Escaping the ‘doom loop’
Downtown tax abatements show the leadership needed to turn Pittsburgh around
In passing an expanded Local Economic Revitalization Tax Assistance (LERTA) program for Downtown — after achieving a complicated compromise that assured a 9–0 vote — Pittsburgh City Council asserted its authority and took the first major step to saving the Golden Triangle from the “doom loop” of real estate collapse experienced elsewhere.
Theordinance is still weeks from final passage, but Wednesday’s committee vote was the key procedural step. The unanimous vote should dissuade the Gainey administration, which has been suspicious of any tax support for market-rate and commercial development, from meddling any further.
Councilman Bobby Wilson was the lead shepherd for the bill, and Council President Daniel Lavelle helped to convene stakeholders and broker the compromise. Both men deserve particular credit for their efforts.
As councilors Bob Charland and Erika Strassburger described during Wednesday’s meeting, this enhanced tax abatement is only one piece of the policy machinery needed to stabilize Downtown. Next, the city will need some help from Harrisburg, in the form of Sen. Wayne Fontana’s bid to extend the maximum LERTA period fromten to 20 years.
‘Doom loop’
“The Real Estate Nightmare Unfolding in Downtown St. Louis,” ran the headline in the Wall Street Journal. The newspaper described the central office district in the Missouri city as “a neighborhood with deserted sidewalks sprinkled with broken glass and tiny pieces of copper pipes leftbehind by scavengers.”
The most striking data point of all: The now-vacant 44-story AT&T Center, the biggest office building in the city, sold for $205 million in 2006. Just this month, it sold again — for $3.5 million.
This is the result of a so-called “doom loop,” where reductions in office workers and foot traffic lead to reductions in restaurants and amenities, which lead to disinvestment and disrepair,which lead to further reductions.
The Golden Triangle isn’t there yet, though some pockets — especially the Smithfield Street corridor — are showing worrying symptoms. And while the idea of one of Pittsburgh’s iconic towers becoming completely vacant might seem fanciful, consider the 54-story BNY Mellon Center. The bank, which holds a master lease on 1.5 million square feet, has brought very few workers back to the office, andits deal expires in 2028.
That means it’s time to be proactive, especially because the health of Pittsburgh’s downtown is unusually important for the health of the city as a whole, and the region it anchors. It’s still one of the densest collections of commercial high-rises in America, and the collapse of assessed values means stabilization is essential to the city’s tax base.
Riskless and costless
It can’t be said enough that the LERTA tax abatement scheme is essentially riskless and costless to the city. The revenues the city will forgo — some or all of the taxes on value added to existing properties by developers— would not exist were it not for the abatements. And with the threat of a real estate “doom loop,” locking in the current tax base is a great improvement over the alternative scenario: collapse.
The enhanced abatements approved preliminarily on Wednesday include several tiers based on the number of jobs created (for commercial projects, including hotels) and the extent of affordable housing created (for residential projects). The tiers range from 90% abatements for 30 jobs created to 100% for 50 jobs created, and from 80% for reserving 10% of units for households at 80% area median income to 100% for reserving units for households at 50% of area medianincome.
These tiers were necessary to satisfy concerns that the original bill could lead to full abatements being used exclusively for luxury housing and hospitality. While they reduce the competitiveness of Pittsburgh’s program compared to peer cities, they were a reasonable compromise to achieve consensus.
Further, the unique nature of the Downtown market may minimize the cost of affordability to developers. But that will require further collaboration.
Double or nothing
Section 8 housing vouchers could allow property owners to offer affordability without making a financial sacrifice. The ordinance is written to trigger the availability of enhanced “rehabilitation” vouchers Downtown, which carry a face value of nearly $2,900 per month for a one-bedroom apartment.
Average rents in the Golden Triangle have increased, but not that high: That means that if landlords are willing to accept Section 8 vouchers, they can receive full rent courtesy of the Housing Authority of the City of Pittsburgh.
However, HACP is notoriously poor at handling these vouchers in a timely and efficient manner, which discourages landlords from working with them. City leaders should press the housing authority to ensure vouchers are available, which will ensure that the abatements are maximally effective, and that affordability goalsare reached.
But there’s one more complication: Federal guidelines require an affordability period of up to 20 years, but Pennsylvania’s LERTA is capped at ten years, limiting the viability of vouchers. That’s where the Fontana proposalcomes in.
Not only would doubling the state’s LERTA period sweeten the pot for developers by doubling the length of the abatement; it would also double the affordability period, while ensuring Section 8 vouchers can be used.
Pennsylvania’s 10-year program was first passed in 1977, and is out of date for contemporary economic circumstances and in comparison with neighboring states. Extending it should be a bipartisan economic development victory for legislators and Gov.Josh Shapiro.
Needed leadership
Besides being a good idea in itself, the city’s LERTA expansion is an example of something Pittsburgh badly needs: intelligent, creative, collaborative policymaking. City Council should be applauded for accepting this responsibility, and seeing it through in spite of resistance from the Mayor’sOffice.
This isn’t the end of the work to stabilize and revitalize Downtown, but the beginning. Only through listening and working together can the fate of otherdowntowns be avoided here.