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City says tax break would be a win-win deal

April 14, 1999|By DAN KULIN /Staff Writer

The owners and developers of the planned $75 million Centre at Hagerstown shopping complex will get a tax break from the city that could be worth as much as $7.7 million over 21 years, Hagerstown Economic Development Coordinator Debbie Everhart said.

The deal made the project affordable for McLean, Va.-based shopping center owners and developers Petrie, Dierman, Kughn and Developers Diversified Realty Corp., based in Cleveland while keeping existing city tax revenue out of the project, Everhart said Monday.

It is the first time the city has given such a tax break to a developer, she said.

When the developers approached the city with their plan for a shopping center, they asked the mayor and City Council to have the city pay up front to make road improvements and extend water and sewer lines to the property, Everhart said.

Instead, the mayor and council decided to reimburse the developers for a portion of the cost of extending the utilities. The reimbursement money will come from taxes paid by the developers.

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The council capped the term of the tax break at 21 years, and the total amount that could be refunded, which is about $7.7 million under the most expensive scenario, Everhart said.

Under the agreement approved by the City Council in April 1998, the developers will pay Hagerstown at least $42,000 annually in taxes, an amount based on the value of the property before it is developed.

After the shopping center opens, the city also will receive 10 percent of the additional tax revenue, based on the increased value of the property due to development.

Including the base tax payment of $42,000 a year, the city is to receive about $1.9 million in tax revenue from the shopping center owners before the agreement expires, Everhart said.

The other 90 percent of the increase in tax revenue due to development will be put in a special fund and returned to the developers, Everhart said.

The payments from the city will end after 21 years or once the cap amount is reached.

The monetary cap is based on reimbursing the developers $2.9 million plus interest at a rate of no more than 9.5 percent, Everhart said.

Everhart said if the payments go on for 21 years and the interest rate is 9.5 percent, the city could return about $7.7 million in taxes.

Phillip L. Ross, director of development for Petrie, Dierman, Kughn, said extending water and sewer lines and making road improvements is expected to cost more than $6 million.

"This deal puts no taxpayer money at risk," Everhart said. "And it sets the stage for future development. We wouldn't have that future development without the extension of water and sewer and the new access off Route 40."

The agreement included annexation of more than 400 acres. The shopping center will go on about 67 acres of that property. The tax reimbursement agreement does not apply to the rest of the land.

The city will get 100 percent of the tax revenue from any future development on the rest of the property.

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