US Steel Skates away from Lower Hill Redevelopment

Amid declining steel sales and a bleak outlook for the company’s immediate future, US Steel announced that it was skating away from the commitment to relocate its headquarters in the new Lower Hill redevelopment area.  The 28-acre site was once the home of the Civic Arena and is now vacant.  In a sweetheart deal for the Pittsburgh Penguins hockey club, they were given the rights to develop the site and their anchor tenant was to be US Steel.  So what are the ramifications of this announcement?

 

The first, and most obvious, is that the Pittsburgh Penguins have to find a new anchor tenant.  US Steel’s proposed headquarters was to be five stories tall and occupy 285,000 square feet on 2.23 acres.  This is a big hole to fill in the development.  There are very few companies of US Steel’s size who could replace this anchor.  The team may make a pitch to Kennemetal, the tool-making company leaving the Latrobe area to relocate downtown, but this company is also having financial difficulty and may not be willing to use up that much space without a very heavy subsidy.

 

Also the entire project, as envisioned by City officials, was going to be used to throw off money to help the rest of the Hill District through a Tax Increment Finance (TIF) program.  An Urban Redevelopment Authority press release from 2014 noted that the 20-year TIF may generate $22 million in proceeds that could be used in other areas of the Hill.  US Steel was to receive tax credits (New Markets Tax Credits) and abatements (Local Economic Revitalization Tax Assistance) for their headquarters over ten years (approximately $7.5 million) of which they were going to use about half and put about $3 million into a development fund to assist other projects in the Hill District.  TIF money from other retail development would fill the remainder of this fund.  The mixed-use development is to also include a residential component.  Keep in mind that residential developments do not qualify for a TIF under state law (Policy Brief Volume 14, Number 48) so they can’t backfill the project with more residences.  The loss of US Steel puts a potential hole in the redevelopment fund that was going to pay for other improvements in that area.

 

Furthermore, not only will they have to fill the space vacated by US Steel, they also lose about 800 US Steel employees who would have likely been patrons to any retailers occupying the project.  Will this dissuade any retailers or restauranteurs who were in discussion with the team about locating near the anchor tenant?  How wide ranging of an affect will this announcement have?

 

Thus while the team and civic officials are shrugging this announcement off, it puts a serious hole in their plans for the Lower Hill Redevelopment project.  How they fill it, and how much taxpayer money they have to throw at potential replacements, will be worth watching.