Tax Abatements Today For A Better Tomorrow
It doesn’t take a genius to tell you Harrisburg is facing real financial trouble.
During the last two public city council hearings, some have argued we should file for bankruptcy while others claim we must sell our few profitable assets. Unfortunately, there is no magic bullet. Instead, we must look to a variety of measures to use the assets we have to create revenue over time.
Interestingly, Harrisburg does have an excess of supply: in this case, underutilized real estate. When property sits blighted and condemned, with buildings literally falling down, there are clearly more buildings than are needed: otherwise, why are these buildings not maintained and/or legally occupied?
In fact, it turns out there are opportunities to create revenue from this inventory. According to the Harrisburg Young Professionals’ 2009 Annual Survey, as many as 1 out of every 5 professionals who do not live in the city “looked but did not find a good place.”
This means demand for housing in the city is not being met by the current supply of homes and apartments. Harrisburg needs to attract investment to meet this demand. Harrisburg needs tax abatements.
Tax abatements are a deferral of tax increases that are automatically imposed when someone invests in their property (renovations or new construction).
Tax abatements defer new taxes and gradually phase them in over time. They are a common sense solution to curtail population loss and stimulate demand for city living in a city with the highest property tax rate in the region. This happens by making residency affordable for homeowners, which in turn generates revenue for the city through future tax collections – revenue that otherwise would not be created.
Tax abatements are needed to increase the city’s tax base. Per US Census data Harrisburg’s city population has been cut in half the past 60 years: a strong indicator of the falling value of downtown property. Increasing the city’s population lowers the cost of services for all residents. By allowing tax abatements on property in the city, we facilitate investment in the thousands of housing units needed to attract prospective home-owners into the city.
Critics argue tax abatements are just welfare for rich developers. I beg to differ. It is commonly understood that the high property taxes in the city, if unabated, would depress property prices and render any new investment impracticable. Developers cannot invest without the ability to recoup their costs and make some amount of profit. They only make a profit if the cost of building or renovating a property is less than its selling price. They assume the risk while we are poised to receive the tax revenue. In the meantime, blighted land is replaced by livable and workable space.
Some question whether tax abatements aid seniors who have lived in their home for several years. I say they’ll benefit. When vacant or under-developed properties surrounding a home increase in demand due to the decreased production costs, property values of surrounding homes improve.
With tax abatements, older residents would have the chance to make improvements to their home with no immediate tax implications (increasing their asset’s worth). This is in addition to existing measures exclusively designed to assist older generations, like the Property Tax/Rent Rebate Program and Pennsylvania Property Tax Expanded Relief for Seniors.
Others argue that at the end of the tax abatement period, Harrisburg will lose residents. In reality, those people are missing the point. Harrisburg has already lost tens of thousands of residents. Tax abatement seeks to improve existing properties and build new ones, thereby adding to the future tax base. The goal of the tax abatement program is to collect the tax revenue generated from present or future property owners.
If a building is vacant and boarded up, if a parcel of land is undeveloped, if fewer than half the homes on a street are occupied, then there is an excess of supply and/or a dearth of demand. This is the case in virtually any part of the areas surrounding my neighborhood of Olde Uptown. Blame it on the schools; blame it on the high taxes; blame it on the rain [as we were instructed to do in the late 80s]; but accept this as reality. No amount of wishing, hoping, or even lip-synching is going to change the fact that we are surrounded by horrendous land that generates no real benefit to Harrisburg’s economy.
We all want the city to succeed. The revitalization of Olde Uptown is a paramount example of this type of successful transformation. With tax abatements, a better tomorrow is within reach – but only if we act today.
Ganesh Harinath is a renter in Olde Uptown, Harrisburg, where he works as an independent marketing communications professional. He earned his BA from UCLA, and his MBA from Penn State University. ganesh@ganeshharinath.com
This op-ed was printed on June 27, 2010, and can be linked to here.
