Distressed times... Hawley Borough officials continue to weigh how to balance tax impact on their citizenry, with the needs of the Hawley Silk Mill project and hopes for business development. The first night of the New Year was frigid outside, but the tax abatement workshop going on inside Borough Hall was at times heated with emotion.
No reference was made to the financial distress facing the nation, as lawmakers worked through the holiday at the precipice of a so-called fiscal cliff. Enough was at hand on the local scale, for Borough Council and other local officials to consider.
The workshop was called in combination with the Borough Planning Commission meeting, to get the latter body's viewpoints on the request of Silk Mill partners.
Hawley Silk Mill LLC is asking for tax abatement on the improvements made to the property since the project opened in 2010. The abatement would apply only for five years, and would be done in gradual steps. At the end of the five years, the full amount on improvements would be paid.
This is being asked in accordance with the Local Economic Revitalization Tax Assistance Act (LERTA), a state law meant to help communities promote business and job development. LERTA gives authority to local taxing bodies to temporarily exempt any improvements to certain deteriorated industrial commercial and other business property, located in a designated deteriorated area.
Other businesses could be eligible as well, either new business or expansions of existing business that would meet certain criteria set by the Borough in terms of dollars spent on construction, and number of jobs brought to the area.
Budgets already planned
A problem, pointed out by Planning Commission member Cheryl Sweeny, is that the real estate tax assessments were already done, and local governing bodies based their budgets on expected tax revenue. If delay of payment is allowed on taxes for business improvements, then the question is how the Borough would make up the difference. Council members have expressed concern that local taxes would need to rise, which would negatively impact low income taxpayers.
Of greater impact would be County and especially Wallenpaupack Area School District taxes. If Hawley Borough enacts the LERTA provision, Wayne County and the School District have the option to allow the exemption as well. School taxes make up 68% of the local tax bill; County totals 18% and Borough taxes amount to only 14%.
The 2013 Borough budget included the 2013 re-assessment done at the Silk Mill. The Borough was anticipating approximately $12,000 from the Silk Mill's improvements, money that would not be coming in for the first year of the program. Gradually increased portions would be paid for the four years following.
What the impact would be in dollars and cents for local taxpayers is yet to be spelled out.
Huge tax bill
Attorney Anthony Waldron II, who is one of the Silk Mill investors, said in round numbers that about $12 million was invested in the historic blue stone building, to create a site for a college, professional offices, services and retail space.
They were hit hard by reassessment as a result. The property had been assessed at about $488,800. Taking effect with their 2012 tax bill, the improvements carry an assessment of $4,849,700 (a 1000% increase).
The total assessment on the main building and parking lot is $5,119,600. This doesn't include the Cocoon Coffee Shop or warehouse.
The entire tax bill for 2012 came to $126,169.40.
Out of that figure, $16,713.46 goes to the Borough and $26,636.30 is for the County. The lion's share goes to the School District, $82,819.64.
Hawley Borough taxes had been approximately $3,400 and rose to almost $17,000.
Should the tax abatement be approved, the Silk Mill would still pay the base amount in taxes the first year, and then gradually pay tax on the improvements, in phases.
Justin Genzlinger, a Silk Mill partner, stated that the Silk Mill could face bankruptcy without this gradual postponement. Twenty percent of their tenant rental income goes to taxes, he said.
Waldron stated that the 2012 tax bill is yet to be paid. He explained later in an interview that there wasn't enough revenue to pay the tax on time; they were also hoping that the abatement would be approved.
Waldron said in the interview that they are not planning to file bankruptcy, but without the tax abatement, it will get harder to pay their taxes. The eventual outcome, which they do not intend to let occur, would be for the property to go up for tax sale. With the LERTA enacted, Hawley Silk Mill would have added time to continue to work on attracting tenants.
He also explained that two thirds of the Silk Mill's shortfall in 2013 would be from the tax increase. With the tax abatement they would be close to breaking even. The owners do not anticipate any profit on their investment till after their 20 year loans are fulfilled.
Before the proposal can be considered, the Borough needs to designate an area of town where LERTA would apply.
This was the purpose of the workshop, although discussion spread to whether the tax abatement should be allowed at all. As points were stressed back and forth, sometimes voices raised, although effort was made to regain and keep decorum. One Planning Commission member, Lou Cozza, left the meeting, saying he did not want to express his opinion and say anything he would regret.
Borough Solicitor Robert Bernathy pressed the Silk Mill representatives to be more specific, for justification in designating a distressed section of town. He said it is up to the applicant to make the case at the required public hearing requesting an area be designated. Council is yet to decide to schedule the hearing.
LERTA has a prescribed legal definition for a deteriorated or distressed property or section, which the applicant needs to successfully argue and have approved by the Borough Council.
Waldron pointed out there are 11 vacant storefronts in a three block area downtown, and three empty lots. Census data shows that 19% of families in Hawley fall under the poverty line. Unemployment in Hawley is higher than the average in Wayne County.
There was also the opinion of WEDCO Director MaryBeth Wood that Hawley would apply. In addition, Genzlinger noted, federal agencies already determined by their criteria that Hawley met the "distressed" definition when approving grants for the Hawley Silk Mill.
Bernathy expressed doubt that properties in Hawley fall under the LERTA guidelines. He also said he did not see that the business zoning district had a disproportionate number of deteriorated properties.
Another problem noted was that the LERTA exemption should have been requested when the building permit was issued. Council President Don Kyzer said that this was the opinion raised by the County Tax Assessor John Nolan. Kyzer and Mary Sanders, Council Vice-president, met with Nolan and County Commissioner Brian Smith about the proposal, on Dec. 31.
Normally the abatement would be asked within 60 days of the building permit. As it happened, the Silk Mill's tax re-assessment did not impact them until two years later. This already allowed a delay, although not one that was requested by the Silk Mill partners.
There was also speculation raised if an area designated as "distressed" would negatively affect