Mayor Eric Papenfuse has leaked his tax abatement proposal
to the Harrisburg Patriot and other media outlets. Although, the amount of tap
dancing coming from city hall suggests this was not a planned leak. The
proposal calls for a 10-year tax abatement on improvements made to vacant lots
and existing structures. The new
administration gets points for persistence, not for originality.
The mayor apparently never heard the old saw that trying the
same thing repeatedly while expecting a different result is insanity. Or has he?
At heart, I don’t like disparage people, so I’ll assume this administration
doesn’t really believe that this round of tax abatements will produce anything
other than the real estate carnage the previous abatements have. I’m much more
comfortable being a cynic. So let’s assume someone is benefitting from this
failed policy maybe, say, um…real estate developers?
Tax abatements benefit developers and few others. Because
they shift the tax burden to existing homeowners, abatements depress existing
home values by making the tax-abated properties more attractive. The
developers, however, take blighted properties, raise the value of the
properties they develop while paying below market taxes, and then sell the
properties at a higher value. The buyer gets a new property and a ticking tax
bomb with a timer set at ten years.
Harrisburg has been through this before. The Capitol Heights
development offered ten-year phased-in tax abatements. The homeowners paid 10%
of the property tax the first year, 20% the second and so on. As the tax bite
escalated, so did the foreclosures.
Exacerbating the situation is Dauphin County’s tax
assessment process. New homes are assessed at current market rates while older
homes hold values from the year the last assessment was performed. State law
only permits a county-wide reassessment. Obviously, those with older
assessments are anxious to hang on to the lower figures as the new buyers are
saddled with higher assessments, and when the abatements abate, disproportionately
higher tax bills. In at least two cases, it has taken court orders to compel
counties to reassess their properties.
Struever Brothers, Eccles and Rouse, the Capital Heights
developers built the properties and sold them. They kept the profits from the
sales and paid virtually no property tax on the properties while they owned
them. Now, other developers including J. Alex Hartzler, whose Harrisburg
Capital PAC donated $103,147 to Papenfuse’s campaign, are lining up for more
public money seemingly unconcerned or willfully ignorant of Harrisburg’s tax
abatement track record. One of my sources quotes Mr.Hartzler as claiming to know
nothing of the Capital Heights foreclosures.
Hartzler and other abatement plan proponents point to
similar programs in New York and Philadelphia. Hartzler is dismissive of those
who try to make the common sense argument that Harrisburg is not Philadelphia. In
a tweet on June 19, he stated “economics and math are not subject to
geographical or political boundaries. ‘HBG is not Philly’ demonstrates
ignorance of both.” Hartzler’s argument discounts both the amount of untaxable
property within Harrisburg and the assessment issue outlined above.
Philadelphia is its own county and Harrisburg is a part of Dauphin County. A county-wide reassessment is far more likely
in Philadelphia than Harrisburg. In fact, Philadelphia began its reassessment
process last year. Philadelphia also has several programs of assistance to
senior citizen and low-income residents. The report calling for the Philadelphia
abatement plan cites local economic conditions such as high construction costs
versus relatively low median income as justification for the abatement program.
While Harrisburg does have a relatively low median income, its construction costs
are nowhere near those of Philadelphia. For more reasons than scale,
Philadelphia is a very different animal than Harrisburg.
Raising the city’s minimum wage would raise the median
income, but that would not benefit those who finance mayoral campaigns. So I can guess its likelihood of passing.
Again, I do not wish to think ill of Mr. Hartzler. He could
not possibly be as stupid as his tweets suggest.
