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$200M investment gets Urban Outfitters decade-long PA tax break

By   /   October 9, 2013  /   No Comments

By Melissa Daniels | PA Independent

HARRISBURG — Urban Outfitters promises a $200 million expansion and 2,500 new jobs in Pennsylvania.

The cost to the commonwealth? A decade-long tax holiday for the company — and there’s no calculation how many tax dollars the Keystone State will bypass for granting that privilege.

URBAN OUTFITTERS: The trendy clothing company is getting a 10-year tax free program for its two expansions in southeast Pennsylvania.

URBAN OUTFITTERS: The trendy clothing company is getting a 10-year tax free program for its two expansions in southeast Pennsylvania.

The plan includes a 2,000-employee expansion at the trendy, youth-driven clothing and merchandise company’s headquarters at the Philadelphia Navy Yard. Another 500 jobs will be added at a new distribution center in Gap in Lancaster County, Lt. Gov. Jim Cawley announced Monday.

The projects will be developed in Keystone Opportunity Zones, a state-run program to give businesses a 10-year break on paying taxes in undeveloped, or underdeveloped, areas.

KOZs provide a bevy of abatements and exemptions at the state and local levels, including the corporate net income tax, earned income tax, property tax and business gross receipts tax. Projects also receive sales and use tax exemptions for certain purchases.

Lyndsay Frank, deputy press secretary with the Department of Community and Economic Development, said KOZs are designed to develop areas where there is little or no tax revenue or jobs.

“The amount of private investment injected into the economy, in addition to the revenues generated from the personal income tax on 2,500 employees, will be an impactful boost to Philadelphia and Gap,” she said. “Additionally, with at least 2,500 employees collecting a paycheck, they will likely pump even more money back into the local economy at local shops and restaurants, maybe purchasing a vehicle or home.”

But DCED doesn’t track what taxes would be generated if the company located in a taxable area instead of a KOZ, Frank said.

The logic behind the program is this: after the 10-year KOZ period, the property will be back on tax rolls, which might not have occurred without the incentive.

“If Urban Outfitters decided to relocate or build in another state, the commonwealth and that local community get nothing; no jobs, no investment, no tax revenues,” Frank said.

Eric Montari, senior policy analyst with the Allegheny Institute for Public Policy, a research firm specializing in limited government policies, questions the state’s methods. He said culling the data from individual economic development projects is the only way to tell how effective they are in the long term.

“It’s hard to get people motivated 10 years later,” he said. “Did those projects come to pass? Did they do better than 500 jobs, did they add more than their investment?”

At one point, the state hired Allegheny Institute to analyze KOZ developments, but that ended in 2002. Montari said it’s a “common theme” that economic development programs have some missing information about the overall effect, like how much potential revenue the state would be getting from a company if it were not in a KOZ.

“It’s not surprising to me but it is something that’s needed because you need to know if it is a worthwhile idea,” he said. “Maybe you want to have more Keystone Opportunity Zones going forward.”

Estimates from DCED for the last year show 850 companies in KOZs statewide created more than 15,000 jobs and retained another 9,000. These figures are not broken down by individual projects, though the state offers some wrap-ups of specific projects in promotional materials for applicants.

One KOZ “success story” the state points to is the Omni Bedford Springs Resort in south-central Pennsylvania, where $180 million dollars in private and public investments went towards restoring the historic hotel located on eight mineral springs. Following the KOZ abatement, the property is back on the tax rolls. It generates $250,000 through a a 2-percent local hotel tax and employs 400 people.

Urban Outfitters has been headquartered in Philadelphia since its founding in 1970. The publicly traded company, which operates Anthropologie and Free People among other brands, employs more than 2,400 residents in the state. The operation has more than 400 retail stores, and is seeing growth in Internet sales.

A company already based in Pennsylvania can receive KOZ benefits only if the company increases full-time employment by 20 percent in the first year, makes a capital investment worth 10 percent of its revenue, or enters a new lease agreement equal to 5 percent of gross revenues, according to program guidelines.

The state approved the Navy Yard expansion, already located in a KOZ, with sign-offs from the city of Philadelphia and the Philadelphia School District.

Officials from Lancaster County and school districts there applied to create a new KOZ in Salisbury Township earlier this year, which DCED approved.

The 1 million-square-foot, $105 million direct-to-consumer distribution center was highly anticipated by local officials, who were concerned the project might move elsewhere. Rep. Gordon Denlinger, R-Lancaster, called the project is a “tremendous victory” in a release.

Contact Melissa Daniels at melissa@paindependent.com

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Melissa formerly served as staff reporter for Watchdog.org.