Smart tax mix helps city grow

Posted: September 20, 2012

By Paul R. Levy

Philadelphia stands at a crossroads. For a half-century we've been losing jobs, shrinking opportunities for neighborhood residents. Now, despite national economic challenges, demographic, lifestyle, and energy-cost trends are tilting our way. With strong regional transit, good highway access, a diverse, vibrant downtown, expanding academic, research, and health-care campuses and walkable, human-scale neighborhoods, Philadelphia can capture a much greater share of regional growth, expanding opportunities at all educational and skill levels.

But Philadelphia will succeed only if it leaves behind manufacturing-era tax policies that discourage 21st-century business formation and job creation. This is what's at stake as City Council resumes the tax policy debate postponed last spring.

Six decades after Philadelphia began an ambitious redevelopment program, the city has four strong nodes of 21st-century jobs. Center City, University City, Temple University's campuses, and the Navy Yard hold 53 percent of all private-sector jobs in Philadelphia. Two nodes, Center City and University City, provide on average 26 percent of the jobs for working residents from every city neighborhood. Center City alone holds 39 percent of all jobs in Philadelphia and concentrates them in office towers, hotels, and educational and medical institutions at 129 jobs per acre, compared with four jobs per acre across the rest of the city. With fuel costs high, these jobs conveniently are at the center of the region's transit system.

But here's the problem: Center City, the university campuses, and the Navy Yard, all of which are thriving, are just not big enough to provide opportunities for all. Skills and education-levels may be a challenge, but even in Center City, 21 percent of jobs are held by individuals with no more than a high school diploma. The real problem is our neighborhoods have far too few small businesses, entrepreneurs, light manufacturing, and warehouses. This should not be a surprise. Municipal finance experts calculate that a typical business pays 19 percent more in taxes just to be in Philadelphia, compared with the suburbs.

On average, only 13 percent of working residents work in the City Council district in which they live. Twenty percent commute to downtown, but between 35 percent and 50 percent of working residents in each district, 190,773 Philadelphians, are having to find work in the suburbs; an additional 71,394 are looking unsuccessfully, pushing the city's unemployment rate to 10.9 percent, 2.6 percent higher than the national average.

It's time to reverse the trend that has cost us 216,000 jobs since 1970. At the current pace, we will lose an additional 75,000 jobs by 2020. Since 80 percent of the resources that support municipal government are generated locally and 84 percent of all jobs in the city are in the private sector, Philadelphia cannot sustain needed services by raising taxes on a shrinking job base. If this slide isn't reversed, the city has no choice but to curtail services in the coming decade, or to raise taxes, pushing more people and jobs out of the city.

There is a way out. It is not that Philadelphia taxes too much; rather it taxes the wrong things. Sixty-six percent of local tax revenue comes from taxing highly mobile wages and profits. By contrast, comparable taxes in New York City comprise only 34 percent of the mix, while in Washington, it is 35 percent. It's an immutable law of municipal finance: If you overtax what can move, it will.

A disproportionate dependency on wage and business taxes pushes small businesses, entrepreneurs, and office tenants to lower-cost suburbs. On the other hand, rely more on what's immobile - land and improvements - and we create a climate that encourages growth. This is especially true when people want sustainable, transit-oriented, and walkable communities close to work. In the fastest growing section of Philadelphia, Center City, 74 percent get to work without a car.

As Council prepares to debate again real-estate assessments and job creation, keep focused on the big picture. With energy costs high and so many needing to commute to the suburbs, there's a powerful motivation to seek affordable housing closer to work. On the current course, neighborhoods not adjacent to job centers will continue to lose residents, talent, and vitality. Even Center City can't continue to flourish without job growth. But competitive tax policies will put all neighborhoods on a path of sustained business formation and dynamic job growth, creating a wealth of opportunity for all residents.

Paul R. Levy is president of the Center City District. This was excerpted from "Employment: Creating Opportunity for Philadelphia Residents," available on the district's website

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