Bethlehem dangles tax breaks in special zone to developers who include affordable housing

To get the break, developers would have to set aside every 10th unit for persons deemed low, very low or extremely low income

By: - December 5, 2021 6:30 am

A map shows the 19 properties that would be included in Bethlehem’s new affordable housing LERTA (Source: City of Bethlehem).

BETHLEHEM, Pa. —  City officials have  added a twist to a popular tax incentive program to prod developers to include affordable housing in their building plans.

Bethlehem created a special LERTA – Local Economic Revitalization Tax Assistance – for 19 properties in the city’s South Side that would give tax breaks to developers of 10 or more dwelling units, whether owner-occupied or rentals.

To get the break, developers would have to set aside every 10th unit for persons deemed low, very low or extremely low income, according to the ordinance.  

Or the developer would pay $25,000 for every 10th unit with the money going into a special city trust to be used for affordable housing.

“It’s a small step but it’s still a step in the whole umbrella of affordable housing,” said Bethlehem Councilmember Grace Crampsie Smith.

Bethlehem part of a trend

In adopting the measure, Bethlehem has become the latest municipality to turn to tax incentives and zoning policies to bolster the number of affordable housing units.

In Pennsylvania, Pittsburgh and State College have inclusionary zoning ordinances.

State College adopted its ordinance in 2011, requiring all new developments with at least six dwelling units in any part of the borough to allocate 10% for affordable housing or pay a  fee.

Pittsburgh began a pilot test of inclusionary zoning in the city’s Lawrenceville neighborhood in 2019, requiring all new developments of 20 or more units in the neighborhood to set aside at least 10% for lower income residents.

In June, after data showed 40 affordable units had been added since its inception, council voted to make it permanent, according to an article in Public Source.

According to a study by Grounded Solutions Network, there were 1,019 inclusionary housing programs in 31 states and Washington, D.C., as of 2019. 

“In the past 10 years, we’ve been seeing about 20 new inclusionary housing programs a year,” said Vince Wang, research manager for the non-profit urban planning group.

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Bethlehem’s LERTA is voluntary and limited to 19 properties, many of which are vacant and served as parking lots for Bethlehem Steel.

Like many LERTAs, current assessments would remain on the properties. Improvements would be given an incremental tax break on local taxes that, in this case, would begin at 100 percent and go to zero by the end of 10 years, according to Alicia Miller Karner, Bethlehem’s director of Community and Economic Development.  

Bethlehem won the final piece of the approval process on Dec. 2 when Northampton County joined the Bethlehem Area School District in approving the plan. 

Program arose from passion to help 

Bethlehem’s plan grew out of a housing task force that was spearheaded by Crampsie Smith.

Crampsie Smith, a counselor at Easton Area High School, said she was spurred to do something about affordability after witnessing students with no place to live.

“My passion is housing that is affordable,” she said.

A study released earlier this year by the Lehigh Valley Planning Commission showed there is a shortage of 14,480 housing units for persons earning $24,999 or less in the region. l

One in three households pay more than 30 percent of their income on housing, a situation that leaves them struggling to pay for transportation, child care and other needs, the study said.

Meanwhile, 57 percent of the region’s apartments cost $1,000 or more a month, compared to 43 percent in prior years, the study said.   

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The pandemic, which led to job losses as businesses shuttered, has made the situation worse, according to Marc Rittle, executive director of New Bethany Ministries, a non-profit based in Bethlehem that provides housing assistance.

“We have seen 2,000 (rental help) applications since the pandemic began,” Rittle said. “These are for people trying to stay in their homes.”

City wanted another funding stream besides HUD

Bethlehem works with agencies such as New Bethany to provide affordable housing with funds from the federal department of Housing and Urban Development.

Between 2014 and 2020, a total of $2,070,276 was directed toward affordable housing, including $566,828 for rental development, according to city data.

But Rittle said it’s tough convincing builders to construct affordable housing. He said builders fear they won’t get as much of a return on their investments. They also still think of section 8 subsidized housing as run-down places filled with crime.

These days there are rules about who can live there, Rittle said. In addition, all families living there have case managers to help them succeed.

That’s why Bethlehem wanted to find a way to lure builders to include affordable housing, the rents of which would be based on a percentage of the area’s average median income.

A LERTA, which is typically used to revive depressed industrial areas, seemed like a good way.

Miller Karner said the city targeted properties in South Bethlehem, an area that has been undergoing a revival thanks to the Steel Stacks entertainment venue, Wind Creek Bethlehem casino and Lehigh University.

She said the lots are ideal for putting commercial office space on the ground floor and apartments on the top.

“You want businesses that people can shop in on the first floor,” she said.

True impact unknown

Ironically, Crampsie Smith voted against the idea she fostered.

The reason: She thinks the $25,000 in lieu of fee is not enough to make any real impact.

Crampsie Smith said many places charge in lieu of fees that are upwards of $130,000 per required affordable unit.

She said an online calculator that Grounded Solutions provides to assess policies suggested $42,500 per 10th unit.

“This just came out of thin air as $25,000 in lieu of,” said Crampsie Smith.

At the time of the October vote, then-Councilmember J. William Reynolds, who was elected mayor in November, said he feared a larger fee would cause developers to ignore the program and build market rate apartments, according to WFMZ-TV in Allentown.

Miller Karner said the city can’t say for certain how much or if the LERTA will net any income.

Since the plan is voluntary, she said developers don’t have to let the city know if they want a tax break until they pull a building permit.  

Wang said voluntary inclusionary policies like Bethlehem’s, in general, result in fewer new affordable house units and in lieu of fees result in even less so. That’s because the money could end up being used for rental assistance not construction.

Still, he wouldn’t discount voluntary policies or in lieu of fees.

“It’s a good supplemental source for affordable housing,” Wang said.

Even though she voted against the program, Crampsie Smith is happy the city is taking steps toward fixing the shortage problem.

“A goal is to have a truly inclusive Bethlehem where people of all incomes can find housing that is affordable,” Crampsie Smith said.

Correspondent Katherine Reinhard covers the Lehigh Valley for the Morning Call. Readers may follow her on Twitter @KMReinhard.

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Katherine Reinhard
Katherine Reinhard

Katherine Reinhard, a veteran journalist, is the Pennsylvania Capital-Star's Lehigh Valley Correspondent and a co-editor of Armchair Lehigh Valley, a Substack newsletter focused on politics in the Allentown/Bethlehem/Easton region.