ALLENTOWN, Pa. -

Lawyers for the city of Allentown and two suburban municipalities that are suing it met Wednesday afternoon, trying to hammer out a settlement that would end a lawsuit over the city's hockey arena project.

The lawsuit threatens to delay, or even stop, the multi-million dollar project.

The meeting came the same day as another legal challenge was filed against the development.

"We had a pleasant chat," is all attorney Jerome Frank, representing the city, would say after the meeting.

What that "chat" consisted of, he wouldn't say; neither would Jim Broughal, the attorney representing Hanover (Northampton Co.) and Bethelhem townships.

Both municipalities are suing over a tax zone that withholds some of their income tax money to help fund the arena.

The money would be held for the project, essentially collateral to obtain loans.

Arena backers have said all along the suburbs would likely get their money back within a year, once the arena zone generates enough of its own tax dollars to pay back the bonds that would build the arena.

Now just getting those bonds is in jeopardy. At stake is potentially $500 million in new development for Allentown's ailing downtown.

"I can't speak for the townships," Frank said when asked whether there was any settlement in the works and if the townships would agree to it.

Mayor Ed Pawlowski, D-Allentown, is floating a plan to let them keep their income tax money, at least for existing employees who work near the site. New jobs created within the district would reportedly still be diverted back into the arena zone.

He said the city would borrow an extra $7 million to $8 million for a reserve fund to pay back neighboring communites, although details of how exactly that would work aren't clear.

When asked what's next, Frank said: "We wait and see what comes.

Late Wednesday, the mayor's spokesman said Pawlowski is also willing to offer up other concessions, but would not specify what those are.

If townships don't accept the deal, Pawlowski is promising a fight.

"If we can't [reach an agreement], and their tactic is just to delay this project after we've worked this out, then we will do what we have to do to make sure that we're rectified," he said Monday.

Also Wednesday, developer Abe Atiyeh filed a second legal challenge to the project, claiming that the Allentown Planning Commission improperly approved plans for three office towers and a hotel at the site. In February, Atiyeh also challenged the arena's initial approval.