Pennsylvania Aids Commercial Real Estate Development in Third Class Cities with "Super TIF" Legislation Authorizing City Revitalization Improvement Zones

On July 9, 2013, Pennsylvania passed the City Revitalization and Improvement Zones Act (CRIZ) Act to provide innovative financing for redevelopment projects in cities of the third class in the Commonwealth, such as Altoona, Bethlehem, Chester, Erie, Lancaster, Reading, Wilkes-Barre and York. The CRIZ Act allows certain state and local tax revenues to be pledged to fund commercial real estate development projects, similar to tax increment financing (TIF) but more powerful because it makes available a broader array of taxes. The CRIZ statute was modeled after recent Pennsylvania legislation that facilitated substantial redevelopment in downtown Allentown, Pa.

The CRIZ Act provides significant potential financing for real estate development in to-be-designated “improvement zones” of 130 acres or less, located in cities of the third class with populations over 30,000. The goal is to stimulate economic development and job creation in these cities by providing substantial financing for the development of commercial, sports, exhibition, hospitality, conference, retail, community, office, recreational or mixed-use real estate developments, which may be publicly or privately owned.

Taxes eligible to be pledged to fund development include corporate net income tax, capital stock franchise tax, sales and use tax, personal and earned income tax, business privilege tax, amusement tax, liquor tax and bank shares tax generated by activity in the zone. Real property taxes are not eligible to be pledged to fund development costs under the CRIZ Act, but a potential development could potentially seek both CRIZ and TIF financing, to include a pledge of incremental real property tax to fund the project. The eligible tax amount is limited to the excess of tax collected in future years over the baseline tax paid in the year in which the CRIZ is created. This enables the CRIZ to be revenue-neutral to the taxing bodies for short term tax revenue with the expectation of significant gains in job creation and economic development as the CRIZ project spurs further local economic activity. Eligible tax funds under the CRIZ Act may be used to pay construction and related costs either directly or indirectly by paying debt service on bonds issued to finance construction. The CRIZ Act limits the pledge of tax revenue to fund development to a maximum duration of 30 years.

To establish a CRIZ improvement zone, a municipal authority submits an application to the Pennsylvania Department of Community and Economic Development (DCED). The submission must include the geographic boundaries of the proposed zone, an economic development plan, a description of the facility to be constructed and other information requested by DCED, which will approve or reject an application within 90 days after submission. DCED is authorized to approve two initial improvement zones under the CRIZ Act and. beginning in 2016. may approve two more improvement zones each year.

The Commonwealth expects the CRIZ legislation to be a fundamental driver of future redevelopment projects in cities of the third class. The Allentown Neighborhood Improvement Zone (NIZ) project, powered by the sister-statute of CRIZ, has an overall projected development budget of over $700 million and is facilitating the dramatic redevelopment of key areas in downtown Allentown. CRIZ is expected to foster similar large-scale redevelopment in the coming years, and municipal authorities and real estate developers will benefit from familiarizing themselves with this powerful new financing tool to be best-positioned to take advantage of CRIZ's benefits.

Buchanan Ingersoll & Rooney PC served as Bond Counsel on the Allentown NIZ project and was a key player in drafting amendments to the NIZ statute, designing the security structure for capturing NIZ revenues, allocating the revenues to different projects and applying them to the payment of debt service, as well as designing the financing used to provide funds for the core Allentown Area project.