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Lawsuit could stall Pennsylvania development

A dispute among Pennsylvania municipalities over taxation threatens to stall a commercial real estate project planned to revitalize one community.

Developers plan to build a $220 million arena, hotel and office complex in Allentown, Pennsylvania, north of Philadelphia. The city thus far has spent $35 million to buy the land and demolish buildings. While most of the project would be paid for by state taxes, the funding proposal includes income taxes from people who work in the 130-acre site.

Those income taxes normally go to the municipality where the worker lives. Once officials in two neighboring communities learned their tax income would be diverted to pay for the project, they sued the state. Since then, at least 18 other agencies or municipalities have filed their own suits.

Those groups, however, have sued the wrong entity, the Pennsylvania governor said. Instead of suing the state, they must sue Allentown, he said, contending that the state is immune from such a legal challenge.

While the governor wants out of the suits, Allentown wants in. City attorneys have asked that the city and two agencies become defendants in the lawsuit. The city wants to become a party so it can go before the judge and ask for the court actions to be dismissed on the grounds that the lawsuit does not include every municipality that has residents who work in the improvement zone.

Allentown wants the lawsuit settled as quickly as possible so as not to slow down work at the downtown construction site.

In exchange for ending the suit, Allentown has offered to return the amount of earned income tax that the other municipalities collect and to share in additional tax collections that the development creates. Leaders of at least two communities have rejected that offer.

Source: The Morning Call, "Corbett says state not liable in arena dispute," Matt Assad, May 29, 2012

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