City controller sees small return on 'Opportunity Zone' program

Philadelphia City Controller Alan Butkovitz says tax revenues for the current fiscal year are about $16.5 million below budgeted projections, and that could make trouble for the upcoming budget and five-year plan. (AP Photo/Matt Rourke/File)
Philadelphia City Controller Alan Butkovitz says tax revenues for the current fiscal year are about $16.5 million below budgeted projections, and that could make trouble for the upcoming budget and five-year plan. (AP Photo/Matt Rourke/File)
Posted: March 21, 2014

Under Pennsylvania's Keystone Opportunity Zone Program, 617 businesses received city tax credits worth $384.7 million from 1999 through 2012, according to a report released Wednesday by Philadelphia City Controller Alan Butkovitz.

But 424 of those firms were partnerships or limited liability companies that had no employees paying wage taxes - the main short-term payoff for Philadelphia under the KOZ program, which virtually eliminates state and local business taxes for companies that move into underdeveloped, desolate areas.

Butkovitz's report estimated, based on a complicated analysis of wage taxes paid by the 193 KOZ beneficiaries with employees, that 3,700 new city jobs and $39.2 million in additional wage taxes could be attributed to the program. Each of those jobs came with what Butkovitz called a "shocking" price tag of $103,971 in tax credits.

"It would take roughly 52 years for each new job to pay itself off," assuming average annual pay of $50,000 and current wage-tax rates, Butkovitz said.

Altogether, companies that received KOZ benefits paid $132.6 million in wage taxes, but $93.4 million of that already was being paid to the city before the companies moved into the KOZ from an area without the benefits.

Some companies that moved into a KOZ grew, generating an additional $30.8 million in wage taxes. Companies that were entirely new to the city generated $8.4 million in wage taxes, the report said.

Butkovitz acknowledged that critics of his study would point to the unanswered question of how many jobs would have left the city without the KOZ benefits. The city Commerce Department puts that number at 5,673, according to Butkovitz's report, which argues that there is no way to verify that figure.

The report is the first by a city government entity to attempt to assess the costs and benefits of the KOZ program, which was adopted by the state in 1998.

Assessing the program was an extraordinarily difficult task "because the records to provide adequate oversight of the KOZ program largely do not exist," the report said.

In the past, state economic-development officials have said it would be very costly for Pennsylvania to put the record-keeping infrastructure in place to track the program because it would involve every local taxing body and the state Department of Revenue.

Local officials, in response to past efforts by The Inquirer to analyze the program, pointed out that it was extremely difficult to distinguish the impact of the KOZ program from other incentives, such as subsidized loans and job-training grants.

Asked Wednesday for a comment on the Butkovitz report, the Pennsylvania Department of Community and Economic Development said in a statement: "The KOZ program is a true state and local economic-development partnership that is locally driven, requiring all local taxing authorities to approve the parcels within a zone prior to designation."

Mayor Nutter's spokesman, Mark McDonald, said: "Since the inception of the state KOZ program, the city has attracted more than $1.2 billion in private investment at locations that had previously been vacant or underutilized. Since the KOZ term has expired for most of those sites, the city is now collecting real estate and [use and occupancy] taxes that wouldn't exist otherwise."

Among the highest-profile KOZ beneficiaries is the Cira Centre, which opened in 2005 and quickly attracted many law and investment firms from Center City.

Businesses there resulted in $6.7 million in new wage taxes, or 17 percent of the $39.2 million total, Butkovitz's report said. On the benefit side, businesses there accounted for $200 million in business tax credits, or 77 percent of the total for the program over 14 years, the report said.


BY THE NUMBERS

617

Phila. firms with Keystone Opportunity Zone tax breaks, 1999-2012.

193

KOZ beneficiaries that have employees.

3,700

Jobs that are attributable

to KOZ benefits.

$103,971

Amount in tax credits for each new job

that was created.


hbrubaker@phillynews.com

215-854-4651 @InqBrubaker

comments powered by Disqus
|
|
|
|
|