Horizon tax incentive could spur Salisbury progress

By Greg Bassett
Posted 2/25/21

There’s a big hole in the heart of Downtown Salisbury.

Where an office building once crammed with law offices used to be, the historic facade is held in place by steel beams. In a vacant lot …

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Horizon tax incentive could spur Salisbury progress

Posted

There’s a big hole in the heart of Downtown Salisbury.


Where an office building once crammed with law offices used to be, the historic facade is held in place by steel beams. In a vacant lot next door, where an ultra-modern branch for Truckers & Savings Bank of Pittsville was constructed in 1964, a pile of mud and clay sits protected by a wire construction fence.


The properties of 130-134 East Main St. are slated as the eventual site of The Ross, a 12-story, 165-foot structure that would be the tallest occupied building in Salisbury. On the east end fronting Baptist Street, a separate six-story building is planned, with a footbridge over a landscaped alleyway.


When both buildings are completed, the complex will have 79 apartments. The taller building will have an open-air rooftop event center, offices and a ground-floor eatery.


Developer Nick Simpson of First Move Properties first acquired 132 East Main St., which was built in 1921 as the Independent Order of Odd Fellows Building. He later bought the adjoining 130 East Main St.


Then, last year, Simpson bought the old Truckers & Savings bank building -- used for years as headquarters for the Salisbury Area Chamber of Commerce. It was demolished last fall.


Simpson has some serious money tied up in the ambitious project, the likes of which has never been seen on the Eastern Shore.


As he told Wicomico’s County Council in December: “I’m working to build a landmark project that would leave a major impact on the community.”


For now, work on The Ross has stopped, while Simpson works to win development tax concessions from the city of Salisbury and Wicomico County.


The Ross is the poster child for the newly proposed Horizons tax program.


 Incentives needed


 Horizon is the acronym of “Hotel or Residential Incentive Zone,” which officials are calling a plan for tax abatements to incentivize residential development projects costing more than $10 million to build.


While no public projects of such a cost scale currently exist in Salisbury -- let alone in Downtown -- five such projects (and possibly two others) are considered to be in the developmental pipeline.


The total assessed value of the five projects is more than $70 million.


The city has recently spent $16 million upgrading streets, sidewalks, drainage and sewer. Developers and investors have credited the city with building a stage on which big-ticket projects can be built -- and succeed.


According to Salisbury Deputy City Administrator Andy Kitzrow, the city’s point man on the Horizon initiative, those looking to invest in municipalities all over the country look for locations with tax abatements and municipalities with a pro-business mindset.


Horizon is only targeting residential development, not commercial development. State-backed Enterprise Zones are already in place to encourage commercial development.


Salisbury has a strong inventory of commercial development Downtown, but is lacking residential development. The renovation of the Powell Building on West Main Street is about to add to the center-city population, but it’s an accepted strategy that more people should be living in the urban core.


There are other big programs available to developers, such as Pilot, which stands for Payment in Lieu of Taxes -- a way that governments use to help offset some property taxes. There are also Tax Incremental Financing, or TIF, options.


Businesses locating within an Enterprise Zone may be eligible for real property and state income tax credits. Upon application and approval, the zone offers a 10-year credit against local real property taxes on a portion of real property improvements. Credit is 80 percent the first five years, and decreases 10 percent annually to 30 percent in the 10th and final year.


Kitzrow said Pilot programs are not all-encompassing, so city officials have to negotiate with each individual development with different terms. The current Pilots the city offers are for market-rate housing and student housing.


TIF financing is available specifically to help subsidize redevelopment infrastructure and community improvements. He said these can be cumbersome, are specific and any tax-generated dollars have to go to infrastructure projects.


 Horizon status, details


 Because the city and county have different tax rates, each jurisdiction can decide whether to enact Horizon. Salisbury’s City Council has already approved it, and plans on enacting it as soon as July 1.


Enabling legislation is currently before House and Senate committees in the Maryland General Assembly, with approval expected.


The Horizon project zone would include the Downtown area and extend west to the Salisbury Marina and along the North Prong of the Wicomico River, known on the city’s zoning map as the Central Business District, and the Riverfront Redevelopment District.


Salisbury has thus far approved 20-year tax abatements, with credits changing over blocks of years.


During the first five years, developers would receive a 100 percent city property tax credit. In years six through 10, the credit would be 80 percent. After that it would gradually be reduced to 40 percent in year 20.


In return, the city would recoup taxes from a boost in Downtown commerce, as the city’s center adds residents to its inventory of private office buildings and municipal complexes, including the two courthouses, the Government Office Building, old post office and Health Department.


The county would implement its own tax breaks. The hope -- from city leaders, developers and business community representatives -- is that the county would follow the city’s lead.


If not, the hope is that the county would at least enact some sort of tax incentive package to attract investors.


During public meetings so far, however, the County Council appears excessively divided. The seven council members spent portions of two different meetings arguing whether to even provide a letter that state Delegate Carl Anderton could submit to secure enabling legislation.


A tense 4-3 vote finally allowed the letter to be sent, but the discussion revealed a council made up of members with a significant range of views on how to both define taxes and encourage economic development.


Acting County Executive John Psota has made it understood that the proposed incentives would only be on the improved property value -- that way the assessed value prior to any redevelopment would continue to be taxed.


As a result, the county would not be foregoing any current property tax.


Psota has also said there would be a re-evaluation of the continuance of the tax incentive after three years, should certain benchmarks be reached.


 County resistance


 While city officials and the local business leaders have voiced support for Horizon, three County Council members and one county school board official have shown disdain.


“If we want to grow our base, why are we giving this property tax revenue in the form of a property tax credit? I don’t think that’s a good deal for the people of the county,” John Palmer, an elected member of the Wicomico Board of Education, who was speaking as a private citizen, recently told the council.  


Additionally, Councilman Joe Holloway, a Republican who represents mostly eastern Wicomico, has questioned repeatedly whether imposing tax breaks for developers is unfair to residential homeowners.


“I agree with incentives, but this is a 100 percent tax break for five years,” Holloway said in a December council meeting. “I believe in low taxes as much as anybody -- but wow.”


When told by fellow Councilman Bill McCain that the tax incentives would only come when a project was built -- and normal property taxes would be collected in the meantime, Holloway compared the situation to a farmer’s predicament.


“Should we do it for the whole county?” Holloway asked. “I had a farmer today who can’t get his beans out (of the field) because of all the rain.



“Should we give him free taxes because he can’t harvest his crops? It’s the same difference -- there’s not much difference,” Holloway said.


Holloway has also observed that all of the recent attention has been on The Ross and has suggested the program is all for the benefit of a single developer.


City Administrator Julia Glanz said, however, that “many of these projects are at the door talking to investors.


She said that the focus has been on The Ross project “because it’s the furthest along and has been the splashiest,” but Gillis Gilkerson’s development of Lot 1 and a condominium project at the Port of Salisbury are all ready to go.


Current county property taxes on The Ross properties are about $19,000 a year. If the project is a success, however, that figure would be $196,000 annually.


 Horizon proponents


 On the council, McCain, John Cannon and Josh Hastings have voiced support for at least considering Horizon. Councilman Ernie Davis voted in support of seeking the enabling legislation, but hasn’t revealed his thinking.


Holloway, Council President Larry Dodd and Councilwoman Nicole Acle seem skeptical to the point of not making it a county initiative.


In council discussions, McCain recently cited the empty tract at 500 Riverside Drive, across from Brew River restaurant, which over the years has been proposed for a multitude of development projects -- none of which has come to fruition.


“I’ve been in business for 32 years, and for 30 of those years that lot has been vacant,” said McCain, a professional land appraiser.


“No one will pull the trigger because that incentive is not there.”


Cannon has been the council’s most-forceful proponent.


“This is an economic development driver,” he said. “If you see these buildings go in, you’ll see the jobs created, you’ll see people coming down, you’ll see a vibrant Downtown.


“Salisbury has gone a long way in improving Salisbury and this is just one more tool that we’ll have to benefit Wicomico,” Cannon said.


“We have to be pro-business -- period. And, sometimes, pro-business means you have to create incentives.”


McCain agreed. On the question of deferring taxes, he said: “If it doesn’t happen, we get zero.”


Several times, McCain has noted Greenville, S.C., as a community Salisbury should emulate.


Like Salisbury, a river runs through the middle of the city. Going back 15 to 20 years ago, McCain said, redevelopment had stalled in Greenville’s downtown and all of its retail businesses were north of the city on a major highway -- just like Salisbury.


McCain said when city officials provided incentives to the initial developers -- and three or four major projects got off the ground -- incentives could be removed because the city had succeeded in creating a highly desirable business environment.


Said Ross developer Simpson: “Investors can take their money anywhere in the country. And to get it to come here to Wicomico County -- in terms of millions and millions of dollars of investment -- we’re going to need a program that’s going to stimulate jobs, going to create a robust pipeline of future tax revenue for our community that would not be realized but/for a tax incentive program.”  


Brad Gillis, a principal with Gillis Gilkerson, which has a long history of recognizing Downtown’s significance and acting as a major developer, said it is important for the city and county to consider the big picture and long-term future.


“The challenge is to look past one project and look at Horizon beyond specific projects. It’s been framed as a ‘saving of The Ross bill,’, but that is not necessarily the case. This is a catalyst not just for (Simpson’s) project, but for many others.


“The city has done a great job of creating a buzz,” he said, “but this is a tough time to get to the finish line. The win is the timeline. There is a window of time to get your stuff right, get it approved and get on with it.”


He said the city and county “can continue to collect $5,000 to $10,000 per year (in property taxes on an undeveloped lot) or do this and stand to collect multiple amounts over decades.”


Gillis, who has acquired the right to develop the huge parking lot in Downtown Salisbury, said Horizon is essential to his business planning.


“For our project, it’s make or break,” he said simply.


His company is planning a multi-million-dollar project with a mix of retail, offices and residential uses.


Business/academic reaction


Horizon has the backing of both the Greater Salisbury Committee and Salisbury Area Chamber of Commerce.


When interviewed, it’s rather obvious that Chamber President and CEO Bill Chambers is mystified by any possible opposition.


“It’s not just Horizon,” Chambers said. “Anything that drives development and jobs is a good thing. We’re only asking for the same things that other jurisdictions do.”


“The Ross site is generating virtually no tax money,” Chambers points out. “We have to take advantage of our assets or we’re going to be left holding the bag.”


Said City Administrator Glanz: “We want to see development. (To do that) we have to start the market. Having people living Downtown will generate tax dollars for all of us.”  


Dr. Memo Diriker, Director of the Business, Economic and Community Outreach Network at Salisbury University -- who has engaged in voluminous research on tax abatement plans -- said they can be quite effective when tailored to a community’s specific goals.


“Tax incentives are like spices that cooks add to their signature recipes,” Diriker said. “A cook knows what spice to add, usually by rote memory. But a jurisdiction is not a cook. It has to change the recipe to be different for different goals.”


Diriker said it is crucial that a municipality evaluate the potential Return On Investment. Tax concessions can be based on whether the goals are to grow business, increase local employment or increase the number of residents.


All three goals are part of Salisbury’s Horizon program.


“The objectives determine what incentives to use,” said Diriker. “Tried and tested methodologies must be applied with the question being ‘What is the return?


“Sometimes the overall return is better for the community than taxes that come back long term,” he said. “The ripple effects are often unconsidered.”