Once the Steel City Terrace public housing complex in Farrell is razed and rebuilt, Mercer County Housing Authority will be under no obligation to pay real estate taxes on its federally subsidized units.

The authority could keep the current system of making what is known as a payment in lieu of taxes to the city and Farrell Area School District. The authority pays about $9,500 to the city and $8,000 to the district each year.

But the authority will want to increase the amount of money it pays to both, said Executive Director L. DeWitt Boosel.

"To my knowledge, there is no requirement to do it," he said. "It’s something we put in the package."

The package is the application the authority submitted to the federal Department of Housing and Urban Development for a Hope 6 grant. The federal government agreed to contribute $9 million, which is about one-third of the estimated total cost.

Steel City has 100 federally subsidized apartments. The authority plans to knock them down and buy vacant lots and properties with abandoned houses to build new structures.

When the project is finished, 74 public housing apartments will be restored, and 61 more units will be either offered for sale or rented at whatever the market will allow.

The sale and rental buildings will be fully taxable. The public housing units will not be on the tax rolls.

"Real estate taxes are a big issue in any community," Boosel said. "We are doing a mixed-income community. Hopefully, they will be better able to pay for these services."

Boosel said it hasn’t been decided how much the authority will pay, but both city and school officials will probably be involved in discussions.

"It’s going to be a larger amount," he said. "It’s going to be a more realistic number in terms of services. It won’t be 100 percent."

It also hasn’t been decided if the authority will sign a formal contract with the city and school or shake hands on it.

The authority won’t pass the cost of additional city and school subsidies onto tenants, he said. Rents will continue to be based on income.

The authority also will not be able to pull a higher subsidy from the federal government just because it is paying more to Farrell, but maintenance of the new apartments should cost less than with the existing Steel City buildings, Boosel said.

"The management (of the apartments) becomes a vital issue," he said. "We only have the same pot of money as far as public housing is concerned. We will get no more money."

The complex will be managed by Pennrose Properties Inc., Philadelphia, the partner of developer Ralph A. Falbo Inc. of Pittsburgh. The authority will give up management and lease the properties to Pennrose.

"The housing authority will take on a new role," Boosel said. "We will take more of a regulatory role."

The authority will make sure the apartments are managed according to the federal regulations the authority lives under, he said.

The lease arrangement is already important because developers are seeking tax credits from the Pennsylvania Housing Finance Agency.

Tax credits are sold to investors, who take credits on their federal taxes.

Investors want to see prior experience in managing tax-credit properties, Boosel said. The authority has no experience in that but Pennrose does.

Pennrose likely will get a three- to five-year lease with a renewal option.