Keystone Opportunity Zones Fail to Deliver Economic Prosperity

On Thursday, the Legislative Budget and Finance committee heard testimony evaluating the effectiveness of the Keystone Opportunity Zone (KOZ) program. The KOZ is an “economic revitalization” program that provides businesses in distressed communities with state and local tax exemptions. That testimony ultimately concluded that the program is seriously flawed and in dire need of improvement. 

For starters, the committee appointed to evaluate the program found many inaccuracies and inconsistencies within the KOZ’s own data that prevented much “comprehensive and quantifiable assessment of the program.” For example, data on the number of jobs created and the amount of capital invested is self-reported by program participants. It came as no surprise then that these numbers were substantially overstated and appeared to represent a mix of both actual and estimated figures.

Also of note is that many KOZ participants are providing little, if any, job creation or capital investment in return for the tax exemptions and investments they receive. In fact, some 75% of reported participants didn’t create any jobs.

If that wasn’t bad enough, the Department of Community and Economic Development does not even have a method to calculate total program costs. Therefore, it is impossible to run a cost-benefit analysis to determine if KOZ-related “job creations and capital investment” (see above) justify the amount of state and local tax revenues being forfeited.

The study did find some measurables, however. Statewide, only 30% of KOZ acreage is being developed, whereas some 70% of designated land is largely undeveloped. Additionally, no business has ever been deemed “not qualified” by the Keystone Opportunity Zone program.

The full joint committee report on Keystone Opportunity Zones can be found here, with a summary of findings here.