Pew: Philly Gives Out $200 Million in Business Tax Breaks Every Year

Photo credit: Andreas Metz via Flickr

In order to counteract what many see as an overly expensive and intricate business tax structure, Philadelphia has turned to tax credits and special incentives to a degree not seen in most other big cities in the United States, according to a report released by the Pew Charitable Trusts last week.

The city forgoes more than $200 million a year in tax revenue through 21 separate tax-credit programs for businesses, according to the report. The amount of revenue exempted by those programs is growing much faster than the tax base as a whole, Pew found. And while acknowledging that some of the tax incentives have helped businesses create jobs and construct buildings that might not otherwise have existed, Pew concluded — as have so many others who have studied these kinds of tax breaks — that it’s impossible to tell exactly how effective the programs are. 

“The effectiveness of these expenditures is difficult to determine,” Pew wrote. “One reason is that city officials are not required by law to ascertain whether some of the programs have produced the desired or promised results. Another is that it is difficult to determine what would have happened without those tax breaks.”

The biggest programs include the controversial 10-year property-tax abatement, which is available for all major renovation and new construction projects in the city, and the Keystone Opportunity Zone program, which exempts businesses that locate in certain underdeveloped areas from some state and local taxes. Others include job-creation tax credits, community development tax credits, a green roof tax credit, a barely-used credit for companies that hire ex-offenders, and industry-specific tax exemptions, some of which are required by state law.

Pew is careful to point out that tax revenue is “forgone” and not “lost” through these programs, assuming that they generate some business activity that wouldn’t have occurred without them. So it’s not like the city could necessarily collect an extra $200 million next year by ending all its tax-incentive programs today. Still, $200 million is a lot of money, and “dunno” isn’t really a satisfying answer to the question of whether they work.

So, what’s to be done? As usual, Pew stops short of offering specific policy solutions. But the report does seem to favor simplifying and lowering the overall tax burden on businesses in Philly so that officials won’t be tempted to develop more and more carve-outs. And most critically, the report suggests that the city needs better mechanisms in place to understand its own tax incentives.

City Councilwoman Helen Gym has already taken the lead on that front. In January, on her first day in Council, Gym introduced a bill that would require businesses that benefit from tax breaks to report the number and quality of jobs they create as a result. Gym wasn’t available for an interview on Monday, but her office said that the bill, which was reported out of committee in June, is likely to go up for a vote in Council this fall.

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