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HomeMy WebLinkAbout2013 JUNE STM AC Rpt APPROPRIATION COMMITTEE TOWN OF LEXINGTON r� x � cc � la vi ✓I APRIL 19" REPORT TO THE JUNE 2013 SPECIAL TOWN MEETING Released June 13, 2013 APPROPRIATION COMMITTEE MEMBERS Glenn P. Parker, Chair • John Bartenstein, Vice Chair/Secretary Robert N. Addelson (ex-officio; non-voting) • Robert Cohen • Mollie Garberg Alan Levine • Susan McLeish • Eric Michelson • Richard Neumeier• Jonina Schonfeld APPROPRIATION COMMITTEE REPORT TO THE JUNE 2013 STM Warrant Article Analysis and Recommendations This report provides the Appropriation Committee's analysis of two articles with financial impact in the Warrant for the June 2013 Special Town Meeting. Article 2: Approve TIF Funds Funding Committee Agreement(s) Requested Source Recommendation N/A N/A Approve (8-0) The motion will ask Town Meeting to authorize the Board of Selectmen to adopt a Tax Increment Fi- nance (TIF) Agreement between uniQure, Incorporated and the Town of Lexington. The TIF Agreement would cover the property at 113 Hartwell Avenue, which is owned by King 113 Hartwell Avenue, LLC. The building at this address has a total of 102,000 sq. ft., of which 20,000 sq. ft. is currently occupied by another tenant. In order to satisfy their manufacturing requirements, uniQure plans to renovate 52,000 sq. ft. of the unde- veloped space in the building,which will include raising the roof over a 17,000 sq. ft. section. This would leave 30,000 sq. ft. of the building unoccupied. The baseline assessment for the 52,000 sq. ft. portion of 113 Hartwell Avenue that uniQure would occupy is $5,720,000 for FY2014. It is estimated that the assessed value for this portion of the building will be $10,777,000 after the proposed renovations are completed. Thus, in FY2015, the increment to the base- line assessment would be $5,057,000. The TIF Agreement would temporarily reduce the property taxes on the increment in the assessed value due to the renovations; it would not reduce the property taxes on the baseline assessed value of the building. uniQure has agreed to "clawback"provisions that would allow the Town to reclaim a portion of the TIF discounts if the company does not occupy the building for the full 10 years of the TIF Agreement. If the development goes forward, uniQure plans to hire 115 full-time employees with an average salary of $85,000 per year. 1 APPROPRIATION COMMITTEE REPORT TO THE JUNE 2013 STM The proposed schedule for the TIF is shown in the following table. The TIF percentages are specified in the TIF agreement,while the dollar values are estimates for purposes of illustration. uniQure TIF Schedule Fiscal Tax on Full Tax on Net Tax on Tax Relief to Year Baseline Increment TIF % Increment uniQure 2015 $158,922 $137,075 50% $68,538 $68,538 2016 $162,896 $140,502 50% $70,251 $70,251 2017 $166,968 $144,014 50% $72,007 $72,007 2018 $171,142 $147,615 40% $88,569 $59,046 2019 $175,421 $151,305 2% $148,279 $3,026 2020 $179,806 $155,088 2% $151,986 $3,102 2021 $184,301 $158,965 2% $155,786 $3,179 2022 $188,909 $162,939 2% $159,680 $3,259 2023 $193,632 $167,013 1% $165,343 $1,670 2024 1 $198,472 1 $171,188 1 1% $169,476 $1,712 Total 1 $1,780,469 1 $1,535,704 1 18.61% 1 $1,249,915 1 $285,790 The estimated tax revenues from the previous table are displayed in the following chart. The Town would receive the revenue indicated by the two lower (Baseline and Increment) segments of each column, and the tax reductions to uniQure are represented by the top (TIF)segments. Tax Revenue Under the uniQure TIF $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0 15 16 17 18 19 20 21 22 23 24 o Baseline ®Increment 0 TIF Comparison to other TIFs The timing, location, business plans, and scale of development are different for every situation where a TIF Agreement is proposed. Each TIF Agreement also has a unique schedule of annual tax discounts, and 2 APPROPRIATION COMMITTEE REPORT TO THE JUNE 2013 STM a duration that can range from 5 to 20 years. This makes it somewhat difficult to compare TIFs directly, but some basic comparisons are possible. The terms of a TIF are often summarized by two numbers: • the net discount percentage for tax relief on the increment in assessed value, and • the number of years over which the tax relief is granted. Thus, the VistaPrint TIF Agreement granted a 20% reduction over 13 years, and the uniQure TIF would be 19.61% over 10 years, but these numbers alone do not convey the actual magnitude of the TIF. One must also consider the tax revenue that the Town stands to gain as a result of the new development, and the potential tax relief granted under a TIF Agreement. The following table presents all these attributes for the three TIF Agreements that Lexington has considered to date. TIFs in Lexington Increment Duration Estimated Net TIF Estimated Granted To Date in Assessed Incremental (Years) Discount Tax Relief Value Tax Shire Human Genetics Therapies Oct. 2007 $76,450,000 20 $37,092,000 21.9% $9,094,000 VistaPrint Nov. 2012 $22,999,000 13 $6,019,000 20.0% $1,204,000 uniQure $5,057,000 10 $1,535,700 19.6% $296,000 The dollar amounts in the previous table are all based on estimates derived at the time the TIF was grant- ed. For Shire Human Genetics Therapies, the actual increment in assessed value as of FY2013 is approx- imately $105,000,000. This has resulted in tax revenue to the Town above the original estimate, and cor- responding tax relief to Shire. For VistaPrint,the development required under the TIF Agreement has not occurred. Conclusion The TIF Agreement offers a modest reduction in property tax revenue on proposed property improve- ments as an incentive to uniQure to carry out the improvements and locate its U.S. operations in a part of Lexington that is economically depressed. The Town and our residents would benefit from: • The availability of new employment opportunities; • Occupation of vacant building space in an area (Hartwell Avenue) with a vacancy rate that is much higher than the average for the region; • Modest traffic impact given a low-density development in terms of number of employees; • An upgrade of the building space from "office" to "lab/office" which is generally assessed at higher rates; • A resulting increase in property tax revenues; and • Opportunities for growth in the immediate vicinity of the space used by uniQure, should uniQure need additional space in the future. The Committee Recommends Approval of this request(8-0) 3 APPROPRIATION COMMITTEE REPORT TO THE JUNE 2013 STM Article 3: Technical Correction to Funds Funding Committee Article 2 of the March 18, 2013 Requested Source Recommendation Special Town Meeting — Land $7,390,000 CPA Debt $262,500 CPA Cash Purchase off Marrett Road $1,085,778 Tax Levy Approve (9-0) $2,474,222 Free Cash $11,212,500 This Article asks Town Meeting to make a technical correction to the motion which authorized the Board of Selectmen to purchase the property commonly referred to as 33 Marrett Road. The motion under Article 2 of the March 2013 Special Town Meeting specified three sources of funds: CPA Cash ($262,500), CPA Debt ($7,390,000), and Tax Levy ($3,560,000). The $3,560,000 originally assigned to the Tax Levy should have been subdivided between the Tax Levy and Free Cash. This motion will reduce the amount raised from the Tax Levy to $1,085,778 and authorize the use of $2,474,222 from Free Cash(General Fund unreserved fund balance), as originally intended.Note that this does not change the total amount of the original appropriation, only the breakdown of the funding sources. If this action is not corrected the Town's FY2014 budget will technically be out of balance, and the Town may be unable to set a tax rate, and thus unable to issue tax bills,until it is corrected. The Committee recommends approval of this request(9-0). 4