What happens if the Neighborhood Improvement Zone fails?

    Four in a series explaining the Neighborhood Improvement Zone.

    What happens if the Neighborhood Improvement Zone fails?

    The zone is somewhat risky.

    Developers, and the authority, are relying on tax dollars from local businesses to pay off their debt. And tax revenue can fluctuate.

    Imagine, for instance, that a decade from now, no one wants to visit downtown Allentown. Businesses are making less money, so they’re paying less in taxes.

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    As tax revenue falls, there may not be enough money available to pay off the debt on the arena and other projects.

    Is the state ultimately on the hook for the debt?No — and neither is the city.

    Well then who is?That depends.

    Developers are responsible for paying off their own loans. In some cases, they could charge tenants for extra rent if there’s a shortfall in tax dollars.

    If there aren’t enough tax dollars to pay the debt on the arena, the city and state don’t have to pay the difference. That means the investors would lose out. Accordingly, ratings agency Moody’s Investors Service rated the bonds Baa2 — moderate risk.

    The city’s general obligation bonds are rated higher. That means credit ratings agencies see investing in Allentown’s government as less risky than investing in the Neighborhood Improvement Zone redevelopment efforts.

    Did this article answer all your questions about the Neighborhood Improvement Zone? If not, you can reach Marielle Segarra via email at msegarra@whyy.org or through social media @MarielleSegarra. Have a topic on which you’d like us to do an Explainer? Let us know in the comment section below, or on Twitter @PaCrossroads.

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