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Pennsylvania doubles, to $36M, tax credits for investing in distressed neighborhoods

For the first time since the Neighborhood Assistance Program began nearly 50 years ago, the state legislature last month doubled the amount of available tax credits.

Habitat for Humanity of Chester County was able to build 28 homes, including these in the city of Coatesville, because of the state's Neighborhood Assistance Program.
Habitat for Humanity of Chester County was able to build 28 homes, including these in the city of Coatesville, because of the state's Neighborhood Assistance Program.Read moreCourtesy of Habitat for Humanity of Chester County

Habitat for Humanity of Chester County built homes for 28 families in Coatesville.

The community development group in the Oxford Circle neighborhood of Philadelphia started a program to tell its diverse population — nearly a third is foreign-born — about small-business workshops, professional networking events, and English classes.

And the nonprofit People's Emergency Center boosted its efforts to improve quality of life in communities along Lancaster Avenue in West Philadelphia.

The initiatives were possible, the groups said, because of Pennsylvania's Neighborhood Assistance Program, which gives tax credits to businesses that donate to community projects in economically distressed areas. Coordinators of the projects then highlight the contributions in a bid to get more people to donate.

Over the last six years, participating businesses donated more than $300 million to projects statewide aimed at building affordable housing, eliminating blight, teaching job skills, preventing crime, and otherwise improving neighborhoods. In return, they reaped more than $100 million in tax credits — money that otherwise would have gone into state coffers.

Now, those numbers are likely to swell. Despite concerns about the lack of evidence of whether tax credit incentives revitalize neighborhoods, state legislators and Gov. Wolf have agreed to expand the program. Last month, they approved a measure doubling the cap on annual tax credits to $36 million — the highest such ceiling among neighboring states.

Supporters, including a group of about 100 community organizations and businesses, lobbied to expand the program after seeing overall state funding for neighborhood projects decline over the years while requests for the credit shot upward.

The $18 million cap hadn't changed since it was introduced almost five decades ago and was "peanuts compared to what it was in 1971," said State Rep. Bernie O'Neill (R., Bucks), who cosponsored the measure to increase it.

"The value of this program is what it does for the neighborhoods and what these neighborhoods bring back to the commonwealth and to local governments," O'Neill said.

Kevin Musselman, manager of neighborhood and resource planning at People's Emergency Center, called the program an "essential funding stream for an organization like ours." The nonprofit provides services to families who are homeless and runs a community development corporation, which is where Wells Fargo's annual $100,000 contribution goes. The bank receives an $80,000 annual tax credit.

"In the nonprofit world, sources of government revenue are getting more challenging to find," Musselman said. "If we didn't have [the tax credit program], it would be all that more challenging, honestly, to keep our programs going."

More than a dozen other states, including New Jersey, Delaware, and Virginia, also give tax credits to businesses through similar initiatives, although amounts vary. New Jersey awards up to $12 million in credits through its Neighborhood Revitalization Tax Credit Program, while Virginia's annual cap is $17 million.

Rick Vilello, deputy secretary for community affairs at the Pennsylvania Department of Economic and Community Development, which administers the Neighborhood Assistance Program, lauded the program's ability to attract donations from businesses.

"It checks all the boxes of community development when you have those in need and people in the business community partnering on working on plans and envisioning how to solve problems," he said.

But there have been questions about whether tax credit programs are the best way offset lost state revenue. Pennsylvania and other states historically have fallen short in evaluating the effectiveness of such tax incentives, according to a report by the Pew Charitable Trusts.

Unlike spending programs, which "get scrutinized very carefully," tax incentive programs on the whole often get "very little evaluation at all," said Joseph Bishop-Henchman, executive vice president of the Tax Foundation, an independent tax policy nonprofit.

The Neighborhood Assistance Program pulls in millions of dollars in new investment to the state's economy each year, according to a March report legislators asked the Independent Fiscal Office to complete. But the office acknowledged it's unclear to what extent businesses would donate without the tax incentive. The report did not evaluate nonmonetary outcomes.

State officials are taking steps to review such programs. Last year, Pennsylvania passed a law requiring its Independent Fiscal Office to review the efficiency and results of tax credits at least every five years.

Community groups with multiyear Neighborhood Assistance Program projects submit progress reports, although state officials acknowledge they need to do a better job of collecting information about the difference projects make.

They said they are starting to improve how they measure outcomes by collecting specific data on the number of each project type — blight elimination, affordable housing, etc. — and their effects on communities. State Economic and Community Development officials plan to receive data next month on recent projects.

Roughly 400 businesses in the Philadelphia region have received tax credits over the last four years. One is Meridian Bank, which operates in Pennsylvania, New Jersey, and Delaware, and partners with Habitat for Humanity of Chester County. Habitat will get $250,000 in donations over five years; the bank can claim deductions worth more than $180,000.

Jason Pyrah, the housing organization's associate director, said it's clear the tax credits are working. He said the bank told him: "Without the tax incentive, we would have given you something, but it wouldn't have been anywhere close to $50,000 a year for five years."

"The tax credits help us to serve more families in a more timely fashion," Pyrah said. "The need is great, and when we can find the funding, we can help meet that need."

The state awarded $3.8 million in tax credits to 35 projects in Southeastern Pennsylvania, including Lancaster County, last fiscal year. State officials will approve the latest round of projects in the coming weeks.

The program helped Philabundance start and continue its 10-year-old Grocers Against Hunger initiative, said Glenn Bergman, executive director of Philabundance. Grocery companies donate food to the nonprofit — more than 10 million pounds per year, on average — and some get tax credits in return.

"It helps get the major players in and entice them," Bergman said. "I think the increase [in available tax credits] is going to help us over to another level, and it's fantastic."

He hopes to partner with companies to receive nonfood donations, such as trucks and forklifts.

Andréa Hodge, economic development associate at the Oxford Circle Christian Community Development Corp., said investments from businesses since the group got the tax credits have helped build excitement within the community.

"We see that the neighborhood is in this position of great potential energy," she said.