Allegheny County could offer tax cuts to some downtown developers — a bid to encourage economic investments and boost affordable housing in the area.
County Executive Sara Innamorato introduced the resolution earlier this month in an effort to encourage developers to repair or build properties downtown. The program would temporarily exempt developers from county real estate taxes that create 50 or more full-time jobs, or that meet targets for building new affordable housing.
To qualify, at least 10% of residences created by a project would have to be set aside for households earning at or below 50% of the area median income. (That works out to about $33,200 for one person, according to the state Department of Human Services.) Projects that allocate at least 60% of the units to households earning at or below 80% of the area median income (about $53,100 for one person) would also be eligible.
Alternatively, commercial and industrial projects could qualify for the tax abatement by creating at least 50 full-time equivalent jobs at the property. Projects where retail is the “primary end use” for the building — those in which 50% or more of the gross square footage is committed to retail — would not be eligible for the exemption.
The tax abatement, also known as Local Economic Revitalization Tax Assistance or LERTA, would last up to 10 years. Adopting it would put the county in line with the city of Pittsburgh and the Pittsburgh Public School District, which offer similar breaks to developers looking to improve or build residential and commercial buildings.
And while the program involves a tax break, it could ultimately help restore the neighborhood’s tax base, said Lauren Connelly, a vice president of local government political affairs and advocacy with the Allegheny Conference on Community Development.
The civic leadership organization unveiled its three-year plan to revitalize downtown earlier this month. Officials said local, state and federal investments, along with affordable housing, will be key to meeting goals for the area.
Commercial occupancy in the office-heavy Golden Triangle has dropped since the start of the pandemic. According to calculations from the Allegheny Conference, just 85% of commercial properties in the area are occupied. New property assessment calculations that favor property owners have spurred a wave of successful property-tax appeals by property owners, slashing revenue for the county, city and school districts. The Tower at PNC Plaza, the U.S. Steel Tower and Three Gateway Center alone were granted about $200 million in reductions earlier this year. Additional appeals from other multimillion-dollar downtown properties have yet to be heard.
“If these large buildings begin to go dark, then that's a lot of property tax revenue that we no longer have that we need to deliver those basic public services, public education and all of those things,” Connelly said.
But while commercial properties have struggled, Connelly said residential occupancy rates are holding strong at 90%. She added that the LERTA is a “necessary tool” that could help stem the loss of tax revenue downtown and create an opportunity for more tax revenue in the long run.
Steps like this from county leaders are “a signal that they're open for business,” Connelly said, noting that Pittsburgh’s Central Business District is an economic engine for the entire southwestern Pennsylvania region. “I think the LERTA is a great example of being creative and innovative around how a public taxing body can support and attract reinvestment in downtown.”
Coordinating LERTAs from the three taxing bodies could also attract developers who may otherwise be wary of the high cost of developing affordable housing, said Lena Andrews, vice president of real estate at the non-profit developer ACTION Housing.
“It could make a big difference for market-rate developers that are thinking about including affordable units in their project,” she said. Restrictive zoning requirements, high interest rates and inflated construction costs all affect the calculus, but “having a tax abatement like this could really help their pro forma and have it make sense financially where otherwise it wouldn't.”
Efforts from the city and the Urban Redevelopment Authority to convert underused or vacant offices into affordable and market-rate homes have begun to pick up steam, but completing the projects may be difficult. Conversion is expensive, and most office buildings weren’t designed with daily living in mind. Tax cuts could help ease the sting and incentivize conversion projects.
But some affordable housing advocates worry giving tax breaks to developers isn’t the most effective approach.
Local taxing bodies “don't have all of the levers necessary to invest and support the need for affordable housing. The one lever that they do have is the ability to offer tax abatements,” said Jamil Bey, president and CEO of the think tank UrbanKind Institute.
He added that a history of systemic racism and discrimination against Black residents and other people of color have shaped local housing policy for the worse.
“If we don't address these other issues now, we're more likely to exacerbate or accelerate gentrification. … It's an insufficient tool to achieve the problem and the potential for harm is definitely there,” Bey said. “The solution for affordable housing is not going to be found in just housing policy.” He added that successfully addressing housing insecurity will require developments that can create jobs for the people who live there and include people who have been historically excluded from economic success.
County officials stressed that the LERTA is meant to stop a potential downward economic spiral downtown. They said the Innamorato administration’s approach to affordable housing will be broader and county-wide.
County Council seems poised to approve the resolution. At an economic development and job creation committee meeting last week, members from both political parties praised the move.
“I think that under the current situation that this is the best solution to give the folks the tools,” said Republican Sam DeMarco. “Whether our folks focus on economic development and our elected officials use those tools wisely, that's one thing. But let's give them the tools necessary to try to take and protect our vital urban core.”
Council President Pat Catena, a Democrat, concurred, saying that although the county’s portion of the property tax bill is the smallest of downtown’s three taxing bodies, the combined LERTA provides significant incentive for development.
“If this encourages development and puts us on a path of progress moving forwards, it's well worth the deferred revenue,” he said. “It's an investment in the city of Pittsburgh. It's an investment in Allegheny County. And in my opinion, it's an investment that needs to be done — sooner [rather] than later at this point in time.”
The committee unanimously recommended the resolution be sent to the full council, which is expected to take it up this coming Tuesday.
