HANOVER TWP., Pa. -

Officials in one Northampton County community plan to challenge the way Allentown's Hockey Arena is being funded.

The planned lawsuit has to do with earned income tax.  Supervisors in Hanover Township say state legislation that takes tax money to help pay for the planned Allentown arena is unconstitutional.

It's called the Neighborhood Improvement Zone, or NIZ. 

The law takes millions of dollars in state and local taxes generated from businesses inside the zone and uses it to pay for economic development projects.  In this case:  the Allentown Arena.

But Hanover Officials say the city is stealing the township's money and voted unanimously to start the legal proceedings "to stop the misappropriation of Hanover's earned income tax" under the NIZ.

"I'm confident the law will stand up to legal scrutiny," said State Senator Pat Browne.

Browne penned the Neighborhood Improvement Zone law. 

Under the law, the earned income taxes of folks working in the 130 acre zone can be used to help finance the arena.  Normally those funds are sent back to the municipality where the worker lives. 

Browne says it's constitutionally sound and he's puzzled by the Township's actions.

"The current income tax that's being earned in the zone relating to Hanover Township will be returned to them."

Browne says he's also concerned the project could be delayed by the planned lawsuit.  Making it difficult for the arena to open by the fall of 2013.

"If it goes to court there's a possibility that underwriters could want to delay going to market with bonds to finance the project until the court rules," explained Browne.

We reached out to the mayor to get his reaction to the threatened suit.  He says in-part "bringing a lawsuit challenging the NIZ will be expensive and far exceed any perceived financial impact to the township."  It will also "damage cooperative relationships that have been developed in the Lehigh Valley for decades."

Browne also explained that Hanover benefits from a similar revenue sharing deal put in place for the Sands Casino.  He calls the Township's decision now confusing.