City2CityMayor Ed Pawlowski lost the battle to host the Lehigh Valley area casino, but he believes he may have won an even bigger prize for Allentown in something called a neighborhood improvement zone, or NIZ.
The concept, which became reality only after a prolonged battle in the state Legislature and then several court fights, stipulates that all state and city tax revenue, except real-estate taxes, collected by businesses within the NIZ will be used to repay 30-year bonds issued by the Allentown Economic Development Corp. to fund various development projects in the zone.
That list is topped by a new, $230 million arena that will host the Lehigh County Phantoms (the displaced affiliate of the Philadelphia Flyers), but also includes a new 220-room hotel, perhaps 2 million square feet of new office space spanning two initiatives, new restaurants, and other forms of retail development.
The NIZ has spawned considerable debate about what the lost tax revenue — perhaps $15 million annually, by some estimates — will mean for the Commonwealth of Pennyslvania, and also whether the NIZ activity represents new development or simply moving business from one side of Allentown to the other.
But what can’t be debated is how the zone has changed the landscape in this city in Eastern Pennsylvania, visited by the City2City Springfield delegation late last month.
Indeed, there is now a 30-foot-deep hole at Seventh and Hamilton streets, covering roughly three city blocks of what had been vacant or underutilized properties taken by eminent domain for the creation of what will be known as City Center.
This was the site of an elaborate groundbreaking ceremony for the arena project on Nov. 29, at which city officials and Phantom executives used special hockey-stick-handled shovels to move some dirt around.
“We are breaking ground on the future of Allentown,” said Pawlowski at the event, using that phrase to describe both the ceremony and the NIZ itself, which is a novel concept and unique to Allentown.
In a later interview with BusinessWest, he said the zone, and the broad City Center project, came about as Allentown was searching for ways to spark new development in a community struggling to recover from both the recession and a region-wide loss of manufacturing jobs to other parts of this country and other nations.
Allentown was one of a handful of communities in Lehigh County that were targeted by casino operators after enabling legislation was passed roughly a decade ago, and eventually became a finalist in the contest won by neighboring Bethlehem.
The 130-acre NIZ and what is taking shape within its boundaries is not officially described as ‘plan B,’ said the mayor, but that’s what it amounts to, and he believes it has the potential to be as much of a game changer as a gaming facility would be.
“It’s a huge economic-development tool,” he told BusinessWest, suggesting that officials in Springfield look closely at trying to do something similar. “It’s something that would be incredibly viable and help attract business from other states if it’s done right.”
Pawlowski said city officials looking for alternative financing models needed to build an arena and bring the Phantoms to Allentown, researched tactics used in other cities, and eventually focused on a strategy used in Arizona involving state-tax revenues — in ways similar to how tax-increment-financing, or TIF, packages involving local property taxes are utilized — to finance public and private initiatives.
The NIZ is in many ways better than a TIF project or zone, said the mayor, because local property taxes are not lost to the community or its school department. “It’s a cost-neutral proposal for the state, but a net-plus for the municipality and for economic development.”
And in the case of the Allentown’s NIZ, it encouraged development across many sectors, expanding the project well beyond the arena.
“We realized that just putting in an arena wasn’t going to be the end-all answer for development,” he explained. “It could be a key anchor to bring people and resources back into the urban core, but we needed other elements to also occur around it.”
The eventual legislation passed in Pennsylvania works on a simple theory — that state and local taxes essentially deferred to cover bonds floated for redevelopment projects will be recovered, and perhaps far surpassed, by taxes generated by new development taking place within the neighborhood-improvement district.
It’s a noble experiment that was met with some initial skepticism and opposition, said Pawlowski, as well as some concerns from institutional investors involved in the project about whether the Legislature could someday repeal the measure.
That led to follow-up legislation with a clause stipulating that the law couldn’t be repealed, and then eventually another modification involving earned income tax, an issue that spawned several lawsuits that delayed work within the zone.
“It actually passed the Legislature three times and was signed by two governors,” said Pawlowski. “It was no easy task — it was a monumental task — but we were able to pull it off, and it’s generated lots of revenue: all state taxes, all incremental taxes, for the next 30 years, for both public and private development.”
The arena, first office complex, and hotel are slated to be completed by 2014, said the mayor, adding that other components will be in place within a few years after that. And much of it represents what he considers new development.
That includes a new division, involving sports medicine and orthopedics, for Lehigh Valley Hospital; a consolidation initiative involving Penn National Bank; a new headquarters facility for Lehigh Fuels; and new office facilities expected to bring many law firms and accounting firms.
Adding all this up, Pawlowski believes the NIZ will likely have more long-term benefits for Allentown than a casino.
“I think it’s better than plan A,” he said. “They can have the casino; the casino has helped, but it is not a catalyst for other economic development.”
— George O’Brien