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Jeff Branscome writes about Spotsylvania County.

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Cosner’s East Special Tax District moves forward

Just a late, real late, note: Supervisors voted 7-0 after closed session to have the county attorney move forward on the creation of a special tax district for Cosner’s East to help pay for critical infrastructure once the hospital opens in May 2010. Reading the comments on my story from yesterday told me that some people misunderstood what this tax district does. You can debate that, in the end, the people who buy goods from these business end up paying the tax because it is wrapped into the cost of the goods, but isn’t that true with any kind of tax on businesses? It’s late, so tell me if I am wrong.

I am not trying to advocate for any decision, but in speaking with supervisors and some people in the public last night, somehow the impression was left that the county is bailing out Silver Companies. Does my story really leave that impression? How could I have made it more clearer for some average reader?

The county is going to have to have two public hearings: one to amend the proffers with Silver Cos. and another to create the service district. How does a service district operate? Well, let’s use Harrison Crossing as an example. There’s some new roads down that way, and probably more work to come. The businesses that rent or locate to Harrison Crossing are levied an extra tax and that money is used to pay off the road project costs for that area. Last I checked, the tax is 35 cents per $100 of assessed property value.The county still gets the normal tax assessment from the land and businesses. No money is lost. This is an additional tax. 

Silver Cos. owns the land that is likely to be placed in this service district, but we will soon find out if supervisors decided to expand the boundaries to other property. Silver Cos. tenants will pay the extra tax or Silver Cos. will pay the extra tax. But since credit markets are not strong, apparently Silver has had a difficult time securing a loan to build a bridge and some pavement. There’s no credit security to a bridge and pavement, so a bank is going to wonder: What if Silver Cos. goes bankrupt? Then what?

With a 7-0 vote, it is apparent that supervisors believe this is the best way to make sure the road work is done with the least impact on residents.But if you look at the map in the newspaper, I think you can clearly see the importance this infrastructure is for the new HCA hospital. 

 

Now, go ahead and debate their decision here. I hope this all made sense, as it is about 1 a.m. I’m going to bed. 

 

Permalink: http://news.fredericksburg.com/spotsygovt/2009/02/25/cosners-east-special-tax-district-moves-forward/

  • lgross

    The reporting indicating that Silver was seeking a
    change from an earlier agreement and it’s not
    clear what the change is.

    I thought also I heard Mr. Connors talk about a
    TIF – Tax Increment Financing which is a different
    critter from a CDA/Tax district.

    In the latter, an additional tax is collected to pay
    for infrastructure and eventually that tax goes
    away when the infrastructure is paid for,

    In a TIF, some of the existing taxes (not extra
    taxes) are kept for infrastructure in the district
    ….essentially not sent to the county for general
    revenues.

    Kalahari is being done with a TIF district.

    I thought I heard/read that Spotsy/Silver were
    considering a combination of CDA/TAX/TIF district
    but maybe I got that confused with the proposed
    TRICORD project.

  • lgross

    In general – businesses have no income other
    than the revenues they generate by selling
    goods and services.

    Since they have to make a profit (or at least
    break even) to stay viable – any taxes on them –
    are merely passed on to the folks to buy their
    goods and services.

    This is more clear for the sales tax where it is
    broken out on the receipt you get but rest
    assured that other taxes, like the BPOL also get
    passed on.

    Some folks think that in a scenario with multiple
    jurisdictions – that different kinds of business
    taxes – levied or not levied can give one
    jurisdiction a competitive advantage in attracting
    businesses.

    A while back, FLS did a story on the difference in
    electricity costs between Dominion/Fred and
    REC/Spotsy – 6K annual for burger king. Huge
    diff!

  • wizard1073

    I have a business in the Cosner’s Corner service district. In addition to regular real estate taxes, we also pay the 0.35 per $100. Ostensibly, this is going to repay the road work to US 17 and 1 (which was extensive!) as part of the Cosners Corner development.

    When I read your article, I understood you to be saying that Silver Cos. was unable to get the credit necessary to build the infrastructure (tight credit markets!) and needed a dedicated revennue stream with which to secure a loan. Using credit is standard operating procedure for Silver, since much of what they do is flipped to investors following initial development. This just shows that they are especially vulnerable to tight credit markets. This appears to be a good decision by the county to re-arrange how the project is financed.

  • dantelvock

    Wizard (love the name) welcome! Now, let us ask you something: Is that tax you pay rolled into the goods we buy?

    Is the wood at Home Depot in Harrison Crossing more expensive than the wood at the one in Fredericksburg?

    You understood the article. Praise you :)

  • lgross

    Hey Dan. When “wizard” receives his tax bill
    which includes the supplemental – where does he
    get the money to pay for it?

    You would get your money from your paycheck
    but where does the guy who has a store that
    sells stuff – get it?

    In the end – it’s either got to come from his
    profit or out of his own pocket.

    If it comes out of his own pocket – he’s going to
    rethink the idea of having a business that
    requires him to pay as oppose to the business
    providing him with an income.

    You may not find wood priced any different
    depending on the competition but somewhere in
    his products and services – he’s got to get
    enough to pay for his costs and still end up with
    a small profit.

    Where else would a business get the money for
    taxes if not from what they sell?

  • dantelvock

    Have less employees? Pay people less? Hopefully, Wizard answers you.

  • dantelvock

    Larry. No TIF. Silver officials told me a TIF is basically off the table. It will likely be a service district.

    Also, the agreement I wrote about was that silver would pay for these road improvements. They are proffered. So now, the proffers need to be amended (one public hearing) and then the special tax district and the tax amount needs to be approved (second public hearing).

    In a short conversation with the county attorney, he said this was the best option for the county. He brought up, like my story stated, that the credit markets are pretty bad. Also, the stores and prices can likely be competitive because Massaponax (Cosner Corner) already has a tax district. Maybe this tax district will be less, therefore, the commercial that does come there can thrive. Who knows.

  • thatguyb

    Dan, I’ll confess to being one of the ones that initially took issue with the new STD (how do you like that abbreviation), and here is why. In the article, HCA indicated they had already set aside funds for their portion of the development. It appears this was part of their business plan. Silver Cos obviously expected to borrow the money. Making the whole development based on using someone elses money (temporarily) to create money (ALSO a typical business plan). But this gives you the impression that the county is helping Silver Co with thier portion by creating a tax district, whereas HCA is taking it out of pocket, to be recouped by good business practices after opening. HCA is bearing their own risk vs being born by future business owners in the new tax district.

  • dantelvock

    Silver asked for help. They got it. The infrastructure is critical for the hospital. Those are the facts of the story in basic form. You all debate the decision here. I’ll just read :)

  • lgross

    I’m still a bit confused. Did Silver promise
    originally to proffer their share in lump sum like
    HCA ?

    and Now.. they want a STD to pay their share in
    increments from taxes on businesses?

    Are the businesses to be taxed, businesses
    other than those who are already paying a
    special supplemental assessment in the existing
    Cosner’s Corner?

    Will a NEW, separate STD be created around HCA
    to include the allied medical offices that are
    expected to grow up around HCA?

    If I had a map… would I draw two separate tax
    districts – one around Cosners and another one
    around HCA?

    and the second one is one that was not originally
    agreed to but now will be created because Silver
    can not come up with their share of the money
    without a steady source of revenue/funds?

    what was the orig agreement. what is the new?

  • gramps

    Ditto the last lgross post.

  • wizard1073

    To answer Dan and LGross:
    Prices are set to what the market will bear, which may be the same at two geographic locations. All other things being equal, this means revenue is the same. What differs between businesses in and out of the tax district is the expense of being in business. Being in the tax district means higher expense, which means less profit to owners. If profit is too low (or nonexistent, as for startups like me), and if cash flow is tight (also usually the case for startups, but also for cash-strapped big-boxes like Home Depot), then layoffs are probable. Revenue taxes especially hurt businesses that sell elastic goods (see Wikipedia, elasticity of demand), as increases in market price are generally not possible and are therefore destructive to profit.

  • wizard1073

    My reading of the article is that it would be a separate STD from the Cosner’s Corner STD. It makes sense, since the roads to be improved (or built) are different from the ones we are paying for in Cosner’s Corner.

  • wizard1073

    I got off on a tangent (revenue taxes) at the end. That’s a pet peeve of mine.

    On the STD and real estate taxes, they are part of my cost structure, and so I cannot drop my revenues too low. I sell inelastic services, so up to some unknown point, the more I raise prices, the more revenue I see. I occasionally get complaints about how much things cost, and some customers get upset and don’t return, but there are enough customers to at least cover my costs. The recession moves that unknown point downward, so I can’t adjust much higher if my costs go up.

    Healthcare businesses are probably inelastic as well, so should be able to pass on the higher taxes to their customers (and their insurance companies).

    I’ll rant some other time about all of the other business taxes.

  • dantelvock

    It is still unclear and very early in the process of how this plays out. Supervisors or county staff have said NOTHING. All they did Tuesday was order staff to move forward with creating an STD. Where, who, what land, what boundary? No idea. We’ll know soon. I know it doesn’t help, but that’s why there will be two public hearings soon.

  • gramps

    I could not resist this one, Dan. Your grammar fails…”no” or “know”?? Heheh.

  • dantelvock

    wow! good one! I have no excuse like Larry!