Local businesses already reeling from the coronavirus shutdown may now have to come up with extra cash to pay for increased taxes and business fees should Mayor Jim Kenney’s proposed budget be approved by City Council.
“We’re sort of all worried about everything right now. But [the mayor’s budget] certainly doesn’t leave me any comfort of how viable it will be for us to come back to where we were before- to a fraction of where we were before,” said Jessie Menken, owner of Ali’s Wagon, a small retail shop in Fairmount.
The Kenney administration is proposing a 4% property tax hike, the elimination of a 1% discount on taxes for early payment, and an increase in fees for permits, licenses, and commercial trash to close an estimated $649 million budget gap for the upcoming fiscal year that starts July 1. The commuter wage tax is also going up.
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Kenney also proposed freezing previously planned reductions in the city’s businesses taxes until 2024.
For some small businesses, those cuts and tax freezes could be the difference between whether they will survive the economic crisis caused by the COVID-19 pandemic.
Jennifer Rodriguez, president and CEO of the Philadelphia Hispanic Chamber of Commerce, said what other business leaders have said: That the cost of doing business in Philadelphia is already one of the highest in the country and taxing those businesses further is not the solution to an economic crisis.
“The idea of not providing a decrease or incentive of early payment of taxes is counter-intuitive,” she said. “What we know in capitalist America is that if you want to move inventory, if you want to spike activity, you need to reduce prices.”
Rodriguez said that Philadelphia is already challenged because of its 26% poverty rate. But income levels are even more dire in the Latino community, where the poverty rate is closer to 40 percent.
“I do not know how much tax revenue you can really draw from a population of our size with the wealth challenges we have,” she said. “Adding taxes and adding fees to these already struck businesses, it is hard for me to see what the city gains from that.”
Menken, who opened her Fairmount shop 13 years ago in the same neighborhood where she raised a family, agreed that there is only so much that small businesses can pay before it’s impossible to operate.
“I don’t believe when we started (that) we paid for commercial trash. So much has been added on over the years, there’s just no room for it to go up and for it to stay a viable business.”
Menken said that she was lucky to have upgraded and expanded her shop’s website just before COVID-19 forced most brick and mortar stores to close, including hers. She’s been able to keep her business going, delivering many of the gifts and products herself.
But the online sales are only a fifth of the business she would have normally done had her store been open.
If Menken is hit with higher taxes and fees once she finally opens back up, it will make it hard for her to break even, she said.
“I totally understand that cities really need to balance budgets, but doing it on the backs of small businesses is totally self-defeating,” she said. “Taxes are to do improvements to a city. But if it puts businesses out of business, that’s a real loss.”
When asked at Friday’s news conference about the budget’s impact on businesses, the city finance director, Rob Dubow, said that the budget is a balancing act and trade offs need to be made.
“Most of how we got to balancing the budget we got through expenditure reductions,” Dubow said, arguing that tax increases only make up a small portion of the new plan. “We didn’t want to go so far in that it would undermine the quality of life in the city."
Kenney also countered the complaint of business leaders that Philadelphia is not business-friendly by saying that business had been booming in Philadelphia prior to the virus.
“Over the course of the last four-plus years, we’ve been successful in attracting companies and retaining companies and having companies expand in the city,” Kenney said. “It’s never perfect and we never have enough jobs and I don’t think we were in any dire crisis before this hit… I think we are holding our own.”
Rodriguez said that during the Great Recession it was the Latino-owned businesses that actually grew and expanded. She would like to see the same thing happen during this economic crisis. But in order for that to happen, she said, the city needs to invest in those neighborhoods where the Latino businesses are located.
“Not every crisis is about cutting costs to the minimum. Sometimes the best solution is actually investing,” she said.
Rodriguez also said investing in, not taxing, certain areas of the business sector.
“Equitable investment is not equal investment,” she said. “There are places in the city of Philadelphia and neighborhoods in Philadelphia where there is sufficient wealth and sufficient private resources that the public resources are perhaps not needed.”
She suggested that perhaps library services be cut in neighborhoods where the majority of people have internet and the digital divide is low, and extend hours and increase services at the libraries in the most impoverished neighborhoods.
The mayor’s proposed budget is now in Council’s hands and the body is likely to make tweaks and other suggestions.
In 2018, Kenney also proposed a similar property tax increase. Council instead reduced the amount by which the wage tax was to be cut, trimmed some departments’ budgets and hoped that tax delinquency collection would improve and bring in more revenue.
Council has to approve a budget by June 30.