STARKVILLE — The city is looking to adopt a new tax abatement ordinance, which could help attract new construction and renovations in certain areas of town.
After the first public hearing on the ordinance at Tuesday’s board of aldermen meeting, Ward 2 Alderman Sandra Sistrunk said this ordinance is “another tool in the toolbox” for economic development.
“The purpose of any economic development is to expand your tax base,” Sistrunk said. “This would only be applied to new construction or renovation of an existing building. … If we can add businesses, expand businesses, renovate, and make businesses more attractive, it expands the tax base, which alleviates some of that pressure on individual taxpayers.”
If adopted, the tax abatement ordinance would allow aldermen to grant businesses exemptions from ad valorem taxes on a case-by-case basis. These abatements could be granted if a business constructs or renovates a building within the “central business district” or “historic preservation district,” which are both broadly defined based on city zoning.
Only businesses that are investing 50 percent of the current appraised building value or $500,000, whichever is greater, would be eligible for an abatement. According to the ordinance, at least 20 percent of the investment would have to be spent on “public facing improvements,” which would include the facade, parking, and landscaping of the building.
Sistrunk said the loss of ad valorem taxes would not be substantial. For example, a $1 million commercial tax evaluation for a project would translate into “less than $5,000” in actual taxes annually, she said.
Aldermen would also determine whether a business is eligible for a tax abatement based on the proposed use of the structure, potential for generating tax revenue, need for development or redevelopment of a specific area, among other criteria. For each business, aldermen could decide the percentage and time period of the abatement, if granted.
Sistrunk said the tax abatement ordinance would only affect properties within the city, but hinted the county may want to adopt something similar in the future.
“The county can adopt a similar ordinance to waive their taxes,” Sistrunk said. “The city can do what the city can do, and the county can hopefully come along and look at this. … But somebody’s got to go first.”
Sistrunk said the city has been using tax-increment financing bonds to help with economic development in the city for decades.
TIFs can be used for public improvements at a development site, such as roads or water/sewage. The developer pays for the project up front, and the TIF bond money is used to reimburse the developer for the cost of the approved public improvements.
Then ad valorem and sales taxes generated at the new site go toward servicing the TIF debt for up to 15 years.
Sistrunk said TIF bonds are currently the “only economic development tool” the city has. Tax abatements would give the city a way to attract businesses without impacting funds for such a long period. Developments like Academy Sports, the Cotton Mill Marketplace, the Parker-McGill car dealership and the Mill at MSU have been supported with TIFs.
Mark Castleberry, owner of Castle Properties, told The Dispatch he “supports the idea” of the tax abatement ordinance, as the ordinance will allow businesses to incur fewer legal fees than they would securing TIF bonds. He said he is planning to apply for the tax abatement program for Castle projects, “when it is available.”
Castle Properties has developed many properties in the city, including Middleton Marketplace shopping center, the Cooley Center, Rex Theater downtown and Triangle Crossing Shopping Center, which now houses notable tenants such as Aldi, PetSmart and Marshalls, among others. Castleberry is currently working to develop the Cadence Operations Center into a professional development building, as well as the old Starkville Korean Presbyterian Church location on Lafayette Street into a space for a commercial tenant.
Castleberry said construction costs for large projects like these can add up quickly, but the tax abatements could help to relieve rising costs.
“Construction costs have increased so very much — easily 50 percent in the past two to three years, making new projects, both renovations and new construction, extremely difficult,” Castleberry said. “We have the challenge of making projects work in today’s environment as much as anybody.”
Castleberry said he hopes the tax abatements will help the city long term, since the city can still benefit from sales tax and job creation once businesses have moved into town. He said the city will most likely “get back a lot more money than they put in.”
“Where the city is giving on the tax abatement, they’re also getting some additional control,” Castleberry said. “Some of the items in here, like 20 percent having to go toward the street facing area … make sense. If you’re getting something, you should be giving something back, which is wise and fair.”
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