Capitol recap: Should Pa. cities still covet a special economic development designation?

The state’s economic development program in a select few cities has created some major competition and a little jealousy.

The state’s Community Revitalization & Improvement Zones (CRIZ) program in a select few cities has created some major competition and a little jealousy. That’s because the program allows chosen communities to keep some state tax revenue to reinvest for development. 

But the first year’s results are underwhelming.

 What’s a Community Revitalization & Improvement Zone (CRIZ)?

A CRIZ is an area defined by a locally-appointed board. The CRIZ designation gets final approval from the state Department of Community & Economic Development.

It works like this: some state and local taxes generated within a CRIZ are diverted from government coffers to fund development and improvements in the zone.

The exact amount of taxes diverted, called the increment, is based on the amount in excess of what was produced during the zone’s baseline year (in this case, 2013).

The local board might use the increment to provide grants to developers or business owners within the district, or to repay debt issued on the developer’s or businesses’ behalf.

The competition and jealousy

Seeing the possibility of getting economic development funds, communities jockeyed to be part of the CRIZ program when it launched in late 2013.

The state picked Bethlehem and Lancaster, prompting officials elsewhere to cry foul. They complained that other municipalities, like Altoona, needed the revenue injection more than places where revitalization efforts already seemed fruitful, self-catalyzing, even exemplary compared to other small cities in the Commonwealth.

So, how has it worked out so far for Lancaster and Bethlehem?

The businesses in Lancaster’s CRIZ generated nearly $127,000 more in local income and services taxes last year than in 2013. State tax revenue grew by $2,870, according to the Department of Revenue.

That’s far less than the $500,000 in annual repayment obligations expected to be tied to a borrowing planned by Lancaster CRIZ’s authority.

In Bethlehem, state revenue grew by $18,000. Bethlehem Community & Economic Development Director Alicia Karner says she doesn’t know how much local tax revenue will be available on top of that.

Karner says Bethlehem CRIZ authority hasn’t made any obligations like those in Lancaster. Its board agreed to give cash to one business – the Social Still, a distillery. The amount is based on its own increment, according to Karner.

The distillery didn’t return calls for comment. Local media reports quoted projections of $51,000 for the first year and $269,000 total during the first five years.

Variations on a theme

“It’s a totally different model,” Karner said of Bethlehem, comparing her city to Lancaster. “Our model is to take blighted properties generating next to nothing … and use the increment (from) new development, not to take what’s existing and grow it.”

Karner says the Bethlehem CRIZ authority might issue debt, but not in the foreseeable future.

“The difficulty finding a (willing) bank or bond buyers would preclude us from doing that,” Karner said. “There’s no stability.”

Lancaster’s CRIZ authority has agreements with Meeder Development Corporation and the Hotel Lancaster: their incentives are based on their own increments.

But the authority has a contract with the Lancaster Convention Center — and an “implied obligation” with SACA Development for its Conestoga Plaza project — which “technically” require an $8 million borrowing, according to the city’s Economic Development Director Randy Patterson.

The authority hasn’t issued any bonds yet, but Patterson estimates repayments at $500,000 per year — more than double this year’s $130,000 increment.

CRIZ rules require the state to make up the difference, unless a developer’s committed to do that instead, which isn’t the case here.

The rules also say the authority has to reimburse the state by the time the bonds are paid off. That will fall to taxpayers unless Lancaster CRIZ increments eventually are enough to cover debt obligations and reimburse the state, on top of that.

For this first Lancaster CRIZ borrowing, Patterson anticipates a 25-year repayment term. So there’s time.

Not all busineseses filed in Lancaster, so the increment could grow in the future as compliance improves. How much isn’t clear, though, and Patterson says it’s nearly impossible to project.

Patterson and CRIZ authority board member Dan Betancourt caution against making too many assumptions just yet, in general.

“It’s too preliminary,” Betancourt says.

Some admin problems and room for improvement

All 12 businesses in Bethlehem’s CRIZ filed CRIZ-specific tax forms in both years.

In Lancaster, more than 250 of 730 businesses didn’t file their tax forms in one or both years, or filed under names the state might not recognize, city officials say.

“It’s just going to be an ongoing process of educating businesses on the importance of providing tax returns,” Betancourt says.

Lancaster officials mailed postcards and hired a consultant to encourage businesses to file their tax forms.

CRIZ authorities can fine non-filers, but Lancaster isn’t doing that, Patterson says. The state fines up to $1,000 per year per business — but the state Department of Revenue hasn’t collected any money yet, according to spokesman Gary Miller.

Betancourt says the state should consider streamlining the process.

DCED has declined to comment on whether the different outcomes and operational styles in Bethlehem and Lancaster could prompt changes in how it considers future CRIZ applications from other cities.