LERTA: Hot word in tax abatement
With less state funding and more competition for those limited funds, local economic development officials have been looking for new financial incentives to lure business to the region.
They may have found it in a program that's been around for decades.
The Local Economic Revitalization Tax Assistance Act has been on the state books since the 1970s, but midstate development officials recently have dipped into its magic tax-forgiveness waters, supporting the approval of a number of LERTA property designations.
Lebanon County officials have approved two LERTA designations in the last six months, the north end of Lebanon was approved as a LERTA district in 2012 and Lebanon Mayor Sherry Capello is hoping to expand the designation to other parts of the city, development officials said.
"It's the new buzzword," said Susan Eberly, president of the Lebanon Valley Economic Development Corp. "Taxes are very big things to companies. They want to know how they can bring their company to an area and make sure it is still profitable. LERTA is one of those ways."
LERTA forgives taxes on property improvements on a sliding scale for a period of up to 10 years, depending on the local agreements. The three local taxing bodies — the municipality, the county and the school district — are all asked to approve a LERTA designation, which, depending on the local ordinance, can be for a specific property or a geographic area. The three taxing bodies do not have to agree on the LERTA, and separate taxing bodies can apply LERTA designation without the others.
A LERTA is attached to the property or an area, not the property owner, so that once it is approved by the taxing bodies it stays with the property regardless of a change in ownership. As long as whatever company comes in fits LERTA criteria, it is eligible for the LERTA program.
The property owner continues to pay taxes for the unimproved property through the duration of the LERTA, but the taxes on the improved property are partially forgiven. For a 10-year plan, the owner would pay no taxes on the full improvement taxes the first year, 10 percent the second year, up to 90 percent the final year, then full taxes after that.
Plans can be tailored to what a taxing body is comfortable with, however, and that plan is controlled by the local governments.
"That's the nice thing about the LERTA law," said Darrell W. Auterson, president and CEO of the York County Economic Alliance. "It can be very flexible. And it's one of the few locally controlled type of incentives."
While areas of downtown Harrisburg, Lancaster and York have held LERTA designations for years, the practice hasn't been as popular outside the cities. Harrisburg's LERTA designation expired in 2010, and the city's Strong Plan recommends renewing it. City, school district and county officials have been discussing the terms of a possible LERTA renewal.
Lancaster County plunged recently into the LERTA pool when it designated the Conewago Business Park in West Donegal Township — designed to lure a large distribution center — as a LERTA property in the fall.
Lebanon County added two LERTA properties this year, one in Bethel Township and one in Union Township, and Cumberland added one in Carlisle. The LERTA designation at the Lebanon Rails Business Park on Hanford Drive in Lebanon helped snag Valspar Paint and Always Bagels, Eberly said.
David K. Nikoloff, president of the Economic Development Co. of Lancaster County, said it likely won't be the last county property entered into the LERTA program. He said he's had about a half-dozen discussions with municipal officials across the county about the LERTA possibility.
"I've had more discussion about (LERTA) in the past six months than I have in the last 20 years combined," he said.
Jonathan Bowser, chief executive officer for the Cumberland Area Economic Development Corp., also said he's been having more discussions about LERTA lately, with competition for landing a big company very high.
Municipal officials had balked at the idea for years because they didn't want to lose out on the tax dollars a construction project would provide, Nikoloff said. Now taxing bodies are cutting corners at every turn and are desperate for any way to expand their tax base — even if it means not realizing the full tax value of a property for a period of time.
For the West Donegal Township property in the Conewago Industrial Park, some local residents spoke out against the LERTA designation, calling it a "giveaway," Nikoloff said.
"How can it be a giveaway when you never had it?" Nikoloff said. "When a company is providing $100 million and 1,000 jobs in exchange for a tax abatement that separates you from another property, it's something you should look at."
Even with its potential benefits, there are still those who aren't sure LERTA is for them. Auterson said his group discusses LERTA programs with stakeholders who are thinking of granting a LERTA designation often, but it's not the right tactic for everyone.
"The question we say people have to ask themselves is, 'Would this capital investment happen if it weren't for a LERTA?'" he said. "It's always tough to know what that answer is. But what I will tell you is I've been involved in projects where a company is deciding between two similar sites. They were basically identical. One had a LERTA and one didn't. They went to the LERTA."
LERTA vs. TIF
If the Local Economic Revitalization Tax Assistance Act is the latest craze in tax abatement to lure new business, then the Tax Increment Financing Zone is a close second.
Both delay tax payments for a set period of time, both have seen renewed interest after being in the state’s laws for decades, both require the property owner to continue paying the property taxes on the unimproved parcel — but then the programs diverge in their methods.
LERTA is a straight property-tax-abatement program. It forgives a percentage of tax payments, allowing a business to save money during its startup period.
TIF defers tax payments, often up to 20 years, and the payments that would have been made go to site infrastructure improvements including installation of public utilities, building access roads and upgrading telecommunications. Johnson Controls plans to build a new plant in Hopewell Township, York County, in a TIF zone approved in 2013. The Industrial Plaza of York on Philadelphia Avenue in the city also has been designated as a TIF zone.
“When you talk about TIF, it’s normally because you’re building in an area that couldn’t support the development unless there is major infrastructure improvement,” said Darrell W. Auterson, president and CEO of the York County Economic Alliance. “It makes a site more developable and more marketable.”
Like LERTA, TIFs are becoming a more-popular tool in the race to lure business to the region, said Jonathan Bowser, CEO at the Cumberland Area Economic Development Corp. With other states and Pennsylvania regions using the tools, it is almost necessary to give the tax breaks to companies looking to enter the region or risk losing them to another area.
“Competition is driving these incentives as a way to create jobs and new investment,” he said.
TIF approvals are harder to come by and more difficult to devise, Auterson said.
Whichever method is used, it’s become obvious to economic development leaders of the midstate that to attract new business into the region, some kind of abatement program is necessary.
“The attitude with companies now is, ‘We aren’t saying you have to do this, but this is what we want to see,’” said David K. Nikoloff, president of the Economic Development Co. of Lancaster County.