Won't Anyone Think of the Tax Base?


(Rendering: Women's Community Revitalization Project)

Claudia Vargas's piece on how Councilmembers reserve city-owned land for favored developers and projects is both a great lens into why Philly continues to have more vacant land than any other large city, and a frustrating example of how nobody cares about the city tax base.

Many of the properties the city owns are located in economically depressed neighborhoods where there's little chance of them being privately redeveloped, at least in the medium term. It makes some amount of sense for the City to hang onto those properties, provided they're being maintained properly.

But there is also a large number city-owned parcels located in places that are either seeing some housing demand, or are right in the expected path of neighborhood growth and migration over the next several years. And it turns out Council doesn't want to sell those properties either. Per Vargas's story, 44 properties are being "reserved" for favored projects or developers by District Councilmembers.

For years, developers have been after the landowner, the Philadelphia Redevelopment Authority, to buy the empty lots. These days they are worth $605,500, about 10 times their value when the city acquired them.

But the authority balked at those offers. Instead, in January 2016, the authority “reserved” the land for the Women’s Community Revitalization Project, a nonprofit organization that promises to build low-income housing at the site. The reservation takes the property off the market before a sale. The price: $100 or less.

More than a year and a half later, the nonprofit is still looking for the $12 million it needs for the project. It has yet to put a shovel in the ground.

Since 2013, the city has “reserved” land for 44 potential projects, many intended for affordable housing. And the number is growing.

Back in March of 2016, I reported on a presentation by Drexel University economist Kevin Gillen about the Land Bank valuation model he built with Guy Thigpen at the City. Gillen said that while many of the parcels are not currently in areas seeing much redevelopment activity, he expects many of them will see more investment before long, making it an opportune time for the city to sell them so people can build houses. 

“Many city-owned land bank parcels are very tightly clustered around where values are growing, and historically speaking, the value is expanding outward from Center City,” [Gillen] said. “So while these parcels may not be very large in terms of square footage, a significant number of them turn out to be right in the path of current growth, and the timing couldn’t be better.”

The market's only gotten hotter since then, but we still haven't seen a big wave of city land sell-offs in appreciating neighborhoods other than the Great Squilla Sell-Off of about 200 parcels in the 1st Council District in 2015. Squilla opted to cut to the chase and auction off the properties, instead of depositing them in the Land Bank.

There also hasn't been much activity from the Land Bank on the land assemblage front, which Gillen said is "the number one thing the Land Bank could do, with its authority, to create value." 

Not everyone agrees with Gillen that the Land Bank's priority should be creating value in the sense of maximizing revenue, however, and some prefer to use the Land Bank's holdings in appreciating markets to achieve other social and political goals. 

There's nothing wrong with using land policy as a tool for social policy per se, but there are some good reasons to doubt that reserving high-value land for uncertain future non-profit development projects—while delaying the market-rate development we could have right now—creates better outcomes for more people than simply selling the land.

One problem with letting Council treat PRA properties as their personal Land Bank is that, when combined with Councilmanic Prerogative, that level of individual discretion over land deals creates fertile grounds for corruption. Councilmembers can block developers who don't support them politically from buying city-owned land (full disclosure: my wife works for OCF Realty), or hold parcels for politically-connected businesses and friends. It's no coincidence that some former District Councilmembers have gone to jail over abuses related to these land use powers. Vargas says that Councilmembers often choose developers for these projects behind closed doors, outside the public eye, so we basically just have to trust that this is all based on the public's best interest. 

Another problem is that there's no been effort to judge the full cost of these kinds of subsidies for the City budget.

In today's follow-up story from Vargas about one such "reserved" lot in Point Breeze, we learned that the City turned down a $3 million offer from OCF Realty and instead sold the lot for $100 to the Women's Community Revitalization Project. The WCRP project is for 33 below-market rate units with 44 parking spaces. For reference, the dimensions of the lot would allow approximately 25 single-family homes, or 100 apartments without parking. By some metric, City Council and the Redevelopment Authority have decided that getting $100 and 33 homes is better than getting $3 million and 100 homes. And maybe there's some reason why that would be the case, but either way they should show their work. 

If we sell the land Squilla-style, we know we get some cash up front, plus property taxes 10 years later. We also immediately get wage taxes, and land taxes, which aren't abated. But, partly because of the 10-year lag from the abatement, arguments about doing what's best for the city's property tax base are seen as inadmissible, because YOLO, essentially. There's no one seriously considering the fiscal impact that the development decisions of today will have on the health of tomorrow's tax base, aka the funding source for all the city's programs and priorities. 

Take this quote from the otherwise very sensible Gregory Heller, director of the Redevelopment Authority. Not to pick on Greg too much, but this is just a great pull-quote to represent the conventional wisdom in city government.

Asked about the tradeoff in giving away valuable land for affordable housing, Heller said that even if he sold city land to market-rate developers, there would be a lag in revenue because of the 10-year property tax abatement on new construction.

“Whether it’s a million-dollar whatever or a low housing income tax credit deal … it’s not like we were going to get taxes next year anyway on either,” Heller said. Low-income projects get a three-year tax break.

However, Gillen said, the city should be thinking beyond the 10-year tax abatement. He added that new affordable housing construction on expensive land  might not be “the most cost-effective policy.”

What many people seem to believe is that today's development decisions don't matter for the city's fiscal position at all, because the revenue from new development will come in 10 years in the future. That's frustrating since the City does know the money is real, since they're expecting a big ramp-up in property tax receipts from the abatements expiring over the next several years—a result of the construction boom of 10 years ago. By contrast, we really have no idea what the true value of the per-person affordable housing spending is when we let City Council play Sim City in secret negotiations over Redevelopment Authority properties. 

Council needs to prove not only that the projects they support are better than more market-rate housing delivered sooner, but also that they'll have a bigger dollar-for-dollar impact on more people than if we spent the same money through the democratically-debated and more publicly transparent city budget.

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  • Jon Geeting
    published this page in Blog 2017-08-25 11:36:56 -0400