City of Pittsburgh officials want to change how developers qualify for tax breaks in order to incentivize projects in underserved neighborhoods, create affordable housing and jobs, or promote sustainable infrastructure.
A City Council discussion Tuesday revealed broad differences in opinion about the best way forward.
The last significant tax abatement legislation was written in 1979; Jimmy Carter was president, the Pittsburgh Pirates were World Series champions and city’s economy was collapsing. The three members of City Council present at a discussion Tuesday agreed that the city’s needs have changed in the intervening years, but differed on what that should mean for tax incentives.
Legislation introduced by Mayor Bill Peduto’s administration in June would reduce the existing seven programs into three.
As the laws are currently written, “It’s pretty cumbersome and confusing,” said Kyle Chintalapalli, deputy chief development officer for the mayor’s office.
The Affordable Housing Task Force is in the process of following through on recommendations made last May, which included revamping tax abatements to further the city’s affordability goals, said director of planning Ray Gastil. “This [legislation] would, I believe, incentivize affordability in new projects in the city,” he said.
Councilwoman Deb Gross said she’s concerned streamlining the process really means the city is making tax giveaways easier.
“There is no reason to let someone off the hook for their taxes unless we are very clear about the benefits that the city resident is expecting,” she said. “And that we are very clear those benefits are being delivered.”
Gross questioned whether rewriting tax abatement legislation is “the road we want to go down,” adding that simply attracting developers to Pittsburgh used to be sufficient benefit. She stressed that the bar should be set much higher.
Councilman Dan Gilman agreed the programs should provide clear expectations, and noted the public process is just beginning. He acknowledged more developers are interested in Pittsburgh, but said that doesn’t mean the city can stop sweetening the deal.
“To tell a developer in any city neighborhood pay your workers more, do green infrastructure, do LEED certification, retrofit your vehicles, provide affordability and we won’t provide you any assistance? That project’s dead.”
Tax abatements are an incentive that saves developers or residents money in the short term. It’s not a cash handout, said Gilman.
“What we are forgoing is potential future revenue for a period. You still pay taxes on what your value is today...what you’re not paying taxes on for that short period is the increase over [the assessed value]," he said.
The administration proposed changes to two main programs: LERTA, which applies to commercial, industrial, retail and multi-family residential development, and Act 42, which applies to smaller residential development projects of four or fewer units.
Under Act 42, people could apply for a base or enhanced assessment reduction on their property. The base assessment reduction would be $175,000 for three years; the enhanced assessment reduction would be up to $250,000 for 10 years if the project improves or provides housing in an underserved neighborhood, or if 15 percent of proposed new units are affordable to people who make 80 percent of the area median income (AMI).
Under LERTA, applicants approved for the base program would receive a tax credit of $125,000, decreasing by 10 percent every two years over a 10-year period. The enhanced program would allow a tax credit of up to $250,000 over a 10-year period. Eligible projects would be built in underserved areas, or make 15 percent of new units affordable to people who make 60 percent of AMI. Projects that create 50 jobs or build in high levels of environmental sustainability would also qualify for the enhanced program.
Council will hold further discussion and public hearings over the next six months. They expect to vote on a new law by the end of the year.