Legislation to make tax code changes signed by Gov. Tom Corbett earlier this year includes what backers call a new tool to help cash-strapped third-class cities.
Economic development enabled by the City Revitalization and Improvement Zones program will generate both higher revenue for the cities and school districts and money for debt payments for bonds to support development, said Matt Parido, chief of staff for state Sen. Lloyd Smucker, R-Lancaster County.
The amount of tax money remitted to the state from increased business activity in the designated zones will be redirected to pay down bond debt, he said. Meanwhile, municipal and school taxes generated within the zone are directed normally, so the district and locality don't miss out on additional money, Parido said.
The program is an important new tool to help keep cities out of Act 47, the state's program for financially distressed municipalities, he said.
"They are immediately going to see an increase in their revenue streams," Parido said.
The initiative is different from the state's initiative referred to as the Redevelopment Assistance Capital Program, under which the state borrows money and then allocates it to projects, he said.
In this case, the projects generate their own revenue, Parido said.
Having multiple businesses and projects within the zone will help to hedge against growing enough business activity to pay down debt and the state can help in the first years, he said.
Smucker proposed a bill in the 2011-12 session to create the CRIZ program based on Allentown's Neighborhood Improvement Zone initiative, which was created through previous legislation, Parido said.
The senator reintroduced legislation this session, and it was added to the House tax code change bill that Corbett ultimately signed this summer, he said.
The state Department of Community and Economic Development and Department of Revenue are starting the process to develop guidelines for the new CRIZ program; they did not yet have a timetable for when the guidelines will be completed, DCED spokeswoman Lyndsay Frank said via email.
The initiative is designed to benefit cities that have struggled to attract new development by revitalizing downtowns and creating jobs, she said.
Under the new act, third-class cities with populations of at least 30,000 people as of the most recent federal census will be able to create a CRIZ and designate contracting authorities, according to a legislative summary.
The state is authorized to approve two zones at first in addition to a pilot zone in a township or borough with at least 7,000 people. Starting in 2016, it can designate two additional zones per year.
If a city is in a home-rule county and distressed under Act 47, the county can designate a contracting authority. In either case, an authority must apply to DCED for approval of a zone plan.
It must contain a geographic description of an area no bigger than 130 acres, an economic development plan, a plan to establish one or more facilities for such development in the zone and specific information about construction and infrastructure needs.
An application not rejected within 90 days will be considered approved, according to the summary, and qualified businesses will have to make annual reports detailing the taxes they have remitted and refunds they have received.