Perhaps you have heard about the unique taxing districts created by legislation in Pennsylvania that has, and will, create significant economic development in several communities. What is the difference between the NIZ and the CRIZ?
First came the Neighborhood Improvement Zone (“NIZ”). The NIZ was established by Act 50 in 2009 and Act 26 of 2001 by the Pennsylvania Department of Revenue to encompass challenging development opportunities and spur critical economic development projects within a 130-acre allotment of center city Allentown.
The provisions of the unique legislation provide incentives for hiring locally, using local products and materials, and ensuring the business has a plan to offset any increased demand for municipal services such as utilities, public safety and public works. Under the law, certain state and local tax revenues generated by new and existing businesses within the NIZ can be used to pay debt on bonds and loans that are issued for qualifying capital improvements in the zone. Those improvements include the public-private arena complex at Seventh and Hamilton streets as well as other private commercial, retail, residential, hospitality, conference and exhibition projects of approved applicants. The core concept is that the tax benefits allow developers to offer competitive, reduced rental rates to incentivize tenants to move into urban areas. The NIZ is overseen and managed by the Allentown Neighborhood Improvement Zone Development Authority (ANIZDA).
The results from the NIZ are readily apparent. The long stagnant economy and development in downtown Allentown has dramatically changed. Ongoing construction includes a new hockey arena which will be the home of the Lehigh Valley Phantoms, the Philadelphia Flyers’ minor league hockey team; construction of over 700,000 square feet of Class A office space and 50,000 square feet of upscale retail and restaurant space; design and planning approvals for the revitalization of the city’s waterfront which is comprised of nine different mixed-use buildings, two parking garages, an extravagant river walk, two open plazas, and a multitude of street parking. All of this development is leading to over $1 billion in development in the NIZ zone.
There are some hidden challenges to NIZ accounting. NIZ occupants must submit their qualifying NIZ payments by January 30 of the following year. The PA Department of Revenue will then review the submissions and make a determination of the approved qualifying revenues that will be funded to the ANIZDA board. This determination is not subject to appeal and can be for less than what was submitted. This can leave developers with a shortfall in their calculated NIZ payments. Further, the tax structure of NIZ tenants must be examined. In an S corporation, the distributions to an owner may not serve as NIZ qualifying funds.
New legislation passed as part of Pennsylvania’s 2013-2014 budget process allows for two cities in Pennsylvania to establish City Revitalization and Improvement Zones (“CRIZ”). Sometimes called “NIZ Lite”, how does the CRIZ differ from the NIZ? The CRIZ program contains some important distinctions from the NIZ. For one, the NIZ permits all tax revenues generated within the zone to be directed toward financing development in the zone. The new CRIZ program only provides for tax revenue generated over and above existing baseline amounts to be made available for development purposes. Another important feature of the new legislation is a requirement that private investment be generated in an amount equal to 20 percent of the tax revenue directed toward a zone.
Businesses that are good candidates for the NIZ or CRIZ are those that pay high wages, collect significant sales taxes and pay high wage taxes. For instance, technology companies, restaurants and cigarette distributors are good tenants for the zones. Grocery stores and lower salary businesses do not generate significant NIZ credits. Apartment buildings provide no NIZ benefit.
In 2014, two cities of the third class with at least 30,000 residents will be selected by the PA Department of Community and Economic Development, the Department of Revenue and the Office of the Budget for CRIZ designation. Candidate cities include Bethlehem, Erie, Wilkes-Barre, Lancaster, Reading and York. The designation will be for an area not greater than 130 acres, however, the sites need not be contiguous. In 2016, two additional cities per year will be considered for CRIZ designation and a township or borough with a population of at least 7,000 will have the opportunity to apply for a CRIZ “pilot zone”. CRIZ applications are due November 30, 2013.
CRIZ Funds may only be used for the following:
A CRIZ may not include any of the following unless and until these special zones are decertified: Keystone Opportunity Zones (KOZs), Keystone Opportunity Expansion Zones (KOEZs), Keystone Opportunity Improvement Zones (KOIZs)[Opportunity Zones, collectively] or Strategic Development Areas (SDAs), Keystone Special Development Zones (KSDZs) or Keystone Innovations Zones (KIZs) unless and until modifications to the geographical boundaries are made to the KSDZ or KIZ.