In most other big US metros, urban core areas are increasingly seeing more of the venture capital investment than suburban areas. One huge exception is the Philadelphia area:
This is from a new Richard Florida post entitled “Why Today’s Start-Ups are Choosing Urban Lofts Over Suburban Office Parks,” which is true in all these other metros except for Philadelphia where you see the ratio is flipped.
Now, there are some good reasons to believe there’s been a decent shift toward the urban share since 2011, but it’ll still take a long time before we get it up to even Chicago’s relatively low level.
Why is that? The first thing that jumps out at me is that Chicago, like Philadelphia, is in a state with a high level of local government fragmentation. The lack of a regional tax base, and a high number of local governments in Southeast PA makes it pretty easy for businesses to avoid the City of Philadelphia’s relatively high business taxes while still taking advantage of the Philadelphia metro region’s large and well-educated labor force.
The convenient regional rail transit system that progressives rightly love has the downside of making it extra convenient for businesses to avoid the City of Philadelphia’s wage and business taxes.
One way to stop this would be to create a regional tax base for all the SEPTA counties. Every county and municipality in that region would just share all the tax money from their pooled earned income and business taxes, in proportion to their share of the population. Then taxes wouldn’t matter to where businesses chose to locate within the region, because you’d pay the same wage and business tax rates regardless of whether you’re in center city Philadelphia or Conshohocken. This is a great idea, but activists haven’t yet created the political space to pass regional tax base-friendly reforms at the state level.
Until that happens, how do we address it? How do we get that urban share up to Austin’s 81%? How do we make this happen with minimal public subsidies? We act like Delaware!
Michael Noda recently explained how Delaware punches above its weight in the struggle to attract business investment:
Third, and moving to the meat of things, Delaware’s strategy to “subsidize its people at the rest of the country’s expense” is what the other 49 states also try to do, day in and day out, in what passes for our federal system of government. It just looks (more) absurd because Delaware is so tiny and unpopulated.
But where larger states with more powerful Congressional delegations vie for each other’s money in more direct fashions in Washington, Delaware’s delegation, even possessing 2.5 Senators as it does now, is unable to compete in such games (Massachusetts had the strength to get a $14 billion highway project; a megaproject for Wilmington would be laughed out of the room), and must employ asymmetric strategies. I don’t agree that we should condemn Delaware merely for the effrontery to try to secure its own interests. The methods, of course, are fair game for criticism. And the entire system of representative-beggar-thy-neighbor is always a legitimate target. I’m going to have quite a bit to say about that in the context of Pennsylvania’s transportation funding crisis. But in the meantime, “don’t hate the player, hate the game“.
If Philadelphia wants to beggar its SEPA and SWNJ neighbors like this, as well as larger neighbors like New York and Washington, the best thing it can do is to drop its wage, business and sales taxes, and fund the whole city government from taxes on land value, and various green taxes.
As every Pew report and blue ribbon commission on Philly’s tax system has been pointing out for decades, the share of the city budget funded by property taxes is far too low, and the share funded by wage and business taxes is far too high. Pew’s 2012 report on the Actual Value Initiative was the latest to point out this problem:
In 2013, Philadelphia is scheduled to use the property tax to generate $514.9 million for city government and $637.2 million for the school district, a total of $1.15 billion. Even so, Philadelphia relies less on the property tax (and more on wage and business taxes) than any of the seven other jurisdictions we surveyed for this study. See Figure 2. In 2011, property tax revenue in Philadelphia came to $729 per resident, compared to $2,799 in Washington, $2,275 in Hartford, and $2,213 in Boston.
Philly is squandering one of its key advantages – a lower cost of living than New York or Washington – with unusually high wage and business taxes, and low reliance on land rents to pay for city services.
What do investors in New York and Washington do if Philly becomes the city with no sales tax, no business taxes, and no tax penalty for improving properties? As Abe Gupta and Jim Russell have pointed out, Philadelphia has many natural advantages going for it, and one of the important ones is the low cost of living compared to NYC and DC.
Why don’t we give businesses who are already thinking about Philly as an alternative to expensive New York and DC some additional pull by getting rid of three regressive taxes – the sales tax, the flat wage tax, and the tax on property improvements – along with three incidentally regressive taxes – the BIRT, the Net Profits Tax, and Use & Occupancy Tax, and raising the tax on land value to make up the difference?
This would be a net progressive shift in the tax burden onto people who own the city’s highest value land. That’s property owners who own land in center city, in the poshest neighborhoods, and near transit – all the places where we want to encourage some larger income-producing properties like mixed-use buildings and apartments, that can handle higher property tax bills because they spread the tax burden across more households.
And it would say to start-ups and new grads that Philly is somewhere you can have a much more affordable version of the lifestyle you wanted in Brooklyn or Washington, and feel safer taking a risk on a creative idea, because failure isn’t as daunting when you aren’t paying $2000 a month for a tiny 1-bedroom apartment.
Changing the tax preference to maximize disposable income and investment, while cutting down on speculation, vacancies and surface parking would be a great progressive way to attract more employers to the region, without spending any new money, or losing any money on net on pointless schemes to attract individual corporate headquarters.
We can act like Delaware without selling out our principles. Taxing rich guys’ land assets is smarter class warfare in 2013 than taxing their wages or their investments. It’s smarter because we want to draw a distinction between idle wealth and honest investment. We do want lots of business investment in Philadelphia, because investment creates jobs.
Let’s go easy on the good guys of the economy, who are trying to make legitimate investments in the city – the start-ups this post started out talking about, the families who want to renovate old row-homes, businesses who want to renovate empty storefronts, infill developers who want to build more apartments on vacant lots – and start raising most of the money for public services from the speculators, blightlords, surface parking lot owners, multiple-car owners and other economic bad guys.