Will CRIZ ruin downtown Lancaster investors as NIZ is doing to Allentown?

The ‘original sin’ was the Convention Center Project. In endeavoring to rescue it financially, not only did the county commissioners seven years later have to guarantee all of the bond debt but a City Revitalization and Improvement Zone (CRIZ) was conceived to, among other things, pump $5 million dollars into the renovation of the Center.

Put simply, CRIZ effectively gifts bond money to today’s special interests to be paid back in the future from all taxes and fees, except for county, city and school district real estate taxes, that otherwise would go to government. It is a rip off of current and future generations who will need to pay still higher taxes to make up for the redirected tax revenue.

But now we learn from the experience of Allentown that its Neighborhood Improvement Zone (NIZ), and thus likely later on Lancaster’s CRIZ, will devastate current downtown investments made by private parties using their own funds and conventional financing.

The following is an excerpt from an op-ed cry for help from just such investors in Allentown who are facing financial ruin due to the NIZ program:

“PPL Plaza owners want equal chance in downtown Allentown”

MORNING CALL OP-ED: “…Years later, to enhance construction of an arena and other downtown development, the area was designated a Neighborhood Improvement Zone. This should encourage new developments, which can offer significantly discounted below-market rents to entice new tenants to move into the NIZ. For example, the developer of the soon-to-be-built Waterfront complex has advertised that its tenants will be able to get up to a 75 percent reduction in base rent as a result of the NIZ tax-incentive system.

“Put another way, the rent at PPL Plaza will be up to three times higher than tenants can get at other Class A buildings being constructed in the NIZ.”

The following is excerpted from an article trecently published by LNP entitled “In Allentown, worries over the NIZ”

In comparing CRIZ to NIZ, it states:

“The baseline money in the CRIZ doesn’t get redirected to development. And a company can’t get funding for moving its baseline business activity into the CRIZ. Projects have to be genuinely new development. (Companies can get CRIZ money if they relocate from out-of-state, however.)”

The CRIZ law states: “Bonds will be issued by the contracting authority. Various State and Local Tax Revenues created in the zone will be then used to pay off the bonds. Funds may only be used for the following: …Payment of debt service on bonds issued for the construction, including related infrastructure and site preparation, reconstruction or renovation of a facility in the zone…”

CRIZ also only requires one dollar of investor money for every five dollars of government subsidy.

Restriction against Pennsylvania investors can be readily circumvented by local investors creating an out of state Subchapter ‘S’ corporation. (‘Corporations are people.’)

Misguided advocates of CRIZ claim it spurs investments that otherwise wouldn’t take place. Their argument is negated by the creating of CRIZ ‘zones’ precisely in the areas of anticipated future growth, not in portions of the city where growth needs to be spurred. This program is not to benefit the disadvantaged. It is to profit the rich.

State Senator Lloyd Smucker may have meant well when he led the enactment of the CRIZ programs, but CRIZ promotes the transfer of state tax revenues to private individuals at the expense of privately funded competitors and our children.

An irony: Through related entities, Dale High heads the firm that managed the development of the Convention Center Project and also the firm that is general partner and fifty percent owner (with LNP) of Penn Square Partners, owner of the adjoining Marriott Hotel. PSP leases the building from the City of Lancaster and PSP has an option to buy the hotel ‘for a song’ once the mortgage bonds are paid off.

There is talk of ten to fifteen million dollars of CRIZ funding going to renovate the Lancaster Hotel, originally a Hilton, and more recently the Brunswick. Competition from the totally renovated and state of the art Lancaster Hotel (then likely marketed as a Holiday Inn or other major flag) may erode profits from the Marriott.

Of course if the Marriott starts losing money, PSP can simply exercise its generous lease terms and ‘walk away’ from the deal. Then the City of Lancaster will be in the hotel business.

We invite a response form Senator Smucker concerning our interpretation of CRIZ and its likely impact upon non-subsidized investors and the consequences of the added tax obligations on future generations.