December 31, 2020
The City Council of Salisbury, Maryland all voted unanimously on what is known as the HORIZON Program. For those of you who are unaware of what the HORIZON Program is all about, it entails designating the Enterprise Zone in Salisbury as a Residential Zone, in order for investors and developers to receive government perks and benefits for building in an urban low-income area in order to improve the area, provide housing, and stimulate economic growth. Proposed are six mid-rise complex buildings, which would consist of apartments and retail spacing.
As an incentive to build, the City of Salisbury has proposed a 20-year tax credit for investors/developers who build in the designated Horizon Residential Zone. This can only happen if they are able to get the Wicomico County Council’s letter of support, which is required to have the legislative zoning changes approved by the State of Maryland.
How this works is that investors/developers are given a City and County tax credit over a period of 20 years as an incentive to build. In other words, the City and County would pay the property taxes on behalf of the investor/developers though exemption. Although this is a loss in revenue for both the City and County for a term, it is considered by officials and special interest groups to be a capital investment, which the losses will be recouped after the tax credit expires.
The city of Salisbury presented their plan to the Wicomico County Council on December 1, 2020 and requested a letter of support and a vote on that day if possible. The council has decided to revisit and address their support at the next work session on January 5, 2021. The problem is, there is great concern from citizens that this is being ramrodded during a pandemic without the public really knowing what it’s all about. Where’s the public discussion?
What is the incentive for investors and developers?
The incentive for investors and developers is millions of dollars in tax credits over a period of 20 years. In addition, these landlords will charge the assessed market value per square foot or per unit. Landlords typically include their property taxes in the equation of their leases, so this would appear to result in a double-dip. In other words, the landlords would not have any city or county property taxes. Yet, they would be collecting the padding for property taxes as the market allows. As a result, the landlords would generate additional income on what would otherwise be tax revenue. They would also receive a fixed tax rate for 20 years, while everyone else’s property tax goes up.
How will the HORIZON Program affect neighboring buildings & properties?
The anticipation would be to drive up the value of surrounding properties. Who doesn’t want the value of their property to go up? In some cases, it can be a concern. The concern is that unimproved buildings would have a higher tax base then they had previously. Their tenants may not be able to afford a higher rate, forcing them to leave. If a landlord is not in a position to improve their building, then they would be forced to sell, as the higher property tax rate is unjustified as compared to nicer buildings that surround them. Between housing and retail office space, this could potentially displace people and businesses if not carefully implemented. The HORIZON Program is textbook Gentrification, which is the process whereby the character of a poor urban area is changed by wealthier people moving in, improving housing, and attracting new businesses, typically displacing current inhabitants in the process.
Are municipal politicians, officials, and administrators excluded from receiving HORIZON benefits?
This is a good question of ethics, but there are buildings within the designated HORIZON zone that knowingly have interest by officials. To avoid impropriety, these individuals should be excluded from receiving any tax credits from the HORIZON Program, and also recuse themselves from voting on this matter to avoid a conflict of interest within the Councils and local government administrations.
If an Enterprise Zone is approved to become a Residential Zone, each zone having its own special tax benefits, can an investor/developer derive benefits from both zones?
It is possible that an investor/developer can receive residential tax incentives and then form a corporation at the new location to derive further tax benefits as a new business in the enterprise zone. It's completely legal, but should be considered by officials when determining a reasonable incentive. Officials must establish a line of ethics without going overboard by over incentivizing. Citizens expect fairness.
What about the lost revenue as a result of the tax credit?
The stated purpose of these buildings is to create residential apartments and retail storefronts. In the work session before the County Council, a comment was made by the City’s acting mayor that “these are not going to be people with a lot of children impacting the school system.” One of the 197-unit apartment buildings that will be developed and operated by a company called MacKenzie Multifamily Management, LLC. Therefore, it’s hard to believe that families will not be living in any of these units/complexes or have any impact on Wicomico County’s public school system. With 50% of the County dollars going to support our school system, who will pay for the children occupants who attend the County school system if we are not generating revenue from those who occupy these units?
No matter if a tenant has children or not, they have an obligation to contribute to society and support public infrastructure. With the years of loss from these tax credits, who will pay the County's expense of $3,292.48 that goes toward education for each student? The City of Salisbury does not contribute to the local school system, so Wicomico County would absorb more of a loss resulting from the proposed HORIZON deal. Not only is there a loss in revenue required to pay for each student, but the student becomes an expense to the County, as it now has to pay out in addition to the tax credits it has already lost in revenue.
Another concern is that the citizens’ property taxes can naturally go up over time, as the taxpayer might have to compensate for the loss of any municipal tax revenue as a result of these projects. In the end, the HORIZON tax credits could end up costing the citizens way more than proposed or on paper. There is a much bigger picture that needs to be discussed. Meanwhile, it is presented as: "Let's support the HORIZON Program and get the legislation passed. Then we'll work out the details later." Does this all sound familiar?
What are some recommendations that officials should consider in order to make citizens more comfortable with the Horizon Program?
The citizens will support what benefits them the greatest. If a small portion goes to municipalities in order to improve infrastructure, then that’s great. In the end, everyone should win. Based on the limited details of this program, everyone seems to win but the citizens. Understandably, it takes money to make money. The issue at hand is where the money comes from. Most citizens agree that they should not have to finance someone else’s dream.
How can the City, County Council, or State make an informed decision on this program when they have not received a cost benefit analysis for each building, including the projected income, what the rental cost of these units will be, what the pricing per square foot in retail space, etc.? Also, why should the City and County lock in a fixed property tax rate for 20 years, and not expect the investor/developers to lock in a fixed rental cost for their tenants for a period of 20 years? Was an economic and environmental impact analysis performed, including the effect on the vulnerable and low-income population? What will the impact be on the schools? Were traffic flow and parking surveys conducted around each proposed building site? The citizens expect their elected officials to ask these reasonable questions (among other questions) before signing the dotted line.
Things the County should consider before supporting the HORIZON Program:
1. The investor/developers should pay at least half of the taxes to support City and County infrastructure. If a tax credit is issued by the City and County, a shorter term would be more realistic. For example, a tax credit for a portion of the taxes for each year, for a maximum of 5 years (instead of 20).
2. The priority of the taxes should first go toward supporting the school system.
3. Require 15 percent of the apartments in each complex to be allocated for low-income housing.
4. The City of Salisbury could match Wicomico County’s losses for any educational expense resulting from the HORIZON tax credit, and designate their match to support the homeless population in Salisbury.
5. Require investor/developers to lock-in rental rates and retail space cost per square foot for the term of the tax credit.
6. Leave the County entirely out of the City's deal. The City could provide a tax credit to investor/developers and the County would supply none.
7. The City and County have a choice not to offer any tax credits, making investor/developers take their own risk in a free enterprise society. Local government involvement is seen as a gentrification plan before the people, which the HORIZON Program can be considered a racist economic growth plan at the expense of the taxpayers.