Wednesday, February 10, 2016

Philly hopes investor tax break will attract firms soon

16-1 vote of confidence for investors

Philly hopes investor tax break will attract firms soon


At least one Main Line investment firm is mulling a move downtown after City Council voted 16-1 (Councilman Curtis Jones dissenting) last week for Councilman Bill Green's tax break for investment funds and their general partners. "Mayor Nutter has said he will sign it," Joseph Bright, tax attorney at Cozen O'Connor, told me.

The bill exempts these investors from the city's 6.5% business privilege tax levy on profits. Green predicted small venture, private equity and hedge funds will be more likely to locate here now.

Green was also quoted claiming Philadelphia lacks an investment industry and the tax break will help start one. Of course the city is and remains an investment hub, though it's true the 'burbs are full of outfits that ought to be downtown. I asked some of Philadelphia's biggest money managers if the law will make a difference.

"I'm in a (tax-protected) Keystone Opportunity Zone," so the tax hadn't yet applied to customers, said Michael Forman, boss of the Franklin Square high-yield funds, based (along with Ira Lubert's Independence Capital Partners-affiliated funds) at Cira Center next to 30th Street Station. But after the KOZ breaks expire, "yes, it will be impactful, and yes, we'd stay and grow here" thanks to the change in law.

Ted Aronson, head at Aronson Johnson Ortiz on South Broad Street and one of Philadelphia's biggest institutional fund managers, concurred, and told me an investor horror story that underlined the attraction of the Green bill:

"Twenty-five years ago a significant client, Commonfund, asked to convert its separate portfolio into a partnership account (to) be used by other institutions and save on custody fees and stuff like that," Aronson recounted. He hired major law and accounting firms and set up the accounts. Then a Deloitte employee found, almost too late, "some dusty City ordinance where all dividends and all capital gains were subject to city taxes."

Aronson would have been on the hook for the unexpected expense: "It would have meant the end of my firm and personal bankruptcy. Or, at the very least, protracted lawsuits." Instead, they were able to unwind the partnership before taxes came due.

"It's no accident" that giant investment manager Vanguard Group located in suburban Malvern, not Philadelphia, Bright added. "Philadelphia drove the financial business out of the city" with taxes. "The financial world organized to avoid this tax. Nobody in their right mind would have located here because it was punitive."

Lobbyist Ed Hazzouri, who pushed for the bill, told me it will attract "recent Wharton grads" and other investment pros who can now start their firms in previously-vacant Center City offices instead of leaving town for New York, Boston, Bala Cynwyd, or Radnor.

I also talked to a Philadelphia landlord who's been in negotiations for months with a prospective investment tenant. They're close to a decision, and the bill has brought them closer, he told me. But if it doesn't work out, "I'm also talking to a restaurant" for that same space, he added. 

ALSO: Green has said he's for lower business taxes across the board. But in the past, as with the business-privilege reform, he's shown a willingness to compromise with well-organized sectors if that's the way to pass the bill.

The general-partners exemption looks like favoritism to political consultant Daniel Fee of Echo Group. "I really don't understand this," Fee told me. "This kind of tax cut doesn't help a single construction firm, a single baker, a single law firm or a single small store -- all the people already located here and employing Philadelphia workers... Picking winners and losers (is) bad policy."


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About this blog

PhillyDeals posts interviews, drafts and updates that Joseph N. DiStefano writes alongside his Sunday and Monday columns and ongoing articles about Philadelphia-area business.

DiStefano studied economics, history and a little engineering at Penn. He taught writing and research at St. Joe’s. He has written for the Inquirer since 1989, except when he left a few times to work at Bloomberg and elsewhere. He wrote the book Comcasted, and raised six kids with his wife, who is a saint.

Reach Joseph N. at, 215.854.5194, @PhillyJoeD. Read his blog posts at and his Inquirer columns at Bloomberg posts his items at NH BLG_PHILLYDEAL.

Reach Joseph N. at or 215 854 5194.

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