JUNE 2012
Real Estate Empty to Awesome Vacant Retail Properties Find New Uses and New Life
Appreciation Factor Is real estate a woman’s game? For Marsha Marsh and Sue Sutto, it’s simply “their” game.
Promoting Local Growth The Local Economic Revitalization Tax Abatement program at a glance
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Taking Advantage of Erie’s Unique Attributes in Commercial Real Estate
| by Jack Munch
John A. Munch, Esq.
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Director of Leasing and Development
Baldwin Brothers, Inc. | Board of Directors Erie Regional Chamber and Growth Partnership
For those of us whose livelihood is connected to understanding the advantages of a location’s attributes and monetizing those advantages, Erie has no shortage of unique characteristics that impact commercial real estate. People will point to Presque Isle as an important regional tourism draw. We are lucky to have such an asset, often host to more visitors than Yellowstone National Park on an annual basis. Another important factor people point to is Pennsylvania’s decision to not levy sales tax on apparel which has led to the creation of a robust regional retail trade area (US Route 19/ Peach Street). Peach Street is anchored by the 2 million square foot plus Millcreek Mall complex which is the only regional mall within 50 miles. It also has the advantage of close proximity of Interstate exits from I-79 and I-90. This has allowed this area to become a regional retail and tourist destination. There is no doubt that these factors have resulted in enhanced retail and tourism trade for a market of our size. However, I would like to focus on two macroeconomic issues and how Erie is uniquely positioned to gain from their increasing importance. First is energy. The importance of energy independence for the United States, in particular, has gone beyond good business in helping bolster our trade balance to being a fundamental security issue. Marcellus Shale and Utica Shale formations and the natural gas that can be extracted from them will play a key role in solving the energy independence challenge over the next 15 years and beyond. To understand why Erie can benefit directly and indirectly from the Marcellus and Utica Shale, one only needs to review the geological maps. Erie is positioned to play a supporting role in the near future which will benefit both our manufacturing and service sectors. Erie will likely also benefit in the longer term from the wealth creation generated from natural gas and mineral rights of land owners across the county who will realize financial remuneration for the extraction of natural gas from deposits under their properties. Second is congestion. Major ports serving the eastern seaboard and highway system serving markets like New York and Chicago need relief from traffic which is reaching a point of critical mass. Erie has the opportunity to play an important role in addressing this growing problem. The need for alternate options in the logistics industry offers Erie opportunity. Erie’s rich manufacturing and transportation history and geographic location have left us with the tools to respond to this need. Erie is located within 2 hours of 6 million people. We are one day’s travel from 48 large metro markets. The existing infrastructure in the form of rail and access to short sea shipping ports, are unique advantages to our region which would be expensive, if not impossible, to duplicate. Canadian National, Norfolk-Southern and CSX all have connectivity to the rail system serving our part of the country. Port access available at the bayfront and the Conneaut port offer capacity for import and export of raw materials and bulk goods. Our major highways intersecting in Erie County will also play a role in answering this need. Continued on page 74
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Board of Directors Peter Balmert John J. Barber Donald L. Birx John Bloomstine Carl M. Carlotti, Esq. Terrence Cavanaugh Rosanne Cheeseman Gary L. Clark Joel Deuterman Mary L. Eckert Scott Eighmy Barbara Haggerty Thomas C. Hoffman, II Timothy Hunter Thomas M. Kennedy Charles G. Knight John P. Leemhuis, Jr. John T. Malone James W. Martin, CFRE
James E. Martin Marlene D. Mosco Jack A. Munch James W. Riley James Rutkowski Jr. Matthew Schultz Nick Scott Jr. Gretchen Seth John E. Skory Ronald A. Steele Keith Taylor, Ph.D. David M. Tullio Russell S. Warner, Esq. Michael Weber Thomas J. Wedzik Scott A. Whalen, Ph.D. Jason Wieczorek
President/CEO Barbara C. Chaffee
Vice President, Chamber Claudia K. Thornburg
Vice President, Economic Development Jacob A. Rouch
Staff Joelyn J. Bush, Director of Marketing & Communications Melanie A. Johnson, Erie Business Action Team Coordinator Doug M. Massey, Workforce Development Coordinator-Training Cathy Noble, Events Coordinator Leslie Orlando, Account Executive Benjamin C. Pratt, Director of Research Linda Robbins, Financial Officer Susan M. Ronto, Membership Coordinator
Editor Joelyn J. Bush
Contributing Writers John Chacona Jack Munch Brenda Sandberg Richard Scaletta
Design Bensur Creative Marketing Group For Advertising Information: Leslie Orlando, Account Executive (814) 454-7191 x 139 lorlando@eriepa.com
4 Empty to Awesome Vacant Retail Properties Find New Uses and New Life by John Chacona
ERIE Magazine
| JUne 2012
what’s inside
after hours We look forward to seeing you at these networking events for Chamber investors.
New Investors
July 12th
4-7
Empty to Awesome
Vacant Retail Properties Find New Uses and New Life
5:00 – 7:00 p.m. CAT-TV & FastSigns 142 West 12th Street Erie, PA
10-12
Appreciation Factor
Is real estate a woman’s game? For Marsha Marsh and Sue Sutto, it’s simply “their” game.
14-18
Promoting Local Growth
The Local Economic Revitalization Tax Abatement program at a glance
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August 16th 5:00 – 7:00 p.m. expERIEnce Children’s Museum & Highmark BCBS 420 French Street Erie, PA
September 6th 5:00 – 7:00 p.m. UPMC Health Plan 109 Boston Store Place Erie, PA
Please RSVP to the Chamber at (814) 454-7191 x 146 or cnoble@eriepa.com
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New Investors BRONZE INVESTOR
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Welcome Bronze Investors Fabriweld LLC Welding, fabricating, equipment refurbishing, erection and design, building of specialized industrial equipment. Over 80 years combined experience in design, build and installation of manufacturing equipment for a wide variety of applications. Michael Grudzien 119 East 26th Street | Erie, PA 16504 (814) 490-7324 | www.fabriweldllc.com
Aire Serv of Southwestern NY Offers World Class Frontline Service for service and repair of residential and commercial heating and cooling systems. Trained technicians perform above the line work on furnaces, boilers, water heaters, radiant heating systems, and all types of air conditioning. Mr. John Goldberg 7264 Clymer Center Road | Panama, NY 14767 (716) 782‑2199 | www.swnewyork.aireserv.com
PROUD INVESTOR
Welcome Proud Investors Best Fitness A result-based fitness facility. Kady Esposito 2147 West 12th Street | Erie, PA 16505 | (814) 453-2378 www.bestfitness.com Damar Design LLC Plastic injection mold design, 3D engineering and 2D drawing services using solidworks software. Mr. David M. St. George 2727 Greengarden Boulevard | Erie, PA 16508 | (814) 403-6985 www.damardesignllc.com D’Hopkins Denniston Gallery of Fine Art A fine art gallery located downtown Erie. Representing over 20 artists locally, nationally and internationally. Also featuring fine craft, including jewelry, pottery, photography and sculptures. Ms. Diana Denniston 5 West 10th Street | Erie, PA 16507 | (814) 455-1616
Erie Ale House Craft Beer, Crafted Food. Located on the NE Corner of 11th and State Streets. Beautifully remodeled with a party room. A great place to relax, enjoy good food, great drinks and conversation with friends. Friday night happy hours feature Doug Phillips Entertainment. Mr. Eric Blake 1033 State Street | Erie, PA 16501 | (814) 454-4500 Erie Wealth Management Comprehensive financial services, investment advisory, and wealth management. Mr. Chris Koning 2340 West Grandview Boulevard | Erie, PA 16507 (814) 833-3334 Funding Factory Toner, cartridge brokers, used cartridge collection, disposal laser printers, etc. 380 East Bayfront Parkway | Erie, PA 16507 | (814) 464-1805 www.fundingfactory.com
Epic Web Studios A full service website design, SEO, social media, digital marketing and web development firm located in, but not limited to, Erie, Pennsylvania. Builds websites for people, not programmers. Mr. David Hunter 901 French Street | Erie, PA 16501 | (814) 746-6987 www.epicwebstudios.com
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PROUD INVESTOR
New Investors continued.
Gonstead Family Chiropractic Offering the most current treatments in the chiropractic profession. Our success relies on providing our patients with an honest, straightforward opinion. We accomplish this by first doing a thorough examination and precise analysis of an x-ray. This allows the treatment to be specific to each patient’s individual problem
Red Roof Inn Hotel. Mr. John Gdanetz 7865 Perry Highway | Erie, PA 16509 | (814) 868-5246 www.redroof.com/reservations/property-de
Mr. Bradley Mealy 1537 West 8th Street | Erie, PA 16505 | (814) 720-7705 www.gonsteadfamilychiro.com
R.E. North Company Commercial and industrial HVAC construction, sheet metal work, maintenance and repair of commercial and industrial HVAC equipment.
Joe Lombardo’s Barber Studio Very modern barber shop with a bit of old school offering hot towel straight razor shaves, cool cuts fades, business men’s cuts, professional product, big screen TV’s, WIFI, conference table, and coffee.
Mr. Albert W. Renshaw 2420 East 38 Street | Erie, PA 16510 | (814) 825-5000 S.A. Wagner Agency, Inc. General insurance.
Mr. Joe Lombardo 4030 Pine Avenue | Erie, PA 16504 | (814) 824-4000 www.joelombardosbarberstudio.com
Mr. Donald Wagner 3123 State Street | Erie, PA 16508 | (814) 454-6354
Lagace Solutions Promote the 90 day health challenge
Stonebank Management LLC Investment management.
Mr. Evan Lagace 2403 Brooksboro Drive | Erie, PA 16510 | (814) 806-3525
Mr. Gary Clark 6053 Volkman Road | Erie, PA 16506 | (814) 397-3235
Level (3) Communications Global telecommunication company providing data services, voice services, video services, managed service and value added services.
TechSource Engineering Inc. Provides products and services to support customers’ test, measurement, control and automation requirements including product development and qualification testing, failure analysis, calibration, custom equipment design and fabrication, PLC programming and repair services.
Mr. Stan Stanek 200 Technology Drive | Pittsburgh, PA 15219 | (412) 770-9253 www.level3.com
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Mr. Kevin Conney 2101 West 12th Street | Erie, PA 16505 | (814) 459-2150 www.tse-inc.com
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Empty to Awesome Vacant Retail Properties Find New Uses and New Life
We were standing in a vast indoor space, an acre and a half under one roof. It was largely empty. A few desultory work lights hung from the ceiling and a massive concrete floor polisher stood at rest, a steampunk pachyderm. I knew this place well. When it was the Loblaws store at West 12th Street and Powell Avenue, my mother bought groceries here when I was a child. I pointed out the old landmarks to Kelly Lapping and his wife Susan, the new owners of the building, and they told me what these spaces would soon hold. Where the café once stood, there will be a parts counter. Racks of baked goods will now be replaced by racks of black leather jackets and custom helmets. The row of cash registers will become a lineup of Harley-Davidson motorcycles. It seemed an amazing makeover, but even more wondrous was that all of it, the transformation from abandoned, empty supermarket to gleaming Harley-Davidson of Erie dealership, would happen in only 76 days. It’s a remarkably aggressive deadline, but one with a purpose. “We want to be ready for Roar on the Shore,” Kelly Lapping said of the annual bike rally that brings thousands of riders to Erie. Given this schedule, new construction would be impossible. But when the Lappings, who moved from Baltimore in 2007 to buy the Harley dealership on West Ridge Road, ran out of room at their old location, building was never an option. “Cost-prohibitive,” Susan Lapping said. “We’re a destination retailer,” she points out, explaining that creating an 3Congratulations to our Gold Level Investor Giant Eagle on the opening of their new 93,000-square-foot location in Harborcreek.
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| by John Chacona
environment for customers was always part of the plan. “We want people to come in and hang out,” Kelly Lapping says, noting that buying a Harley is more than a transaction, it’s a lifestyle. “This isn’t like a car dealership.”
“It seemed an amazing makeover, but even more wondrous was that all of it, the transformation from abandoned, empty supermarket to gleaming Harley-Davidson of Erie dealership, would happen in only 76 days.” So there will be a separate meeting room for the HOGS, the popular Harley-Davidson owners group. The east portion of the building, 13,000 square feet, will be used for winter storage of motorcycles and the portion along West 12th Street will be subdivided for retail space. In the northwest corner of the building, the Pennsylvania Motorcycle Safety Program will offer classes free to Pennsylvania residents who may be new riders to obtain their licenses or experienced riders looking to enhance their riding skills. Now consider again that all this will occupy a building that was an empty shell as recently as April 11, the day the Lappings closed on the property. Work began April 12, and Kelly Lapping credits the Rectenwald Architects design team led by Jason Wieczorek, and Odyssey Builders, the general contractor. Kelly Lapping points out with great satisfaction that the 25 contractors or vendors working on the project all are
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local. One of them will relocate 11 mature spruce trees, all of them more than 20 feet tall, from their current location on the west side of the property to the north side of the property where they will serve as a buffer and noise dampening system between Harley-Davidson of Erie and the residential neighborhood to the north. During the height of the construction process 45 to 65 workers were on site five days a week with occasional Sunday shifts. Susan Lapping points out with pride that she recognized quite a few of them as customers of the dealership. “And a lot of them, maybe 15 percent of them, ride,” she says. “They take a lot of personal pride in the job because they’re people who also love the brand.” That brand will receive a showcase that would have been impossible in the dealership’s previous location. “That was about 17,000 square feet compared to the 45,000 square feet we’ll have here,” Kelly Lapping says. “We’ll go from being able to put 55 motorcycles on the showroom floor to 250, all in a setting that will reflect Erie’s industrial heritage.” The Lappings and their team knew exactly what they wanted to do and how to do it. The first question is seldom a difficult one in adaptive re-use projects, but the question of how is often maddening. That was the dilemma facing the elected leadership of Harborcreek Township, which was home to two fading retail complexes. One of them, the former Harborcreek Mall was, what township supervisor Dean Pepicello called, “One of the worst—perhaps the worst eyesore in eastern Erie County.” The Mall had sat vacant for years. Grass had sprouted in the cracks in the parking lot asphalt and had grown long. Something clearly had to be done. But what?
“We looked at all of the legal remedies available and none of them fit,” Pepicello recalls. Then at a supervisors meeting, “We were brainstorming around a table, and I said, ‘Well, why don’t we just buy it?’” It was a logical step, but highly unusual. Municipalities are not usually in the business of redeveloping properties, especially with public monies. But with no other solution in sight, the supervisors picked up the phone. “We called Baldwin Bros. and it was their willingness to sell to us, likely for less than they would have accepted elsewhere, that got this thing going.” Pepicello, a well-spoken former talk-radio host, describes the process this way. “We had it appraised and bought it for $557,900. We had it torn down, which Baldwin Brothers paid for. Ultimately we rezoned it from commercial to what we call lakefront development, which is all along the Route 5 corridor, and sold it to a group from Buffalo called Affordable Senior Housing. Right now, the 120-unit senior housing development they are building on the site is about half done. “At the end of the day, we took a dilapidated property worth about half a million dollars, replaced it with a multi-million-dollar development, fully taxable. The story is that the municipality takes this unusual step. In redevelopment, one size really does not fit all, and this was very unique.” One of the most unique—and promising—aspects of the story is that the property remained fully taxable. Still, the bold project was not without opposition. “A few people had some apprehension about buying the Mall, but that went away very quickly when we sold the property.” Tax abatements are a more conventional, but still powerful incentive to encourage growth. Harborcreek Township knows this and has upped the ante by extending those tax benefits to all property owners. “We wanted to promote growth, and do to that, we passed a township-wide tax abatement program — not just commercial, but residential,” Pepicello explains. “If you’re making improvements to your residence, you can get this abatement. If you are in our true commercial zone, you get a 100 percent abatement. Most areas are in what we call a “step-down” tax abatement where the amount declines over time.” Tax abatements were the major factor in the revitalization of the Eastway Plaza on Buffalo Road. Once a major shopping center in the east county, the plaza suffered from a high vacancy rate and had grown shabby over the years. Enter the incentives. “Tax abatement and simplifying the development process has been a factor in the success of this project,” Pepicello says. “Major developers simply want to know what the rules are. They want a level playing field and we give it to them here. We move the process as quickly as possible. Giant Eagle is the anchor in the Eastway Plaza, moving from their location across the street, with a store that’s two-thirds bigger.”
(continued from inside front cover).
Taking Advantage of Erie’s Unique Attributes in Commercial Real Estate | by Jack Munch These factors will make Erie more competitive in accommodating new businesses who are faced with increasing shipping congestion and, therefore, increased costs in bringing their goods to the major markets in our part of the country. Work has begun with a pelletized wood processing company that would utilize, in part, available waste material from Pennsylvania hardwoods for export. Discussions have begun with a producer of high quality pig iron for use in the manufacturing sector. These types of manufacturers can benefit from our transportation infrastructure and close proximity to major markets due to the bulk of the raw materials and products they need to be able to ship as part of their business. While no one can predict with certainty our exact economic course, the opportunity to benefit from these advantages will be a part of our future prosperity. Erie’s business community is full of individuals who have demonstrated a willingness to work together to support efforts to leverage our advantages. These macroeconomic conditions offer opportunities to utilize our geography and infrastructure advantages to create wealth and help combat the unacceptable poverty levels currently challenging our community. We sit at the precipice of a new opportunity to prosper through a studied response to the changing needs of our regional and national economy. Groups like the Erie Regional Chamber and Growth Partnership offer a forum for enhanced cooperation and shared information. Our ability to recognize and act on these advantages will determine our region’s economic future. I am confident that together we will meet these challenges. ■
Pepicello thinks the re-use movement has wide-ranging benefits beyond mere growth, as important as that is, and these benefits can be aesthetic and even psychological. “You’re not sacrificing open space. That’s important to us. The goal is not to just pave the township from east to west. [In re-use projects], the utilities are already there. It’s cheaper to redevelop, and you’re eliminating eyesores. Aside from the tax drain, it’s an emotional drain on the community to have eyesores around.” ■
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Appreciation Factor Is real estate a woman’s game? For Marsha Marsh and Sue Sutto, it’s simply “their” game.
They may be the best-known local brand names, appearing in hundreds of locations, their stock-in-trade valued in the tens of millions of dollars, ever changing, but oddly permanent on the local landscape. And these brand names are proper names, belonging to the realtors whose signs may be the most ubiquitous form of outdoor advertising. Two of the most recognizable of these names belong to women, and women who exemplify the growth of both the industry and of women’s role within that industry. In some ways, Marsha Marsh agency, though only five years old, hearkens back to the venerable model of the family business, though with a very modern sheen. While Sue Sutto, who opened her business in 1986, was a trailblazer. But both are driven, passionate, highly knowledgeable and successful.
Marsha Marsh, Owner Marsha Marsh Real Estate Services 4
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Marsh’s signature blue signs are as much a part of Erie front yards as stately maple trees, so it’s surprising to learn that she only started in the business 14 years ago. At that time, women in real estate were no rarity, a circumstance that afforded Marsh many positive role models.
“I love Erie. Erie is a great place. Erie has been good to my family and good to me.” “I was in a coaching program and Valerie Fitzgerald, a Coldwell Banker agent in L.A. [best-known for her appearances on HGTV] was in that program with me. I knew the industry in Erie was a lot of men, but my coaching group was full of women who owned their own companies,” she says. But while the industry became more female-dominated, Marsh’s own firm brought in key employees who were younger males: her sons Laban and Levi. “The two boys were in their early 30s, and it helped us because most agents weren’t doing very much with the Internet, and the boys were very savvy that way,” Marsh explains. Family businesses can often bring tensions, but Marsha Marsh relishes the complimentary skills in hers. “Laban is a dreamer and entrepreneurial while Levi is money-conscious. It’s a good mix. The Marsha Marsh Team is how we branded ourselves then we took that brand with us.” A third son is a minister in Girard (“He’s taking 12 kids to the Dominican Republic,” she says with pride) and the themes of family and community are important to Marsha Marsh.
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“I love Erie. Erie is a great place. Erie has been good to my family and good to me. There are things that could be improved, and anywhere is like that, but I don’t know that I could go into another market. I just love being here. I’m a Chamber Ambassador. We support the United Way and the March of Dimes, and we’re always glad to contribute. I have seven grandchildren and they love wearing the Marsha Marsh Real Estate shirts and seeing the signs, and that’s more important than the money. Seriously.”
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In a very real way, Marsha Marsh is part of a lineage of which Sue Sutto is an influential figure. Sutto was a key employee—it might be fair to call her a protégé—of Jane Theuerkauf, the founder of Erie’s first female-headed real estate firm. A teacher at Villa Maria Academy, Sutto met Theuerkauf on the golf course. “I was set up to play a match with her in a club tournament,” Sutto remembers. “I was looking to do something else, and she said, ‘Why don’t you work for me?’”
Sue Sutto, Owner Sutto Relators
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She remembers the date well. “It was June 14 1972, 40 years ago. I worked for her for a long time and I learned a lot, but when I got close to my 40th birthday, I made the decision to open my own business. I decided to tell her that so she wouldn’t hear it from somebody else.” While Sutto’s offices were being readied, Theurkauf kept her on staff. “I went to the Christmas luncheon and she gave me a bonus and thanked me for the work.”
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Though Sutto’s was probably Erie’s second female-owned real estate firm, she didn’t feel like a pioneer. “In that era, there were a lot of new people. We all got along well and cooperated and welcomed other people’s success. I never felt it and I still don’t feel like it [is unusual]. It’s simple. You work hard and keep your nose to the grindstone and you’ll do fine.”
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And she has, even during the recent downturn in the market that has been one of the worst in memory. But Sutto is eternally optimistic and pragmatic. “The last two or three years have been difficult,” she says. “But they’ve been difficult for everybody. The real estate industry started this, but it’s made us smarter and more cautious. You think things through, and you manage. In the last two to three years we’ve worked harder than ever before. “If you look at Pittsburgh and what happened when the mills closed, Pittsburgh has reinvented itself, and they’re only 135 miles away. We’ve come a long way, but we have a ways to go.”
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Sutto cites government cooperation and regional consolidation as priorities. “We need a uniform zoning ordinance for every municipality, so people know how long a project is going to take. We also need to attract industry. We are fortunate that Lord Corporation and General Electric are staying, but the water and sewer and zoning authorities need to work together so that we can compete and prosper.”
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Competing and prospering are two things Sue Sutto knows well, as is hard work.“The perception of being your own boss is that you have a lot of free time,” she counsels, “but I would advise people that their freedom will be restricted, though when you get established you have more freedom. You work weekends and there isn’t a night that goes by that I don’t have a couple of phone calls, and that’s okay. It’s a lot of responsibility, but it’s worth it.“ ■
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Promoting Local Growth The Local Economic Revitalization Tax Abatement program at a glance
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Brenda Sandberg, Director of Economic & Community Development for the City of Erie provides an overview of the LERTA program, which was adopted in November 2007 by the City of Erie, Erie School District and County of Erie.
By Brenda Sandberg Director Dept. of Economic & Community Development
Rick Scaletta, Superintendent of Schools discusses how the General McLane School District and their five municipalities were able to enact a residential LERTA program to address the need for affordable family housing.
City of Erie
You have probably heard the term LERTA which is the acronym for Local Economic Revitalization Tax Assistance however, you may not fully understand what that is. • LERTA is a property tax abatement program given as an incentive for new construction or improvements to existing buildings, both residential and commercial/industrial. • •
by Brenda Sandberg and Richard Scaletta
Typically, when you increase the value of the buildings on the property, you also raise the taxable value. With abatement, this increase is either minimized or completely absolved for a period of time.
In Pennsylvania, municipalities are given authority to enact property tax abatement programs through statewide legislation.
Each community is given the ability to create a program, within certain legislative parameters, that may be used as an incentive to encourage economic revitalization and combat conditions of blight. •
In the City of Erie, the program has evolved over the years as a way to encourage economic development but also balance the needs of the City’s budgetary constraints.
• •
When adopted, the LERTA ordinance typically expires within five years which allows for all taxing bodies to continually review that balance. However, the benefits of someone who participates within a particular LERTA program may extend out as far as 10 years.
The current residential LERTA benefit for residential property is as follows:
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75%
90%
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50%
None
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None
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Promoting Local Growth (continued).
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The latest LERTA program was adopted by the City of Erie, the Erie School District and the County of Erie in November of 2007. The development of a program is not taken lightly and this was certainly no exception. The abatements proposed and subsequently approved were a blend of the success of previous programs with an innovative new incentive added, Job Creation. The blend came from the creation of target area incentives for new homes. Previous LERTA programs were either solely concentrated in the general area north of 26th Street or were offered citywide. The current program recognizes the need for economic incentives for new residential construction citywide with a greater emphasis on areas that contain higher concentrations of blight (aka Target Area). •
Any improvements made to existing residential properties are given the same abatement rate regardless of location.
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An improvement is defined as the construction, reconstruction, alteration, addition or repair which has the effect of rehabilitating a property so that it becomes habitable or attains higher standards of safety, health, economic use or amenity.
Special thought and consideration was given in this sliding scale to allow for individuals who may be new to homeownership to have the opportunity to slowly budget for their tax responsibilities in lieu of an all or nothing abatement. The commercial and industrial LERTA is significantly different than residential abatements. While reviewing the previous 10 year 100% abatement LERTA, the City had to ask itself some difficult questions. • What is the level of abatement needed to create the tipping point for a commercial or industrial developer to choose to locate and make physical improvements to their building within the City of Erie? • What is the economic value or even the potential economic liability of a newly constructed building that becomes vacant either during the tax abatement period or soon thereafter?
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Taking both of those questions into consideration, the City of Erie proposed an innovative new LERTA program that allows for a significant 10 year benefit to new physical improvements when the businesses meet performance standards. These performance standards are based solely on job creation and the average wage of those hired after the physical improvements to the building are completed LERTA application must also be submitted. The base LERTA benefit for commercial and industrial development allows for a 50% abatement of the taxes associated with the new construction or improvement made to existing buildings for a ten (10) year period. This flat rate is given to all regardless of their location within the City limits.
The performance standards allow for an additional reduction to the property tax liability of a business or industry during that ten (10) year period. • The following table explains the increase abatement a company could receive which, depending on the number of positions created and their wage could bring abatement to 90% over the entire ten (10) year period. • This additional incentive is monitored on an annual basis which allows for the program to be flexible and more business friendly.
• If a business registers their current workforce in year one (1) but does not create new positions until year four (4), the additional property tax abatement would be added for years four (4) through ten (10) or for however long those new positions and wages remained at that location.
Number of jobs created
Hourly wage of new hires
Base + Additional=Total
10-24
Minimum Wage
50% + 10% = 60%
10-24
150% of Minimum Wage
50% + 25% = 75%
25+
Minimum Wage
50% + 25% = 75%
25+
150% of Minimum Wage
50% + 40% = 90%
The current LERTA program as adopted in 2007 is set to expire in November of this year. Mayor Sinnott and I are currently analyzing the program to determine what revisions, if any, are necessary. We believe that property tax abatement is a productive incentive for individuals to either construct new or upgrade their home, commercial or industrial building. In turn, your investment which is hopefully spurred by this tax incentive, will improve the look, function and economic prosperity of all City neighborhoods.
By Rick Scaletta Superintendent of Schools
General McLane School District If you were planning to bungee jump off a bridge, you would want reasonable assurances (and insurances) that your foray into this adventure would be safe. Similarly, developers seeking to build residential and commercial developments want reasonable assurances that their investment will yield a good return.
“Providing a LERTA (Local Economic Revitalization Tax Assistance Act) gives developers some assurance that the carrot of temporary tax abatement will attract clients to purchase their structures.” Builders and developers will tell you that the time and expense required to initiate and plan a development has increased significantly over the last decade. It takes at least a year to get through the permits and mandatory studies; and, the cost of building the infrastructure is significant. Considerable financial risk is inherent.
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Providing a LERTA (Local Economic Revitalization Tax Assistance Act) gives developers some assurance that the carrot of temporary tax abatement will attract clients to purchase their structures. In the General McLane School District, we took a close look at our demographics and projected our population at the end of this decade. Reflecting the nation’s baby boomer composition, we found that roughly one third of our school district will be age 55 or older by 2019. We realized that many of our empty nesters are looking to downsize their homes but do not want to leave our community because of the many things it has to offer. Looking around the district, we saw no available housing for this burgeoning demographic while also seeing an unmet demand for affordable family housing. Responding to the present and future needs we assessed, the school district and our five municipalities enacted a residential LERTA that will allow a new home builder three years of no property taxes. It is hoped that this incentive will create the housing forecasted as a need in the community. The concept of giving tax incentives for people to develop can be cited as unfair by some. “Why should someone new to the community get a break on taxes when I’ve been faithfully paying mine?” some reason. We did the math on that and came up with the good reason. Projecting our school district’s major
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expenses and revenue sources over a twenty-five year period, the conclusion was simple: either get development and have more people sharing a smaller tax burden or significantly increase the tax burden on the present population. LERTA is a way to pursue the former option. Part of the design of LERTA is the designation of a sunset; that is, the date after which the incentive is no longer available. We chose to use a relatively quick sunset date, December 31, 2014. For our purposes, time is of the essence as our demographic projections juxtaposed over our budget projections indicate that creating a sense of urgency would be beneficial to our financial security. It is our hope that people will decide to build sooner than later. Conventional wisdom advocates the implementation of tax incentives for businesses by way of a commercial LERTA. The thinking is that if you attract business, then tax collections will increase and people will follow. This is certainly true in some communities and some situations, but I believe every community is different. Our community has assets of intellectual capital and accessibility via three exits on two different interstates. We are more likely to attract service industries in our community. Many service companies require a certain population to locate in a community and thus, we began with a residential LERTA and followed with commercial. The school district, five municipalities and county presently have a commercial LERTA in place until 2016. This is a five year graduated exoneration of taxes to encourage businesses to locate in the district. We see LERTA and the attraction of business to the community as more than a fiscal opportunity. It also has the potential to link to our educational process. The school district desires to partner with businesses to prepare the best work force possible. We have begun to work closely with business partners in the medical, engineering and manufacturing areas and we are eager to expand meaningful relationships with other employers. In speaking with developers and realtors, I’ve concluded that the need for local tax incentives to promote the development of homes and businesses is driven by the need to offset the costs of meeting government requirements and infrastructure demands. Regulations and restrictions imposed by numerous laws and regulatory bodies have made development a risky venture. While the regulations are meant to protect us, they’ve also constricted our economic development. If our local communities are to thrive, we must use whatever means are available to us to welcome and promote growth. ■
Learn More about LERTA: www.erie.pa.us
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