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20Nov

Pennsylvania Doubles, to $36M, Tax Credits for Investing in Distressed Neighborhoods

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.

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