The Philadelphia school board unanimously authorized a proposal to extend tax breaks to the company that plans to redevelop the massive former South Philadelphia refinery site into a distribution and commercial hub.
Hilco Redevelopment Partners bought the 1,300-acre former Philadelphia Energy Solutions site out of bankruptcy in June for $225.5 million. The Chicago-based company said the extension of the Keystone Opportunity Zone designation, which exempt businesses from most state and local taxes, is crucial to completing a multibillion-dollar development that could create an estimate of 13,000 jobs during the construction and over 19,000 permanent jobs.
With seven votes in favor, zero against, and one abstention, the board consented to abate all real estate taxes imposed on six of the 17 parcels of the site, if and when the Commonwealth of Pennsylvania approves a 10-year extension of their Keystone Opportunity Zone designation. Board member Lee Huang abstained because his firm, Econsult Solutions, is a consultant with Hilco.
The proposal, backed by Mayor Jim Kenney, South Philly Councilmember Kenyatta Johnson, and City Council, was rejected by the school board during a previous vote in August.
Board member Angela McIver voted in favor of the extension Thursday after previously voting in opposition. She said her stance changed after Hilco promised jobs for graduates of Philadelphia schools.
“I believe Hilco presented a plan that would benefit our graduates and implore the district to put in place a department that will hold Hilco to these commitments,” McIver said.
McIver said that in the weeks since the last vote, Hilco met with district officials to discuss opportunities for recent graduates to access jobs at the site without interference from unions.
“It is well documented that Philadelphia trade unions function as private clubs in the city. Our unions are gatekeepers for entry into these high paying union jobs and reject our Black and brown citizens for a membership,” McIver said.
Keystone Opportunity Zones are designated by the state as an incentive for developers to invest in abandoned or underutilized sites. The program allows taxes to be greatly reduced or even zeroed out for up to 10 years.
Jasmine Sessoms, senior vice president of corporate affairs at Hilco Redevelopment Partners with roots in the Point Breeze community that borders the former refinery, said the company was “humbled by the Philadelphia School Board’s faith in this project.”
She said the company “is excited to champion the work of the School District of Philadelphia and City to build out a Career Connected Learning system.” That initiative, she said, will build “direct pipelines to permanent employment in partnership with post-secondary education and training institutions.”
‘More dollars’ and a clean up promised
Six of the former refinery’s tax parcels constituting about 70% of the complex are currently designated as KOZs. One of them, comprising 250 acres, expires at the end of the calendar year. To keep the designation, the city has to submit an extension application before Oct. 1. The other five parcels will expire by 2023, but the city may submit an application for those as well prior to the expiration date.
In written testimony, Mayor Kenney said the KOZ designation extension would allow 10% extra revenue to go to the city’s general fund and the school district while the property is sitting vacant.
That’s because the state allows local governments to put in place a payment in lieu of taxes, also known as a PILOT, to offset the loss of real estate tax. That PILOT can be set at 110% of what the real estate taxes would otherwise have been.
Additionally, if the KOZ designation is approved by the state, the PILOT agreement would be amended to include the most recent assessed value of the property, which according to the Department of Commerce, would increase the amount received by the city from $1.25 million to $1.36 million annually. Fifty-five percent of that money would go to the School District ($748,000) and 45% to the general fund.
In addition to the thousands of jobs promised by Hilco, Kenney said the company has committed to recruit and train local workers using diversity and inclusion goals as a guide, he said. Taxpayers will also benefit from the company’s plan to dismantle the refinery — a hulking structure that has ranked as the city’s single largest polluter for years.
“The redevelopment will demolish the refinery infrastructure that has polluted Philadelphia for quite some time. The redeveloper in partnership with Energy Transfer Partners has committed up to $500 million for environmental remediation,” Kenney said.
The vote came after a financial update presentation detailing the “unquantifiable” fiscal challenges presented by the COVID-19 pandemic, which have caused the school district revenue reductions and expense increases. Board members said the situation will mean having to make difficult decisions in the upcoming months, such as possible school closures.
“I think just generally people think of abatements as us giving away dollars, but in this particular case, we will receive more dollars, the school district will see more dollars than if there were not a KOZ,” Sylvie Gallier Howard, the city’s acting commerce director, told board members. “There’s no taxes being lost.”
She said approving the extension of KOZ benefits is the best alternative for Philadelphia because it accelerates Hilco’s timeline.
“Without this incentive, remediation — which will cost hundreds of millions of dollars — as well as development of the site will take longer as it becomes more difficult for Hilco to secure tenant commitments necessary to finance construction,” Gallier Howard said in an email. ”Most importantly, all Philadelphians will gain from the creation of thousands of new jobs and the accompanying wage tax revenue that is needed to fund critical city services like sanitation collection and police protection.”
The KOZ designation means the city won’t be able to collect business income receipts tax or occupancy taxes — revenue that would go to the school district. But the city has argued that if there’s no incentive for a building to be constructed, there’ll be no building to be occupied.
Board member Mallory Fix Lopez, who rejected the proposal last month, said new commitments for career-connected learning and city oversight convinced her to authorize the plan this time.
“If we don’t have that oversight, it will be a huge failure, if this doesn’t actually happen,” she said.
The board’s president Joyce Wilkerson agreed.
“What’s been significant for me is not so much the interest of our school kids being put on the Hilco agenda, as much as it is being put on the Commerce Department’s agenda going forward,” she said while voting to authorize the plan. “The city’s commitment is to make sure that the conversation about ‘how does it benefit our children’ will be part of the conversation.”
The board received written comments supporting an extension of the KOZ designation from business and labor representatives.
‘We’re paying taxes’
Approximately 30 environmental activists, residents, students, and teachers presented comments, and even a song, against the tax break at Thursday night’s board meeting.
“Hilco is a multi-million dollar company. The city is in debt,” 16-year-old student Sanija Akens told the board.
Philly Thrive, a group who has been advocating for neighbors whose health has been negatively impacted by pollution coming from the former refinery for years, demanded the city not extend the KOZ designation or grant any further tax breaks. The activists question whether the KOZ designation will really benefit people like them who live nearby or the city’s schools.
“We’re paying taxes. I mean, they have more money than we have,” said Grays Ferry resident Rodney Everett. “Why should a company come here and do this?”
Philly Thrive’s Alexa Ross said they asked Hilco’s senior vice president of corporate affairs, Jasmine Sessoms, to present the economic benefits to the community. Sessoms has said she’s committed to investing in the community and for Hilco to be a good neighbor. But Ross said Sessoms did not agree to explain the benefits to residents.
“So if there really was a response that would have made us happy, why haven’t we heard it yet?” she said.
Philly Thrive members and environmental activists also question Hilco’s commitment to remediate the site in a safe and definite way.
According to Hilco’s soil management plan, approved by the Pennsylvania Department of Environmental Protection, heavily contaminated soil will be buried under buildings, parking lots, and driveways, instead of being removed from the site.
The environmental justice group is also concerned about the way the company has handled business in other cities. In April, Hilco took criticism in Chicago after a cloud of dust covered a working-class Latino neighborhood in the midst of the COVID-19 pandemic after the demolition of an old coal plant owned by Hilco. Three months later, a similar situation happened in Jersey City.
Ross said the logic of approving a tax break to prevent the site from staying blighted for years doesn’t make sense.
“It’s extremely paternalistic to say ‘Do you guys want it to stay a refinery? Then you better go along with new tax breaks’ — that’s coercive,” she said.
Donna Cooper, executive director of Public Citizens for Children and Youth, said in a recent column in The Inquirer the tax waiver is not a good deal for the school district and not fair for city taxpayers.
“If the district abates the taxes for another 10 years, all other taxpayers will need to make up the revenue that Hilco should be paying, or the district will have cut what it spends to educate students,” she said. “It’s time to stop the Philadelphia tradition of short-changing students and overburdening residential taxpayers for guaranteed returns for private investors.”
Other groups, such as the African American Chamber of Commerce of PA, NJ, and DE, publicly supported the KOZ designation extension. It’s chairman, Steven Scott-Bradley, said in The Philadelphia Tribune that Hilco will reverse decades of climate injustice by transforming the site from “the city’s largest polluter to a sustainable 21st-century logistics hub,” bringing jobs to Philadelphia.
Disclosure: Steven Scott-Bradley is a member of WHY’s Board of Directors.