Philadelphia finds itself in a dilemma: the wage tax is the city’s biggest source of revenue, and yet more than 25 percent of its residents are unemployed or underemployed and pay little, if any, wage tax.
This doesn’t mean the city should necessarily raise taxes. Instead, Philadelphia needs to find ways to increase wages. Short-term investments in low-cost skill certifications, for example, would quickly generate new sources of wage tax revenue by employing new people.
The Red Cross offers a 4-week training to be a Certified Nursing Assistant, which can pay as much as $30,000 a year. However, the class costs $1,300, which is a large sum of money for someone in deep poverty. Many Philadelphians may not have the money to pay for it, even with a scholarship.
But here is the Return on Investment: the wage tax revenue is 3.924% of $30,000, which equals $1,177.20. This means that if the City of Philadelphia paid for the nursing certification program they could make their money back in little over a year.
This is just one model of government investing in its citizens. Oregon has proposed a “Pay it Forward” program, where the state pays for its citizen to go to college for free and then the student pays back a part of his or her wages for 20 years.
Why not create a similar program for skilled labor development? This wouldn’t require a four-year commitment from the student or a major investment from the state. Paying for certifications, licenses and other advanced skill development interventions are relatively low-cost, short term, and can provide an ROI in a short time.
For example, welding school certifications run about $10,000 and it takes 12 weeks to complete the course. A certified welder in Philadelphia can easily earn $40,000 a year, giving Philadelphia wage tax revenue of $1,560 a year.
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Say this would-be welder agreed to pay you, an investor, $25/week* for ten years if you paid for their education, you would earn a $3,000 profit and the city would earn $15,600 dollars in wage tax.
This could become the basis for a privately funded social impact bond, where investors would fund the bonds. The bond funds would be administered by nonprofits that would provide scholarships to individuals to attend approved degree granting institutions. The nonprofits could also design support programs to help those individuals complete their education and find employment (to protect the investment).
The citizens that accept the scholarships then agree to pay back the funds based on a percentage of their earnings. If the nonprofit does well in educating and placing the student, the student and their family win by getting an affordable education and living wage. The city wins as the student is paying a wage tax and using less public resources as they become financially independent. The investors win with a return on their investment.
Philadelphia won’t be changing their tax revenue model anytime soon, so it is far more prudent and practical to take advantage of models such as these that will increase the tax base that the city has in place.
Tivoni Devor, MBA, has spent his entire career in the nonprofit sector. While working for diverse institutions in many roles, Tivoni has often found himself developing earned revenue models and designing strategic partnerships. Tivoni currently works as the Manager of Partnerships and Outreach at the Urban Affairs Coalition, where he helps social entrepreneurs leverage fiscal sponsorship to jumpstart their nonprofit endeavors. Tivoni Devor lives in Point Breeze with his wife Jennifer and daughter Ava. The thoughts and content of his columns are his and his alone. You can follow him on Twitter: @tivonidevor.
*a previous version of this story listed $25/month, which was incorrect.-30-
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