Chamber working for new KOZ

The two properties could hardly be more different.

Set on a tiny lot at 17 W. Ross St., on the edge of downtown Wilkes-Barre, the century-old, seven-story Cumberland Building was given new life in 2007, a dozen years after being condemned and abandoned.

A 15-minute drive away, sweeping hilltop vistas surround the 50-acre abandoned former Eberhard Faber plant that once was a showpiece of the Crestwood Industrial Park in Wright Township.

Barely a shell now, the building’s windows have been shattered and doors torn off by scavengers who looted valuable copper pipes from inside.

Outside, electronic monitors check the progress of environmental remediation that is removing decades of discarded and spilled fuel oil and chemicals left in the ground by the pencil maker that moved out in 1986 and by Poseidon Pools, which occupied the 300,000-square-foot building for several years before going bankrupt in 1998.

Whether the site will again hold something more attractive and productive may depend on the same state and local economic development incentives that helped make the Cumberland rehabilitation possible. Recently enacted changes in the Keystone Opportunity Zone program potentially extend its tax saving benefits until 2025, well beyond the Dec. 31, 2010, expiration in the original KOZ legislation.

That’s important for a building like the tumbledown plant. Even though its owner, the Greater Wilkes-Barre Chamber of Business and Industry, is marketing it now, it will take at least the rest of the year to obtain environmental clearances, said chamber Senior Director of Economic Development John Augustine.

It is a process that will carry its own complications, since the building was constructed using asbestos insulation and building materials.

Without the extension, which the chamber is seeking and must reapply for annually, the limited remaining KOZ tax abatements would have given the chamber little leverage to use with potential buyers, and less chance to recover the $1.6 million it was left owing after Poseidon defaulted on a co-signed loan. Properties in KOZ zones are freed from most state taxes as well as local, school district and county property levies, a powerful incentive when combined with other attributes.

“KOZs are a critical component of Pennsylvania’s attractiveness to business,” helping to equalize cost deficiencies compared to the southeastern United States, said Dennis Donovan, principal in WDG Consulting, a corporate location consultant.

KOZ helps with financing, too

Potential savings were important to Michael Mey and Justin Sulla, Scranton attorneys who bought the Cumberland for $160,000 at a 2004 tax auction. Their company, Moosic Land Development, focuses on commercial projects; the Cumberland was their first venture in Luzerne County.

“We were on a fairly tight budget,” Mey said. “In retrospect, were it not for KOZ, it’s something we probably would not have done.”

While businesses and some individuals are freed from paying taxes during the years of eligibility, they must clear up delinquent taxes in order to gain KOZ status.

For Mey, much of the benefit came from the waiver of state sales taxes on materials used to renovate the building.

While declining to be specific, he said the partners have “several million” invested in the project. The KOZ designation, with its inherent cost savings, helped in obtaining financing as well, Mey said.

Critics have questioned whether the KOZ program’s lost tax revenue is justified by its job creation potential.

“I think in any KOZ, the state should give the property tax dollars to the municipalities that lose them,” said Luzerne County Commissioner Stephen A. Urban.

He also pointed out the recent county reassessment will shift more tax burden away from business to residential property, and KOZ tax breaks only put more pressure on homeowners.

While acknowledging some successes, such as the chamber’s Innovation Center on South Main Street, Wilkes-Barre, Urban said, “There’s been a lot of them, particularly in Wilkes-Barre, that have not panned out.”

Instead, Urban believes developers should present elected officials with a package that shows economic benefits to the community, and then ask for incentives from the state and local governments.

Payments in lieu of taxes

Chamber chief executive Todd Vonderheid sees far more benefits than drawbacks, citing 4,000 jobs brought to the region by companies locating in KOZ zones. While they’ve escaped some taxation, he anticipates “millions” in tax revenue when the companies come onto the rolls in 2011.

“And most of that land was strip pits” that would not have been worth developing without the incentives, he said.

Vonderheid also pointed out a provision in the new legislation that permits local taxing bodies to negotiate payments in lieu of taxes.

He noted some municipalities can’t afford to lose property taxes that typically are a minor expense item to businesses.

A time extension can be granted to properties already given KOZ status but where no activity has taken place. In addition to the former pencil plant, Vonderheid mentioned mine-scarred industrial land in Newport Township where a hoped-for highway connection has not yet been built, stalling development plans.

The new KOZ legislation also authorizes the creation of up to 15 new zones throughout the state. The new zones would be more defined than the original dozen covering nearly 47,000 acres, almost 10 percent of it in Luzerne and Lackawanna counties. Unless they are contiguous to existing KOZ property, the new zones must be at least 10 acres but not more than 350 acres.

Perhaps more important – and an answer to criticism of the original guidelines – the new zones come with job creation and investment requirements.

“Basically, businesses that create or retain 1,400 jobs within three years and make a capital investment of at least $750,000” can qualify, said Kevin Ortiz, spokesman for the state Department of Community and Economic Development, which administers the program. “Under the old zones, there was no job creation requirement.”

Wright Township supervisor Chairman Dan Frascella has no qualms about granting KOZ extensions. After it received KOZ status, the Elmwood Road section of the Crestwood Industrial Park was developed and attracted thriving employers such as Mission Foods, Cardinal Glass and Sealy.

While the township is doing without its 10-mill property tax revenue on the sites, it collects a 0.5 percent earned income tax from residents who work in the park.

“They were all nice big additions,” Frascella said. “As far as we were concerned, it was a win-win situation.”

“If we get that cleaned up that will be an ideal spot. That’s a nice piece of property,” he said.

THE TAX BREAKS

The original Keystone Opportunity Zone legislation, adopted in 1999 under the administration of Gov. Tom Ridge, gave businesses relief from most state taxes, including the corporate income tax, sales and use taxes and the capital stock tax. In order for property to qualify, the county, municipality and school district in which it was located had to waive property taxes, in most cases until Dec. 31, 2010.

New legislation allows extension of the breaks for up to 10 years on existing KOZ property that is not occupied. It also permits creation of up to 15 new zones. Unlike the original guidelines, the new ones require businesses locating in new zones to invest at least $750,000 in the site and hire at least 1,400 workers.

Overcast 56°

Progress

Changes include new job creation rules

KOZ helps with financing, too

Payments in lieu of taxes

THE TAX BREAKS

Place Quick Ads