The big location incentive

Without question, the southwestern Pennsylvania region continues to showcase its building and expansion efforts most prominently from Southpointe, the airport corridor, the Pittsburgh Technology Center and prime development in the nine counties surrounding Pittsburgh.

But if location doesn’t top your list of expansion requirements, and you’d rather rent or buy lots of industrial space cheaply, save on taxes and tap larger populations of unemployed workers, the state offers what may be your perfect alternative: Keystone Opportunity Zones.

Through this statewide program, launched earlier this year, you can access any of 26,000 acres in Pennsylvania that have been given the KOZ designation. Those acres, in communities affected by high poverty, high unemployment rates, population loss and underutilized or abandoned industrial property, have been targeted for growing companies and segmented into 12 zones statewide.

The benefits are clear: Within the boundaries, the state agrees to waive the corporate net income tax, the capital stock and foreign franchise tax, the personal income tax and the sales and use tax. Local governments surrender their claim to earned income/net profits taxes and taxes on business gross receipts, occupancy, privilege, mercantile, local property and sales and use taxes. The preferential tax treatment expires Dec. 31, 2010.

The only caveats: Sales and use tax breaks are only applicable if items are sold and consumed within the KOZ. Maximizing tax savings is contingent on a person’s willingness to reside within the KOZ. Income and property tax abatements, by their nature, can only be extended to people living within the tax-free localities.

A person must reside in the KOZ for at least 184 days to be eligible, and residence must be certified annually. The goal is to repopulate depressed areas.

“For decades, government has tried numerous well-intentioned spending programs to help these neighborhoods, but they haven’t worked,” Gov. Tom Ridge said to guests at the program’s unveiling ceremony in Chester, Delaware County.

“Now in Pennsylvania, we’re going to try something different,” he continued. “Government won’t lose much revenue, because these communities don’t have much economic value to tax right now. But by temporarily giving up these taxes, we stand to turn these communities around, and ultimately, government will get additional tax revenues to boot.”

A business must increase full-time employment by 20 percent in the KOZ within the first year of operation or make a capital investment in KOZ property totaling 10 percent of the business’s gross revenues from the preceding calendar or fiscal year.

You can choose from these locations:

  • 5,000 acres in Butler, Clarion, Crawford, Erie, Forest, Lawrence, Mercer, Venango and Warren counties.
  • 5,000 acres in Allegheny, Armstrong, Beaver, Fayette, Greene, Washington and Westmoreland counties.
  • 1,836 acres in Cameron, Clearfield, Elk, Jefferson, McKean and Potter counties.
  • 2,343 acres in Bedford, Blair, Cambria, Fulton and Somerset counties.
  • 1,389 acres in Centre, Clinton, Columbia, Juniata, Lycoming, Northumberland and Union/Lycoming counties.
  • 770 acres in the south-central part of the state.
  • 3,864 acres in Luzerne and Lackawanna counties.
  • 2,551 acres in Schuylkill and Carbon counties.
  • 642 acres in Lehigh and Northampton counties.
  • 1,391 acres in Berks, Bucks, Chester, Delaware, Lancaster and Montgomery counties.
  • 1,503 acres in Philadelphia.
  • The northern tier includes KOZs in Bradford, Susquehanna, and Wyoming counties.

For more information: Lauren Brobson, Pennsylvania Department for Community and Economic Development, (717) 783-1132.

Pennsylvania’s Enterprise Zone Program

The Keystone Opportunity Zone program is the latest in building and expansion incentives to encourage growth in depressed areas. One of its older – and still active — programs, created in 1982-1983, is Pennsylvania’s Enterprise Zone Program.

Enterprise Zones are designated areas in which businesses can locate to receive grants and other financial incentives for launching locally planned projects that spur private investment and create jobs in that area.

The state requires 15 criteria be met for eligibility of specific areas within municipalities for state support. In general, those showing statistical signs of economic anemia are eligible for enterprise zone status.

Local elected officials must set boundaries and submit an application, including a comprehensive business development strategy, to the state’s Department of Community and Economic Development. The department favors applications from municipalities filing together, since more jobs can be created by combining funds into one project.

Basic grants of up to $50,000 fund the implementation of the submitted development strategy. Competitive grants/loans usually are granted directly to EZ municipalities, which administer the loans to private companies at below-market interest rates.

State funding can serve as leverage for financing, including bank loans. Allentown created more than $16 million in new investment with an EZ basic grant of $110,000 (the basic grant was capped at $50,000 in fiscal year 1996-1997) and a competitive grant/loan of $262,500. The money was used for administrative costs, technical assistance, promotion and a DCED audit.

In Corry, Pa., one competitive grant/loan went to a manufacturer of gas turbines, saving 155 jobs and creating 16 new ones. Another competitive grant/loan financed 17 percent of the $1.4 million start-up costs of a metal injection molding company that created 40 new jobs. Nearly $9 million in private investment has poured into the Corry EZ.

For more information: Emily Buka, Northside Civic Development Council Inc., (412) 322-3523