A week ago, on May 18, Brookings published a report that Philadelphia has a strong “innovation economy” but city leaders–both private and public–need to do more with its existing assets to “compete globally and benefit local communities.”

The report examined the role of the University City-Center City innovation district as a regional economic hub and a key part of Philadelphia’s efforts to become a world-class innovation city.

Philadelphia is the 6th-largest metropolitan area in the country and ranks among the Top 10 metros based on its total annual amount of public and academic research expenditures. But the report also noted that the city “underperforms” on several key metrics given its size and assets.

Brookings said that in order for Philadelphia to improve its economic competitiveness and grow more firms and jobs, the region needs to leverage and align its strengths and should establish an “Innovation Council” to drive innovation within the district and beyond.

One key recommendation stood out to me:  Establish an “Anchor Firm Entrepreneurship Initiative” to leverage the resources of anchor-tech to connect city startups with customers, support training and mentorship programs, increase access to capital and help develop physical spaces in which startups can grow. Much of that is already happening, but it needs to be scaled.

Ironically, perhaps, the same day Brookings issued its report, the widely-respected Kauffman Foundation, which specializes in the study of entrepreneurship in the U.S., released its annual Index of Startup Activity.  The index is a comprehensive indicator of new business creation in the U.S. In addition to national startup activity trends, the index looks at activity in all 50 states and the 40 largest U.S. metro areas.

The index covers approximately five million companies, capturing business activity in all industries. It relies on three factors to assess each metro area’s fitness as a startup hub:

• the rate of new entrepreneurs in the economy (calculated as the percentage of adults becoming entrepreneurs in a given month;
• the opportunity share of new entrepreneurs (calculated as the percentage of new entrepreneurs who left minimum wage and salaried jobs, other labor-market statuses and school to start their own companies) and;
• startup density, or the number of startups out of every 1,000 businesses in the metro area.

Using this methodology, the news for Philadelphia is not as good. Of the 40 largest metro areas, Philadelphia (which also includes Camden and Wilmington) ranked No. 36 on the list. Worse, it trended worse than the 2016 index, when it ranked No. 34.  The five metros with the highest startup activity were Miami, Austin, Los Angeles, San Diego and Las Vegas.

Clearly, Philadelphia has some challenges when it comes to business startup activity. It’s an old story, but bears repeating.  Too many academic researchers are loathe to leave their cushy university cocoons to make the startup leap. And, as recently chronicled in this blog, the city’s tax structure is not very startup-friendly.

But Brookings has given the Philadelphia metro area a roadmap to boosting startup activity. Their is certainly a plethora of assets here, but it’s up to leaders–both private and public–to harness those assets to gin up economic growth and boost startups.

 

 

During his budget address to City Council on March 2, Philadelphia Mayor Jim Kenney said that among the nation’s 10 largest cities, Philadelphia ranked first in poverty and last in job creation.

Kenney also noted that Philadelphia even trailed perpetually economically distressed cities like Baltimore and Detroit.  Then the mayor said this: “Nearly every task force, commission, committee and working group that has looked at how to improve Philadelphia’s economy has noted that our tax policy consistently holds us back.”

It was a blunt and honest appraisal, something you rarely hear from a politician.

In recent years, the city has incrementally reduced some of its most onerous taxes, including a wage tax that’s much higher than Philadelphia’s suburbs. Some 60,000 small businesses in Philadelphia no longer pay a Business Income & Receipts Tax, commonly known by the acronym BIRT, as a result of a reform that exempted the first $100,000 of a business’s gross receipts from the tax.

Another reform in 2013 exempted all new businesses that create three jobs in their first year of operations and have six employees by the end of the second year from BIRT for the first two tax years of operations in the city.

But the reforms have done little to really goose the city’s economy. We need to take a bigger bite out of BIRT if we want to speed up growth. BIRT levies a 1.45 percent tax on a business’s gross receipts above $100,000 and 6.45 percent tax on taxable net income. Every individual, partnership, association or corporation engaged in a business, profession or other activity in the city must file a BIRT return, even if they did not have taxable income during the preceding year.

BIRT, which accounts for 14 percent of the city’s general fund revenue, is expected to generate $445 million for the city in the fiscal year that ends June 30.

When you have to write a check to the city for 1.45 percent of gross sales over $100,000, that’s money a business doesn’t have to reinvest in the business or hire new workers.

Consider a business that had $1 million in gross sales in Philadelphia in 2016. That business would have to pay $13,050 to the city plus 6.45 percent of whatever taxable net income they had.

A few weeks after Mayor Kenney gave his budget address, TechNet and the Progressive Policy Institute released a report that identified 15 “emerging” tech hubs, ranking Philadelphia No. 10 on the list. (StartupPHL says there are 5,100 tech businesses in the city.)

TechNet said the emerging hubs were likely to be more successful if they followed an agenda that included tax incentives to encourage investment in local companies and a pro-innovation regulatory and fiscal policy that reduced the burden of taxation and regulation on small companies.

A good place for Philadelphia to start would be to abolish the gross receipts portion of BIRT.  That’s money that could be better used for business growth and job creation.