Lancaster officials met for the first time this week since changes to the state’s City Revitalization & Improvement Zone, or CRIZ, program were signed into law.
When a CRIZ is established, the state makes note of how much tax revenue is generated by businesses within the zone. Anything above that amount generated in future years is diverted to finance economic development (we’ve previously compared CRIZ to similar programs and explained it in more detail here).
The tax-increment financing program was highly sought after initially. But it under-performed dramatically in its first year for the first three communities — Lancaster, Bethlehem and Tamaqua — participating.
In Lancaster’s case, officials estimated they’d have about $1.5 million to work with each year. But returns were more than $1 million short of projections and between $300,000 and $1 million less than debt and contractual payments, depending on the year — with taxpayers on the hook to make up the difference if something didn’t change relatively quickly.
Local officials from communities with a CRIZ pleaded their case to state lawmakers last spring.
“I went into that hearing thinking we were going to get hammered,” said Matt Parido, non-voting member of Lancaster’s CRIZ Authority Board and chief of staff to state Sen. Lloyd Smucker, R-Lancaster.
That didn’t happen, though. Smucker, who’s running for Congress, introduced amendments to address problems with CRIZ in June and they became law a month later.
Some changes are expected to increase potential tax revenue for reinvestment, although this means less for the state. Others spell out procedures, timelines and expectations to avert potential future snafus and (in most cases) improve transparency and accountability.
Here’s a breakdown of the new rules:
Income taxes of active investors in CRIZ developer entities will be counted as part of the recaptured tax revenue going forward.
So will state hotel taxes (not the county-level kind, though). Lancaster officials always assumed they would be, but the state Department of Revenue didn’t count them last year. This was primarily responsible for the dramatic shortfall between the $1.5 million expected and $130,000 actually generated, according to the city’s Director of Economic Development & Neighborhood Revitalization Randy Patterson, also a nonvoting CRIZ Authority Board member.
There’s a change in how the state will calculate tax increments. Again, that’s the difference between amount of taxes generated during the baseline year when CRIZ was established and each year thereafter. Going forward, the increment will be calculated for individual businesses instead of the entire zone, collectively. Gains go to the CRIZ authority. Losses count as zero. This is expected to maximize funds available for reinvestment in the CRIZ.
CRIZ-financed projects have to get at least 20 percent of funding from outside sources. The first version of the program defined that as private funding, but federal grants and local sources now count, too.
The report detailing the individual businesses’ tax increments is now considered confidential and won’t be released to the public, even if it’s requested through the state’s Right-to-Know Law.
There must be a public meeting before CRIZ boundaries change — i.e., properties will be dropped and added. As before, properties cannot be removed if CRIZ money has been spent on them.
CRIZ authority board members must divulge conflicts of interest in writing to their peers as well as any host municipality governing body. State law also now spells out ethical guidelines for CRIZ board members. They include prohibiting board members from owning properties within the zone.
If within its first seven years, a CRIZ authority doesn’t have enough money to cover its debt repayments, the state will essentially extend a zero-interest loan to make up the difference. All that’s still in place. But the maximum amount the state will lend is now less ($7.5 million versus $10 million previously). The authority also has less time to repay it. Before, the deadline was the due date of the final debt payment, giving the authority decades, typically. But now, the state would have to be repaid within 12 years of the zone being established (depending on state assistance is sought, that’s as few as five years).
Simple switch, uncertain impact
The change is the simplest to understand, but probably will have little effect.
The state Department of Community & Economic Development has remained noncommittal on how many more municipalities will get a CRIZ and when. That’s likely because each approval means the state’s giving up some tax revenue, which already is at a premium.
A few new guidelines clarify the process, though, such as requiring the DCED to publish application deadlines online.
DCED’s also required to do an analysis of the program by the end of 2021 — and the Indepdendent Fiscal Office by June of that year — showing the number of jobs created and impact on the host municipality, adjacent communities and Commonwealth.