Why a $10,000 Philly tax break got almost no takers
Imagine if you offered a tax credit and nobody applied for it? That's what happened in Philadelphia. Since 2008, the city has offered companies a $10,000 per year tax credit if they hired people with records. Few took it. Now the city's trying something different.
No one likes taxes.
So you'd think that a Philadelphia city tax program that gave companies a $10,000 tax credit would be wildly popular.
And you would be wrong.
That's the Philadelphia Re-Entry Program (PREP) tax credit, designed to encourage companies to hire people with criminal records. It was so ineffective that, in the course of its nine-year history, only $472,124 tax credits were issued out of $80 million available for that purpose. No more than two dozen business participated, even though many more routinely hired people coming out of prison.
Getting the credit "was not a pleasant experience," said Duane Bumb, senior deputy director of commerce, in that kind of bureaucratic understatement developed over years.
And so, on Wednesday, the city launched a new variation — the Fair Chance Hiring Initiative — designed to encourage companies to hire people with records by getting companies the money more quickly and by making it easier to fill out the paperwork. It will begin July 1.
"I think it's transformative for what the city is trying to accomplish," said Bob Logue, owner of Quaker City Coffee Co., a small business that he and partners developed to employ people with records.
"One of the biggest barriers facing people upon reentry continues to be the challenge of finding employment," Mayor Kenney said in remarks prepared for a City Hall announcement Wednesday. "Unlike the existing PREP tax credit, the Fair Chance Hiring Initiative will offer direct reimbursements for each qualifying position, rather than employers relying on tax credits."
Part of PREP's problem was that it took so long for companies to see the benefit, a credit applied against the Business Income & Receipts Tax (BIRT). To qualify, companies had to employ someone for a full year, fill out the paperwork and get it certified, and then allow the city's Department of Revenue to audit its payrolls. Then, when the next tax bill came due maybe a year later, depending on timing, and if the company passed muster, it wouldn't have to pay as much.
Also, if businesses were small, they might not even owe enough to the city to make it worth the trouble. By 2016, as part of the city's plan to reduce the tax burden on small business, two-thirds of the city's enterprises weren't paying a dime in Business Income & Receipts Taxes, said Marisa Waxman. first deputy revenue commissioner in the Department of Revenue.
If the goal was encouraging companies "to hire these returning citizens, you'd want a program that nudges them toward that action in the most efficient way possible, and you can see this wasn't working," Waxman said.
Under the initiative announced Wednesday, businesses can apply for what amounts to a grant. To get funds, they have to seek employees recruited through RISE, the city's reentry services program, which will have provided job-readiness training. They have to explain in their application how the employee's job can lead to a career. They have to agree to pay at least $12.10 an hour, for a minimum of 21 hours a week.
And then, after six months, they can draw on that grant at a rate of $5 per hour worked, up to $5,000 per person. And if the person leaves, they can still get the money, as long as they accept another person from RISE into the same position.
"This population really wants to work for a stable business. They really want to grow roots somewhere," said Ceciley Bradford-Jones, RISE's executive director. She said too many programs simply churn employees through low-paying jobs where they can't earn enough to live. "We know what it takes to survive in Philadelphia. We can't keep low-balling it."
The city has set aside $500,000 for the first year, with the idea of tweaking the program and eventually phasing out the PREP tax.
Logue said the chief advantage of the new initiative is its predictability. Companies can hire and know in advance what they'll receive.
"For a small business owner, cash flow is paramount," he said. "This is a simple business plan. You calculate your business on a 12-month cycle, so you can literally do the math. You know in six months, you'll get $5 for every hour worked."