Lancaster city officials are fuming after efforts to create a small-business-friendly loan and grant program was quashed by the state.
Earlier this year, City Revitalization & Improvement Zone program officials unveiled the proposal, designed by a task force to democratize access to CRIZ assistance.
But the state Revenue Department gave the initiative a thumbs-down in a letter sent to the city this month.
At present, hundreds of mom-and-pop enterprises fill out the program’s time-consuming paperwork each year with no expectation of ever benefitting directly. Instead, almost all the funding has gone to larger projects.
“All shapes and sizes” of business in the CRIZ should have the opportunity to use it, Mayor Danene Sorace said.
Undeterred, local officials plan to confer with state Rep. Mike Sturla and state Sen. Scott Martin, then meet with the Revenue Department and other state agencies involved in CRIZ administration, said Randy Patterson, city director of economic development and neighborhood revitalization.
So, what’s at stake, and why is the state balking? Here are some questions and answers:
What is the CRIZ and how does it work?
The program annually returns state and local tax revenue paid by businesses in a designated zone to the local CRIZ Authority to fund economic development. Each business in the CRIZ files an annual report documenting the relevant taxes it paid the previous year. The difference between that amount and a baseline year — known as the “increment” — is returned.
How do businesses obtain CRIZ funding?
Businesses can apply to the CRIZ Authority to have a portion of their individual increment returned to them to pay debt service on eligible projects. It comes to them regardless of what happens in the rest of the CRIZ, which gives them predictability in their financing. The authority can also issue debt on its own.
Have any small businesses been approved for CRIZ aid?
A couple of restaurants have, including Max’s Eatery, which opened after securing approval, and 551 West, which is awaiting the state’s OK after being approved locally.
What is stopping others from applying?
The main reason is dollars and cents. Many projects a small business might undertake — a facade improvement, for example — would be worthwhile, but wouldn’t generate enough additional increment for CRIZ participation to help much with debt service. (Max’s and 551 West do expect to create substantial increments, so the program made sense for them.)
In addition, the business to find a conventional lender willing to extend the loan, Patterson said. With today's expensive underwriting requirements, that can be tough: Banks tend to want to make big loans, not small ones.
How would the proposed program solve those problems?
The CRIZ Authority proposes setting up a revolving fund. The money would come from a bond issue, with the authority paying the debt service with annual CRIZ revenue. The result would be a stable pool of money that's available year-round. Eligible businesses could apply for low-interest loans from the authority rather than going to a conventional lender.
Why is the state objecting?
The Revenue Department’s letter says the way the CRIZ Authority wants to fund the program isn’t permitted under CRIZ law. It says the program would be “inequitable” and that the state already has other assistance programs available.
Is there an alternative?
The CRIZ Authority could choose to make CRIZ funds available for small loans and grants if they’re not allocated to other uses. But that would be “the hard way” to do it, Patterson said. CRIZ funding fluctuates from year to year, and the CRIZ law says funds must be utilized between October and April. Businesses would have to time their projects to coincide with the availability window, possibly only to be disappointed if it turns out there's no extra funding to be had.