Designating Tax Abatement - Vacant Land Adjacent to 3305 Lathrop Drive - Gateway Plaza Real Estate, LLC

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»> Robert Mathia 10/16/08 9:58 AM »> Hi Rev. Rouse, The impact of the proposed project can be looked at in two ways. First, one can look at the financial impact of the project on City revenues. If the project is not completed the City would continue to collect $461 per year in tax revenue on the vacant property. If the project is completed as planned the City will collect, during the tax abatement's projected five-year term, an average of $22,043 per year. The net increase in tax revenue to the City is $21,582 per year. At the end of the five-year tax abatement term the City would begin receiving $45,097 per year in revenue. The net increase here is $44,636 per year. As an incentive the City is abating an average of $22,993 per year in tax revenue over the five-year abatement term. The abatement is in effect the investment the City is making to increase its tax flow. The total the City is investing in the form of the abatement over the five-year term is $144,965. Assuming the project has a useful life of only 20 years (most projects of this type have 30-year or longer life spans) the City will receive a total of $777,450 in increased revenue as a result of that investment. If you look at the present value of each of these funding streams, and assuming a 6% rate of return, the amount of increased revenue the City will receive is approximately 4.28 times its investment ($90,911 + $323,948/$96,855 = 4.28). That is for each dollar the City invested in the form of abated taxes, valued in today's dollars, the City will receive ,over the twenty-year life of the project, the equivalent of $4.28 in increased revenue valued in today's dollars. Further, as noted in my previous a-mail, the City will incur very little in the way of increased costs for police and fire protection because the project is in an area that is already well built up. So, the increased revenue is clear profit for the City. On the economic impact side of things, the funds spent on the project construction (estimated at $1,480,180) will generate employment in the construction trades. It will also provide business to various firms that supply materials for construction. But the money used for the project is not just spent once in the local economy. The economic impact conservatively can provide a boost to the local economy in the form of a multiplier of at least 2 times the initial cost of the project as funds spent on the project move through the local economy and are re-spent. The construction workers and material suppliers spend the money they earn to buy items they need in the local economy and the money is then re-spent by those receiving payment. The project's post construction impact on the economy in the form of employment is difficult to forecast. However, a rough estimate follows. The equivalent of at least one-half time job will be created just to manage and maintain the building. The building's plans call for it to be demised into seven units. Businesses normally move because they need additional space to operate in. When they move they tend to add new employees. Assuming the building is demised into only three units, it would be safe to assume that at least one new, full-time job would be created by each of the companies moving into the three units. In response to a request for additional information, the petitioner surveyed the tenants in the existing buildings at Gateway Plaza to determine employment levels and salaries. Four of the tenants responded. Together they have 28 employees and their average annual salary is $53,533. If each of the three full- time jobs pay just $45,000 per year and the half-time equivalent job pays $20,000 per year, a new total annual payroll of $155,000 would be added to the local economy. One final note, just as the State of Indiana has embarked on a program of establishing "shovel ready industrial parks" to facilitate the establishment and expansion of businesses, the availability of the space provided by the proposed project will also facilitate the growth of business in the local economy but on a smaller scale. I hope the above answers your questions. Bob Mathia Assistant Director, Economic Development 574-235-5835 rmathia@southbendin.gov