Panel Examines the Prospects for Tax Reform in Philadelphia

For the fourth time in little more than two decades, the city of Philadelphia has a tax reform commission in place. With that in mind, The Pew Charitable Trusts convened a virtual program on July 24 entitled “What Will Tax Reform Look Like in Philadelphia?” to help policymakers ponder the work ahead of them.

Matt Stitt, the co-chair of Philadelphia’s commission, said that his group’s plan is to produce a playbook of “practical and actionable” options in the fall—in time to be considered as part of the city’s next operating budget. The commission’s charge is to examine the city’s overall tax system and propose ways to make it more inclusive, equitable, and growth oriented.

The bulk of Pew’s 90-minute session was devoted to lessons to be learned from similar efforts elsewhere. Across the country, city leaders are trying to decide whether to revise their tax structures in the face of changing policy priorities and a new era of remote and hybrid work that has created economic uncertainty in many downtowns. Depending on the locale, reform proposals can be subject to state regulation, the local political climate, and, sometimes, voter approval.

One key characteristic of tax reform efforts in some other cities is that they have had narrower and more specific aims than in Philadelphia.

In San Francisco, for instance, where the process started in 2023, the focus has been on business levies. There, thousands of private sector workers, many employed by technology firms, have been staying away from their offices. Panelist Ben Rosenfield, that city’s former controller, said that high office vacancies have reduced the revenues generated by the local gross receipts tax, which is based in part on how many employees a business has within the city limits. The levy is San Francisco’s second-largest local revenue source.

Besides affecting the municipal balance sheet, Rosenfield said, the current tax structure “doesn’t work from a business and economic development perspective … It creates strange incentives [for businesses] to relocate out of the city or not grow in the city. That’s not positive at this economic moment, and that’s pretty broadly understood.”

Local officials there worked for months to fashion a reform package meant to alter those incentives and simplify the taxes, keeping in mind how any changes would affect the five large employers who, according to Rosenfield, pay 30% of all business taxes. The package, which goes to the voters in November, has broad support from city officials, nonprofit organizations, and business and labor leaders.

In Boston, the center of attention has been the property tax, the city’s main revenue source. Officials worry that anticipated reductions in commercial real estate values could result in big tax increases on residential properties—under the complex property tax regime in effect throughout Massachusetts.

To keep residential increases modest while still producing sufficient funds to support city services, Boston has asked the state legislature for the temporary ability to shift more of the property tax burden onto commercial properties.

“We have been singularly focused throughout on preventing a very dramatic increase in residential taxes,” said Ashley Groffenberger, Boston’s chief financial officer, adding that “there’s real uncertainty and concern out there about the impact this would or could have on the commercial side.”

Indeed, opponents have argued that the shift would place an undue burden on businesses as they continue to adjust to post-pandemic economic conditions.

The fate of the plan was uncertain as of mid-August. On July 31, the Massachusetts Legislature adjourned for the year without approving the proposal. Action can still be taken later in the year in what are called “informal” sessions.

Moderator Lee Huang, principal at Econsult Solutions, a Philadelphia-based consulting firm, asked the panelists to offer advice for tax reformers in Philadelphia and elsewhere.

Christopher Berry, a professor at the Harris School of Public Policy at the University of Chicago, said that reformers should “be swinging for the fences” at a moment of profound economic change if local politics allow. But he added words of caution.

“Don’t make long-run reforms in order to solve short-run problems,” said Berry, a national expert on local taxation. “Whatever reforms you’re considering, ask what they’re going to look like 30 years from now when economic conditions are quite different.” And, he said, cities should monitor tax changes over time to see if they produce the desired results.

Boston’s Groffenberger spoke of the need for reformers to build public support for their work. “Engaging people early and often and [engaging with] a broad swath of stakeholders is really important,” she said. “Achieving some shared consensus around what we are trying to do or avoid … is really critical to establish early in those conversations.”

And Rosenfield reminded those taking part in the online event that reform efforts are more likely to produce incremental change than “a big bang,” calling tax reform “a forever process.”

The session also included a presentation by Thomas Ginsberg, a senior officer with Pew’s Philadelphia research and policy initiative, about the initiative’s tax research over the last several years.

Among the 120 people who took part were commission members, city and state officials, academics, leaders of civic groups and nonprofits, and city council staff.

Larry Eichel is a senior adviser with The Pew Charitable Trusts’ Philadelphia research and policy initiative.