At the final sessions of the year, Philadelphia City Council passed three ordinances affecting real estate development in the City.
Tax Abatement for New Construction of Residential Property
The most closely followed issue before City Council this term was the City’s tax abatement program for new construction. Previously, eligible developments in Philadelphia qualified for a 10-year tax abatement on 100 percent of the property taxes for new improvements. Some community activists and politicians questioned the fairness of the tax abatement program and argued it promoted gentrification. Developers and business leaders, however, credited the tax abatement for generating economic development and fueling the real estate construction industry.
The new changes contained in Bill 190944-A reflect a political compromise. In short, beginning in 2021, the 100 percent tax abatement will be reduced by 10 percent in year two, and by 10 percent more in each subsequent year.
The ordinance:
- Affects both single-family and multi-family projects.
- Applies only to new residential construction projects (not including rehab projects) that certify their tax abatement after December 31, 2020. The abatement for commercial and industrial projects is not affected.
- Effectively reduces the value of the tax abatement by about half over a 10-year period.
- Mandates a city-wide review of the tax abatement program every three years.
Green Construction—Building Energy Performance
Another major piece of City legislation is a new energy efficiency requirement, affecting buildings of at least 50,000 square feet of gross floor area. The new law requires property owners to conduct building “tune-ups . . . consisting of an inspection component and a corrective action component.”
Property owners will have to inspect base building systems and subsystems to ensure energy efficiency, focusing on 10 specified improvement areas ranging from sensors and air ventilation to lighting and plumbing systems. Following such inspection and any corrective actions, the new ordinance requires property owners to submit a tune-up report to the City’s Office of Sustainability. Buildings that do not satisfy certain energy efficiency criteria would be subject to subsequent tune-ups every five years.
However, to avoid the tune-ups, property owners may opt to meet the requirements of certain recognized energy efficiency certifications, such as achieving a LEED gold rating or Certified ENERGY STAR Score of 75 from the U.S. Environmental Protection Agency (EPA) as verified by an engineer.
Friendly Neighbor Law—Community Benefits Agreements
The final piece of legislation affecting new real estate development only applies to very large projects: new construction involving 100,000 square feet of land area or 250,000 square feet of interior gross floor area. This ordinance would create five-member Host Community Boards which would be empowered to enter into a Community Benefits Agreement (“CBA”) with a project developer. Failure to agree to a CBA could result in loss of “City Support or Financial Assistance,” defined as “any transfer of City land to the developer for less than fair market value, rezoning . . . loan, tax increment financing, bond financing, or other form of assistance that is realized by or provided to a developer through the authority or approval of the City.”
These CBAs would require developers to offer amenities to local communities affected by the new development. Such amenities could include support for employment and career mentoring programs and recreational activities, parks, and affordable housing. If enacted, this ordinance would go into effect immediately.
What’s Next?
The Mayor of Philadelphia has already signed the energy efficiency ordinance and has signaled that he intends to sign the tax abatement legislation, though he has not taken a position on the CBA bill.
