In December, the City Council approved a tax abatement ordinance that Dauphin County claimed was completely unworkable and illegal because of its proposed seven-year tax forgiveness period.

The city's previous abatement sanctioned under the state's Local Economic Revitalization Tax Assistance program, known as Lerta, was set for 
10 years. That program expired in December.

The county was pushing to get back to the table, but nothing has been considered by the city or school district. Attempts to rewrite it have taken a back seat to debates over an Act 47 recovery plan for a city mired in at least $310 million of incinerator debt.

The last incarnation gave owners who added value to any property within the city 10 years to phase in their higher tax rates at increments of just 
10 percent each year.

"We know projects won't (financially) work without it," said Brad Jones, vice president of community development for Harrisburg-based Harristown Development Corp., continuing to beat the drum for a new tax abatement plan.

Under the program, the city, school district and county must agree to the abatement.

Without it, the cost of buying and redeveloping empty buildings and blighted homes exceeds market value, developers said. Taxes, as well as parking fees and utilities, generally are higher in the city, so builders and homebuyers will turn to the suburbs. Tax abatement levels the playing field, they said.

"The only way projects get done (in the city) is by being subsidized because of the high tax rates," said Jones, chairman of Harrisburg 2020, an ad hoc committee of the Harrisburg Regional Chamber & Capital Region Economic Development Corp. formed around 2008.
For example, for a property assessed at $100,000 in Harrisburg, the owner would owe about $4,000 in combined county, school and city taxes, according to current tax rates. In Swatara Township, property taxes would be about $2,300 for a $100,000 property; and in Lower Paxton Township, they would be about $2,200.

Harristown developed Strawberry Square, the Hilton Harrisburg and numerous downtown buildings. Like several city developers, it relied on the tax incentive to get many of its projects off the ground in Harrisburg.

The proposed fiscal blueprint put forth by a state-appointed Act 47 team and rejected by the council called for a revision of the city's tax abatement policy. The plan recommended a 10-year, 100 percent abatement.

"A tax break is not going to go anywhere," said City Council Vice President Patty Kim, who backed the team's Act 47 plan and supports tax abatement.

The top priority for the council seems to be implementing a commuter tax through Mayor Linda Thompson's alternative plan, she said.

The mayor continues to support a five-year abatement plan, said Robert Philbin, a city spokesman.

"Tax abatement needs to be viewed in terms of the future revenue mix for the city," Philbin said.

The Lerta program is important because it provides an incentive for residential and commercial development, Kim said, which will help expand the city's tax base and keep tax rates down. It's a necessary tool Harrisburg can and should continue to use because it focuses redevelopment efforts on blighted and abandoned buildings and vacant lots, developers said.

Critics of the program have said the capital city gives up valuable tax dollars when it adopts tax abatement. Proponents, including Jones and other developers, said the property owner only gets a break or pays a graduated rate on improvements made during the abatement period.

Blighted and abandoned buildings do nothing to help the tax base. Turning them over to private developers generates tax revenue for the city, Jones said.

"I think the tone among the school district and the city is they can't afford this sort of tax abatement program right now, which is the exact opposite of what the thinking should be," said Jeff Engle, solicitor for the Dauphin County Board of Assessment Appeals.

Without a new Lerta, there is going to be a decrease in tax dollars, and the tax bodies will be preventing new dollars from coming into the city, Engle said.

"Economic development plummets," he said. "You're going to see even more businesses leaving. You are going to see empty storefronts and buildings. It's a shame. It's going to turn into a ghost town."

Dauphin County Commissioner Mike Pries, who oversees economic development, said a new Lerta would be a nice shot in the arm for business in Harrisburg.

"If this is something that can move along this calendar year, I'm in support," he said. "But it's really hard to determine what's occurring while the Act 47 process is in front of us."

Harrisburg-based GreenWorks Development is one example where the Lerta program is needed. The developer agreed to buy the debt of the Capitol Heights townhouse project in Midtown Harrisburg from a Baltimore-based developer that was unable to finish it when the economy soured.

There are 44 units ready to build, but they won't get started without a tax abatement program in place, said Matt Tunnell, the company's senior vice president. Again, it comes back to higher taxes in the city, which will push homebuyers to the suburbs, he said.

Even on a reduced tax schedule under the Lerta program, development projects are bringing in jobs that help the local economy, Engle said. And those workers and residents are spending money in the community.

"The Whitaker Center, Strawberry Square and Restaurant Row would not be there without an abatement ordinance," he said.

The county proposed a 10-year Lerta to the city and school district, Engle said. The school district, which also is dealing with big debt issues, has not been willing to consider anything, he said. A call to the school board seeking an interview was not returned.

"I hope we have something in the future," Engle added. "It's really going to depress the city."

Unless there is a buyer or tenant, a building is not worth anything, said Ralph Vartan, CEO of the Vartan Group, which got its 1500 Project condominium building at North Sixth and Reily streets approved before the Lerta expired.

"The city would be wise to put an effective tax abatement plan in place," he said. "You are limited by what you can do because you will lose money."

Some development might still occur without the Lerta, while others will never happen, Vartan said.

"The majority is in the middle," he said, expecting developers and homebuyers will go where it's economic advantageous until leaders agree on a workable plan.

For example, a new townhouse assessed at $160,000 in Harrisburg would pay combined property taxes of nearly $6,400, Vartan said. In Susquehanna Township, that property would pay about $4,600 in taxes.

Under the old abatement program, that Harrisburg property owner would have only paid about $600 in land tax, he added. By the eighth year, the taxes would be comparable to Susquehanna Township.

"It helps you live in the city," Vartan said.

Other Pennsylvania cities using Lerta include York, Pittsburgh and Philadelphia.