Council must OK tax break for renovation

The developers for the planned revamp of the Gallery mall could not raise enough money to finish the project without a tax break that must be cleared by City Council, a city adviser on the deal said.

The big reason is deferred maintenance by the city's redevelopment agency, the Gallery's owner. Catching up would wreck a private investor's returns, said John Grady, president of the Philadelphia Industrial Development Corp.

So gallery operator Pennsylvania Real Estate Investment Trust and mall developer Macerich Co. are asking the city to let them keep $127.5 million in taxes over 20 years.

That money would service the developers' $55 million loan for construction, renovation, and other costs. The state and the developers would cover the rest of the $325 million project.

The developers want the city to offer its assistance as tax-increment financing, or TIF.

TIF allows the city to draw a boundary around a project. The city and developers then agree to a baseline tax payment equaling what was generated there before redevelopment. Some of the excess afterward - the "increment" - stays with developers to pay off debt.

The goal is to generate more economic activity - and taxes. If Council approves the Gallery's TIF, the city will be guaranteed the current base of $4.2 million a year in taxes for 20 years.

The School Reform Commission voted Thursday to accept $1.6 million a year.

The city, the district, and the developers then share the taxes beyond the base, with the developer's portion paying back its loan.

The Gallery remake "would not be feasible, without some form of public investment," said Wharton real estate professor Susan Wachter. "It needs some form of public-private reinvestment."