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A Closer Look at Philadelphia’s Construction Impact Tax

By Jay Goldstein

As reported for many months, Philadelphia City Council has been considering measures to support affordable housing in Philadelphia to address concerns about rapidly rising prices amidst the development boom. A once considered bill to require 10% of any development project to be set aside for affordable housing was scrapped in favor of legislation imposing:

  • a Construction Impact Tax which would levy a 1% fee on all construction projects in the City from new construction to major renovations. The money collected from this tax would then be funneled into the Housing Trust Fund that both for-profit and not-for-profit developers could tap into to build new affordable housing.
  • Before breaking for summer recess, City Council voted 9-8 to impose the Construction Tax, a vote far closer than expected. The details about the process for determining and collecting the tax remain unclear.
  • There is a possibility that Mayor Kenney will veto this bill. Although he is committed to affordable housing, he is concerned that this particular piece of legislation is onerous, adding one more tax onto an already highly taxed industry – real estate development.
  • Recently, Philadelphia’s Finance Department published a memo outlining the negative effect the Construction Tax would have on the City’s finances predicting that the General Fund will lose more revenue than it will generate for the Housing Trust Fund through the tax.

If the Mayor vetoes the bill, we will have to wait until Council convenes in the Fall to get the final results on the controversial tax…