Lancaster lawmaker calling for closer look at economic development program numbers

Pennsylvania’s CRIZ is meant to leverage hundreds of millions of dollars toward new development for communities.

Pennsylvania’s Community Revitalization & Improvement Zone is meant to leverage hundreds of millions of dollars toward new development for communities.

It’s off to a slow start. The program is new, officials say, some kinks are expected, and working them out could make all the difference.

But to state Sen. Lloyd Smucker, there are a couple things that just don’t make sense.

So, just a week or so after a report on first year’s lackluster results came out, the Lancaster County Republican wants to double-check the state Department of Revenue’s math. 

“Those figures, they don’t really square with what we see happening on the local level,” Smucker says.

Enviable turned underwhelming

Smucker pushed CRIZ shortly after Allentown got its Neighborhood Improvement Zone.

CRIZ works like this: the state and local government together figure out how much non-property tax revenue is generated in a designated area (the zone) the year a city’s accepted into the program. However much tax revenue is produced on top of that every year thereafter — for three decades — is available to investment in city development. Exactly how to use the extra revenue (called the increment) is up to a local board appointed to oversee the CRIZ.

Everyone wanted a CRIZ when the program launched in 2013. Only Lancaster and Bethlehem got one during the first round. The borough of Tamaqua, Schuylkill County got one in 2014 and will get its first increment next year. More designations are expected next year.

Bethlehem Community & Economic Development Director Alicia Karner says she didn’t know what to expect. But media reports indicate distillery Social Still was expecting at least $50,000 thousand annually — That unfufilled projecttion was more than double the $23,000 produced by the entire CRIZ.

In Lancaster, the first CRIZ increment consists of about $127,000 in would-be tax revenue from local sources — and less than $3,000 from the state.

Smucker thinks the state’s share should be much larger.  “The local … earned income tax that’s generated, … that’s a much smaller tax than some of the state taxes, so the state portion out to be multiples of that,” Smucker says.

What’s next

Tax returns are confidential by law, so the department has struggled to detail calculations while maintaining that confidentiality. Getting clarity probably will entail paying a consultant, who’d have to sign a confidentiality agreement, to do a review, Smucker says.

With only a year left in office, Smucker has no timeline for that or amendments he says he’ll push.

One of the amendments he’s considering: changing language to include hotel occupancy tax in the increment calculation. Smucker says It wasn’t counted, but should have been. Smucker says he figured it would have been included as a sales tax, since it is levied at the same rate and essentially is a sales tax on hotel rooms.

Other possible amendments include streamlining filing to make it easier for businesses.

Smucker believes that will improve outcomes, as hundreds of the 730 businesses in Lancaster’s CRIZ didn’t do the additional filing in 2013 (the baseline year) or 2014.

Lancaster Community & Economic Development Director Randy Patterson agrees. In Bethlehem, Karner says she has not heard any complaints, and all businesses filed.

Second guesses

Keep in mind that Bethlehem’s CRIZ is different than Lancaster’s: more vacant land, and just a dozen or so potential filers, at this point.

And there are no immediate plans to issue any debt, due to the uncertainty about the CRIZ, according to Karner.

In Lancaster, the zone’s authority board has committed to borrowing eight million dollars so two projects can get underway. Repayment costs start at half a million dollars annually for 25 years.

The authority hasn’t issued these bonds yet, but already put the kibosh on doing any more until after there’s a track record of how much money the zone will generate.

So why didn’t Lancaster wait before embarking on a process that will require issuing debt?

Authority board member Ray D’Agostino says there wasn’t a choice.

“Based on the fact we are obligated to do these first two projects, we are actually obligated, then, to do the borrowing,” D’Agostino says.

D’Agostino’s referring to agreements with developers: one verbal, one contractual. He acknowledges it seems counterintuitive to do this before knowing exactly how much money’s coming in. But he also says the CRIZ will get nearly all taxes from the projects to use to repay the debt.

CRIZ rules also say the state will cover debt repayments if a CRIZ cannot during the first seven years, but that loan has to be repaid.

Understanding implementation

The increment also could grow if more businesses do their separate submissions to the state Department of Revenue. Some people think the department should be able to make its calculation based on “regular” business tax filings, which the  state says it cannot.

Still, Lancaster-based accountant Steve Hohenwarter gets why small businesses might feel overwhelmed.

“Having now prepared the report for two years, it’s not that it’s — the calculations aren’t difficult, what’s difficult is the fact that most small businesses do not keep data in a fashion that lends itself to easily accumulating the data that’s needed for the CRIZ report,” Hohenwarter says.

Hohenwarter’s point: it’s tedious to extract the information requested by the state’s CRIZ filing, and many small businesses can’t afford to pay someone to do it.

The cities have tried to get businesses to make the effort and understand why it’s worth it. Patterson says the city sent postcards, and hired a consultant to explain CRIZ and help business with their tax filings. 

The idea is the money will mean more people downtown, more businesses, benefits for everyone.

Some business owners say they remember the educational attempts. Others don’t.

At Central Market, reception was very much mixed, according to Mary Goss. Goss heads the Central Market Trust, which runs the 275-year-old operation on behalf of some 65 vendors.

“I don’t know that it was explained to them in a way that they would understand, and actually get excited about it. Because I don’t think they understand, or understood, that it was something that was going to benefit everyone downtown — all businesses,” Goss says.

It’s true that it’ll benefit everyone, but the upside’s a long-term thing. Most businesses won’t see cost reductions, or get any cash, or get anything, really, for their trouble.

At least, not right away.