Expired Keystone Opportunity Zones failed to deliver either rejuvenation or tax boost for Philadelphia

When former Gov. Tom Ridge signed the law creating Keystone Opportunity Zones in October 1998, he touted the tax-relief program as an "innovative new solution to the problem of blight and abandoned properties in some of Pennsylvania's most desperate and hopeless neighborhoods."

The original zones, in which most state and local business taxes - including property taxes - were suspended for up to 12 years, expired Dec. 31. But they had little success in rejuvenating the neighborhoods in North and lower Northeast Philadelphia hardest hit by the poverty-inducing industrial exodus that lasted from the 1950s to the 1980s.

Instead, an Inquirer analysis of property records found, most of the investment in new buildings precipitated by the Keystone Opportunity Zone program went to open land in the Far Northeast and near Philadelphia International Airport.

The bulk of the job growth attributed to the program by the state Department of Community and Economic Development came from a Marshalls distribution center near Philadelphia Northeast Airport that employs 1,500, as well as some other nearby Keystone sites.

In October 2001, for example, beer distributor Antonio Origlio Inc. moved a few miles across Roosevelt Boulevard into an $11.5 million building in the Byberry East industrial park. Then, Antonio Origlio Inc. bought out a competitor and boosted employment to about 255 from 133.

"All those people we hired are now working in the city, instead of in one of the nearby counties," said company president Dominic Origlio, who now faces a $325,499 annual property-tax bill.

Antonio Origlio Inc. was one of 25 Keystone Opportunity Zone participants contacted for this article. Like Origlio, some companies said they were grateful for the program because the tax breaks helped their firms grow. But many either declined to comment or did not respond to requests for information. The largest in that group were Ronald Caplan's PMC Property Group Inc., University City Science Center, and Michael G. O'Neill's Preferred Unlimited Inc.

Economic-development experts said that being able to point to a half-dozen new distribution centers, two new factories, and other projects is not enough to deem the Keystone program a success. The cost in terms of forgone taxes also must be considered, they said. But the state does not know what that cost is.

"Currently, there is nothing in place to track the cost of the program," said Theresa Elliott, spokeswoman for the Community and Economic Development Department.

"The infrastructure that would need to be put into place would be very costly," she said, because it would involve every local taxing body, as well as the state Department of Revenue.

Early on, the state paid the Allegheny Institute for Public Policy in Pittsburgh to monitor the program, launched at a time of state budget surpluses, but it dropped the monitoring in mid-2002.

"They weren't really interested in whether it did any good, and that's a shame," said Jake Haulk, president of the Allegheny Institute.

Now, at a time of tough state and local budget battles, a surge of revenue from Keystone Opportunity Zones would be a blessing, but the state could not provide an estimate of how much additional tax revenue would start flowing from businesses located in the now-expired zones.

An Inquirer analysis of city real estate records found that an additional $6.3 million in property taxes for the city and the School District of Philadelphia will flow from the hundreds of sites on 1,393 acres that were eligible for Keystone Opportunity Zone benefits.

That figure - boosted by the across-the-board 9.9 percent increase approved by the city in May - amounts to a 0.6 percent increase in real estate tax revenue, based on the city's estimate for the fiscal year ending June 30.

Given that property taxes represented the biggest savings for the companies willing to share ballpark estimates of their total benefits from Keystone Opportunity Zone participation, it is doubtful that significant amounts of additional tax revenue are forthcoming. Employees who work in Keystone Opportunity Zones still had to pay the wage tax, the city's biggest source of tax revenue.

Though the Keystone program failed to cause a big move in property-tax revenue, the savings for individual companies were significant. Eleven of them avoided paying $100,000 or more in annual property taxes for years, including two with tax bills topping $1 million.

Four properties - the Marshalls distribution center in Northeast Philadelphia, the Kardon-Atlantic apartments near Temple University, the University City Science Center's Port of Technology building, and a indoor parking facility near Philadelphia International Airport - account for half of the $6.3 million gain in property tax.

Only the luxury apartments, developed by PMC Property Group in a former eight-story textiles factory near Temple, are near the sort of downtrodden neighborhoods that inspired the program.

A businessman who fixed up a dilapidated Keystone Opportunity Zone building in the 2200 block of West Allegheny Avenue said the original zones could have been more successful if lawmakers had not later expanded the program to include the Navy Yard and a site next to 30th Street Station, home to the Cira Centre, where lawyers and investment managers will have Keystone benefits until 2018.

"How do you say you want to stimulate this part of Philadelphia, then you throw it at the Navy Yard, and then you throw it to the Cira Centre?" Garnett Littlepage asked.

"That pushed us to the side. I think that was the worst part of it," said Littlepage, who moved his offices for Scotlandyard Security Services Inc. to the six-story property on West Allegheny that he bought for $95,000 in 2001 and renovated at a cost of $3.5 million.

Expansion of the zones was one of the breakdowns in the Keystone program, said Stephen Herzenberg, executive director of the Keystone Research Center. "The political discipline didn't exist. They couldn't resist another bite of the apple."

David Binswanger, president of Binswanger Cos., a Philadelphia commercial real estate firm, called the Keystone program a success because it led some businesses to consider parts of the city that otherwise would have been off the radar, though he conceded that they were "not always the most blighted neighborhoods."

Among the few substantial new buildings to go up in an economically depressed area was a 50,000-square-foot facility on North American Street for Chaes Food L.L.C., which moved from a nearby location in 2008.

Clara Hong, who works in business development for Chaes, said the Keystone tax breaks were a big help.

"That's the reason we moved here. We were hoping it would continue," she said, but phone calls and letters produced no results.

In Kensington, Case Paper Co. Inc. did not have to move at all. The company was planning to relocate to Bucks County from the former Philco-Ford plant at East Tioga and C Streets when the building was put in a Keystone Opportunity Zone.

Case stayed, and though another massive Philco building across the street was demolished and a self-storage facility was built on a Keystone site next door, the paper company moved operations from New York into Philadelphia and kept employing 140 union workers.

After replacing eight paper-cutting machines with four new ones that can produce 40 percent more, Case has become more efficient, said president Robin Schaffer.

When asked whether Case, which is based in Harrison, N.Y., will stay, Schaffer said: "What is distressing, we're in a bad state right now."

Then he talked about how Philadelphia was cash-strapped and mentioned the new stormwater fees for businesses and the city's hated gross-receipts tax.

“There’s a point where a business buckles,” he said.