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Allentown’s new, $230 hockey-arena development

Allentown’s new, $230 hockey-arena development also includes a 220-room hotel, office space, restaurants, and other retail uses.

Mayor 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

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the historic center of the city.

By most accounts, the Sands casino has neither helped nor hurt businesses in the historic center of the city.

Matt Assad was covering a variety of matters at Bethlehem City Hall for the Morning Call newspaper, as well as some general assignment work, when he was handed what essentially became the casino beat in 2005.

He told BusinessWest that he probably filed more than 100 stories on the broad topic over the next several years, including a few involving a community roughly 1,500 miles to the west.

That would be Council Bluffs, Iowa, where three casinos had opened over the previous few years.

Assad visited that community of 63,000 people to gain some perspective on what happens when a casino opens its doors, with regard to everything from business to crime to the character of the city in question. Summing up what he learned rather quickly, and in no particular order, he said there was no prostitution (at least that anyone knew of), no mob figures patrolling the casino floors, no huge impact (good or bad) on existing business, some problems with gambling addiction, and, overall, few people with many bad things to say about the arrival of organized gaming.

And seven years later, he says that essentially the same things have happened, or not happened, as the case may be, in Bethlehem and surrounding communities.

That was the gist of the message he left with the City2City delegation from Greater Springfield that visited the Sands Casino Resort Bethlehem late last month. In fact, as he addressed that group, he apologized (sort of) to the man sitting two seats down from him at the head table, Robert DeSalvio, president of the casino, before noting, “if you didn’t come to Bethlehem to visit the casino, you probably wouldn’t even know it’s here. And I guess that’s a good thing.”

In a later interview with BusinessWest, Assad said there has been an increase in crime, but about what would be expected from any enterprise that brings 20,000 people into a community each day, be it a casino or a shopping mall or an amusement park. And there have been some unexpected problems, such as the need for the county’s court system to hire employees who can speak Mandarin and Cantonese — spending necessitated by mostly minor crimes committed by the thousands of Asians who come to the casino from the New York metropolitan area, only 85 miles to the northeast, every day.

But overall, Assad wore out the phrase ‘neutral’ to describe the overall affect of the complex at 77 Sands Blvd.

“It hasn’t been as beneficial as the advocates said it would be,” he said. “And it hasn’t been as bad as the naysayers predicted.”

Assad told BusinessWest that, while there were never any guarantees that a casino license would be awarded to Lehigh County, it was generally believed that the region’s close proximity to New York and New Jersey and what he would call in one of his stories the “Asian invasion” — it is a shorter ride from those areas to Bethlehem than it is to either Atlantic City or Central Connecticut (Foxwoods and Mohegan Sun) — would make it an attractive option for casino operators.

And eventually there were several proposals for that area, including one in Allentown and two in Bethlehem, he said, adding that one of the plans for the latter, a greenfield proposal, never gained a strong measure of support from city officials.

This then left Allentown pitted against Bethlehem and a proposal for the old steel mill there, in what he described as a fairly bitter contest.

“Allentown and Bethlehem … there’s quite a bit of tension between them because the mayors don’t like each other at all,” said Assad. “And the mayor of Allentown’s contention all along was that Allentown needs this more than Bethlehem.”

That argument didn’t prevail at the state level, he went on, adding that, perhaps in an effort to ease all that tension, a revenue-sharing agreement between those communities and a few others was worked out. It’s a strategy he believes Western Mass. leaders should attempt to replicate.

Looking back, Assad said there was both support for a casino in Bethlehem and opposition, primarily from the large and vocal Moravian community. And while there were fears about crime, prostitution, and problem gambling, perhaps the biggest concern was that the city would lose its character, he noted.

“People thought that Bethlehem had found its niche in historic preservation, tourism — it was the Christmas City,” he said. “The city had kept to its roots of sort of being that quaint, historic town, and many felt it didn’t have to do anything as unseemly as a casino.”

As things have worked out, that reputation has not been compromised, he went on, adding that, in his opinion, Bethlehem hasn’t become a casino town — it’s simply a community with a quaint downtown and a huge piece of American industrial history just a few blocks away, that also has a casino.

Meanwhile, that casino’s operators have collaborated with the city and several nonprofit agencies to bring additional development of the massive former Bethlehem Steel plant, which had lay mostly dormant for many years after it ceased all operations in 1995, said Assad, noting that the casino has, in some ways, been a force in economic development.

It has not, however, been any real help to existing businesses, especially in the area around it, what’s known as South Bethlehem.

Indeed, while those who don’t come to Bethlehem for the casino might not know it’s there, the great majority of those who do come for it don’t see anything else, said Assad, adding that revamped traffic patterns make it all too easy to get into the casino and then back on the highway and home.

“Most people who go to the casino never see Bethlehem in daylight,” he explained. “They come in their car, they get out of the car in the parking garage, they do their thing, and then they leave again. They never really see any of Bethlehem.”

Still, the casino has a huge overall economic impact, he told BusinessWest, noting the $9 million in real-estate taxes and that $19 million host fee paid annually.

These numbers, along with the related developments at the steel site, the revenue-sharing agreement, and the few negative effects on surrounding communities, lead Assad to conclude that the Sands is probably the most successful casino operation in Pennsylvania, for all parties involved

He advises Western Mass. leaders to take what they can from that experience, but above all, to understand the huge stakes involved, short and long term, and “get it right.”

 

— George O’Brien

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