Tax-free status of proposed building generates debate

When the announcement came early in 2003 that Plymouth Meeting-based Brandywine Realty Trust would build an unprecedented 28-story office building on the west side of the Schuylkill River, it was met with great enthusiasm across the city.

The Cira Centre, which is being built in a Keystone Opportunity Zone on land adjacent to the 30th Street Amtrak train station, was seen as a real commitment to the development of University City. It was viewed by many as another move to integrate University City with the Center City business district.

But an announcement on Dec. 24 quieted some of the clamor. Two Philadelphia-based law firms -- Dechert LLP and Woodcock Washburn LLP -- said they signed a lease to become the anchor tenants of the building and use 354,000 of the total 727,000 square feet after its completion.

The two Center City firms are bound to greatly benefit from the KOZ-designated land because they will be able to forgo a variety of state and local taxes that they currently pay.

Although most say that the Cira Centre will ultimately benefit both University City and the rest of the Philadelphia region, some claim that the proposed use of KOZ land is inappropriate. They say that the two partnerships will neither create new jobs nor bring new investment into the community -- the reasons for which the KOZ program was created. Instead, they are "stable" businesses taking advantage of the program to forgo paying taxes at the expense of the city's budget.

"The city is supportive of the Cira Centre," said Dwayne Bumb, deputy commerce director. "But we have some concerns of the tax implications with tenants moving to KOZ zones, especially if those tenants are not adding jobs as part of that move."

The only city tax that is not waived by the KOZ designation is the wage tax. However, the partners in the two law firms do not receive "wages," but rather split the net profits of the business -- which are not taxed.

Some, like Bumb, consider the net profit tax a "companion tax to the wage tax." Because of that, he said, they should be excluded from the KOZ exemptions.

But for the two law firms, the net profit tax was one of numerous tax exemptions that made it a lucrative decision to move into the Cira Centre. Because of this, Bumb emphasized that the net profit tax "has had a larger negative impact than was [originally] predicted."

The city is trying to find ways to make corrections in future designation of KOZ to prevent such results, Bumb said.

This controversy reignited debate over the entire city tax structure. "It speaks to the challenges that we face here in Philadelphia -- with the extraordinarily high business taxes -- that the city needs to deal with if it wants to create jobs and allow corporations to grow in the city," said Eric Goldstein, the executive director of University City. "It's not about one site or another site. It's a citywide issue."

But despite this recent controversy, many say the obvious benefits of the Cira Centre should not be overlooked.

"In West Philadelphia, there is potential for Keystone Opportunity Zones to be great incentives for development, and it could be effective," Goldstein said. "We hope that those incentives work to lure new business into the city so that we are actually growing the job base and not just transferring it from place to place."

It should not be forgotten that the Cira Centre is being built on an area that was formerly a rail yard, Goldstein said. "It was a difficult site to develop without incentives."

"It has tremendous benefits as it relates to job creation and development on [the west] side of the river," said David Yeager, the director of Governor Ed Rendell's Action Team. He also discussed the development of secondary business to complement the 28-story office building -- retail business, cafes and restaurants.

The Cira Centre, expected to be completed in the winter of 2005, is also an important move in the efforts to revitalize the underdeveloped banks of the Schuylkill River and "close the gaps" between Center City and University City "so that the city can become unified," Bumb said.

Please note All comments are eligible for publication in The Daily Pennsylvanian.