South Whitehall commissioners voted unanimously Wednesday night to join the legal fight over a state law that funnels earned income tax to the construction of a $158 million hockey arena in downtown Allentown.
In doing so, the township becomes the first municipality in Lehigh County to announce it will join the lawsuit, brought by Hanover and Bethlehem townships.
In all, seven Northampton County municipalities are so far supporting the challenge, according to Lehigh Valley Ramblings.
Those attending the commissioners' meeting erupted in applause at the vote.
Township officials say they have two concerns:
- The potential loss of residents' earned tax revenue to the project.
- The potential loss of businesses and office tenants to downtown Allentown.
Commissioner Chairman Tori Morgan said the vote does not mean that South Whitehall doesn't support the Allentown hockey arena and the city's revitalization efforts. However, she said, the commissioners need to manage the township's economic stability.
Township Manager Jon Hammer, who the commissioners directed to be the spokesman on the issue, said the vote is not "a declaration of war," nor a city vs. suburban issue. He said the township is not trying to stop the arena project but wants a seat at the table as city and suburban officials negotiate a settlement to the lawsuit.
"We do think too that a healthy Allentown is good for the entire region," he said after the meeting. He said the project could be a "win-win" for both Allentown and its surrounding muncipalities if everyone works together.
At issue is the state law that created the Allentown Neighborhood Improvement Zone, which allows for arena debt to be paid with earned income tax revenues from workers who live outside the city. Ordinarily, earned income taxes paid where someone works are forwarded to their home municipality and shared between that local government and school district.
Hammer has said that he expects South Whitehall's tax loss to be significant. The township is waiting for an accounting, but Hammer said that information may not be available until June. The township brings in $3 million in earned income tax total, he said, but he did not know how much of that revenue might be tapped.
In all, Allentown's zone is expected to divert an estimated $550,000 in earned income taxes from surrounding municipalities and school districts.
Before their vote, the commissioners heard from developers Donald Frederick and Tom Roma, who both own office buildings in the township. Both urged the township to join the legal challenge.
Frederick and Roma told commissioners they fear Allentown's Neighborhood Improvement Zone will reduce commercial real estate values in the township and lure tenants from South Whitehall to the downtown.
The NIZ has led to proposals for $200 million in office and hotel construction in downtown Allentown, according to a report in The Morning Call. One developer offered office space at $8 to $12 a square foot, compared to $15 to $22 a square foot for prime space outside the zone, the report said.
"The value of our property is based on the rental income we receive," Frederick told commissioners. "Because there is currently a large oversupply of office space available, the tax subsidized zone will worsen the office market with its lower rent prices, thereby depressing the value of office buildings."
In turn, those who own office buildings in South Whitehall would have "no choice" but to seek lower property assessements, he said. That would ultimately hurt South Whitehall's and the Parkland School District's revenues.
As remedy, Frederick said those leasing office space in a tax subsidized zone should only be allowed to secure tenants from a radius of 25 miles outside of the zone.
Roma said the state law that created Allentown's Neighborhood Improvement Zone was "ill-conceived." He likened it to Frankenstein, "a destructive monster."
Hammer said he was aware that Allentown Mayor Ed Pawlowski had offered a plan that he hoped would persuade Hanover and Bethlehem townships to drop their lawsuit. He said he did not want to negotiate in public but would be open to the discussions.