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Across Penn Avenue from bustling Bakery Square — home to corporate offices of UPMC and Google — stand two new five-story glass apartment buildings.
Residents at the Bakery Living complexes enjoy amenities that include a pool, gym, lounge, free coffee and bike paths. They’re less than a mile from Trader Joe’s, Whole Foods, Target and dozens of other shops, restaurants and bars in Pittsburgh’s Shadyside and East Liberty neighborhoods.
Monthly rents range from $1,300 for a 500-square-foot studio to more than $4,000 for a 1,500-square-foot, two-bedroom apartment.
Shadyside-based Walnut Capital, the developer and owner, will pay less than half the property taxes due on the complexes for up to 10 years.
Tax breaks like this one, meant to encourage revitalization of blighted areas, in recent years largely have been awarded to private developers for new, upscale apartments and hotels in some of Pittsburgh’s hottest neighborhoods, with little to no local scrutiny, a Tribune-Review investigation found.
“The absence of any (of the tax breaks) in the most blighted areas is a huge red flag to anyone concerned that (tax breaks) are being misused as a budget management tool rather than a redevelopment tool,” said Michael Hicks, an economics professor at Ball State University, who has been researching the topic for more than 20 years.
QUESTIONING RECENT USE
The tax breaks — Tax Increment Financing and Local Economic Revitalization Tax Assistance — give developers a relief on a portion of the property taxes on their projects over a period of time to help pay for infrastructure improvements.
Since 1993, 57 TIFs and LERTAs have been created in the city, according to city and county records.
The tax abatements have helped revitalize once-economically depressed areas of the South Side, East Liberty and Homestead, a borough just outside the city.
The city, Pittsburgh Public Schools and Allegheny County in 2016 approved a TIF intended to spur $1 billion in development on the 178-acre Almono site along the Monongahela River in Hazelwood, which has struggled to keep and attract businesses and residents. But the three government bodies also approved LERTAs in Pittsburgh last year that will provide 10-year tax abatements for projects in East Liberty, Oakland, the Strip District, Lawrenceville, Friendship and Shadyside — neighborhoods some say are no longer in need of the incentive.
At least seven gave tax abatements on market-rate apartment complexes with typical rents commanding upwards of $1,000 a month.
And at least two — Bakery Living Blue and a Hilton hotel in the Strip — already were built by the time they reached council for approval.
“That’s exactly the opposite of the intent (of the act),” Hicks said.
Pittsburgh allows for the creation of LERTAs for projects anywhere in the city, not just in spots struggling to attract new development.
Homewood, which Mayor Bill Peduto routinely identifies as the city’s top priority for revitalization, never has had a TIF or LERTA. Neither has Lincoln-Lemington, Knoxville, Mt. Oliver, Arlington, Allentown, Beltzhoover, Manchester, Spring Garden, Northview Heights and other struggling neighborhoods.
“If any neighborhoods deserve access to these community benefits, it should be those communities,” said T. Rashad Byrdsong, president and founder of Community Empowerment Association, a Homewood-based nonprofit. “We have to be able to convince developers and property owners that part of the responsibility we all have is to invest in communities that are less fortunate.”
Will Anderson, a lifelong Homewood resident, agreed.
“I think these programs have basically been misused to benefit other communities when our community hasn’t had any real development that is actually going to enhance it and make it a better place to live,” said Anderson, executive director of the Pennsylvania Democratic Party Black Caucus.
Allegheny County Executive Rich Fitzgerald told the Trib that Mon Valley municipalities McKeesport, Duquesne, Glassport, Liberty, Lincoln and Versailles would benefit economically from developments aided by tax incentives.
None ever has received a TIF or LERTA.
CHANGES COMING
City and county officials told the Trib that requirements for LERTAs and TIFs are about to become more strict in an effort to push development to areas that need it.
Portions of the city’s LERTA ordinance expire in June, giving the administration an opportunity to make adjustments, said Kevin Acklin, Peduto’s chief of staff and Urban Redevelopment Authority chairman.
The city likely will extend the current ordinance six months to give developers a chance to adapt, Acklin said.
“The days of throwing TIFs and LERTAs at projects to subsidize developer profits is over,” Acklin said.
Peduto issued an executive order Wednesday that could affect how TIFs and LERTAs are used in the city. The order creates a group to study changes to the tax abatements and calls for developers to include affordable and mixed-income housing in their plans.
In addition, city and county officials said developers who want TIFs or LERTAs to build in one of the city’s thriving real estate markets soon will have to commit to affordable housing or public improvements such as transportation infrastructure, green design, stormwater management and land preservation.
Development projects receiving tax relief must contribute to the public good, Acklin said.
Hicks said those requirements always should have been in place.
“Why should a local government in the first instance ever use tax dollars in any other way other than for the public good?” Hicks said.
Chicago-based developer Dan McCaffery, who is seeking a TIF to redevelop the Produce Terminal in the Strip District into a nearly $50 million office and retail complex, said limiting TIFs and LERTAs to less desirable parts of the city won’t spur development there. Developers won’t seek TIFs in areas where there’s not a good chance the development is going to succeed.
“You can put 20 TIFs in the middle of the desert, but no one is going to use them. There has to be a perceived demand for the developer to want to go there,” McCaffery said.
Hicks said he disagrees with claims that developers can’t make money from building in less desirable neighborhoods.
“Of course developers are going to say that, yet economic activity tends to occur otherwise,” Hicks said.
Anderson said instead of doing away with all retail TIFs and LERTAs, officials should try to use the tax breaks to attract a developer to Homewood to build a grocery store, pharmacy, bank or gas station — all of which are sparse or nonexistent in Homewood, where more than 6,000 people live.
AFFORDABLE HOUSING: A TOUGH SELL
Sharlee Ellison, co-chair of the Knoxville Community Council, said she worries that new developments will displace longtime residents who can’t keep up with rising rents and property values.
“We don’t want them to take our land and build something we’ll never be able to afford to move in to,” she said.
Fitzgerald and Peduto have heard similar concerns from people around the city and have made providing affordable housing a priority this year. Fitzgerald suggested for residential developments using the tax breaks that 10 to 20 percent of units be affordable units. To be eligible to live in those units, residents’ incomes would need to be under a certain threshold, said Robert Hurley, executive director of the county’s economic development department.
Including affordable units in new residential developments would be a challenge, developers said.
McCaffery said if public officials want to require affordable housing units as a condition of future TIFs, they likely would have to exempt more money in the TIFs.
Walnut Capital CEO Gregg Perelman, whose company received four of the nine Pittsburgh LERTAs approved in 2016, said designating affordable housing inside market-rate apartments creates a gap between the cost of the unit and the lower rent that’s charged. Unless there are significant subsidies, it doesn’t work financially, Perelman said. He said he and other developers haven’t found a way to make mixed-rent apartment complexes financially feasible.
“We’re all in it together to make a better city,” he said. “But you have to have quality projects, and unfortunately those cost money. And we can’t do it alone.”
County officials have been warning developers about the upcoming changes for at least six months, Fitzgerald said. The administrative changes will take effect by the end of the year but may not include a written policy change or council vote, he said.
Shadyside’s upscale Bakery Living Blue is an example of a project that might not be approved in the future without affordable units, Fitzgerald said.
He supports the Bakery Square mixed-use development TIF across Penn Avenue that the council awarded in 2007, he said.
“There was a lot more risk then — does the market support it? Obviously it does,” Fitzgerald said. “Now when going to next phase, you take a look at it and say, ‘Maybe that subsidy isn’t needed.'”
MORE SCRUTINY
Members of the school board and county council have been taking an increasingly critical look at TIF and LERTA proposals.
Kevin Carter, a member of the Pittsburgh Public Schools Board of Directors, voted against McCaffery’s Strip District TIF, which did not pass. He also voted against a LERTA for housing and retail space in Oakland in August.
“Do developers really struggle to develop in the Strip District?” Carter said.
The purpose for the incentives has been diluted, he said.
Because the school district has a higher millage rate than the city and county, it gives up the highest amount of taxes when TIFs and LERTAs are created.
Pittsburgh’s school district needs the tax money it gives up with TIFs and LERTAs, Hicks said.
“If (the tax breaks) are capturing (developments) that would’ve happened otherwise, the schools should be very leery,” he said.
Councilwoman Sue Means, R-Bethel Park, routinely votes against TIFs and LERTAs that she feels aren’t being used in neighborhoods that need them.
She voted against LERTAs for two developments last year that had been built by the time of the vote: Homewood Suites by Hilton in the Strip District and Bakery Living Blue apartments in Shadyside — both Walnut Capital developments. Both passed county council. The school district is not participating in either one, meaning the school taxes will be collected as usual. City and county taxes will be abated.
“The TIF/LERTA discussion should take place far ahead of the groundbreaking,” Means said. “I want to make sure that the tax incentives are being used appropriately to counter blight and revitalize economically struggling areas, not to provide corporate welfare.”
Former County Councilwoman Heather Heidelbaugh unsuccessfully tried to institute TIF and LERTA rule changes during her four years on council.
“There was a clear pattern of developers coming in and getting tax deferments, which increased the tax burden on the poor and middle class in Allegheny County,” said Heidelbaugh, an attorney, who did not seek reelection.
This month, at Fitzgerald’s recommendation, county council voted against participating in a TIF for a high-end retail development “The Block at Northway” at the site of the former Northway Mall in Ross.
It was the first time in at least a decade that county officials recommended council reject a TIF or LERTA, Hurley said.
“We have discouraged people from coming to us for TIFs on retail since at least 2005 or 2006,” Hurley said.
On Tuesday, county council is set to vote on a new LERTA for The Empire, a market-rate apartment tower with first-floor retail, at the corner of North Craig Street and Centre Avenue in North Oakland, at Fitzgerald’s recommendation. It’s already under construction.
Hurley said that project, and ones like it that council recently has approved, have been in the pipeline for years, before the county started warning developers of the new rules.
The last retail TIF or LERTA created in the city was in 2009 for the Target in East Liberty, but that area was deeply in need of development at the time, Fitzgerald said.
“If Target came in now,” Fitzgerald said, “it would be a much different discussion we’d be having with them.”
Theresa Clift and Aaron Aupperlee are Tribune-Review staff writers. Reach Clift at 412-380-5669 or tclift@tribweb.com. Reach Aupperlee at 412-336-8448 or aaupperlee@tribweb.com.
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