The Herald, Sharon, Pa.

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November 7, 2013

Development off to slow start

TIF funding loan payments

HERMITAGE — It’s been about a year since an Akron company was granted a tax diversion plan for a Hermitage retail development.

LRC Hermitage LLC, an affiliated company of Levey & Co., made good on its plan to build a Kohl’s department store, the development’s anchor tenant, but attempts to build in around Kohl’s have been more fits than starts.

LRC made a splash with plans to build an Olive Garden restaurant, a prospect that excited many in the area, but the deal fell apart after city commissioners had approved the plan.

A Longhorn Steakhouse also was abandoned after city approval.

LRC applied for a variance to allow construction of a Pep Boys auto repair shop, but that project stalled before the Hermitage Zoning Hearing Board got to hear it.

Construction has started for a Buffalo Wild Wings sports bar and restaurant, but that and Kohl’s will not generate the taxes required for LRC to meet its obligations under the tax-incremental financing plan approved by local taxing bodies and the state to fund part of the development’s construction.

Should anyone be worried?

Not yet, public officials said.

Under a TIF, the taxing bodies – in this case, the city, Hermitage School Board and Mercer County commissioners – agree to allow a portion of new real estate taxes generated by a development to go to pay off a loan or bond issue used to fund public improvements.

LRC got permission to have 69 percent of the taxes for 20 years be used to pay off a loan made with the help of Mercer County Industrial Development Authority. The money was used to improve the Shenango Valley Freeway between Maple Drive and East State Street, including installing a traffic signal; make storm water drainage improvements; move wetlands; and dispose of environmental hazards.

LRC got its money late last year and completed the so-called infrastructure for Kohl’s and subsequent tenants.

The property has been assessed by the county at $1,422,450 for the Kohl’s site and $265,150 for the remainder of the land, said Michael P. DeForest, county director of the revenue department.

So, LRC is paying taxes, but not enough to cover what is owed under the TIF.

Where is the rest of the money coming from? It’s built into the TIF, said Sarah Davis Buss, MCIDA counsel.

The state requires that two years of interest and one year of debt reserve – principal and interest – be budgeted items in the TIF, she said. In this case, that’s about $600,000 from the about $3.7 million loan.

“At least the first three years, they’re not expected to generate the money needed to cover the taxes,” Buss said.

For the first year of the loan, LRC is making only interest payments, while principal payments kick in the second year.

As LRC is now paying taxes, the amount pulled from the set-aside accounts will be less, and that money will carry over for possible future use, if it takes longer than expected for all of the land parcels to be built on, Buss said.

LRC entered a side agreement with the school board to make a one-time $60,000 payment. School Superintendent Dr. Daniel Bell said the district has received the money, which officials said was about the annual cost of one teacher.

“They have met their obligations at this point to the district,” Bell said.

County Commissioner Matthew B. McConnell argued before the TIF was approved that he doubted the fully built property would be assessed for what Levey had projected, and still feels that way.

The Kohl’s property assessment is less than the $1.78 million LRC had projected in the TIF plan.

However, McConnell said he doesn’t think the county would be on the hook because of a shortfall, so he’s not too concerned. The state would have to make up any shortfall.

“I just hope that this will not affect Mercer County’s reputation with the TIF board that will affect future projects,” McConnell said.

County Commissioner John N. Lechner said it is “a little disappointing” that development is “slow” at the site, but remains optimistic about the future.

“The second parcel is now under development and the rest will come,” he said. “Given the roller coaster that the economy has been over the last couple of years while trying to cover from the great recession, the slowdown from the original development projections is not unreasonable.”

City Manager Gary P. Hinkson also said he is optimistic about the development and its spin-off effect in the community.

“I know that there continues to be interest by national retailers in the site,” he said. “Another expected outcome of the TIF project was the redevelopment of adjacent retail properties. With the new Pizza Hut recently completed and Speedway now under construction, both outside the TIF district, that outcome is becoming a reality.”

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