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Campaign contributions provoke cries of crony capitalism in Martin Tower zoning fight

By   /   November 4, 2015  /   News  /   No Comments

Two developers who donated thousands to the political campaigns of Bethlehem City Council members stand to benefit from a hotly contested change to the city’s zoning regulations.

Norton Herrick and Lew Ronca, who own a 53-acre parcel in the city, have been working with Bethlehem and the state of Pennsylvania for several years to redevelop the property through a targeted economic development program. The two developers could make millions — if the city changes the zoning on the parcel to pave the way for a massive retail development.

Image via Wiki Commons

MARTIN TOWER: Empty since 2007, the former home of Bethlehem Steel is at the center of a 53-acre plot of land that could be rezoned by the Bethlehem City Council on Wednesday night. The developers who own the land would stand to make millions of dollars if the city gives permission to build 1.3 million square feet of retail space on the property.

The Bethlehem City Council is set to make a final decision on the zoning issue at its Nov. 4 meeting, after granting preliminary approval last week.

Opponents of the change say the development of the retail center on the site of the former Bethlehem Steel headquarters at Martin Tower, about a mile from the city’s historic downtown, will hurt businesses in other parts of the city. They also claim some members of the City Council are giving the developers special treatment because Ronca and Herrick have donated to councilmembers’ campaign accounts.

“This is just a handout. This is just corporate welfare, or developer welfare, if you want to call it that,” said Dyanne Holt, an owner of the Apollo Grill and one of the members of the downtown business community that has vocally opposed the zoning change.

Campaign finance reports show Herrick and Ronca gave $10,000 to three members of the Bethlehem City Council this year, including Council President William Reynolds. All three supported the zoning change when it was given preliminary approval Oct. 20.

Rezoning could pay off

To understand how the developers could benefit from the zoning change, you have to understand how Pennsylvania’s relatively new City Redevelopment and Improvement Zone program, CRIZ for short, works.

Modeled after a similar economic development scheme in nearby Allentown, the state awarded Bethlehem and Lancaster with CRIZ programs last year. The cities are allowed to designate certain areas as part of the CRIZ to attract developers, and those developers are allowed to keep a significant portion of future sales and income tax revenue that is the result of their new development.

In short, the CRIZ allows developers to capture tax dollars paid by new employees (income taxes) and new businesses (sales tax) that would have otherwise flowed to the state’s coffers.

The Martin Tower site is the largest of the nine CRIZ sites in Bethlehem. Herrick and Ronca, along with a third developer who is no longer attached to the project, bought the 53-acre property for about $12 million in 2006 – long before the CRIZ existed – and submitted a development plan to the council that called for a mixed-use development of housing and commercial property along with about 50,000 square feet of retail space.

If the City Council approves the zoning change Wednesday night, the developers would be able to change their plans and build as much as 1.3 million square feet of retail space on the property.

Alicia Karner, Bethlehem’s community and economic development director, told WFMZ-TV she believes the site will be eventually be used for “big box retail.” She said such stores cover 100,000 to 150,000 square feet.

City Redevelopment and Improvement Zones in Bethlehem

BETHLEHEM CRIZ: BETHLEHEM CRIZ: The Martin Tower site is the largest of the nine CRIZ sites in Bethlehem. Herrick and Ronca bought the 53-acre property for about $12 million in 2006 and planned to build about 50,000 square feet of retail space. If the city council approves the zoning change on Wednesday night, the developers would be able to change their plans and build as much as 1.3 million square feet of retail space on the property.

Since the CRIZ pays developers in terms of sales and income taxes, it’s certainly more lucrative for Herrick and Ronca to build retail than residential development — which generates no sales or income taxes.

Just how much more lucrative? It’s impossible to know for sure. An analysis conducted by members of the downtown business community estimates the land could be worth as much as $200 million with the new zoning, but it’s possible that number has been inflated. Watchdog’s own analysis showed that the value could climb to around $100 million, but there are many variables to consider, and the developers have not filed an updated development plan during the rezoning debate. The true value of the property, with the new zoning, would not be known until it was put up for sale again.

One thing is clear, though: if zoned for a massive retail space while being part of the state’s CRIZ program, the land would certainly have increased in value by millions. After all, that’s the purpose of the CRIZ program.

Steve Herzenberg, executive director of the Keystone Research Center, a left-of-center think tank in Harrisburg, has some reservations about how the CRIZ program works. Since it redirects tax revenue from the state to developers, he worries it might contribute to an ongoing structural imbalance in the state budget.

Then there’s the question of whether it makes sense to carve out specific zones where special tax policy applies. Herzenberg would prefer to see broad-based property tax reform to give all businesses in Pennsylvania’s struggling mid-sized cities a better chance, rather than singling out certain parcels of land for special treatment, as the CRIZ does.

“Anytime you have a very targeted subsidy for a business or one industry, there are going to be issues with whether that targeted subsidy lends itself to political favoritism, or at least the appearance of political favoritism,” he told Watchdog.

Developers’ donations draw scrutiny

It’s impossible to prove the presence of political favoritism, or a quid pro quo, at play in Bethlehem.

But it’s certainly true the developers stand to gain handsomely from the rezoning, and it’s true they donated to three of the members of the City Council responsible for making that decision.

Screenshot of campaign finance report for William Reynolds

CONTRIBUTIONS: Developers Herrick and Ronca gave at least $10,000 in campaign contributions to members of the Bethlehem City Council this year. Shown here are contributions to council president William Reynolds from mid-February. Ronca would later give Reynolds’ campaign another $1,000 in mid-May.

Campaign finance reports show Herrick and Ronca each gave $2,000 to Bethlehem City Council President Willie Reynolds this year. That may not sound like much in today’s age of multi-billion presidential campaigns, but city-level elections are still small-money affairs – Reynolds has raised less than $36,000 all year, according to reports.

The two developers also gave $4,000 to City Councilman Michael Recchiuti, who has reported raising a total of $19,270 this year. A third member of the council, Shawn Martell, has reported getting $2,000 from the two developers out of a total $15,583 this year.

Those numbers could change when the next round of campaign finance reports are released.

SEE ALSO: Two old warships and the folly of ‘economic development’ in Harrisburg

Reynolds, Recchiuti and Martell were part of the 6-1 majority that voted to give preliminary approval to the zoning change Oct. 20.

At that meeting, Bethlehem Hotel owner Bruce Haines, who has helped organize the opposition to the zoning change, asked the council about the campaign contributions and suggested the three members of the council recuse themselves from the vote.

All three voted anyway, and Reynolds responded to the accusations by flatly denying any wrongdoing or quid pro quo. He has not responded to requests for comment from Watchdog.

“I am proud of the support I have received,” Recchiuti told local reporter Bernie O’Hare, who has tracked the campaign contributions and the Martin Tower redevelopment. “As a city councilman, I have always put the interests of the entire city of Bethlehem first, and will continue to do so for the remainder of my term.”

Herrick and Ronco did not return requests for comment.

It’s also true that Reynolds, the council president, took the unusual step of attending a July meeting of an independent city planning commission to lobby for the rezoning plan. The commission’s approval was a crucial step to getting the plan before the city council this week.

That’s the appearance of political favoritism, at least to Holt’s eyes.

“I don’t think any other resident of the city could go before the City Council and get a zoning change like that, without even submitting a new development plan. Not even for a hot dog cart,” she said. “We’ve got some very strict rules in Bethlehem, but the council is willing to change everything for this one site.”

Herrick, one of the developers, lives in Florida (Ronca is local to the Lehigh Valley). Holt wonders, rhetorically, why he would be interested in supporting candidates on Bethlehem’s council.

The soft authoritarianism of zoning regulations

The Martin Tower rezoning fight, which will come to a head Wednesday night, exposes one of the major problems with the very existence of zoning regulations.

These types of regulations to help organize and order a city — houses over here, industrial facilities over there, etc — but they also give local officials incredible leverage in situations such as this one.

Photo by Eric Boehm

BROAD STREET: Business owners in historic downtown Bethlehem, about a mile from the Martin Tower site, are leading the opposition to the zoning change, which they say would take away some of their business.

Think about it this way: If zoning rules were immutable laws of nature, there would be no question of political favoritism here. But they’re not, and they can be changed. Getting them changed requires currying favor with the local officials who have the power to rewrite how the city is ordered — houses over here, and sure you can put a few big box stores over there, if you’d like.

A mixed-use development provides for healthier development on the site and serves a broader number of users, Karner, who supports the zoning change, told the Morning Call newspaper last month.

“When considering the concerns of all the city’s partners, including small business owners, the school board, nearby residents and the investors in large development projects, the city takes a balanced approach to meet the needs of the community,” she told the paper. “Redevelopment of the parcel is critical, and an amended zoning ordinance is necessary to facilitate re-use of the site in a way that is best for that parcel and the community as a whole.”

It’s easy to see the opposition from the downtown business community as being driven by fears about the prospect of having a massive shopping center on their doorstep.  After all, they were supportive of the Martin Tower redevelopment plan when it originally called for mostly residential homes — bringing new residents who could make a short walk to the downtown business district — and only a small amount of competing retail.

It’s true that the development of a massive shopping complex, with ample free parking and easier access to regional highways, will be a nail in the coffin of downtown Bethlehem, says Holt.

But, she adds, the opposition is really about the process, not the end result.

“We’re not against competition, we’re against unfair competition,” she said, reiterating that she believes the two developers of the Martin Tower site are getting special treatment from the City Council.

“I’m just really disappointed and frustrated. I feel like the people we elected to represent us just aren’t doing their job.”

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Eric Boehm is the national regulatory reporter for Watchdog.org. He lives in St. Paul, Minnesota. His work has appeared in Reason Magazine, National Review Online, The Freeman Magazine, The Philadelphia Inquirer, The Washington Examiner and Fox News. He was once featured in a BuzzFeed listicle. Follow him on Twitter @EricBoehm87 and reach him at [email protected]