Fiscal Impacts of the Proposed Center for Business & Education

Village of Yellow Springs

A

Report

Drafted

By

Jerry SuttonMember of the Board of Trustees,

Yellow Springs and Miami Township Community Improvement Corporation

[dba: Community Resources (CR)]

September 2013

This report was modeled after one prepared by Kalpana Pareek a WSU Graduate Intern in March 2001 for the Yellow Springs Economic Development Committee. The intent is to update the variables to make the report relevant to the current consideration of the potential impact of the Center for Business & Education property to the tax base of Yellow Springs.

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Abstract

This report provides an updated assessment of the tax revenue impacts that are likely to occur if the Center for Business & Education (CBE) is ultimately fully developed within the Village of Yellow Springs. Both direct and indirect employment impacts are discussed. Distribution of the estimated revenue between the Miami Township, Yellow Springs Exempt School District, the Village of Yellow Springs, and other taxing entities in the County have been calculated based on the effective 2012 tax rates. If the CBE property is developed as envisioned below, total annual incremental tax revenues accruing to local entities will exceed $800 K.

I. Introduction

The Village of Yellow Springs located in the Greene County, Ohio has a population of approximately 3,487 of which about 80.6% are above 18 years of age. According to the US Census 2010 figures used in the 2012 Yellow Springs Cost of Living Report, the population has declined by 7.2% percent over the last decade and 24.6% in the last four decades. [This is the second of two such studies conducted by Wright State University’s Center for Urban and Public Affairs (CUPA) under contract to the James A. McKee Group.]

Two YS Business Retention & Enhancement Surveys also were conducted (1998 & 2009), again under a McKee Group initiative with CUPA. These studies indicated the departure of a number of commercial operations from the Yellow Springs community; most of these departures are attributable to the lack of space for business expansion within the community.

In an attempt to reverse these trends and foster needed economic growth, a committee of local business, governmental and civic leaders launched an initiative to develop a commerce/office park in the village. This body commissioned the initial, 2001 version of this analysis, which served as rationale for advocating a Commerce Park proposal. This initiative ultimately became the Yellow Springs and Miami Township Community Improvement Corporation [dba: Community Resources (CR)], a 501(c)(3) entity, which acquired 46.19 acres in June 2004 for this purpose (see p. 13 for the current general design).

This report is an update to an original 2001 analysis, which uses this site and currently available data, including current, 2012 property tax rates, to project an estimate of the ultimate fiscal/economic effects of the CBE development on the Village of Yellow Springs and other taxing entities. [see p. 10 for the calculations, page 12 for the percentage distribution between taxing entities and the final page of this document (p. 14) for the property tax rates]

The cornerstone of this collaborative public/private initiative is the Antioch University Midwest (AUM) complex, which was complete in 2006; Rev.-10/13 Page 2 of 14

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11.14 of the original 46.19 acres were transferred to AU by CR to accommodate the 95,000 square foot building housing AUM. Today AUM hosts 60.65 full time equivalent employees with an annual payroll of $3.2 M; the Dayton Business Journal estimated student enrollment for the Fall 2013 term recently at 350. For this analysis, the ongoing benefit of the AUM operation will not be included as it is already in hand providing income tax revenues of approximately $48 K and $32 K to the Village and YS Exempt SD, respectively.

The balance of the real property, known as the CBE project, includes approximately 35-acres of currently undeveloped land situated on the corner of Dayton-Yellow Springs Road & East Enon Road west of the AUM property. In 2006/07 CR applied for, and received, Federal Grants totaling $1.01 million to complete the infrastructure in this property. The status of these grants is:

The US Army Corps of Engineers administers one of these grants totaling $596,000 of which $149,000 was provided from local, matching sources. A balance of $412,000 remains under this grant. An agreement regarding administration of these funds was signed between the Corps and Village in April 2007.

The Ohio Department of Transportation (ODoT) administered a $594,000 grant, which was to pay for the design and construction of the infrastructure (road, sidewalk/bike path, sewer, water & ground water management, etc.); under a Local-Let Project Agreement between ODoT and the Village signed in October 2008.

o The contractor provided the preliminary engineering report December 28th, 2009.

o The Stage 3 engineering design was approved & accepted November 16, 2012; it provided a construction estimate of $1.5M.

o In October 2012, Federal action pulled the balance of the funds ($344K).

CR conveyed the 6.01-acre Right-of-Way for the infrastructure installation to the Village in December 2012. With consideration of such common elements as the detention ponds, a balance of approximately 25 developable acres remains. The Village Manager initiated a re-scoping of the approved design to that indicated on page 13, in January 2013 and correspondingly, reduced the engineer’s estimate for construction.

The current engineer’s estimate for completing the currently scoped design of the infrastructure is $1.145 M. As indicated above, $412 K remains on the US Army Corps grant. At an August 19th, 2013 Council meeting, CR requested the Village finance the balance of approximately $600 – 800 K (given contingencies, cost of financing, cash flow considerations, etc.) to complete the intent under the federal agreements. The decision is pending before Council at this time.

II. Assumptions

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Income tax revenues associated with the construction effort, both infrastructure and buildings, was not included in this analysis as it would entail a number of subjective assumptions and a detailed analysis of the division of labor & material.

The CBE project anticipates attracting high tech research, offices, labs, light industry, and product assembly activities with a mix of businesses each with an estimated 5 to 50 employees per business/organization. Over the past decades, there have been a number of commerce/office park developments in the vicinity. No attempt has been made to survey or even catalogue these installations, beyond, the discussion of the Miami Valley Research Park (MVRP) on page 11.

Currently, companies building in such parks do not even consider Yellow Springs during their site selection search at this time. The Greene Department of Development indicated at an August 19th, 2013, Village Council meeting that since January 2012, their office handled 70 site selection queries, twelve of which Yellow Springs was not qualified for consideration since it lacks ‘shovel-ready’ (infrastructure in place) development sites.

Numerous assumptions have been made in order in analyzing the fiscal effects of the proposed CBE Project. In deriving these assumptions a number of parametric analyses were made to assess the sensitivity of the outcome, the tax revenue received by local entities, to given independent variables as indicated below. In each parametric, the other independent variables were fixed at the values assumed in the final analysis and the value in bold font is the base case. The value of the land as been appraised at $270,000 per acre (Miami Valley

Appraisers & Assoc., Inc. appraisal dated 1/19/13). As comparable properties in Yellow Springs;

Parcel: F19-0001-0008-0-0139-00 (0.172 acre) sold 6/27/11 for $45,000 (equivalent to $261,628/acre)

Parcel: F19000100090024800 (1.608 acres) sold 09/13/12 for $379,000 (equivalent to $235,697/acre)

The appraised value for property tax purposes is not necessarily equivalent to sales price. There is, however, a general correlation. While we are interested in what the property will ultimately be appraised at as that determines property tax revenues generated, we will use the assumed sales price. Parcel: F19000100200000500 (11 acres @ AUM site) land appraised by

the County in 2012 at $634,540 (equivalent to $56,940/acre) A total of 533 parcels within the Village are currently appraised a more

than $50,000 on the 2012 property tax rolls; the vast majority of these are residential lots of less than one acre.

Obviously the actual market is unknown at this point; moreover, actual price is subject to negotiation between ‘a willing buyer and a willing seller in a free and open market’. Then too, the purchase price of the land is commonly used as a ‘chit’ in the enticement of developers.

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For the base case of this analysis a value of $50,000 per acre will be used. The following parametric analysis was conducted to determine sensitivity of total anticipated taxes (see: p. 10) to land price:

Parametric of Price/Acre versus anticipated Tax revenue$ / ac. // entity > Village YS Exempt SD Miami Twsp

$25,000 $270,731 $489,552 $35,613 $50,000 $273,137 $499,509 $36,575 $75,000 $276,371 $510,018 $37,538

$100,000 $278,778 $519,975 $38,500 $150,000 $283,590 $539,890 $40,425

New construction is assumed to be 5 or 6 buildings on separate parcels totaling 150,000 square feet of space at a cost of $150/sqft for a total cost of $22.5 million. These numbers are based on an estimate by an area developer. A given building is assumed to accommodate more than a single business.The fact that the Antioch University Midwest (AUM) 95,000 square foot

two-story building resides on 11 of the original 46 acres presents an issue of whether the assumption the 150,000-sqft of commercial space is reasonable. Additionally, one could question the assumed cost per square foot of construction of $150. Although a local major developer offered the assumed numbers, the following parametric analyses were conducted. Again, the base case in in bold.

Parametric of Square Feet versus anticipated Tax revenue

SqFt of space // entity > Village YS Exempt SD Miami Twsp

125,000 $258,700 $439,765 $30,800

150,000 $273,137 $499,509 $36,575

175,000 $287,575 $559,253 $42,350

200,000 $302,012 $618,996 $48,125

Parametric of Price / SqFt versus anticipated Tax revenue

Price / SqFt // entity > Village YS Exempt SD Miami Twsp

$125 $258,700 $439,765 $30,800

$150 $273,137 $499,509 $36,575

$175 $287,575 $559,253 $42,350

The property has not as yet been platted into lots so at this point it could accommodate larger or smaller lots and correspondingly larger buildings or additional structures. If the assumed 150,000-sqft used were in single-story structures it would cover less than 15% of the buildable acreage.

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Of course, tax revenue depends ultimately on the appraised value for the land and improvements as established by the Greene County Auditor. The complexity associated with arriving at the ‘Official’ appraised values is such that for simplicity the above values are used.

Personal property worth over $1 million will likely be incorporated on site; however the State of Ohio has eliminated its personal property tax, so this local revenue source is not available; therefore, unlike the 2001 study, it is eliminated from further consideration in this analysis.

It is estimated that 225 direct jobs (this would be 9 businesses at an average of 25 employees each) will be created and based at the CBE.

It is estimated there will be an additional 112 secondary jobs created within the area, assuming a multiplier effect of 50%. [direct X 0.5].

Income is taxed by two (2) entities within the Village of Yellow Springs are at the current rates: The municipality has a 1.5% tax on earned income; and The YS Exempt SD has a 1% tax on ‘earned & unearned’ income. Due to the vagaries of income tax application across taxing districts, it is

assumed for purposes of this analysis that both direct and indirect jobs created will accrue to the benefit of both of these taxing entities at the above percentages.

Another parametric was conducted on the number of direct jobs anticipated. Using the same multiplier to calculate the indirect jobs, we have the following:

Parametric of Number of Direct employees versus anticipated Tax revenue# of Direct. // entity > Village YS Exempt SD Miami Twsp

225 $273,137 $499,509 $36,575 338 $364,678 $560,535 $36,575 450 $455,113 $620,826 $36,575

III. Methodology

The fiscal benefits to local taxing entities are estimated on an annual basis assuming the CBE is fully operational as specified in the assumptions. The analysis utilizes current payroll and commercial property tax rates, salary ranges, and wage rates are as understood to be prevailing in the Dayton Region.

Although economic benefits of hosting the target industries were identified, the primary justifications for completing the CBE project in Yellow Springs are to benefit the residents of Yellow Springs and Miami Township by adding to:

Employment opportunities for local individuals, Additional residents to fill the job & populate the schools. Increase demand for goods & services in the community due to the

resultant payroll with its resultant multiplier effect, Enhancing the property tax base,

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Increasing Village & YS Exempt SD payroll tax revenue to stabilize the demand for new levies,

Indirect new businesses and employment.

IV. Tax Benefits – Real Property Tax

The tax benefits of the proposed CBE include both the real property tax revenue [assumed at 2012 rates (see table on the last page)] and the additional payroll tax revenue from both direct and indirect jobs/effects. Page 10 includes the detailed computations for both. The price of the improved land (as per the above discussion) is estimated to be $50,000 per acre and construction costs are estimated to average $150 per square foot for the anticipated 150,000-sqft of space. So, the total market value of the 25-acres of developable land would be $1,250,000 and total construction cost would be approximately $22.5 million for a total assumed appraised value of $23.75 Million. In Ohio 35% of the appraised value of Commercial /Industrial real property (land and improvements) deemed the assessed valuation and taxable at the effective millage rate. Multiplying the assessed valuation by the effective millage and dividing the product by 1,000 provides the total property tax. The unique voted and effective millage rate (both Residential/Agricultural & Commercial/Industrial) as applicable to the over 40 taxing districts in the County is included as the last page of this document. Applying the prevailing Commercial millage rates for land and improvement as above, we obtain a total annual real property tax revenue benefit from the proposed CBE project of nearly $635 K for Greene County of which according to the tax tables distribution indicated on page 10 and 14 the taxing entities in Yellow Springs / Miami Township area receives 80%.

V. Tax Benefits – Income Tax

The CBE is assumed to create directly 225 new jobs when it is fully operational, as indicated above. To arrive at an approximation of average annual pay reference was made to a recent compilation of hourly rates for various job classifications in the Dayton Region, which are available at:

http://jobsohiowest.com/wp-content/uploads/2012/05/Dayton-Region-Wages-by-3-digit-SOC.pdf

These data were simplified into broad job categories with expected annual salary using annual hours worked of 2,080 and typical hourly wages from the above. This resulted in the following average annual pay scale:

Categories Average Pay Scale Pay Roll 50 Professional/Engineers $63,500 $3,175,00075 Middle Management $55,300 $4,147,500100 Staff/Secretarial $27,300 $2,730,000

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$10,052,500

This wage/salaries parameter may also be contentious; however; As a point reference, a recent report, Needles in a Haystack: lessons

from Ohio’s high-performing high schools provides an average salary of the teachers of the five public, urban high schools cited as: $66,978.

The MVRP synopsis on page 11 indicates an average salary of $$58,000.

The US Census Bureau estimates the median income for Greene County households in 2012 was $52,544.

Moreover, according to the 2009 Business Retention and Expansion Report cited above, “… 12.7% of employers reported wages under $10 … and 12.7% also reported wages greater than $10 but under $14, while 15.7% reported wages in excess of $14.” Equivalent annual wages would be: $20,800 (@ $10/hr) and $29,120 (@ $14/hr); yet in the open-ended response to the question, “What is the average annual employee wage at your company?”, provided:

o two companies at $41,600 (@ $20/hr), o three companies at $50,000, o one at $75,000 and o one at $120,000.

Under the assumptions in the above table, total annual payroll generated from direct employees would be $10.1 million.

In order to analyze the secondary impacts, a multiplier of 0.5 was applied to the number of direct jobs resulting in the assumption that 112 secondary jobs will be created as a result of the employment increase attributed to the CBE (rounding was used in parametric analysis). The proposed park is in close proximity to nearby retail & residential centers and the compatibility of jobs created to the available YS workforce is not known; therefore, a smaller multiplier was used.

A portion of the direct payroll generated by the CBE may be spent outside the immediate Yellow Springs market, resulting in lower secondary effects. The additional jobs that would be created will generate additional payroll of about $2.1 M, based on the assumption of an average salary of $18,400 per every additional job, which was derived from the same source. This would garner an additional $31 K in payroll tax revenue for the Village and correspondingly $21 K in payroll tax to the YS Exempt SD.

This considered a conservative estimate, since a successful CBE could attract a demand for higher-paying professional services or a different skill mix and the Village could successfully market itself to garner a higher proportion of the resultant disposable income. Due to the current retail mix within the Village, not all the disposable income will be spent within the Village; e.g., items of major household capital expenditure, i.e., major appliances & automobiles, are not available locally. Rev.-10/13 Page 8 of 14

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VI. Summary of Fiscal Benefits & Other impacts

In summary, a total annual tax revenue increase attributable to the CBE shared among the Village of Yellow Springs, the Yellow Springs School District, and Miami Township is estimated to reach $809,221, which doesn’t include the sales tax impact of the additional $12 million in disposable income in the area. Our analysis considered secondary jobs but not secondary construction associated with CBE or any taxes thereon. In reality some of the individuals receiving the new jobs will likely build new homes in the area. Also, some retail and other secondary business construction or expansion is likely to occur but these effects are not included in the analysis. Finally, the potential of the CBE to attract much higher paying professional jobs was not factored into the calculations of tax benefits.

The projected business and population growth associated with the CBE may put downward pressure on prevailing electric & water utility rates in the area by spreading the base cost of production & distribution. The Village of Yellow Springs owns and operates its own electric distribution and water utility enterprises. Since the cost of generating and distributing such commodities is negatively related to the volume generated, the additional utility demand could be an important factor in holding down future utility rate increases or possibly lowering rates.

Finally, the projected business and population growth associated with the CBE could be a factor in reducing pressure for future property tax rate increases to support the existing level and quality of public services.

VII. Conclusions

The job and fiscal benefit estimates accruing to the Village of Yellow Springs provided in this report are intended to be on the conservative side. The Village would receive $91 K of the property tax benefits annually in addition to payroll tax revenue generated from direct and indirect jobs totaling $182 K. The YS Exempt School District would receive nearly $378 K in property tax revenue and over $121 K in income tax revenue. To place this in context, in 2012, total property tax assessed on these 35 acres is $1,058.82, of which local entities will receive $830.00 (see p. 12)

This analysis is intended to give the Village residents a plausible estimate of the downstream jobs and tax benefits when the vision of the CBE project is fully realized. Annual tax revenue accruing to the immediate area is estimated to be nearly $809 K from the incremental capital improvements and salaries of over $12 million. These revenues exceed in a single year the amount needed to complete the CBE infrastructure project.

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Calculation of CBE Impacts: A - Commercial Real Property Tax Impact 1. Appraised Value

Improvement Value 150,000 sqft $150 / sqft $22,500,000 Land Value $50,000/ac. 25 acres $1,250,000

Total Value $23,750,000 2. Calculation of COMMERCIAL Property Tax

a. millageb. appraised

valuec. assessed

valued. roll-back

valuee. Property

Tax76.453913 $23,750,000 $8,312,500 $0.00 $635,523

3. Property Tax Distribution

entity Village YS Exempt SD Miami TWP % of total > 14.39% 59.54% 5.76%

Total Property Tax paid $635,523 $91,438 $378,376 $36,575 $506,388 B - Income Tax Impact

entity > Village IC tax YS Exempt SDNumber of Employees salary/wage / total salaries 1.5% - IC tax 1% - IC tax

CBE Direct (225) - Profess/Engng (50) $63,500 $3,175,000 $47,625 $31,750 - Middle Mgmt (75) $55,300 $4,147,500 $62,213 $41,475 - Staff / Clerical (100) $27,300 $2,730,000 $40,950 $27,300 Indirect (112) $18,400 $2,060,800 $30,912 $20,608

total $12,113,300 $181,700 $121,133 C - Total annual local revenue

entity > Village YS Exempt SD Miami TWP $273,137 $499,509 $36,575

total to local area > $809,221

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Miami Valley Research Park

Miami Valley Research Park contains 1,250 acres of gently rolling land in the eastern Dayton suburban communities of Beavercreek and Kettering. The non-profit Park is a university-related research park affiliated with four local academic institutions including: Central State University, Sinclair Community College, The University of Dayton, and Wright State University. Started in 1984, the Park is designed to attract advanced technology companies and organizations involved in original research, prototype development or the application of technology to products or services.

450 acres are currently developed. The developed acreage has been by:o Individual companies,o 3rd parties (developers) &o The foundation itself (they have 4 structures which provides

operating cash-flow). There are 22 buildings ranging in size from 20K to 750K sqft. The 40 resident organizations have a total employment of 4,000

individuals.o 62% of employees have a STEM degreeo Average salary based on a 2012 survey is $58,000o The size of the 40 organizations range from 2 to 1,200 employees

The nature of the organizations include:o Nonprofits (SOCHE, DAGSI, etc.),o Educational entities (UD, WSU, etc.)o Biomedical researcho Commercial

Defense related & Nondefense related (the bulk of the property).

Examples of companies on campus are:o Booz Allen Hamiltono BWI Groupo Kodako Reynolds and Reynolds Co.o Strategic Leadership Associates, Inc.o Wright State University Center for Global Health Systems,

Management, and Policy Due to the length of time and nature of the business attracted, one could

council ‘Patience’ in pursuing such an endeavor. See: www.theresearchpark.org

The above is based on a review of the MVRP’s website and a telephone interview with the Executive Director 8/29/13.

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COMMERCIAL PROPERTY TAX RATES FOR YELLOW SPRINGS VIL / ESTIMATED TAXES - 2012 Residential Rates

Residential DifferentialTAX TYPE TAXING ENTITY FULL MILLAGE TAXABLE MILLAGE %

COUNTY GREENE COUNTY 12.25 11.906 15.6% 11.277 -5.3%TOWNSHIP MIAMI TP YEL SPGS V 4.4 4.400 5.8% 4.385 -0.3%SCHOOL YEL SPGS EX VIL SD 70.95 45.519 59.5% 39.049 -14.2%MUNICIPALITY YELLOW SPGS V GEN 11 11.000 14.4% 10.289 -6.5%JVS GR CO JVS OUTSIDE 3.45 2.829 3.7% 2.647 -6.4%MISCELLANEOUS GREENE HEALTH DIST 0.8 0.800 1.0% 0.800 0.0%

102.85 76.454 100% 68.447 -10.5%

The Commercial Property Tax revenue generated by a full built-out CBE project in accordance with this analysis will be distributed on a pro rata basis to the entities in the Greene County at the percentage indicated in this table. The corresponding Residential rates and an indication of how they differ from Commercial Property Tax rates is indicated. The differential is attributable to the different valuation trends between the Agricultural/ Residential and Commercial/Industrial categories (see the Rates of Taxation for 2012 on the last page of this document).

tax year total taxes2012 $1,058.82 2011 $894.00 2010 $386.32 2009 $382.30 2008 $375.22 2007 $134.26 2006 $130.54

The above is the CAUV tax history for the 35.113 acres of the CBE parcel [the transfer of the 6.1 acres of Right-of-Way to the Village is not reflected on the property records at this time]. The local 'take' would be ~ 78.4% or $ 830 in 2012.

This depicts the Center for Business & Education infrastructure project on the NW corner of the Dayton-Yellow Springs Road and East Enon Road.