2007-10-10 Appropriation Committee Report

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APPROPRIATION COMMITTEE REPORT, OCTOBER 9, 2007 TO STM than the corresponding numbers in row (1). Thus we conclude, as one would expect, that if the TIF agreement is not approved but Shire nonetheless proceeds with its full plan, the Town is better off than if the TIF is approved. Similarly, three of four numbers in row (3) and two of four numbers in row (4) are higher than their counterparts in row (1). On the other hand, the numbers in rows (5) and (6) are all lower than the corresponding numbers in row (1). It has been argued that a tax reduction of some $5M to $8M represents less than I% of the expenses that Shire will likely incur in implementing its stated plans over the next 20 years if the project goes forward, and therefore the magnitude of the TIF is rather unlikely to be a significant factor in Shire's determination of the location of the manufacturing facility and additional lab /office space. If this is true, then Shire might be expected to locate the facility in Lexington if the TIF agreement was less favorable to them and possibly even if no agreement is approved by Town Meeting (though one should not forget that approximately $5M in additional investment tax credits from the State will only be available to Shire if a TIF agreement is approved). If Shire's decision, in fact, does hinge upon Town Meeting's approval of the TIF but the TIF is not approved, then one needs to compare the numbers in row (1) with those in rows (3) through (6). If another tenant that wishes to fully develop the 200 and 400 Patriot Way parcels emerges in only one year (see row (3)), the Town scores a win IF the forthcoming development is comparable in assessed value to the kind of development envisioned by Shire. If the new tenant only develops office space, for instance, the property's values will not yield as much revenue as a Shire -like development; this is illustrated by comparing, e.g., the $30.79M in Scenario (I a) and the $19.47M in Scenario (3d). If the wait for a new tenant is two years, it's a wash with a comparable tenant and a loss for a (similarly sized) office space use. If the wait is longer than about two years, the net revenue will be less than under the current proposal. The worst case among those we have considered is one where parcels 200 and 400 are never developed (see row (6)). The results demonstrate a substantial loss for the town relative to that in row (1). It is worth noting that these conclusions are independent of assumptions on future tax rates. Future tax rates only affect the magnitude of the differences between scenarios, not which scenario will net the Town the most revenue. The TIF agreement before Town Meeting presents an opportunity for a significant increase in property tax revenue. If the agreement is revised to be more favorable to the Town or if no agreement is reached, and Shire, counter to statements made to date by its representatives, nonetheless proceeds to build buildings at 200 and 400 Patriot Way, the Town would receive an increase in net revenue that could be as much as 10% larger than that to be received under the Shire/TIF plan. However, if the TIF is not approved and Shire does not develop the 200 and 400 parcels, then, it is highly uncertain as to how and when these parcels will be developed. If this tikes many years, then the new revenue could be as low as 50% of that to be received under the full Shire /TIF plan. We cannot estimate the chances that Shire will proceed with a development of the 200 and 400 parcels even if the present agreement is not approved, nor can we estimate the prospects that other companies will want to build there in the next few years or whether they'll build lab /manufacturing space (which is assessed at a higher value than office space); the chances could be good if the commercial real estate market continues to tighten and remains tight for a while, or they could be poor especially if the commercial real estate market weakens within the next couple of years. It has been a long time since a new office /lab /manufacturing building of comparable size has been built in Lexington. In short, if the TIF agreement before Town Meeting is not approved we put much of the potential revenue increase at risk in order to modestly increase that potential. We do not believe that the risk is worthwhile, and therefore we unanimously recommend approval of the agreement as it currently stands. Page 7 of 18