Act 76 of 1977 known as the 'LOCAL ECONOMIC REVITALIZATION TAX ASSISTANCE ACT' is a perfect example of how a well intended commonwealth solution to temporary local economic downturns results in unintended consequences. On passage the act Authorized local taxing authorities to provide for tax exemption for certain deteriorated industrial, commercial and other business property and for new construction in deteriorated areas of economically depressed communities; providing for an exemption schedule and establishing standards and qualifications.
Deteriorated property was defined by the act as Any industrial, commercial or other business property owned by an individual, association or corporation, and located in a deteriorating area, as hereinafter provided, or any such property which has been the subject of an order by a government agency requiring the unit to be vacated, condemned or demolished by reason of noncompliance with laws, ordinance or regulations. Improvements were defined as Repair, construction or reconstruction, including alterations and additions, having the effect of rehabilitating a deteriorated property so that it becomes habitable or attains higher standards of safety, health, economic use or amenity, or is brought into compliance with laws, ordinances or regulations governing such standards. Ordinary upkeep and maintenance shall not be deemed an improvement. In essence the act attempted to reward developers for taking blighted or abandoned properties and restoring them to a state of productivity within the community by granting a lessened Tax Burden on the property.
In order to implement a LERTA each local taxing authority may by ordinance or resolution exempt from real property taxation the assessed valuation of improvements to deteriorated properties and the assessed valuation of new construction within the respective municipal governing bodies designated deteriorated areas of economically depressed communities in the amounts and in accordance with the provisions and limitations hereinafter set forth. Prior to the adoption of the ordinance or resolution authorizing the granting of tax exemptions, the municipal governing body shall affix the boundaries of a deteriorated area or areas, wholly or partially located within its jurisdiction, if any. As part of the process a public hearing is held by the municipal board in which the property is located and the following criteria is considered before creating the LERTA.
unsafe, unsanitary and overcrowded buildings; vacant, overgrown and unsightly lots of ground; a disproportionate number of tax delinquent properties, excessive land coverage, defective design or arrangement of buildings, street or lot layouts; economically and socially undesirable land uses.
One would like to think that the authors of the act and the legislators that passed it did so out of a perceived need. As a direct result of the recession in the mid 70's many communities in Pennsylvania were experiencing stagnation and found themselves with vacant or underutilized industrial properties. The problem anytime the overreaching hand of Government attempts to incentivize development in a non-uniform way is that it leads the cheapening of our communities. If the solution had been to eliminate property taxes in the late 70's and cut spending in order to stimulate growth, that might have been a plausible solution, but what we did was pass what amounts to a subsidy masked as a tax cut. In many communities such as the City of Lancaster more than 50% of the municipality is in the LERTA. In some communities such as a Southampton Township in Franklin County and many other municipalities along Interstate Highways throughout the Commonwealth the LERTA is carved out of Farmland that is not depressed in any way.
The reality of both situations has resulted in a the exact opposite of the intent of the legislation. The legislation and other subsidy programs like it are intended to spur growth and create stability in the area. In a true 'deteriorated property' scenario one could argue that by granting the LERTA the surrounding community is strengthened by rebuilding the economy thus stabilizing the community. If we were dealing with the Lerta as a stand alone initiative it's promoters could make a case for it as a tool of 'good governance'. Lertas as they exist today are not a stand alone project no matter the location. They are generally coupled with a state backed loan, a grant from the commonwealth for infrastructure improvements, a request to the local municipality or authority for water and sewer upgrades or all three. When proposed the developers take local boards hostage by consistently dropping the 'If you don't grant the Lerta we will go elsewhere' line. They cozy up with County Development Corporations to lean on local leaders promising a boom to the local community. Generally the developer is not the company that will be utilizing the proposed building(s). Once granted there is a slight boom followed by more bust.
The reasons for the boom and bust cycle is pretty simple. The very concept of a Lerta relies on a faulty idea. The Lerta only works in a world where there is a never ending supply of developers. To be clear there is not a never ending supply of developers. Even the most ardent supporter of the Free Market understands that within a time there is a limit to the amount of available capital of any type. The boom begins for the local community when the new warehouses and factories provide more jobs than jobseekers. New people move to the community creating strains to the local infrastructure. Improvements are needed resulting in a tax hike for everyone. Improvements that wouldn't have been needed had the Lerta not brought the new development or improvements that could have been made had the municipality received equitable tax revenues from the original developers. Most of the Lerta impacts school district budgets which project their enrollment numbers based on students in the district, with the influx of new workers bringing students into the district that were no budgeted for the district reaches for funding that they have already given away in the form of the Lerta.
So how does the LERTA turn communities against each other. Non-Elected County Development Corporations play the we have to do this to create growth card. These individuals have already been granted control over their counties grant money(whole different issue) and use that as a bargaining chip. They will use state and federal grant money as a bargaining chip to sweeten the deal. Grant money that comes from the taxpayer in the first place. The whole time they operate under the we are bringing jobs to your community, so if you don't grant us this subsidy that we deserve then we will go elsewhere. Communities have been forced to play this game for too long. It is time for the commonwealth to end this charade and repeal the act so that communities don't have to cheapen themselves before unelected County Development Corporations and out of state developers. Our communities need to be strong enough to be equitable in how they tax us. We send the wrong message to already existing business by providing special treatment to some of them based on threats and intimidation.