Council discussing tax abatement Weigh Silk Mill solvency, low-income concerns
News Eagle - Hawley, PA
Posted Dec. 13, 2012 @ 5:34 pm
Posted Dec. 13, 2012 @ 5:34 pm
» Social News
By Peter Becker
Hawley Council agreed Wednesday night to further discuss designating an area of the town as "distressed."
The reason for this action is to allow application of a state tax abatement program aimed at encouraging business development. The designated area is expected to include the Hawley Silk Mill as well as the commercial downtown district. The Silk Mill investors are the ones asking for the break.
Taxes abated would be only on improvements done to a business property for a limited time. Council would need to set thresholds of when the break in taxes would apply- the amount of money spent on improvements and number of jobs created.
A major obstacle in the discussion, however, is trying to balance Hawley's budget in the interim, without raising taxes. Once Hawley approves the abatement on borough taxes, Wallenpaupack Area School District and the County of Wayne could also go along with the same request, which would impact a broader area than the approximately 1,100 residents in the village of Hawley.
Mary Sanders, Council Vice-president, expressed concern for the large sector of elderly residents in the Borough who would find any rise in taxes a hardship. Borough Tax Collector Barbara Middaugh added that she can sense the concern of many residents who are of low income. She recently sent out notices for the Borough per capita tax, which is only $5.25. Middaugh said she has received 25 calls from residents wondering how they will pay that.
Also burdened by a rise in taxes would be the numerous "mom and pop" businesses, Sanders pointed out, to the advantage of a larger business investor.
Attorney Anthony Waldron, who is one of the principal investors behind Hawley Silk Mill LLC, presented a sample ordinance the Borough can use to enact the tax break. It is based on what other communities in Pennsylvania have done, to take advantage of the Local Economic Revitalization Tax Assistance Act (LERTA), Act 76 of 1977.
As requested, Hawley Silk Mill LLC is not asking for past tax money to be given back, but to permit an exemption on added tax created by improvements to the property over the next five years. The abatement would be phased, with 90% of the tax break allowed in the first year; 80% in the second year; 60% in the third year; 40% abated in the fourth year and only 20% in the fifth year. After the five years, the exemption would end and Hawley Silk Mill LLC would pay the full amount of taxes.
The exemption asked is based on the fact that the investors behind the project were able to save the historic old factory on top the hill, putting in $12 million in improvements aimed at business development and bringing a community college to Hawley. Waldron noted that there were two other parties interested in the building, one who would have destroyed the mill to cart away the bluestone and the other who would have carved it up for self-storage units. Neither, he noted, would have added to the tax base as the Silk Mill group was able to do.
In turn,the Silk Mill has been revitalized as the anchor building of Hawley, positioned at the gateway to the Borough from the direction of Wallenpaupack.
At stake for the Silk Mill, Waldron explained, is the future financial solvency of the project. The tax abatement is meant to give the Hawley Silk Mill LLC time to catch up, while they seek full occupancy of paying tenants. Waldron noted that to get the project going they had to make reasonable tenant concessions and breaks for nonprofit organizations wishing to occupy part of the building. Over 40 percent of the tenants are non-profit.
John Shuman, one of the investors, told of his personal financial sacrifice to see the Hawley Silk Mill project develop.
Waldron noted that their investment may not realize a profit in his lifetime- adding he is 60.
The project was backed with about $6 million in state-backed loans.
LERTA provides for both future business development and existing projects, Waldron noted. While the sample ordinance proposes thresholds of a half million dollars of improvements and creation of at least 10 jobs before the tax abatement could apply, Council discussed lowering the limits. The thought is that there may not be much room for large projects down the road.
Council President Don Kyzer stressed that the borough remains "land locked" in that there is little space to start or expand large businesses.
The Act requires the Borough, upon agreeing to the concept, to establish boundaries of the area where the tax abatement could apply. This must be done through a public hearing where experts such as local tax authorities and representatives from regional economic development organizations could advise if the borough meets certain criteria required by the state.
LERTA sets the boundaries within an area of town the borough would declare are "distressed" or "deteriorated." This set off a round of discussion at the hearing Wednesday. Council members questioned if Hawley's commercial district would apply, since there is a lack of run-down, unsafe or unsanitary structures, ready to collapse.
Council member Elaine Herzog, who recommended that the borough remember to look to the future and consider this as an opportunity to develop business, said that the number of vacant storefronts can be considered as "distressed." There is also a significant turn-over of businesses at some locations.
A "blighted" area can also mean under-served, un-employed areas, not necessarily visual, said Marybeth Wood, Director of Wayne Economic Development Organization (WEDCO).
Silk Mill investor Justin Genzlinger recounted the several grants the project received from federal and state sources, which all determined by their criteria, that Hawley met the definition of "distressed." Council gave them letters of support for these grants on multiple occasions. He said he was surprised that Council is now unclear that Hawley would meet the definition.
Herzog reminded that while it is hard to envision future development, Council would not have imagined the Silk Mill project coming about, five years ago.
Genzlinger pointed out that there are lots ready to be developed, including across from the Hawley Medical Center. One possibility that could be done- the site is yet to be determined- is dormitories for Lackawanna College, Genzlinger said.
Sanders was concerned that the request mainly benefits one or two projects, and said she would rather find alternatives to help the Silk Mill pay their taxes. She was also concerned that what Council decides, will spread beyond the borough, affecting a wider area of taxpayers.
Such was the issue that Benjamin Baker of Palmyra Township-Pike County has; he let Council know that he couldn't afford an increase in his school taxes that this would bring. School taxes account for 68% of the tax bill received by borough residents. The school board has not yet made a decision, but was waiting on what Hawley Borough chooses to do. The school board approved a similar tax abatement program for Pike County, aimed at developing business and keeping existing companies from leaving the area.
Impact on budget
As much as $29,000 to $34,000 in tax revenue would be given up over five years, Councilman Joseph Faubel noted. Faubel, who chairs the Borough Finance Committee, said the amount depends on taking in $10,000 to $12,000 a year from the Hawley Silk Mill LLC.
The Silk Mill now pays roughly $12,000 to $13,000 a year to the Borough just on the improvements. That figure would be revised with ongoing and future construction.
Genzlinger stressed that they are only asking for a slowing down of their tax increase, not taking it away.
The borough's budget surplus is down. To balance the budget, the borough needs to find ways to raise revenue, Faubel stated. To prevent a tax increase for 2013, Borough Council and the Mayor chose to turn down their wages.
Faubel warned that the Borough could face a financial crisis in two or three years, and a significant tax may be looming within five years He questioned if the tax abatement program would stimulate new projects.
The WEDCO Director commended the borough for considering the program. She urged Council to see LERTA as a tool to increase their tax base. She agreed that the thresholds may need to be lower for Hawley.
Faubel advised that something needed to be done, keeping the long term benefit in view.
Sanders asked what could be done about the elderly who worry about losing their homes due to high taxes. "It's not that we don't want to help," Sanders told the Silk Mill investors. "The money has to come from someplace."
"We brought major improvement to the community," Waldron added. "We are just asking a little help so we don't go under water."
Council did not set the hearing date to establish the "distressed" area boundaries. Instead, they voted to proceed with investigating it and agreed to discuss it at the next Borough Planning Commission meeting to get their input. The date is set Tuesday, Jan. 1 (New Year's Day), at 7 p.m.- at Borough Hall.