Hamilton Crossings TIF - Deal or No Deal?

(originally published May 13, 2013, but still completely relevant today)

The first article in this series described the basics about the Hamilton Crossings TIF and provided an estimate of the property tax impact for an individual taxpayer.  For Lehigh County taxpayers with a home newly assessed at $200,000, the benefit of the project with the TIF is about $1, or about $2 if a similar project was built without a TIF.  For East Penn School District taxpayers, the savings for the same property assessment would be about $28 with the TIF, or $56 without the TIF.  All property tax savings would be lost if the anchor stores pulled out (as the developer says they will without the TIF) and the project was abandoned.

This article looks some issues that the public and its elected representatives should consider during the deliberations leading to approval (or rejection) of their participation in the TIF.  The EPSD meets on Monday at 7:30pm and has a resolution on its agenda at http://www.eastpennsd.org/progfiles/newsimages//may13agenda.pdf.

There is one issue from my review of TIF report and my subsequent conversations with the developer and some of you that I think would be difficult to overcome in order to support this TIF without an adequate answers  The question is:  Why is the developer paying so much for land acquisition?  It’s stated that the reason the money from the TIF is needed is because the land needs intense remediation for damage inflicted upon it during its use by previous users.  Some facts:

1)  The TIF report states that until the recent reassessment, the land generated about $7,000 of property tax revenue for the school district and county combined (page 8).  This would imply an assessed value of about $110,000, and thus a 1990 market value of about $220,000 (the price then of just one executive home in East Penn), which would correlate to a current market value of around $400,000 today.

2)  Under the current reassessment, the TIF report says that the combined property tax is $57,007 (page 8-9), which would imply assessed (and market) value of approximately $2.86 million as it stands today before any Hamilton Crossings improvements (page 22).  Presumably this significant increase in the property’s value is largely due to its fortunate location near the new US222 bypass which improves its accessibility compared to using only back roads like Krocks Rd and Centronia Rd. 

3)   There's a one time non-recurring Act 515 rollback payment (pages 10, 30) for undoing the clean space designation indicates a land value of less than $3 million.  The Act 515 rollback is $38,901 to LC and $157,805 for 5 years.  Taking 1/5 of those payments and using current tax rates of 3.79 and 16.1259, I get an
underassessment of about $2 million dollars.  A more precise calculation would be to use the actual tax rates for each of the five years and apply the 5% interest, but those effects oppose each other, so this estimate won't be that far off, at least for discussion.  This $2.0 million estimate for the under-assessment is congruent with the current $2.8 million assessment (without the project) and a modest value as open space.  It doesn't come close to a $14.8 million sales price.

4)  But the big question is why is the developer budgeting for nearly $16.5 million for land acquisition and closing costs for land that it claims needs so much remediation?  (page 30).  There may be other explanations, including that some of that money would be going for closing costs and other properties or rights of way.   

In light of this, the ultimate question is are the $8 million of bond proceeds really going to enrich the current property holder?  Perhaps the developer should be seeking a significantly lower price for the land from the current owners instead of asking the taxpayers to subsidize this transaction.  Should the community subsidize this project while the owners are increasing their own income?  $15 million is a very high price for land that is presently assessed for less than $3 million.  

I could possiblysupport the TIF if it was clear that the money was going only to make publicimprovements, but that's not clear.  Money is fungible, and it seems too much is going to purchase the damaged ground for the project.

The TIF report also estimates that ultimately there will be approximately 740 jobs at Hamilton Crossings, but only a quarter of those employees will be EPSD residents.  The TIF report estimates the average pay will be $23,000 - thus many of those jobs will be for less than $20,000.  The income tax revenue for EPSD and its municipalities will be equivalent to about $2 per property tax payer divided between the entities.  None of this should be minimized, but the gains are not particularly earth shattering, either.

Three final thoughts:

1)   Who wants the deal the most?  Much effort has been expended by developers over $140 million project.  Would they walk away?  Would the property's owners walk away from a smaller windfall?  Is EPSD really that hard up for money that it never planned on that it wouldn't chance getting the full revenue from this parcel that ultimately is in a very attractive location.

2)  The threat is worse than the execution.  Would the property's owners really walk away from a smaller windfall?  Even half of $15 million could be great for them. Would the retailers walk away?  Would the developers?  $8 million TIF is barely 5% of the total budget and doesn't seem that it would make or break the deal.

3)  There are seldom any real deadlines. 
Speaks for itself.  The present owners are certainly using that oneeffectively.  According to the developer, the anchor retailers are being very selective, and that implies that they aren't in a hurry to go anywhere else.