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Officials, businesses: Act 47 plan should encourage Lerta

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The business community wants Harrisburg's Act 47 team to recommend the continuance of a tax abatement program when it delivers a comprehensive debt recovery plan to the city next month.

The incentive is a necessary tool Harrisburg can use to attract developers and new homeowners that eventually will grow the tax base and lower taxes, officials said. Without it, the lack of space and high property taxes in the city drives developers and homebuyers to the suburbs to do business instead of Harrisburg, they said. Blighted, empty buildings that could have been developed through the program often continue to languish without it, too, city leaders said.

The Act 47 team will not discuss whether it will recommend tax abatements in the plan it will deliver to the City Council and Mayor Linda Thompson next month, said Robert O'Donnell, a member of the team who is the group's spokesman. The state assembled the Act 47 team in January to help Harrisburg develop a detailed plan to pay down the city's $310 million debt created by an ill-fated retrofit of its incinerator in 2004.

Thompson is a proponent of the incentive sanctioned through the state's Local Economic Revitalization Tax Assistance, or Lerta, program. Thompson last year recommended a five-year tax abatement program that would replace the 10-year incentive that expired in December.

"Mayor Thompson recommends that a five-year abatement plan at this time will help sustain business in the city, and may attract new business into the city," said Robert Philbin, her spokesman. "A 10-year abatement was unacceptable to the City Council, and the seven-year plan did not comply with state law."

Harrisburg City Council Vice President Patty Kim has been an outspoken proponent of the Lerta. The council adopted the seven-year abatement plan in December.

But Dauphin County officials would not sign off on it because it is confusing and the seven-year tax forgiveness period is not legal in relation to the residential portion of the incentive, said Jeffrey Engle, solicitor for the Dauphin County Board of Assessment Appeals.

The county, school district and city each vote on a Lerta program separately. A Lerta can exist without one of the bodies participating. But it would not make sense to start a program if the school district doesn't participate, for example, because the district in Harrisburg receives 60 percent of the city's property taxes, Engle said. The Lerta should be uniform between the three bodies to make the program less confusing, he said. The county plans to work with officials to drum up a workable plan, Engle said.

Generally, business owners and residents that receive the Lerta incentive are forgiven a certain amount of city, school and county property taxes during the abatement period. In the county assessment office, an improvement of $2,500 changes a property's assessment value, Engle said.

Critics of the program have said that Harrisburg gives up valuable tax dollars when it adopts tax abatements. The school district, which also is facing tens of millions of dollars in debt, has indicated it cannot afford to adopt a Lerta, but school board President Roy Christ is open to the idea, Engle said.

Neither Christ nor district business administrator Jeff Bader responded to interview requests for this story.

The Lerta in principal makes sense, but it is not set up the right way, said Eric Papenfuse, who owns Harrisburg's Midtown Scholar bookstore and is running for a Democratic county commissioner seat in this month's primary.

The incentive should be based on how many jobs the Lerta creates and not strictly development dollars, Papenfuse said. For example, during the abatement period, if a job provider leasing space in a developer's building doesn't continue to employ the people it did when the building owner received the abatement, the incentive would go away for the building owner, he said.

"If the person creating jobs is leasing space, they would be paying less to developer (because the developer gets the abatement). It's a pass-through. It's an attempt to prevent the building of something and leaving (buildings) vacant," Papenfuse said. "It's an additional incentive. I would make the program contingent on job creation and make the abatement go away if jobs go away. I would leave the length and amount of jobs up to the municipality."

However, neither the Lerta, or the state's Improvement of Deteriorating Real Property Act, called the IDRPA, which provides for residential abatements, allows for the incentive to work based on jobs, Engle said.

As the Lerta now works, the city gives up no taxes during an abatement period, said David Black, president and CEO of the Harrisburg Regional Chamber and Capital Region Economic Development Corp. Property owners pay the same taxes on the property that existed before a new commercial building, house or other improvement is made at the location.

The property owner doesn't pay taxes, or they pay a graduated rate, only on the improvements during the abatement period. Without the incentive, the improvements wouldn't happen, he said.

For example, the Vartan Group's condominium building, the 1500 Project, under construction at North Sixth and Reily streets, would not get built if the developer hadn't received his development approval before the Lerta expired, Black said. And the multi-million dollar office building Harrisburg-based developer WCI Partners is putting up at North Second and State streets also would not be under construction if the company had not done the same thing, he said.

During the last abatement, those who took advantage of the incentive paid no property taxes the first year, 10 percent of the taxes on the improvement the second year and each year the amount of taxes they paid increased by 10 percent, until the 10th year when they paid them in full.

"It makes logical sense to have (Lerta in the Act 47 plan)," Black said. "Part of what the act 47 program does is encourage growth in the tax base. "Time and time again, in urban development it has been demonstrated that a Lerta does make a difference."

Harristown Development Corp.'s mission has always been about revitalizing the city's downtown, said Brad Jones, vice president of the nonprofit development group. Harristown developed Strawberry Square, the Hilton Harrisburg, the Department of Education building and numerous other buildings that shaped the downtown.

The company generally uses a for-profit development arm of the company when it develops projects, however. Those companies are fully taxable and if it weren't for the Lerta, projects such as the International House student housing, restaurant and cafés project would not have gotten off the ground, Jones said. The Messiah College building on Dewberry Street, the company built downtown, and the college leases, would not have worked without the tax incentive, either, he said.

When the real estate boom was under way around 2005, the city did not see a development wave, so it is even more important to implement a Lerta during a down economic period, Jones said. A development team headed by noted area developer Tony Pascotti developed the 18-story Market Square Plaza building before the recession hit, but the company still needed the tax abatement to get the project built, Jones said.

Harrisburg-based GreenWorks Development is an example of a company that needs the Lerta program to takeover a broken-down project it wants to finish developing. The developer has agreed to buy the debt of the project from a Baltimore-based developer that was unable to finish it when the economy fell, but it will not move forward with it until a tax abatement program is in place that will help attract homebuyers to the city, said Matt Tunnell, the company's senior vice president.

Homebuyers are more apt to move to the suburbs where property taxes are lower, Tunnell said. The incentive helps even the playing field for homeowners, because, for example, for a property assessed at $100,000 in Harrisburg, a taxpayer would owe about $4,000 combined for county, school and city taxes, he said. In Derry Township, property taxes would be just under $2,500 for a $100,000 property; and in Lower Paxton Township, they would be $2,200, Tunnell said.

After a building gets developed, not only will the taxing authorities generate more property taxes over time, they also get other tax revenues from developments, including mercantile taxes and occupational taxes, Jones said.

"Real estate is a long-time venture, and you have to look at these things over a span of 10 years," Jones said. "If you don't like the tax abatement program, how else do we get someone to take interest in (unattractive city properties). They are extremely difficult to get developed. There is a lot of risk involved."

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