Check out one of the big developments in the Lehigh Valley, and it\u2019s likely the project has received some sort of tax benefit.<\/p>\n
Recently, however, tax benefits for two upcoming projects have come under scrutiny from elected officials who must vote to award them.<\/p>\n
Skyline Investment Group, which is turning the former Dixie Cup factory in Wilson to a mixed-use building, has applied for Tax Increment Financing for the $26.4 million project, while Eli Lilly & Co. is seeking to use the Local Economic Revitalization Tax Assistance Act to build a $3.5 billion pharmaceutical plant in Upper Macungie Township.<\/p>\n
Last month, Northampton County Council voted again to deny the TIF for Dixie Cup, while Parkland School Board members tabled a vote on a LERTA agreement for Lilly. In both cases, members questioned the need for tax breaks for what they said were wealthy developers.<\/p>\n
The Dixie Cup\u2019s developer, however, said such tax breaks are essential to project like his.<\/p>\n
\u201cIt\u2019s a matter of the construction cost, inflation, interest rates, meaning our mortgages are so high,\u201d said Brian Bartee, managing partner of Skyline Investment Group. \u201cYou need these programs to offset these costs.\u201d<\/p>\n
Bartee said there is a misconception that a TIF or LERTA are cash handouts to developers. They don\u2019t cost the taxpayers more money, he said; on the contrary, they help bring in tax revenue, as areas with no industry or housing are turned into properties with additional value or more taxpaying residents.<\/p>\n
However, opponents of such programs insist that they still mean fewer funds going into local government coffers. During a debate last month on the Dixie Cup factory TIF at Northampton County Council, Commissioner Thomas Giovanni said it would divert millions from schools, roads and emergency services.<\/p>\n
\u201cThis project for me is of the rich, by the rich, and for the rich,\u201d Giovanni said before joining a 6-3 majority in voting it down.<\/p>\n
These programs have been used for years to attract development to municipalities across the state. Some critics call them tax giveaways. Loren Keim, CEO of Century 21 Keim Realtors and a professor of real estate and the program manager for the Goodman Center for Real Estate at Lehigh University, said it\u2019s not quite that simple.<\/p>\n
\u201cThe short version is that these tools are often discussed as if they are all simply \u2018tax breaks,\u2019 but they are actually very different economic development mechanisms,\u201d Keim told The Morning Call. \u201cThey affect different taxes, benefit different parties, and are useful in different types of projects.<\/p>\n
\u201cSome reduce the tax burden on a property owner,\u201d he said. \u201cSome redirect future tax growth to pay for public improvements. Some provide investor-side federal tax benefits. And the Allentown NIZ is somewhat unique because it captures a much broader stream of state and local tax revenues generated within the zone and uses those revenues to support redevelopment financing.\u201d<\/p>\n
What are they?<\/p>\n
A TIF is a financing tool that allows a municipality or redevelopment authority to use future increases in tax revenue from a defined area to help pay for improvements today.<\/p>\n
Keim said the basic concept is that a base level of tax revenue is established when the district is created. As development occurs and property values increase, the additional tax revenue generated by that increased value is the \u201cincrement.\u201d That increment can be used to repay bonds or otherwise fund improvements related to the redevelopment.<\/p>\n
A LERTA allows local taxing bodies to provide a temporary exemption from real estate taxes on the increased assessed value created by improvements to a property.<\/p>\n
In simpler terms, if a property owner constructs or substantially improves a building in a designated LERTA area, the owner may receive a temporary tax abatement on the new value created by those improvements, Keim said. The owner would still pay taxes on the original value of the property, but the added assessment from the improvements may be partially or fully exempted for a period of time, depending on the local ordinance.<\/p>\n
Each taxing authority over the property \u2014 school district, municipality and county \u2014 decides whether to approve it. <\/p>\n
There are a variety of other tax programs, including Allentown\u2019s Neighborhood Improvement Zone; the similar but less encompassing City Revitalization & Improvement Zone, and federal Opportunity Zones.<\/p>\n
The NIZ, the unique tax zone created by legislation 15 years ago, focuses solely on the downtown of the Lehigh Valley\u2019s largest city.<\/p>\n
\u201cFrom a real estate perspective, the NIZ is less like a traditional tax abatement and more like an economic engine,\u201d Keim said. \u201cIt does not merely reduce the cost of development; it helps create a financing mechanism around the economic activity generated by the development.\u201d<\/p>\n
A number of the apartment buildings and attractions in downtown Allentown that have gone up in the last decade have come thanks to benefits from the NIZ.<\/p>\n
An Opportunity Zone is a federal tax incentive designed to encourage long-term investment in designated low-income census tracts. Keim said the benefit primarily goes to investors who have capital gains. Those investors can place eligible gains into a Qualified Opportunity Fund, which then invests in qualified property or businesses in an Opportunity Zone.<\/p>\n
Potential benefits can include deferral of capital gains taxes and, if the investment is held long enough and satisfies the rules, potential exclusion of appreciation on the Opportunity Zone investment itself.<\/p>\n
\u2018Bargain-basement Wilson\u2019<\/p>\n
Wilson and Wilson Area School District have both approved the TIF for the Dixie Cup site, but it has failed twice to get past Northampton County Council. The latest attempt to secure an agreement was May 7 and came after nearly an hour of public comments.<\/p>\n
Proponents, including Wilson Mayor Donald Barrett Jr. and borough council members, argued the site has been blighted for more than 40 years and this was a \u201conce-in-a-lifetime\u201d chance for redevelopment.<\/p>\n
\u201cI\u2019m tired of being bargain-basement Wilson,\u201d Barrett said. \u201cYou want to keep all the luxury in Easton and push all the affordable to Wilson? Is that what we\u2019re doing?\u201d<\/p>\n
\u201cAfter 43 years of an empty building, I have to admit, I\u2019m amazed at the emotional power of a giant cup,\u201d he said.<\/p>\n
Opponents, especially those advocating for affordable housing, were skeptical that a market-rate project was a proper use for a TIF.<\/p>\n
\u201cWe cannot allow private developers to make us believe that we must soften the risk of their capitalistic ventures without meaningful benefit for working people.\u201d Luke Gumbrecht of Easton said.<\/p>\n
\u201cTo look around at the affordability crisis we\u2019re facing and say, \u2018You know what we need? Subsidized luxury buildings,\u2019 is incredibly tone-deaf,\u201d Dominic Trabassi of Easton said.<\/p>\n
Skyline\u2019s Bartee said the taxing bodies understand that \u201cwhen you have new buildings, new industries, you have new business, it really generates wealth for all of its citizens,\u201d he said. \u201cThe way they\u2019re presented is like the developers are just getting the cash and then they can just spend it.\u201d<\/p>\n
Bartee said the borough and school district could see an additional $400,000 a year in tax revenue.<\/p>\n
\u201cYou\u2019re taking an area that has no industry, and then you\u2019re putting in a plan \u2026 they\u2019re going to be receiving a huge increase,\u201d he said.<\/p>\n
Keim said TIFs can be controversial because future tax growth is being pledged for a period of time. That means municipalities, counties and school districts may not immediately receive the full benefit of increased tax revenues.<\/p>\n
There is also risk if the projected development does not occur as expected. If the revenue projections are too optimistic, the TIF may not generate enough money to support the anticipated improvements or debt service.<\/p>\n
Parkland takes its time<\/p>\n
For the Eli Lilly project, only Upper Macungie Township has approved a LERTA for the project. At recent meetings, Parkland School Board members discussed and tabled it. Members have wondered whether the district is being asked to shoulder the burden of a tax abatement.<\/p>\n
So far, Lilly has made two proposals \u2014 one with a more traditional LERTA in which the property owner receives a 100% tax break in year 1, decreasing by 10% each year; the second proposal would grant a 50% break each year.<\/p>\n
At the April meeting, school board member Jon Macklin said he welcomes the project, but thinks the LERTA would be \u201ca massive financial loss\u201d for Parkland.<\/p>\n
Macklin and board Vice President Chris Pirrotta have argued that the $100 million in state incentives tied to the project are more than enough to make the investment worth it for the pharmaceutical giant, and expressed deep skepticism at the idea that the school district should also provide tax incentives when it is facing a budget crunch.<\/p>\n
Keim said the downside for a LERTA is that it does not usually create upfront money for infrastructure. It is not generally a financing mechanism in the same way a TIF can be.<\/p>\n
It helps the owner by reducing taxes on the improvement, but it does not necessarily pay for roads, utilities, environmental cleanup or other major public improvements.<\/p>\n
\u201cIt is also dependent on the participation of local taxing bodies, including municipalities, counties and school districts,\u201d Keim said. \u201cIf one or more taxing bodies do not participate, the value of the incentive is reduced.\u201d<\/p>\n
The major benefit of a LERTA is it improves the economics of construction or rehabilitation. Early years are often the hardest years in a real estate project, Keim said, with such issues as construction debt, stabilization issues and uncertainty about how quickly the property will generate income.<\/p>\n
\u201cBy reducing the tax burden during those early years, LERTA can make a project more feasible,\u201d Keim said.<\/p>\n
Keim said Bethlehem\u2019s LERTA program is a good example of how municipalities use tax abatements to encourage reinvestment in targeted areas. The Southside LERTA II District and Affordable Housing LERTA District are designed to make rehabilitation, redevelopment or construction more financially feasible by phasing in taxes on the value created by improvements.<\/p>\n
However, there are no guarantees.<\/p>\n
\u201cIncentives can make a good project better,\u201d Keim said. \u201cThey can make a difficult project possible. But they usually cannot make a bad project good. That is the part where developers, public officials, lenders, brokers and consultants all have to resist the urge to let the spreadsheet do magic tricks.\u201d<\/p>\n
Morning Call reporter Evan Jones can be reached at ejones@mcall.com.<\/p>\n","protected":false},"excerpt":{"rendered":"Check out one of the big developments in the Lehigh Valley, and it\u2019s likely the project has received…\n","protected":false},"author":2,"featured_media":210469,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[10],"tags":[119,121,120,60,6290,433,157,182,139,434,9790,28,432,4129,2429],"class_list":["post-210468","post","type-post","status-publish","format-standard","has-post-thumbnail","category-allentown","tag-allentown","tag-allentown-headlines","tag-allentown-news","tag-business","tag-easton-area","tag-lehigh-county","tag-lehigh-valley","tag-local-news","tag-news","tag-northampton-county","tag-parkland-area","tag-pennsylvania","tag-top-stories-tmc","tag-upper-macungie-township","tag-wilson"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/us-pa\/wp-json\/wp\/v2\/posts\/210468","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/us-pa\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/us-pa\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-pa\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-pa\/wp-json\/wp\/v2\/comments?post=210468"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/us-pa\/wp-json\/wp\/v2\/posts\/210468\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-pa\/wp-json\/wp\/v2\/media\/210469"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/us-pa\/wp-json\/wp\/v2\/media?parent=210468"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-pa\/wp-json\/wp\/v2\/categories?post=210468"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-pa\/wp-json\/wp\/v2\/tags?post=210468"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}