Hard Fought Construction Tax in Philly Takes Unexpected Turn

Roiling debate could be just a preview for the fall.

Affordable housing advocates staged a die-in during a June 7, 2018 Philadelphia City Council meeting. (Photo by Jared Brey)

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At a city council meeting on June 7, 2018, two women ran out from behind the rail that separates the audience from the central chamber, carrying a banner. They made it as far as the press table on the opposite side of the chamber before being surrounded by security officers.

The chamber erupted with protestors in every row, holding signs and chanting against a provision tucked into a package of bills that they felt would only further displacement, instead of mitigating it, as was the package’s original intent.

While the security guards were focused on the two women with the banner, half a dozen members of the group Disabled in Action had entered the inner sanctum, lowered themselves off their wheelchairs and laid down on the carpet. They continued chanting: “When poor people are under attack, what do we do? Stand up, fight back.”

The chanting went on for about 15 minutes. Eventually, protestors who had stayed behind the rail began to leave. Police officers congregated around the group in the middle of the chamber and lifted some of the protestors back into their wheelchairs by the arms, one officer on each side. In the hallway, other members of the group lined up and continued chanting while the cops stood guard by the doors to the chamber.

Last week, at the end of its spring session, the council recorded a rare split decision, voting 9-8 in favor of a controversial bill to create a one-percent tax on new construction — known as the “construction impact tax” — and to direct the proceeds to affordable housing efforts. A second bill, which was the target of the June 7 die-in demonstration, also passed, 13-4.

If signed by Mayor Jim Kenney, the second bill would split the city’s housing trust fund in two, with a new “sub-fund” to be filled with the proceeds of the impact tax and used for downpayment assistance and other programs for homeowners earning up to 120 percent of area median income, or around $105,000 for a family of four.

The wider package of policies, including the construction impact tax and the housing trust sub-fund bill was introduced earlier this spring under the heading Putting Philadelphians First, sponsored primarily by Councilwoman Maria Quiñones-Sánchez and Council President Darrell Clarke. The package also includes a bill creating new incentives for developers to include affordable units in apartment projects, which passed unanimously.

The debate around the various bills goes deep. And while a slim majority of council members voted for the impact tax, its fate is far from certain.

In a press conference outside his office Thursday afternoon, Mayor Jim Kenney said he would take the summer to review the legislation before deciding whether to sign it. Many advocates expect a veto, which city council would need 12 votes to override. Earlier on Thursday morning, Kenney’s office released a last-minute Finance Department analysis of the impact tax bill, projecting that it would slow the pace of market-rate development and cost the city more than $30 million in lost revenue over five years.

“I’m committed to increasing Philadelphia’s affordable housing stock and to promoting equitable growth, but I have concerns about this particular piece of legislation,” Kenney said through a spokesman shortly after the vote. “Philadelphia is already considered by many to have a pretty onerous tax system and it is certainly not clear that adding another tax is the best way to address our housing crisis.”

The tax is also opposed by the city’s politically influential building trades unions and various chambers of commerce. But the controversy around the package of bills goes beyond the usual pro/anti-tax debate.

The community of affordable housing advocates in the city has been firmly behind the impact tax proposal. But the council’s proposal for how to use the revenue — particularly the sub-fund that could be used to help middle-income homeowners, and not just residents on the lowest end of the income scale — opened new fissures between the groups, with some vocally opposed to the sub-fund and others supporting it. As concerns about housing costs in the city get more pitched, the debate raises questions about what policies housing advocates will coalesce around as the mayor and city council head into a re-election year in 2019.

Support for middle-income homeownership would be a major departure from the Philadelphia Housing Trust Fund’s history. The fund was created in 2005, and has collected most of its revenue from recording fees on deeds and mortgages, averaging around $11.5 million a year. Since 2005, according to the fund’s annual reports, it has helped finance the construction or preservation of more than 1,500 homes and complete major repairs on nearly 2,500 more.

But most of the work funded by the program isn’t focused on housing production. Since 2005, the fund has helped more than 10,000 households pay their utility bills, prevented 3,000 households from becoming homeless, and paid for more than 21,000 emergency heater repairs, according to the reports. By law, the Housing Trust Fund can be used to benefit households earning up to 115 percent of area median income. But on a yearly basis, at least half of the money is required to be spent on programs that benefit people making less than 30 percent of area median income, or around $26,000 for a family of four.

In the last two years, according to the most recent report, nearly 90 percent of homes receiving assistance from the Housing Trust Fund earned less than 30 percent area median income. Most were 1- or 2-member households.

Housing advocates began a concentrated push to get more money allocated to the Housing Trust Fund around four years ago, during the run-up to the last mayoral and city council election, in 2015. That year, the Philadelphia Association of Community Development Corporations released a report called “Beyond Gentrification,” a policy platform for equitable development in the city. The report called for the Housing Trust Fund to be doubled to $25 million a year. It also suggested that the city could create a “linkage fee,” collecting some money from new construction to pay for affordable housing programs.

In 2016, a development group made headlines when it tried to wiggle out of the affordable housing requirements of an existing zoning bonus it had claimed for a project on the Delaware River waterfront. The group eventually agreed to pay into the Housing Trust Fund in lieu of building affordable units, but the controversy stirred housing advocates and council members to act. Last spring, before the end of city council’s spring session, Councilwoman Sánchez introduced a bill that would have created a mandatory inclusionary zoning program in the city, in addition to the few voluntary incentives for affordable housing already in the zoning code. Throughout the fall, council committees amended the bill, and those negotiations ended up resulting in a more strongly incentivized, but still voluntary inclusionary policy that passed on Thursday.

“That bill coming out of committee in November or December, as weakened as it was, led to a little bit of a pause,” says Beth McConnell, policy director for the Philadelphia Association of Community Development Corporations, a few days before council’s final session. “Like, ‘Hold up, we can get better than this. Let’s look again back at these fee ideas that were recommended.’ So there were a bunch of things that were on the table, but then ultimately [Council] went with the impact fee.”

The Philadelphia Association of Community Development Corporations, along with a broad coalition of dozens of advocacy groups called the Philadelphia Coalition for Affordable Communities, were in full support of the construction impact tax. But the proposal to create a sub-fund benefiting homeowners up to 120 percent area median income — and without the same requirement in the original Housing Trust Fund legislation that directs at least half of the money to very-low-income residents — drove a small wedge in the coalition.

Those in the Philadelphia Coalition for Affordable Communities who opposed the new sub-fund idea staged the June 7 die-in. Jose de Marco, a North Philly resident and advocate with the group ACT UP, told Next City he was there because access to housing was becoming as big a health issue for people with AIDS as anything else. All the money collected through the construction tax should be going to people earning less than 30 percent area median income, he said.

“The construction impact tax was something that ACT UP and the Philadelphia Coalition for Affordable Communities had been working on for years,” says Max Ray-Riek, an organizer with ACT UP. “It was recommended in our reports to City Council several times. So that bill, we knew it was coming and we were excited about it. We heard just under a week before the hearing that there was going to be this additional bill [creating a housing sub-fund.]”

After council finally approved both the construction tax and the sub-fund last week, ACT UP sent out a joint statement with Disabled in Action, Black and Brown Worker’s Cooperative, Decarcerate PA, and Reclaim Philadelphia, saying it would plan to support candidates next year who would prioritize housing funds to support very low-income Philadelphians.

“The original Housing Trust Fund was hard-fought legislation,” Ray-Riek says. “People thought really hard about what would make it fair and good for equitable development across the city.”

The sub-fund would muddy the waters, according to Ray-Riek, a few days before the final vote. It would be better if the impact tax would pass but the sub-fund would fail, but if it didn’t, advocates would work to get new legislation passed in the fall or regulations that would direct at least half the money to very low-income people.

“I understand why they were disappointed and feel strongly that it’s a problem that there isn’t a guarantee in there,” says Nora Lichtash, director of the Women’s Community Revitalization Project and one of the leading forces behind the Philadelphia Coalition for Affordable Communities. “But I think, to get roughly $20 million a year [for housing] is an opportunity that would benefit everyone.”

McConnell says that if both bills survive into the fall, advocates would rally for regulations that reserve some of the construction impact tax for people earning less than 30 percent area median income.

“Where I completely, 100-percent agree with the ACT UP and Disabled in Action folks is that we want as much of that money to go to low-income people as possible,” McConnell says. “Why we decided to support the bill wholeheartedly is that we believe we can still win that fight after the bill has passed. I don’t think it’s fair to call it a gentrification amendment. This isn’t about helping wealthy people buy or build $400,000 or $500,000 homes.”

McConnell points out that some amount of the funds will go to support middle-class people and to create more middle-income neighborhoods, and maybe even to prevent gentrification by allowing them to get a home in a neighborhood that’s already facing rising home values instead of being forced down market into more affordable neighborhoods. “These are bus drivers and retail workers and kindergarten teachers,” she says. “This is the income category that we’re talking about, not lawyers and bankers.”

There were more amendments to the Putting Philadelphians First package in the weeks before it passed, including a provision that would exempt the properties that Amazon is said to be considering for its HQ2 project from the construction tax, along with other properties in Keystone Opportunity Zones. But in the end, it may be moot. Kenney has signaled that he isn’t a fan of the tax, and with only nine councilmembers voting in support of it, he’s unlikely to have a veto overturned.

The debate over housing issues may heat up again as the next election gets closer.

A 2016 survey found the number of housing trust funds around the U.S. steadily growing since the mid-1980s, and many cities are seeing efforts to make the funds bigger. Washington, D.C., increased its housing trust fund to $100 million a few years, a fact that both Lichtash and McConnell noted with envy. The mayor of Minneapolis recently announced a plan to put $50 million a year into housing production, and coalitions in Nashville and Baltimore have begun calling for major investments in their own trust funds.

“Up until now, city council has felt that housing advocates will take what they can get and that it’s not a big bread-and-butter issue to Philadelphians,” Max Ray-Riek said. “But this is a city that elected [progressive District Attorney] Larry Krasner and progressive organizations and organizations of working people are organizing around the state. And housing is the biggest issue that’s hurting people in Philadelphia.”

Next City’s coverage of Philadelphia’s changing neighborhoods is made possible with the support of the William Penn Foundation.

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Jared Brey is Next City's housing correspondent, based in Philadelphia. He is a former staff writer at Philadelphia magazine and PlanPhilly, and his work has appeared in Columbia Journalism Review, Landscape Architecture Magazine, U.S. News & World Report, Philadelphia Weekly, and other publications.

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Tags: affordable housingphiladelphiaphilly in flux

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