Center City Report: Philly’s Dual Business Taxes Are Making Its Downtown Office Drain Worse
Empty office buildings are the biggest economic threat to Philadelphia's downtown area, according to its economic development organization.
Despite a 35% increase in residential population since the pandemic, Center City's daily pedestrian count in March was only 77% of its 2019 average, driven by the daytime worker population being just 64% of what it was before the pandemic, Center City District found in its annual State of Center City report, released Wednesday.
Within the office submarkets of Center City, worker population was only 47% of 2019 levels in February, though its peak of Tuesday, Wednesday and Thursday showed significant population growth compared to the end of last year, CCD found.
The rising vacancy and declining value among urban core office buildings is a nationwide issue, but CCD argued in the report that Philadelphia is worse off than comparable cities due to the disadvantage it has against its own suburbs: the Business and Income Receipts Tax.
The BIRT is a dual tax on both a business's gross receipts and its net profits, the only one of its kind among major American cities or their suburbs, the report said. The BIRT has been the bane of Philly's business and economic development communities since long before the pandemic, but the continued prevalence of hybrid and remote work gives businesses even less reason to locate downtown.
“Our strength in education, health care and emerging life sciences is very encouraging, but not yet a significant contributor to a tax base robust enough to support our public schools," CCD President and CEO Paul Levy said in a statement released with the report. "The next mayor has a significant opportunity to build on recent momentum around tax reform to shape new policies that foster growth of the full range of jobs and industries across the city.”
Though Center City now has as many jobs as it did before the pandemic, the last three years pushed Philadelphia's overall job growth rate since 2009 down to 1.1%. It had been at 1.5% up to 2019, according to Bureau of Labor Statistics data reported by CCD. That gives Philadelphia the sixth-worst job growth of the 30 largest U.S. cities.
The struggles of downtown office buildings to fill back up have also changed the makeup of jobs in Center City, as office-using jobs now make up a smaller share of workers in the area, CCD found.
With tourism and convention business projected to recover to nearly 2019 levels this year, the retail and hospitality sectors are further along in their pandemic recovery than office in Philadelphia, CCD reports. But jobs in office-adjacent subsectors like janitorial services and parking are still well behind as a result of the lack of workers in offices.
This year's State of Center City report will be CCD's final edition with Paul Levy in charge as president and CEO. He is the only person to have held those titles to date. He will step down at the end of this year and serve one year as nonexecutive board chair as part of a succession plan announced in February. He will be succeeded as CEO by CCD Vice President of Parks and Public Realm Prema Katari Gupta.