City Offering Greater Incentives for Development in Underserved Areas

Pittsburgh is revamping its decade-old tax abatement programs to encourage socially sustainable development including affordable housing, environmentally sustainable design and development of underserved neighborhoods, as well as commercial development which creates jobs. This proposal is in response to both a recommendation by the City’s Affordable Housing Task Force and an executive order from Mayor Bill Peduto calling for improvements to real estate tax incentives to advance the public interest. Current developments would remain unaffected by this change.

Developers have been reluctant to use the existing abatement programs because the seven programs in effect are too complex to navigate. Under the old system, developers from outside Pittsburgh were at a disadvantage. Furthermore, the programs were applicable in 28 neighborhoods, including downtown. There was little incentive for developers to build in the subset of riskier neighborhoods.

Under the proposed system, multifamily projects would be eligible for tax reduction if 15 percent of the units meet affordable housing requirements. Commercial projects would have to add at least 50 new full-time employment positions to the region.

Alternatively, a project could qualify if it achieved a sustainable rating such as passive house, zero energy, or LEED. Councilman Dan Gilman, supporter of the project, believes this is a necessary step in advancing sustainability in the city. Gilman points out, “To tell a developer in any city neighborhood pay your workers more, do green infrastructure, do LEED certification, retrofit your vehicles, provide affordability and we won’t provide you any assistance? That project’s dead.”

The abatement programs are designed to give developers a temporary tax relief on the increased value of a property after its improvement. They provide immediate short term savings as an incentive for responsible development. Without the program, developers have been focusing on projects downtown and in other popular areas.

A recent vote extended the four expiring programs of the seven existing ones through the end of 2017. The City hopes to have reached an agreement on the restructured abatement programs by this time. It aims to simplify the process for developers by reducing the number of available programs to three. To do this, the City would have to coordinate with Allegheny County and Pittsburgh Public Schools – the other two taxing bodies which historically have not coordinated efforts with the City.

The two main program affected by the change include Act 42, which applies to smaller residential development projects, and the Local Economic Revitalization Tax Act (LERTA), which applies to commercial, industrial, retail and multi-family residential development.

The Act 42 proposal offers a property assessment base reduction up to $175,000 per year for three years, or enhanced reduction up to $250,000 per year for ten years for affordable housing projects or development in neighborhoods eligible for Community Development Block Grant funding. Unlike the previous version, this would apply to both new construction and retrofits.

Under LERTA, the base program offers up to $125,000 per year for 10 years, with the amount decreasing by 10 percent every two years. The enhanced reduction option would offer a $250,000 credit per year for ten years. Eligible projects include those in underserved areas, those qualifying as affordable housing, those creating new jobs, and those meeting sustainability targets.

For more on this proposal, read the original Pittsburgh Post-Gazette article.