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Council OKs tax break for Centre

July 25, 2000

Council OKs tax break for Centre



By DAN KULIN / Staff Writer


A tax break for the developers of the new Centre at Hagerstown worth at least $2.9 million and possibly as much as $6.8 million over 21 years was unanimously approved Tuesday by the Hagerstown City Council.

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The tax break is part of an April 1998 agreement under which the city annexed more than 400 acres, including the roughly 79 acres on which the shopping plaza sits, and required the developers to pay to have roads and water and sewer service extended to the property.

The tax break is intended to reimburse the developers for the cost, or part of the cost, of extending the roads and city services to the property.

The tax break comes through a tax increment financing plan, or TIF, which returns a portion of city taxes collected on the land to the developers Petrie Dierman Kughn in McLean, Va., and Developers Diversified Realty Corp., in Cleveland.

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Mayor Robert E. Bruchey II called the TIF a "great financial deal for the city."

Bruchey said the annexation and development increases the city's tax base. He said the city did not have to borrow money to pay for those services to be extended to the site, which is across Interstate 81 from the rest of the city.

"We wouldn't be getting any money at all without it," Councilman William M. Breichner said.

The City Finance Department estimates the city will get an additional $76,000 in property taxes this year as a result of the annexation and development.

"It would have been zero if we hadn't worked this out and annexed the property," Breichner said.

"The city is making more money now than before," Councilman Lewis C. Metzner said.

Breichner also said that because of the 1998 agreement there probably would have been legal problems if the council had voted down the TIF plan Tuesday.

Under the TIF plan, the city receives the base tax, which is based on the amount of taxes that would have been owed on the property if it weren't developed. City Finance Director Al Martin said the current estimate for the base tax is about $50,000.

The city also receives 10 percent of the increase in tax revenue, or incremental tax increase, which is the result of the Centre being built. The developers receive the other 90 percent of that incremental tax increase.

Martin said the city's 10 percent will be worth an estimated $26,000 this year.

For the TIF plan to be implemented the developers had to satisfy certain criteria, including having at least 350,000 square feet of the Centre open for business. An estimated 540,000 square feet is already in use.

The agreement limits the amount the developers can receive from the city, and terminates the TIF plan after 21 years or when the monetary cap is reached.

Under the agreement, the city can reimburse the developers for up to $2.9 million financed at an annual interest rate not to exceed 9.5 percent.

The total reimbursement the developers could receive would be about $6.8 million through the TIF plan. They would get that amount if they spent $2.9 million or more on the improvements, if the interest rate on their loan for that money were 9.5 percent, and if the payments last the entire 21 years.

To get any of the money, the developers will have to provide documentation that shows how much the road and utility extensions cost and documentation of the interest rate on their loan, said city Economic Development Coordinator Debbie Everhart.

If the developers' documents show those improvements cost less than $2.9 million, then that lower figure, plus interest, would be the limit that the developers could receive from the city through the TIF plan.

Everhart said the developers reported that the water, sewer and road improvements cost them about $6.4 million.

A lower interest rate would also decrease the maximum reimbursement. Everhart said the developers reportedly received an interest rate of 10.5 percent on their loan.

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