Article originally published in the Philadelphia Business Journal on February 29, 2016
On Friday, a major step was taken on the road toward decreasing Philadelphia’s high resident and non-resident wage tax rates as well as the business income and receipts tax (BIRT). These reductions will lead to business and job growth in our city.
Mayor Jim Kenney and an unprecedented broad coalition of bi-partisan political leaders as well as business, labor and civic leaders announced their support of a comprehensive tax restructuring initiative for Philadelphia. Paul Levy, president of Center City District, Jerry Sweeney, president and CEO of Brandywine Realty Trust and Steven Scott Bradley representing the African American Chamber of Commerce helped build the consensus needed for Philadelphia to reach this major milestone.
It is not surprising that Levy is one of the coalition builders of this tax restructuring initiative. Ask the business, labor, civic and political leadership of Philadelphia the name of the individual most responsible for transforming Center City Philadelphia into a cleaner and safer place to live, visit and do business, and in unison the response will be Paul Levy. Since 1991, Levy has been at the forefront of the journey to raise the quality of life and the preeminence of our city.
I recently interviewed Levy at CCD headquarters, just a block west of Independence Hall in the Old City section of Philadelphia. Levy spoke with passion about improving our city. Early in our conversation, he gave credit for the success of CCD to his team and to other Philadelphia leaders who share a common vision of what Philadelphia can become.
Center City has undergone a renaissance, and continues to do so. Today, the residential community within Center City is thriving. Residents and visitors enjoy the performing arts, museums and Philadelphia’s numerous restaurants. The population is growing as empty nesters from the suburbs move into Center City. More millennials are choosing to stay in Philadelphia after they graduate, reversing the trend of just a few years ago.
Despite these positives, Philadelphia’s high wage tax rates and high BIRT adversely impact job creation. This is an issue that Levy is fully committed to changing.
Quoting from written testimony to Philadelphia City Council on Jan. 28, 2015 by Levy, Sweeney and Bradley, “We are pleased to testify in favor … of a phased schedule of wage tax reduction … Despite all recent positive developments, Philadelphia has the third highest poverty rate among the largest U.S. cities, only behind Detroit and Memphis. From 1990 to 2013, the poverty rate in Philadelphia increased from 20 percent to 26.9 percent, growing at two to three times the national rate. … From 1990 to 2013, Philadelphia’s unemployment rate increased from 6.3 percent to 10 percent, while the national rate rose from 5.6 percent to 7.4 percent.”
According to the June 30, 2015 Philadelphia Jobs Growth Coalition report, Philadelphia’s wage tax rate for residents is four times higher than that of the suburbs, and is the highest on the list of 50 of the largest cities for workers earning less than $100,000 per year. The BIRT is 20 to 30 percent higher than the surrounding suburbs. High wage and BIRT taxes are a significant impediment to increasing job growth and reducing Philadelphia’s poverty rate.
Levy and other Philadelphia business, labor and civic leaders are advocates of not just a wage tax and BIRT reduction, but a comprehensive tax restructuring, which will lower wage tax and BIRT in a phased manner over time, funded by an increase in commercial real estate property taxes. The restructuring will be revenue neutral to the city.
Wage taxes and BIRT will be lowered only as commercial real estate taxes increase. A decrease in BIRT for a business will work to offset the increase in commercial real estate tax. Residential property taxes would see no change. This proposal is consistent with the 2009 report issued by former Mayor Michael Nutter’s Task Force on Tax Policy and Economic Competitiveness.
During my interview with Levy, he stated, “Commercial real estate property taxes are … [significantly less] than in comparable cities. About 20 percent of Philadelphia’s budget is funded by real estate tax compared to New York, Washington and Boston, where that number ranges between 30 and 40 percent, so there is room to raise taxes on commercial real estate.”
In a Nov. 6 article in Philadelphia Magazine, Jared Shelly quotes Jerry Sweeney, president and CEO of Brandywine Real Estate Trust as stating, “We want to shift the revenue base of the City of Philadelphia to be more real-estate-tax centric and less wage-and-income centric. … We are prepared to pay more in taxes. … We want to invest in [our] city’s future.” As one of Philadelphia’s most prominent commercial real estate developers, Sweeney recognizes that a higher commercial real estate tax rate and lower wage tax rates and lower BIRT will generate growth and benefit Philadelphia.
Over the long term, the best way for Philadelphia to increase tax revenues is through growth – by attracting new businesses to the city, by encouraging existing businesses to expand, and by increasing employment. This tax restructuring initiative will do exactly that.
The Pennsylvania constitution states that real estate tax rates on commercial and residential properties need to be uniform. The proposal is that this uniformity be changed, so that commercial property in Philadelphia can be taxed at a rate 15 percent higher than the tax rate on residential properties.
This change to Pennsylvania’s constitution will require approval by two consecutive sessions of the state legislature and approval in a referendum by the citizens of Pennsylvania. Levy, Sweeney and fellow supporters of this effort are hopeful that this change will be approved before the close of this current legislative session at the end of June, be approved again during the next legislative session and go before the Pennsylvania voters in November 2017.
At the end of our interview, I asked Levy, “What matters to you?” He thought for a moment and then replied, “What the CCD does every single day is visible in the public environment. We’ve made [Philadelphia] clean and safe. … The most gratifying thing of this job is what we do collectively here. It is visible and has an effect on what people see [and has an effect] on their psychology and on investment. Driving change in a way that’s really visible is the most gratifying job I have ever had in my life. … To me, helping be part of a process of change, seeing that change is incredibly gratifying.”
With leaders like Levy, Sweeney, Bradley and the many other talented and dedicated leaders like them, Philadelphia has a bright future.
Stanley W. Silverman is the founder and CEO of Silverman Leadership. He is a writer and speaker, advising C-suite executives about issues and on cultivating a leadership culture within their organizations. Stan is Vice Chairman of the Board of Drexel University and a director of Friends Select School and Faith in the Future. He is the former President and CEO of PQ Corporation. Follow: @StanSilverman. Connect: Stan@SilvermanLeadership.com. Website: www.SilvermanLeadership.com