(IND) City controller slams Keystone Opportunity Zone program

An analysis of Philadelphia’s Keystone Opportunity Zones that was done by the city controller’s office was critical of the program and concluded that it is an “ineffective tool” for boosting economic growth.

Alan Butkovitz’s office released a report today that showed $385 million in tax breaks were given to 617 businesses located in nearly 3,000 acres that have been designated as opportunity zones. A KOZ gives a company located in these special areas a break on local and state taxes.

The companies in these zones generated $40 million in new wage tax revenues from the 3,700 new jobs that were created over a 14-year period. Each new job equated to $104,000 in tax credits.

“It would take roughly 52 years for each new job to pay itself off,” Butkovitz said in a statement, adding: “Our findings are consistent with studies in urban economics which indicate tax incentive programs such as KOZ are an ineffective tool for enhancing economic growth. Programs like the KOZ tend to subsidize firms in sectors that are already doing well under local economic conditions.”

The state designates which sites can be a KOZ and often the tax breaks last 10 to 20 years and its term can be extended by state legislation. In Philadelphia, for example, Cira Centre sits in a KOZ as does the Philadelphia Navy Yard among other high-profile sites.

In its review, the city controller said that a “reasonable” return on investment was seen on companies that were in the retail, utility and transportation sectors. They accounted for 70 percent of the total jobs created and were given $10.4 million in business tax credits. In contrast, firms that received the tax break in finance and real estate accounted for 22 percent of the jobs and were given $176 million in tax breaks.

Butkovitz’s office also found lax oversight of the KOZ program and records tracking the subsidy program non-existent. Philadelphia’s Commerce Department shreds new and renewal applications after three years and doesn’t turn them into electronic records. The commerce along with the revenue department also do not require those companies that receive the tax breaks to track the number of jobs they create or capital investment in a form that can be verified.

To view the report, “An Analysis of the Keystone Opportunity Zone Program, 1999-2012 – The Costs and Benefits to Philadelphia, go here…

Source: Philadelphia Business Journal