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Financial Incentives Help Pennsylvania Remain Competitive

By Don Cunningham on January 27, 2015

This column, written by LVEDC President and CEO Don Cunningham, originally appeared in Lehigh Valley Business on Jan. 26, 2015.

Don Cunningham

Don Cunningham

If you live in the Lehigh Valley and pay attention to the redevelopment of Allentown and Bethlehem you’ve learned a few new acronyms in recent years: NIZ and CRIZ.

They are acronyms used so often they are nearly words here.

The NIZ, short for the Neighborhood Improvement Zone, is Allentown’s financial redevelopment tool. The CRIZ, which stands for City Revitalization Improvement Zone, or as some of us like to call it the “baby NIZ,” is Bethlehem’s version.

Both are creations of the Commonwealth of Pennsylvania. And, both mark a significant change in the state’s financial support to incentivize economic development.

In short, the state allows its tax revenues to be diverted to incent a development in a particular place. Call it a geographic-based incentive. State financial help only comes if you build in a particular zone. In the case of the NIZ and CRIZ it’s about 130 acres within each city.

As we’ve seen in Allentown, it works. The NIZ, which has a much greater financial incentive than its baby sibling because it allows for the capture of all existing state taxes in the zone not just new taxes coming from out-of-area developments, already has generated $1 billion in development. It is a powerful and much-welcomed city revitalization tool.

The NIZ and CRIZ mark a major change in how the state supports job creation and economic growth. Under traditional state incentives, money follows a project in the form of tax credits or matching grants. For instance, a company looking to expand or locate in the state would receive tax credits or grants for creating desired jobs or developing a businesses in a certain sector, such as manufacturing or the life sciences. The money follows the employer regardless of location. Budget deficits and shifting priorities have resulted in a current state budget with very little new money for economic development incentives of this type. And, unfortunately, not all types of development will fit into designated development zones nor will all businesses generate the types of taxes that are most advantageous.

This makes competition in the Northeastern United States much tougher. During recent years, state governments in New York and New Jersey have increased financial incentives to retain and attract desired employers creating sought-after jobs.

Incentives are only part of the reason a company picks a particular state or region. Factors such as a skilled and cost-effective workforce, land prices and building rents, available infrastructure, taxes, regulations and energy costs and available water and sewer resources are equally important, along with an area’s quality of life for employees, including health care and education.

But, I can tell you first hand, there is not a major business prospect either in recruitment or retention that doesn’t seek incentives in return for the taxes it pays and the jobs it creates. There is a growing debate as to if tax breaks and credits are cost-effective. Some political philosophies consider it corporate welfare or government picking the winners, since not all businesses receive them. That may be, but the reality is that it also works.

Just as sports teams don’t tend to leave their star players at home when entering a competition, no economic recruiter in Pennsylvania wants to enter a competition with New York and New Jersey without some financial incentives on its roster. Principled unilateral disarmament is still unilateral disarmament.

Until a no-incentive pact is reached among the three states, which should be no less difficult than an Israeli-Palestinian peace agreement, Pennsylvania needs to remain in the game or tomorrow’s win-loss record will be much worse.


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