When the Keystone Opportunity Zone program was created in 1998, it was hailed as a way to attract business to poor areas in Pennsylvania by eliminating some state and local taxes within certain boundaries.
Thirteen years later, the program is being ranked among the worst tax credit projects in the country, in terms of the expectations of companies that benefit from the program to hire a certain number of workers and pay fair wages.
The Washington, DC-based nonprofit "Good Jobs First" has ranked each state and the nation's capital according to the strength of the job and wage requirements posed by their subsidy and tax credit programs. Pennsylvania tied for the 40th rank, with three of the five programs that were examined receiving a "D-" or "F" grade.
"There have got to be standards," said economist Stephen Herzenberg of the Keystone Research Center. "You've got to create jobs, they've got to pay a decent wage, [and] they ought to provide health care."
The Keystone Opportunity Zone was given a zero score of a possible 100, one of just sixteen programs nationwide that comes with no specific expectation of job creation, wage levels, or health care benefits.
Lawmakers complained about the lack of data on KOZ in 2009, saying that there was no way of knowing whether the program's benefits outweighed the revenue lost from tax exemptions. John Rowe, chief analyst for the Legislative Budget and Finance Committee, said that many KOZ participants were found to create few jobs and little investment in return for the considerable tax abatement and exemption benefits they receive.
"In particular, about three-quarters of all program participants, excluding residential participants, did not report any job creation activity," said Rowe at a legislative meeting in July 2009. "This can occur because the KOZ Act does not require KOZ participants to create jobs or make any capital investments."
Rowe advised the General Assembly to impose standards for job creation and capital investment, but that suggestion never became reality.
"Some of the discipline, in terms of putting those zones in places that really needed jobs, broke down as the state legislature designated additional zones over time," said economist Herzenberg. "The other requirements of actually creating jobs and paying people family-sustaining wages simply aren't in place."
Along with the Keystone Opportunity Zone program, the state's Film Production Tax Credit and its Research & Development Tax Credit both fail to set requirements for job creation and wage levels, according to last week's "Money for Something" study.
The five programs looked at by the study represent $181.2 million of the 2012 state budget. The average score of the five, reckoned by Good Jobs First, was 26 of a possible 100.
Rather than giving one company a subsidy, which can have a "political dimension," Herzenberg said that the state should invest in workforce training and infrastructure projects.
"Invest in assets that help a lot of businesses, a whole industry," said Herzenberg. "That's really a safer bet, and those kinds of investments that help a whole industry or a whole region aren't going to have the same appearance of political impropriety."
