What’s Gonna Work? Teamwork!
Tina Grady Barbaccia | February 26, 2010
What’s Gonna Work? Teamwork!
Teamwork Triumphs over Adversity: A Public-Private Partnership Delivers Infrastructure and Economic Development in Tough Economic Times
by Robert Grubic, P.E., and Matthew Lena, P.E.
Day after day, the same story plays out in headlines across the nation: Infrastructure needs go un-met as local governments struggle to meet their financial obligations with reduced funding, and new construction grinds to a halt due to the tough economic times. But Susquehanna Township, in Dauphin County, Pa., is rewriting this sad tale with a new, happy ending.
Despite an economy in crisis, the township has managed to upgrade a half-mile of roadway near an interstate highway and invite commercial construction that is estimated to create up to 950 jobs over the next 10 years. How did they do it? Teamwork.
The township formed a public-private partnership with a local developer to improve the local roadway infrastructure in order to make a previously unmarketable vacant property into a true investment opportunity.
The 24-acre parcel was within sight of Interstate 81, a major north-south corridor in Pennsylvania that carries a significant amount of truck traffic. However, the local roadway access from the interstate, Kohn Road, was a rural, two-lane road that could not accommodate commercial traffic.
In fact, growth in the township and surrounding areas had already increased the use of the roadway beyond what it had been designed to accommodate, and the road was in need of an improved alignment, widening and new drainage systems before talk of commercial development even began. Already stressed by local traffic demands, it was clear that Kohn Road could not handle the additional demands commercial traffic would bring. As a result, the 24-acre parcel had been for sale for more than three years without a buyer, despite its prime location.
Rick Szeles, president of the Szeles Capital Development Company, saw an opportunity.
“This was a great piece of commercial property with 2,000 feet of frontage on Interstate 81,” said Szeles. “The reason it has gone undeveloped for so long is because no one could figure out how to fix the roadway access.”
But Szeles had seen Tax Increment Financing (TIF) used successfully to address off-site roadway improvements in connection with a mall across town and thought it could work here, too.
The theory behind TIFs is that property values in an area will increase when the improvements are constructed, and new development will likely occur as a result of the improvements, as well. These increases in property value and associated economic development will generate increased tax revenue over time.
However, because market forces have deemed these areas unsuitable for development, the property value increases are unlikely to occur until the improvements are completed. So, the local government temporarily takes on debt to finance the required improvements in order to spur development in the area, which it then defines as a TIF District. Increased tax revenues in the district are then diverted from the taxing entities to repay the debt until it has been satisfied, at which time the TIF district is dissolved.
Szeles approached Susquehanna Township officials with the idea of a TIF, and they were very receptive. Susquehanna Township recognized the benefits this development could bring to the area in terms of job creation and increased tax revenue over the long-term and was eager to work with the developer. After months of negotiations between the township, its engineer, the developer, and his attorneys, the team decided on an arrangement they could present to the local taxing entities: Susquehanna Township School District and Dauphin County.
Szeles would pay property taxes to the local school district and county based on the value of the property prior to construction of the roadway improvements. As the value of his property increased (due to the roadway improvements and the development they would spur), he would pay the money that would’ve been assessed as a property tax increase into a trust that would be used to repay the loan Susquehanna Township acquired to finance the engineering and design of the roadway improvements
In order to make this arrangement happen, the township and the developer had to forge a partnership with the school district and the county to forego tax increases for the period required to repay the loan (10 years). Recognizing the economic development this project would bring to the area and the long-term increases in tax revenue it would create, both the school district and the county agreed to the TIF arrangement.
“Usually, the hardest part is bringing the school district on board,” said Szeles, “but this time it was much easier than normal.” The challenge, Szeles said, is that frequently school districts overlap several municipalities, but this school district had the same footprint as the municipality. Thus, the same taxpayer who would be affected by the temporary reduction in tax revenue to the school would benefit from the improved roadway.
With funding in place, the township authorized its engineer, Herbert, Rowland & Grubic, Inc. (HRG) to provide engineering services for roadway widening, realignment, and drainage improvements along the half-mile stretch of Kohn Road adjacent to the 24-acre parcel. At the same time, the developer, Szeles Capital Development Company, proceeded with a phased construction plan for the development of four office buildings, a hotel and a restaurant on the 24-acre parcel, which has come to be known as the Capital Center. The roadway improvements were completed in July 2009, and, to date far, one office building and a hotel have been constructed and opened for use.
The developer is currently seeking tenants for the other properties as they are developed. When the project is completed, it is estimated that the office buildings, hotel and restaurant will create 950 jobs.
Throughout 2009, commercial office construction experienced declines of 30-40%, and hotel construction declined more than 60 percent, according to reports from the McGraw-Hill Company. But Susquehanna Township, Susquehanna Township School District, Dauphin County and the Szeles Capital Development Company have shown one way public-private partnerships can keep economic development alive in tough economic times while increasing the tax base during the long-term.
Robert Grubic, P.E., has 36 years of experience in municipal and civil engineering and is the president of Herbert, Rowland & Grubic, Inc. (HRG), a consulting firm that provides civil engineering, financial consulting, and related services to public and private sector clients throughout the Mid-Atlantic Region. Matthew Lena is a transportation engineer at HRG and served as the project manager for the Kohn Road improvements project.