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Neighborhood Improvement Zone challenged in federal court

Philadelphia and many other cities in Pennsylvania provide economic incentives to persuade developers to construct new buildings. One of the most common of such incentives is the creation of a zone in which property taxes are lowered and low interest loans made available to prospective developers. Allentown created such a district and called it a Neighborhood Improvement Zone ("NIZ").

Now one of the first developers to build in the zone has sued the city claiming that its constitutional rights have been impaired by concessions made to other commercial real estate developers. The lawsuit could have significant impact on land use law in Philadelphia and elsewhere in Pennsylvania.

Experts in land use law believe that any economic development incentive creates winners and losers because some developers will receive benefits that may be denied to others. Courts usually dismiss claims that such incentives are unconstitutional and defer to the decisions of local governments. The Allentown suit involves claims by an existing developer of property in the NIZ that the city illegally gave greater benefits to subsequent projects in the NIZ and that these benefits reduced the value of the plaintiff's property.

Many experts believe that the suit faces long odds but that its outcome cannot be easily predicted because it is breaking new ground. The plaintiff is arguing that the city had no rational basis for providing greater incentives to other commercial property owners in the NIZ and that these actions are therefore unconstitutional. To prevail, the city must prove only that its actions are "rationally related" to a proper government purpose. The plaintiff must show somehow that assisting redevelopment with tax incentives, long been accepted as a property government purpose, is not proper in this case. No dates have been set for motion hearings or a trial, and a final resolution is not likely until well into the summer months.

The allocation and withholding of development incentives involves both land use law and constitutional law. Anyone who is concerned about development incentives can affect a particular parcel may wish to consult an experienced real estate lawyer for an analysis of the facts of the case, an evaluation of available incentives and an estimate of whether the granting of incentives satisfies the constitutional limitations.

Source: Morning Call, "Experts: PPL Plaza lawsuit faces high bar," Scott Kraus, Jan. 6, 2016

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