoverished Philadelphians pay higher rates than they would in other places because of our flat rates).
He also neglects to mention that the six tax increases that he talks about have been on property and on sales. While the U & O has been called a business tax, in reality it's a property tax surcharge on commercial real estate, paid for by property owners (i.e. landlords). Philly still has the lowest sales tax rate of any of the 10 largest (in population) cities in the USA, and Philly still has remarkably low real estate taxes, both commercially and residentially. If you start with a very low base and raise something by 18% or so, you still don't have a very high number. Philly's been attracting people to live in it (thankfully), and they want services. Nutter chose to maintain services (especially to try to replace the school funding from the Feds and the state that has evaporated so our school board can have enough money to recast the schools so that they can deliver a quality product; this process has borne much fruit but is extremely incomplete, and now is not the time to stop the process), and the rents in Center City and all of the residential new construction we see all over the city tell us what the market thinks about Nutter's decision to maintain services while raising property and sales taxes to pay for it; this of course has played out in our population numbers, also. Philly still does need to be kinder to businesses, not least by lowering the wage tax and fixing the Business Privilege Tax, and the recent exemption of small firms and the move to drop the penalties on Philly-based firms are huge steps in the right direction. Wage tax reductions are due to resume July 1, 2013 (still trying to find out the exact number on that one), so overall the city's been trying to transfer the way it funds its operations from taxing income generation to taxing land, which is exactly what it needs to do if it's going to encourage people to fix up rundown properties (it's expensive to sit on properties with higher property taxes, and it's easier to get them to sheriff's sale if they owe more money in back taxes) and if the city's going to encourage businesses to operate out of Philly. Remember that I used to pay 4.96% wage tax and that number now is down over 20%. That's an enormous drop, at a time when every other place has been raising their income taxes.
Last edited by billy ross; 07-08-2012 at 10:57 PM.
Trouble is, Billy, we're still not prepared to shift to a land value taxation system. Certainly you know that land value taxes and property taxes are not the same thing.
Sandy Smith, Wanderer in Germantown, Philadelphia
Editor-in-Chief, Philadelphia Real Estate Blog - but all opinions expressed here are mine and mine alone.
""Jazz and blogging are both intimate, improvisational, and individual -- but also inherently collective. And the audience talks over both." --Andrew Sullivan, "Why I Blog," The Atlantic, November 2008
The other thing that has to be looked into as a main problem for businesses in Philadelphia are the procedures. A lot of it is designed to benefit those connected and on the inside and discourages people from outside the region getting involved.
Our problem is that we're part of a dense corridor, with NYC on one end and D.C. on the other. So to compete and attract businesses, we need to offer them something more than what we currently do. Yes, we do have advantages that other cities don't: that's why we didn't end up like Baltimore or Detroit or Cincinnati. But in a down economy, the last thing we should be doing considering our disadvantages is raising taxes.
But yes, we compete (and often lose) heavily with our suburbs as well on the same basis.
Philly's biggest problem is that, for the past few decades, it has been run by people who are desperate to preserve the economic and social status of people who worked in industial-era jobs, without them having to adapt and re-invent themselves in a way that allows them to function in the post-industrial era. The result has been a large and unwieldy municipal government who's overreaching programs, laws and rules are too complicated to implement and enforce by the industrial-era workers who are charged with implementing them. This situation has driven away and kept away anyone with the education and creativity to function in our modern economy. It's a chicken-and-egg problem that seems to be slowly aleviating itself, but could certainly use some kind of outside catalyst to help things along, like with HUD and PHA. I've posted this before, but search youtube for "nightmare in the city that never sleeps" (a BBC special report somebody uploaded as a multi-part series) for information on the external catalyst that helped NYC get past its own innertia a few decades ago.
The only problem caused by the proximity of NYC and D.C. is that both those cities started solving their problems (generally the same ones Philly has) sooner than Philly did, at least to some degree through some external catalyst that Philly has lacked. This head start has made them more inviting places to move to for anyone who can afford to. The trickle of people coming to Philadelphia are generally doing so because they're in some kind of special situation (can work from home, for instance) and/or are willing to put up with certain things in exchange for a lower cost of living.
Last edited by Dave; 07-09-2012 at 04:46 PM.
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Let's be honest. DC is only DC because it has the federal government and traffic which is so ungodly bad that it has accelerated the pace at which it's urban neighborhoods have become acceptable/fashionable. Philly has a lot of advantages over DC. Last I checked, DC's income tax was in the neighborhood of 10%. Our combined state/city is in the 6-7% range. Culturally, at least if we're talking food, music, theater, etc, Philly wins out again. Finally, I'd even argue that our schools are better than DC's. This is not uniformly the case, but it seems as though we have more and better magnet/charter options, and a higher density of acceptable to good neighborhood schools.Originally Posted by Dave
The real issue is that Philly (and PA too) are locales which tax corporations more than individuals and property owners. We need a better equilibrium (taxing individuals at a higher relative rate than is currently the case and businesses at a lower rate) and it's a tricky problem to solve, not least because the people who vote for the politicians won't want to be voting for tax increases for themselves. It's a very difficult problem/relative position to articulate. It also doesn't help that the increases that we've so far experienced with respect to property taxes have been funneled simply to the schools (which are in many ways a financial black hole). The increases would have been much more palatable if they went to offset business taxes directly as a maneuver to jump start jobs growth. Janie would be having none of the latter, as it would be incomprehensible to her constituency. Quietly, at least, more and more of council is understanding this, particularly MQS, Bill Green, Jim Kenney, and C Jones of all people, but then again, since our taxes have already been raised 3 times just to fund the schools, it seems like we missed the opportunity to do any sort of meaningful offset.
Philly is solvent, with no budgetary emergency issues year on year like other places do, in large part due to the discipline required by five year budgeting. We have a gotcha in unfunded pensions waiting in the wings, but we have a 1% sales tax which will need to be repurposed in about 3 years or so to offset that. More importantly, as the economy recovers and with it the city's tax revenues, we'll have extra revenue to invest in business development, and I believe that Council and the Mayor understand that. Business development is a kinder business tax regime, which will itself lead to more taxes, in a virtuous cycle. We've already made important, fundamental changes in how we tax businesses, and this will pay dividends in increased tax revenues, which is and will continue to give us breathing room. Philly's financial sector is recovering due to KOZ's, and the Navy Yard is a world class example of brownfield redevelopment. Finally, with our new zoning we'll have a suburban model of development-driven government when the economy recovers and the demand for growth needs to be met largely in the city because the suburban zoning won't allow growth to happen quickly to satisfy demand, whereas in Philly development will be largely by right. I don't think that people realize how profound removing the need for zoning variances has been and will continue to be. When a developer can look at a piece of ground and have it developed and sold six months later you unlock tremendous wealth-creation ability.
Last edited by billy ross; 07-10-2012 at 07:03 AM.
Now on the residential side I agree with you that zoning in the city will allow for faster growth in units being built because most suburban towns only want commercial ratables in order to keep their taxes low.
All that with another likely tax increase next year too.
I was talking about housing development, not office development. Since so many people work out of their homes nowadays housing development approximates jobs development anymore.
Last edited by billy ross; 07-10-2012 at 01:41 PM.
Also, in order to keep taxes from rising from added residential development it is crucial that there is commercial development. It is generally accepted that the taxes contributed by a housing unit is not sufficient in covering the services that are provided to the household that is living there. Obviously, this depends on household size and makeup but if only residential development is added taxes will have to be increased. This is why many municipalites are so strict about what they allow to be built.
All of that said I do think Philadelphia is in a very good position going forward just disagree with you that we will not see major commercial development in the future.
For several years Philadelphia has had problems with meeting its budgets for a variety of reasons (economic, priorities, benefits, etc.). To deal with those situations, it has raised several taxes and fees, some multiple times. Philadelphia didn't raise the property tax millage because they thought it was compensating for assessments. They raised it because they needed more money.
And no, it is not a guarantee that increased assessment equal increased revenue. There are plenty of places keep revenue neutral even when assessments increase.
If you can run a City on $100 million dollars, there is nothing wrong with keeping it at that level, even if the resident wealth increases.
Aholes like NicktheCage will than be posting LMAO at philly.