13364229-disappointing-results-from-an-urban-tax-credit-program

One of the trends in incentive use we’ve noted is that programs designed to help distressed areas – such as enterprise zones – are losing steam, in large part because they have not accomplished the hoped-for change in those locations. The Keystone Opportunity Zone (KOZ) program, as implemented in Philadelphia, is the latest to report disappointing results.

Last July, guest blogger Darrene Hackler summarized for us how California’s Enterprise Zones failed to produce the intended outcomes of creating jobs or promoting business development in distressed communities, while costing $4.8 billion over the life of the program.

In March, the Office of the Controller in Philadelphia issued, An Analysis of the Keystone Opportunity Zone Program, 1999-2012. The Costs and Benefits to Philadelphia. The findings were disturbingly familiar:

• 617 businesses received $384.7 million in tax credits; the majority of these (424) were “entities without employees.”
• Wage tax receipts from participating businesses only totaled $132.6 million – and $93.4 million of this amount represented revenues that “preexisted KOZ participation.”
• Approximately 1/3 of participating businesses were on the city tax rolls prior to entering the KOZ program.
• The KOZ program can be credited with creating approximately 3,700 jobs over the entire period of the study.
• This means each new job cost $103,971 in credits.

Jared Brey from PlanPhilly does a great job summarizing the report and providing insight on the issues at play.   I highly recommend reading his piece.

He notes that the KOZ program has strikingly poorly defined goals, such as “facilitate economic development” and “stimulate” property improvements, that can’t be measured. According to Brey the city also argues that the KOZ program is not meant to generate a return based on wage taxes and that there are no job-creation or investment targets, which is astonishing.

Just as problematic is the lack of any quality data on the program’s outcomes. The Controller’s report itself notes that only “snapshots” of program performance exist, and these are based on self-reported data that are not independently verified.  The Controller’s office had to devote substantial resources to produce its own report.  On the key issue of number of jobs, the Controller had to work backward from wage tax data.

Based on our work on how to create effective incentive program evaluations, we absolutely agree with the report’s recommendations that:

1. The Department of Commerce and the Department of Revenue need to implement a record keeping system that communicates information between the two departments.
2. The KOZ administrator needs to devise policies and procedures to verify claims of jobs created as well as investments made by KOZ participants.
3. City Council should require an annual report from the KOZ administrator, which could then be subject to audits by the Controller’s Office.