ECONOMIC DEVELOPMENT INCENTIVES
THE NIZ VS. THE CRIZ
By Gregg M. Feinberg, Esq.
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 31 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:
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Payment of debt service on bonds issued for the construction, including related
infrastructure and site preparation, reconstruction or renovation of a facility in the
zone.
Construction, including related infrastructure and site preparation, reconstruction
or renovation of all or a part of a facility.
Replenishment of amounts in debt service reserve funds established to pay debt
service on bonds.
Employment of an independent auditing firm to perform required duties on behalf
of the contracting authority.
Improvement or development of all or part of a zone.
Improvement projects including fixtures and equipment for a facility owned by a
public authority.
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.
About the author: Gregg M. Feinberg is a principal in Feinberg Real Estate Advisors, LLC
and the founding partner in Feinberg Law Office. For more information on the NIZ or the
CRIZ, contact him at gfeinberg@feinbergrea.com or 610-709-6233.