STATE COLLEGE — A tax agreement to help the years-delayed Fraser Centre project get off the ground has been canceled, but the developer hopes construction still will start as soon as the end of the year.

Borough Planning Director Carl Hess said the tax increment financing approved in 2007 will no longer be used because the project has lost its cinema component and is undergoing a major redesign. TIF is a redevelopment funding source that allows a percentage of a developed property’s tax increase to fund debt repayment.

Hess gave the example of a site’s taxes increasing from $1 million to $2 million after redevelopment. A percentage of that $1 million increase could be used to pay off the project’s debt.

“The property owner does not pay any less tax,” he said. The funds can be used mainly for public improvements, such as water or sewer or, in the case of the Fraser Centre, streetscaping and the building entrances.

The mixed-use Fraser Centre was first approved by Borough Council in 2005 but has struggled to reach the construction phase, in part due to the economic slowdown.

A main component of the original project was a 10-screen cinema, and much of its financial plan came from Penn State’s commitment to rent daytime classroom space.

However, after the events surrounding former football coach Jerry Sandusky’s arrest in November, the university pulled out of that commitment. That resulted in the theater company also leaving the project, in turn removing the public improvements that would’ve been funded by the TIF agreement.

Hess said, in that original agreement, the borough Redevelopment Authority would have borrowed $2.5 million to loan to developer Susquehanna Real Estate. The company would have repaid that, over no more than 20 years, through TIF.

The RDA had not yet borrowed that money. Hess said it was planned for later in the project, once it started generating revenue. He said Susquehanna could reapply for TIF, based on the redesigned project, but it has not.

“We are able to not need that,” authority Chairwoman Vicki Fong said of TIF. “We are thrilled that they are going to continue investing more than $50 million.”

Susquehanna now owns the land, at the corner of Fraser Street and Beaver Avenue, after making the final payment of a total $3.25 million to the borough in December. Hess said the firm has paid property taxes since 2011.

Borough Council President Don Hahn was the dissenting vote on the TIF agreement in August 2007, though he said he defers “to the will of the majority.” However, he said this week that, while he saw some advantages to the cinema, he believes the project is more viable without it and without the TIF.

“I remember a very wise businessman had told me that most thriving downtowns have a downtown movie theater,” he said. “That may be the case, but I think the reason for that is movies tend to attract a law-abiding crowd of young people to an area that would otherwise be vacant, as downtowns are at night.”

“Our downtown tends to overflow with vibrancy,” he added, laughing.

Since the beginning of the year, Susquehanna has worked to attract mostly commercial commitments to the project, which will include condominium, retail and office space.

The firm must reach an 80 percent space commitment to secure financing and begin construction, and President and CEO Jack Kay said during a phone call with the authority Thursday it has “just about what we need to make the project viable for financing.”

Kay said he can’t yet disclose which companies will fill the commercial space, but that it is a significant amount of national retail, including one restaurant. He said the project will increase in size 20,000 to 25,000 square feet and that the number of jobs created will be “substantially increased.”

“We feel good about what was accomplished,” he said. “I think we will add to the attraction of downtown as a destination.”

Kay said he hopes there will still be the “same enthusiasm and support” for the Fraser Centre when he presents the new plans. The project must receive a new round of approvals from the Design Review Board, Planning Commission and Borough Council.

When asked about his timetable, Kay hesitated to be specific, and said he will receive in the next couple of weeks a determination on whether the new design remains within the project’s financial parameters. After that, and borough approval, financing and acquiring necessary permits will take additional time.

“If we were moving quickly, construction could start in the late fall, early winter,” he said. “It could be that it may end up being pushed into early next year if the weather is too harsh.”

Jessica VanderKolk can be reached at 235-3910. Follow her on Twitter @jVanReporter