This article was originally published in The Notebook. In August 2020, The Notebook became Chalkbeat Philadelphia.
Updated: this article has been updated to include a link to the 2014 report from the City Controller on Keystone Opportuntiy Zones, to include comments from the city’s Commerce Department and to clarify that Commerce has since required property owners recieving these tax abatements to self-report the jobs that they have created.
The Board of Education will consider Thursday whether to approve the latest round of state tax abatements for large developers. The list of affected properties has drawn criticism because many of them are in rapidly gentrifying neighborhoods, despite state guidelines specifying that the sites should be in “blighted” areas where businesses would not otherwise develop. The city’s Commerce Department denies this characterization.
The list of properties under consideration as Keystone Opportunity Zones (KOZ) was slammed by school board chair Joyce Wilkerson in a committee meeting earlier this month. Wilkerson said she did not see many properties on the list that seemed to qualify as blighted or underdeveloped.
The KOZ program is supposed to benefit the city by providing additional jobs and resources to neighborhoods that need them.
It requires board approval because these particular abatements also include a payment to the School District 10 percent higher than the assesed school property tax, which normally makes up 55 percent of local property taxes, with the rest going to the city.
But KOZ abatements can also depress the local tax money available to schools because the District’s largest source of revenue is the city, with funding increases periodically authorized by City Council.
A new list of 68 properties has been put forward for a vote by City Council on Thursday morning. If approved, that list will go before the school board for a vote that night. The Kenney administration removed many properties, but the new list still contains a majority of properties that don’t appear to qualify as blighted, according to an analysis by Public Citizens for Children & Youth (PCCY).
The list is likely to be approved by City Council, because only Councilwoman Helen Gym has voted against KOZs in the past.
“It’s a massive subsidy that has the most cost and we give it to those who take the biggest risk and therefore earn the biggest reward for their risk,” Gym said. “But it shouldn’t be given out indiscriminately.”
Donna Cooper, director of PCCY, said that she testified against the original list for the reasons outlined by Wilkerson and that she still has the same problems with the new list.
“What we found is a set of properties that are being proposed to be given away scot-free, with no taxes of any sort paid to the city or state,” Cooper said. “These are places that in no way meet the criteria of being blighted. … For some ungodly reason, people think we need to stimulate more development in Fishtown. That’s crazy.”
Another example, Cooper said, is a former correctional facility at 2900 N. 17th St., near Temple University Hospital. The property has tenants and is not on the market, according to a real estate listing. It is already receiving city property-tax abatements. Tenants include Liberty Management Services and the Phoenix Training Center.
“That was formerly a state corrections facility, and since the prisoner population has come down in the city, the owner of that property is looking for a 10-year clearance on city and state taxes,” she said. “North 17th Street is a gentrifying area where families are already being pushed out of their homes.”
Lauren Cox, Communications Director for the city’s commerce department pushed back in an email pointing out that the building only has tenants on the first floor and is therfor still considered “underutilized.”
Cooper also pointed to the Frankford Arsenal Complex, a group of offices and former manufacturing facilities in the Northeast surrounded by lawns and trees. Neither the neighborhood or the complex itself appear blighted or undeveloped.
The 26 properties within the Frankford Arsenal were owned by Hankin Management Co., but sold to a corporation called Alliance HSP Arsenal for more than $6 million in late 2017. Alliance HSP Arsenal plans to develop the buildings into “mixed-use” industrial, commercial and office space.
“The Arsenal, with its ample green spaces, free parking, and historic architecture offers an impressive location and lifestyle unlike any other in Philadelphia,” Hankin Management wrote in a Facebook post announcing the sale. “The Arsenal, a 800,000 Sq. Ft. collection of Philadelphia luxury homes combined with academic, office, commercial and light industrial use is truly one-of-a-kind community.”
The description appears is at odds with the criteria for Keystone Opportunity Zones.
“Of all the places we’re trying to stimulate business, how does the Arsenal business center warrant a tax abatement?” Cooper asked, noting that the properties are already developed.
Cooper said she did find one property on the list that seemed to meet the criteria: 956 E. Erie Ave. It’s a large vacant property in a high-poverty area of the city, but it’s also down the street from the Philadelphia Coca-Cola Bottling Co., which operates without tax abatements.
“The majority of properties are unacceptable,” Cooper said. “I don’t begrudge any businessperson going to a City Council member asking for a tax break. What I begrudge is members of our City Council not thinking through how invaluable these tax breaks are.”
Cox denied this characterization saying the “majority of the properties are in fact located in slow-growth or depressed areas that suffer from higher poverty and unemployment rates.”
There seems to be a disconnect with the technical definitions used by the city and state, and the way words like blighted are used by everyday Philadelphians. For example, one property that the city awarded a KOZ designation was located at 30th and Arch streets. Sitting across the river from downtown, it was developed into the towering glass Cira Center in University City — one of Philly’s most affluent neighborhoods.
PCCY encouraged residents to talk to their Council members over the summer about voting against the KOZs. She testified at a committee meeting. However, further public comments will not be sought; after revising the list, the Kenney administration is not sending it back to committee, but rather to a full Council vote.
Cooper said this is not the normal process in Council.
“The big question is, why, if it’s been amended, is it not going back to committee?” Cooper said. “That would be the place for the public to weigh in and to explain to council members why this list doesn’t solve any problems and urge a no vote. We are also asking the school board to vote no.”
Cooper said the city should be “much more strategic than this.”
“What this suggests,” she said, “is a lot of retail politics without discussion of the consequences. Would Fishtown be harmed if these properties weren’t developed? I don’t think anyone in this city would think so. But would the schools be harmed with less resources than they could have otherwise? Everyone would think so.”
Another group urging a no vote is the Alliance for Philadelphia Public Schools, a group of retired teachers turned activists who acted as District watchdogs over the School Reform Commission. In a letter sent to all school board members, the group asked them to vote the measure down or delay a vote until the public can weigh in.
“Data in recent news show that the city’s poverty rate remains stagnant,” the letter reads. “The many tax abatements granted over the past twenty years are doing little if anything to change the lives of those living in poverty in the city. Few benefits have trickled down from purported job creators to Philadelphians in need.”
Former City Controller Alan Butkovitz came to the same conclusion when his office conducted a cost-benefit analysis of the KOZ program in 2014, based on 1999-2012 data.
The analysis found that more than 600 businesses used the program during that time period and were awarded $384.7 million in tax abatements. The city collected $132 million in wage taxes from these businesses, but the large majority of that was from jobs located outside the KOZ parcels — which would have existed regardless of the KOZ designation.
“The KOZ program can plausibly be credited with boosting tax revenue to the General Fund by just over $39.2 million and creating about 3,700 new jobs in this 14-year period,” the report reads. “Each additional job cost $103,971 in [tax] credits; if we assume that the average annual wage for a job among KOZ participating entities is $50,000 a year … it would take roughly 52 years for each new job to pay itself off.”
It’s a point that is not lost on public education activists.
“We have the shameful distinction of having the highest deep poverty rate of the 10 largest US cities,” reads the letter from the Alliance for Philadelphia Public Schools. “Who is looking to determine whether there are jobs being created as a result of lucrative tax breaks — that is, jobs that are life sustaining and not just barely sustaining the working poor?”
The answer to that question, according to the City Controller’s report, is that we didn’t know what jobs are being created because no one was looking.
“Neither Commerce nor the Revenue Department requires KOZ participants to track job creation or capital investment in any verifiable form,” the report stated. It went on to recommend that the city require annual reporting and evaluation. But the Commerce department has since required owners of KOZ properties to self-report the jobs they created, under pressure from councilmember Gym.
Gym still plans to vote against the KOZ list on Thursday, calling it “outdated and flawed.”
“The first bill I introduced was a bill to demand that tax subsidies related to job development actually track that job development,” Gym said. “New jobs are potentially worth the subsidy that we forfeit. But if we’re not tracking any of those things and we’re giving them out in already-developing areas, then we’re hurting our public schools and denying real income to our city and our school district.
“We should be careful how we utilize such a massive tax subsidy program — we shouldn’t be giving it out like candy. We need better tools at our disposal. I’m not against the KOZs in theory. I just don’t think it should be used so liberally. We need to develop new subsidy programs and incentive tools to better meet the needs of an evolving city and [that] won’t put the school district and its kids in harm’s way.”
But other Council members were not so quick to denounce the program and at least one seemed to disagree with Butkovitz’s report.
Councilwoman Cindy Bass recently came out against the city’s 10-year property tax abatement, which is strictly a local policy. But she supports the KOZ program despite its much longer list of tax breaks.
“I do not oppose the KOZ list before Council because I believe that we do need to incentivize investment in underdeveloped neighborhoods,” Bass said in a statement. “KOZs have been proven to serve their purpose in encouraging development in communities that would otherwise go undeveloped and in that way they are different from the [10-year property tax] abatements. Studies show that the abatements are applied almost exclusively in more affluent neighborhoods surrounding Center City while KOZ designations have brought much-needed growth to diverse areas throughout the City that haven’t received the same level of investment.”
Council President Darrell Clarke has favored reassessing the city tax-abatement policy in the past, such as the length of the abatements. But his office did not offer a position on the current KOZ bill and list of properties by the time of publication.
Councilman Allan Domb has also favored reassessing the way that city tax abatements are used, but his office did not respond to a request for comment on the KOZ legislation.
Gym said: “In the last decade, this city has developed, expanded, evolved. And now we’re seeing [that] if we’re not careful with our subsidies, they can work against a city’s best interest. Subsidies are not meant to stay in place forever without changing – they’re meant to evolve as the city evolves.”
Cooper saw the issue as related to the recent debate in Council over raising property tax rates to send more money to schools, which Council did not do. Each abatement issued in a gentrifying neighborhood will mean less money for schools in the coming years, she said, and School District deficits are usually made up through higher property taxes.
“Our Council members were very concerned about the level of the mayor’s proposed property tax increase,” Cooper said. “They rejected that because they heard from so many constituents that taxes were too high locally.”
But, she added, this KOZ bill could result in a back-door tax increase.
“When we excuse all the taxes on these property owners, somebody’s going to have to pay the difference. That will be the rest of us.”
Also on the Thursday meeting agenda is several million dollars in facilities spending at Adaire Elementary, Benjamin Rush Middle School, and Cook-Wissahickon Elementary. Rush and Cook-Wissahickon would have their HVAC systems renovated, and Adaire would have its boiler replaced.
Board members will also vote on up to $850,000 for asbestos removal at various unnamed schools. An additional $600,000 would go to increasing existing renovation contracts at 10 schools. Most of those contracts would only go up marginally, but more than $100,000 would go to Mayfair Elementary and more than $400,000 would go to Murrell Dobbins High for additional spending on electrical contracts at both schools.
The board was planning to vote on a $300,000 contract with CB Community Schools for consulting on the District’s internal development of a “social-emotional learning” model along with a “competency-based educational model” to use in “high school redesign, alternative education, trauma-informed instructional practices and alternative assessment frameworks.” The contract would also allow the District to refer up to 70 Philadelphia students to CB Community School.
But a vote on that item was withdrawn from the agenda after board member Chris McGinley raised concerns over the contract at the last meeting of the board’s Student Achievement Committee.