Capitol recap: CRIZ can work, but it’s failing right now, officials say

At a hearing in Harrisburg, more than two hours of testimony about the City Revitalization & Improvement Zone program revealed its problems and potential.

Here are the highlights:

Clarity is critical

Communities with a CRIZ get back state and local taxes generated by businesses in the zone in excess of whatever amount was generated the year the zone was established (check out our more detailed explanation here). So far the state has established a CRIZ  in three places: Tamaqua, Bethlehem and Lancaster.

Expecting to recapture between $750,000 and $1.5 million per year, Lancaster issued bonds and pledged to repay $500,000 annually — more than four times the $109,000 actually generated last year. The state will help make up the difference, but only for seven years, and must be reimbursed.  So Lancaster taxpayers might end up covering the difference. Mayor Rick Gray says the city won’t issue or guarantee any more CRIZ-backed bonds.

Gray blames the off-base projections partly on ambiguities that remain in state law. Gray testified that, in Lancaster’s case, the ambiguities led to conflicting interpretations by different state departments and deducted about $85,000 from rebated CRIZ revenues.

Lancaster Director of Economic Development & Neighborhood Revitalization Randy Patterson pointed to a November 2014 document from the state Department of Community & Economic Development.

In it, DCED states hotel occupancy taxes count as CRIZ funds, so Lancaster made projections based on that. The Department of Revenue ultimately took a different view and hotel taxes weren’t included.

Another November 2014 document from DCED says the opposite, that hotel taxes aren’t eligible, a position that agrees with the Department of Revenue judgement.

The argument of Patterson and others is that hotel occupancy tax is state sales tax going by another name. There isn’t state sales tax on hotel rooms, but the occupancy rate’s levied at the same rate (6 percent).

Regardless of how that debate’s resolved, the existence of the debate and related DCED documents highlight ambiguity in state law pertaining to CRIZ.

And, Tamaqua Borough Council President Micah Gursky noted, banks want as much certainty as possible. So clarifying the law should improve borrowing terms, whether the borrower is a private company or government entity.

And clearing things up could cut administration expenses: running Bethlehem’s CRIZ has cost more than $100,000, including fees for attorneys to interpret the law, according to the city’s Director of Community and Economic Development Alicia Karner’s testimony Thursday before a joint meeting of the House Commerce and Urban Affairs committees.

Calculation conundrum

Right now, CRIZ revenue is determined by looking at the difference between taxes generated in a given year and the year the zone was designated — throughout the entire zone. And that’s another reason behind the dramatic underperformance, although it could be a short-term problem.

Lancaster has more than 700 businesses in its CRIZ; Tamaqua has nearly 200. Each one has to file separate, CRIZ-specific reports to the state Department of Revenue two months after the typical April 15 deadline. In both places, about 60 percent of businesses did so the first time around. For Lancaster, that means 60 percent of businesses collectively generated $109,000 more in taxes in 2015 than all of them did the year before. It’s safe to assume the other 40 percent would have increased CRIZ revenue by a significant amount, but nearly impossible to estimate how much, exactly, says Patterson.

Suggested fix: calculate revenue changes for each business in the CRIZ and rebate any growth in qualifying tax revenues to that business owner.

Streamline and simplify, when appropriate

CRIZ requires local governments to create an authority to oversee the program, but officials agreed at the hearing the law should let them delegate the responsibility to an existing entity.

They also floated the possibility of letting multiple smaller municipalities jointly apply for a CRIZ, which probably would require a new oversight body with representation from each community.

Let it grow

State law limits a CRIZ to 130 acres.  The zones in Tamaqua, Lancaster and Bethlehem are all maxed that out to that size. But their officials agreed municipalities should be allowed to start with a smaller CRIZ and add parcels, if desired, over its 30-year life. Or cut properties out of the zone if they’re inactive for long period of time, Patterson says.

Bonus points for applicant municipalities that are distressed and in the state’s Act 47 program 

House Bill 1227 suggests doing that and designating three zones without regard for program rules that discount communities if their populations aren’t big enough.

Right now, CRIZ eligibility is limited to third-class cities with populations of at least 30,000 and townships and boroughs with 7,000.

Relax the rules

State Rep. Patty Kim, D-Harrisburg, is sponsoring legislation to remove the ban on municipalities that have been in receivership (the capital city remains the only one). There’s another (House Bill 614) that would make second-class cities (Scranton) eligible for a CRIZ.

Mark Longietti, D-Mercer, also introduced legislation to add Scranton to the mix. House Bill 2123 calls for cutting population thresholds, too.

It would drop that to 25,000 people for third-class cities, adding Easton, Williamsport, Lebanon and Hazleton to the potential pool.

The measure would move the minimum for townships and boroughs to 2,000 residents — a change that would qualify 1,200 communities versus 346 currently, according to a Keystone Crossroads analysis of U.S. Census data.

“I really thinking making (CRIZ) available to a host of municipalities makes sense and then let the marketplace figure out whether they work in those municipalities or not,” Longietti says. “We all know that developers have to put 20 percent of resources into these CRIZ zones, at least. So they’re going to rise and fall on their merits, I believe, if you make it available to them.”

For the time being, though, no one’s getting a CRIZ. DCED isn’t accepting applications currently and hasn’t set a timeline for doing so, says spokesman Dan Carrigan.

If you want to listen to the CRIZ hearing in its entirety, click here.

 Editor’s note: this post was updated to correct the first word of the CRIZ acronymn.