Long-blighted Area Lures Business with Tax Breaks

The Philadelphia Inquirer – by Peter Binzen

Joe Mancini has a small but growing hardware and industrial supply business in North Philadelphia’s American Street Empowerment Zone. When he moved American Supply Co. into the city from Norristown in June 2002, it had seven employees; now it has 10. And its annual sales have jumped from less than $500,000 in Norristown in 2001 to just over $1 million on North American Street last year. Mancini, 35, operates two lines of business. His warehouse stores umbrellas, canned tuna, wicker furniture – stuff from 25 accounts. But he also runs a walk-in counter service offering a range of construction supplies to builders. It is still a tiny operation, to be sure. But Mancini has expansion plans. He wants to put up a building on the vacant lot he owns next door. It will cost more than $1 million, but he’s sure he can arrange financing through lending sources that helped him move onto American Street.

But here’s the key. If his construction goes ahead, he will be building in a Keystone Opportunity Zone, and he will win a 10-year exemption from most state and local taxes. Keystone Opportunity Zones date from 1999. In Center City, two wealthy law firms stand to benefit from opportunity zone tax breaks by moving from an existing building to a planned new one. Critics say that’s not how that program is supposed to work. By contrast, American Street appears to be benefiting from the program in ways that the legislators intended. It was apparently the lure of an opportunity zone that helped to persuade Aramark Corp. to move a facility that prepares and distributes hot food to senior-citizen centers from Montgomery County to American Street last summer. American Metal Molding Corp. also took advantage of the legislation in expanding its operations on American Street. Now Joe Mancini wants to do the same. And his ambitious growth plans may be symptomatic of long-sought changes along the embattled industrial corridor, changes for the better. Efforts to spur economic development in this deprived section between Girard and Lehigh Avenues and from Frank-ford Avenue to Fifth Street focused first on the road itself.

From 1977 to 1981, the federal government spent $20 million converting a woebegone 1.7-mile stretch of American Street into a 90-foot-wide, eight-lane highway. The aim was to give tractor-trailers easy access to loading docks and warehouses that it was hoped would be drawn to the section. In 1983, Pennsylvania followed up with its “enterprise zone” program promising low-interest financing, tax credits and other inducements to companies moving into hard-bitten areas such as American Street. Although it was designated an “enterprise zone,” there wasn’t much enterprise on American Street for some time thereafter. When interviewed in 1986, Joseph Senek, controller of Cantol Inc., which makes sanitary chemicals at 2211 N. American St., termed the enterprise-zone program a long shot. “I don’t know why it isn’t working,” he said. “It just isn’t.”

Observers believe, however, that things are improving on American Street. And they credit the federal government’s Community Empowerment Initiative, along with special city programs, for lifting sights and spirits. The federal law was signed by President Bill Clinton in August 1993. One year later, Philadelphia and Camden, as a single entity, were among six urban and three rural areas nationwide that were named empowerment zones. The program represented a 10-year federal commitment to revitalizing designated communities. Philadelphia received $79 million, and Camden, $21 million, as their shares of the empowerment-zone initiative. In addition, Washington provided $225 million in empowerment-zone tax credits and business incentives. In December 2000, these tax incentives were extended through 2009. Funding from the Community Empowerment Initiative has underwritten a host of programs to clear vacant lots, clean curbs and sidewalks, and subsidize certain business improvements.

Vincent Dougherty, assistant director of Philadelphia’s commerce department and acting director of the mayor’s business action team, has been deeply involved in American Street for a decade.

“A neighborhood in decline is now on the rebound,” he said. He said he believes that American Street, formerly “one of the poorest and most deteriorated areas, with highest unemployment,” is approaching a “critical mass” in business activity.

Dennis Murphy, who has worked for the Empowerment Zone for two years, cited less crime and fewer abandoned cars on American Street as marks of its improved environment. “Dumping is still a problem, but American Street is much more attractive,” he said. “And there’s much greater sense of security here now.” He noted that a neighborhood cleanup program funded by the empowerment zone started last month. A seven-man crew in blue uniforms picks up trash weekly.

Mancini said he welcomed all of these changes. But what made his move from Norristown to American Street possible were the financial incentives.

A Camden native and Drexel University graduate, he started distributing industrial maintenance and contractor supplies in 1997. Mancini worked first from a brother’s garage in Pottstown and then from his own basement in Conshohocken. His first-year sales were $36,000. He bought a secondhand van for $4,000 – it’s still in use – and relocated to his house in Lafayette Hill. He added a part-timer in 1998 as his sales grew to $200,000. Revenue continued to rise, and Mancini moved his business in 1999 to a 15,000-square foot facility in Norristown. He soon outgrew that space, and his accountant, Julian Sur, advised him to buy a property. He discovered, however, that “suburban pricing was outrageous.” Then thousand square feet that was “falling down” would have cost him $200,000, Mancini said. Then he checked out American Street and couldn’t believe the bargains.

In July 2002, Mancini purchased a company at 2411 N. American St. He bought not only the Rex Warehousing & Co.‘s six-story, 150,000-square-foot building and an adjoining vacant lot but also its business. The price was $585,000. Mancini put up 10 percent-$58,000-in cash, with the balance borrowed at low rates. The Philadelphia Industrial Development Corp. lent $200,000 for 15 years at 2.38 percent.

The key player has been Luis Mora, executive director of the American Street Financial Services Center, Mancini said. The center was founded in 1996 with $7 million from the Philadelphia Empowerment Zone. As its head, Mora arranged a bridge loan, a term loan, a real estate improvement loan, and a $100,000 line of credit for Mancini. “Luis was fantastic,” he said. “If it hadn’t been for him, we wouldn’t be here.”

Mancini is counting on the same financial help from Mora and the PIDC for his planned building in the Keystone Opportunity Zone. “I’d like to have it up by September,” he said. “We need more space.”