Allentown, Pa. - Revitalization & Finance

With a favorable site available and good past experience with public financing of large facilities, Allentown, Pa., wanted to build a multipurpose arena and entertainment complex to help revitalize its downtown. At the same time, the city faced a pension obligation that threatened its financial future.

Using two innovative financing initiatives, Allentown today has injected new life into its downtown while resolving the pension overrun that could have forced the city into bankruptcy. For its straightforward approach to meeting the community’s needs, Allentown has been designated a Crown Community for Revitalization and Finance.

“We have changed the whole course of the financial situation for our community,” says Mayor Ed Pawlowski, noting that two municipal bond rating agencies had changed the city’s forecast from “stable” to “positive.” “We’re hoping for a bond market upgrade,” he says.

The $340 million PPL Center, which is located in the heart of downtown, integrates an arena, which is the home to the Philadelphia Flyers’ AAA minor league hockey team, with an entertainment complex, commercial development and a hotel. The city had previously attracted a AAA minor league baseball team with the construction of a baseball stadium.

Using bonds authorized by the state under a Neighborhood Improvement Zone, the city was able to use taxes generated from the zone to repay the debt. The bonds also allow private developers to issue bonds with the same provisions.

With the opening of the center in 2014, the city has brought nationally recognized performers as well as new development to the community, including new office buildings and restaurants. “We got the economic synergy that we were looking for,” the mayor says.

The pension obligation dilemma arose from a poorly designed provision in the police and fire pension plans that allowed workers in 2006 to retire early with huge pension payments. Nearly two-thirds of the entire police force and half of the fire department retired, some at wages of $90,000 per year. With the spike in obligations, the funding of the pension plans fell from 90 percent to 40 percent. The city was faced with mandatory annual payments amounting to 35 percent of its annual budget.

After a full due diligence process, the city devised a plan to lease its water and sewer system to a private operator, with a $210 million upfront payment, no loss of employees and decreased usage rates. With the funds, the city was able to pay off $150 million in its pension liability and retire water bonds. Its annual obligation to pay for pensions fell from $20 million to $2 million.

“We have been able to stop the hemorrhaging,” Pawlowski says. “We’ve corrected the problem.”