News

June 15, 2001

Astra Zeneca may not be obligated to pay New Castle County or Brandywine School District real estate taxes on the property the state has given for its expansion because of the way in which the company has come into possession of that property, Delaforum has learned. A company official said, however, that Astra Zeneca at this point is neither looking for nor anticipating a county tax break.

The company, in fact, has begun the process of budgeting payment of the initial tax bill when the first phase of the expansion is completed next year, according to Arnie Caine, project manager. What that amount will be will not be known until the value of the new buildings is determined.

County tax records show that the company, with about 1 million square feet of building space in its existing complex, was billed, and presumably paid, $371,307 in county property tax and $800,996 in school tax this fiscal year. First phase of its expansion involves about 350,000 square feet, or about a third of the present area, on state-owned land. Eventually, the company will add about 1.8 million square feet there.

The tax  issue came to light as part of an effort to determine  the full extent, in terms of direct and indirect costs, of the public commitment to supporting the expansion and highway and other infrastructure costs associated with it. As Delaforum previously reported, that is approaching $150 million.

Delaware Economic Development Office data noted that Astra Zeneca is leasing the property commonly referred to as the Blue Ball Triangle, for a token $1 a year. Since the option evidently was available for the company to purchase the property for a buck and be done with it, the question arose as to why a long-term lease arrangement was worked out instead.

One obvious explanation would be that the land would remain government property and therefore be exempt from taxes. That, it turns out, may have been only partly correct.

A knowledgeable county sources initially told Delaforum that a tax exemption was not in the cards because the law provides that it applies only when government property is used for 'governmental purposes'. As specifically listed in the county code, none of those purposes would seem to apply in this instance.

The same source, however, later came back to say that the county lost a court case in 1975 when it challenged a tax exemption for the Delaware Turnpike rest stop near Newark. Superior Court ruled that property, indeed, was tax exempt. Its apparent reasoning was that the law exempted both government property used for any purpose and property owned by another entity and used for a recognized 'governmental purpose'. An example of the latter might be a privately owned property leased for a purpose like a state service center. For whatever its reasons at the time, the county evidently did not appeal the decision to a higher court.

The situations, the source was quick to point out, are not the same. In the court case, the  Delaware Turnpike Authority, a government agency, owned both the land and the buildings and the commercial entities which operated the restaurant and motor vehicle service station were concessionaires. With Astra Zeneca, the state will own the land but the buildings will belong to the company.

As Delaforum now understands it, the county government's position is that it is assumes taxes will be due and looks to collect them in the normal course of events. How much the tax bill will be is uncertain because it is, of course, not possible to assess the buildings until they are finished. The earliest any tax on them would be due would be at the end of September, 2002.

"My impression is that we are going to pay our county and school taxes," Caine said.

He explained that the purpose of the lease arrangement was to take full advantage of the state corporate income tax incentive which applies to all corporate expansions. Any company which increases its Delaware workforce in an area targeted for economic development is entitled to a credit of $650 per new employee plus $650 for each $100,000 of new investment. One of target areas listed in the law is any property "owned by any level of government or its agencies."

Astra Zeneca is looking to increase its headquarters workforce by nearly 3,000 people by the time the expansion is completed in 2007. The company has estimated its investment in the expansion will come in somewhere between $200 million and $250 million.

Addition of a significant number of relatively high-paying jobs -- which will contribute not only taxes but also to the general economy of the state -- was given as the reason the Delaware Economical Development Office and the Governor Thomas Carper administration went to great lengths to attract the merged pharmaceuticals company's North American headquarters after European-based Astra and Zeneca combined.

The lease arrangement with its resultant jobs and investment tax credits was part of the incentive package, Caine said. As far as can be determined, state officials have never disclosed the complete contents of the package and related costs in a single document or place.

A Delaforum attempt to pull together cost information discovered that the known total is almost two and a half times what the state of Illinois and the city of Chicago combined expect to put up to lure Boeing Co.'s world headquarters to the Windy City. And the Illinois legislature reportedly is having second thoughts about approving the full amount of its share of that purse.

The latest Blue Ball Project accounting showed $127.1 million worth of roads, stormwater management and park development. That was up from $80 million projected a year ago.

The new figure does not include what will be involved if Delaware Transit Corp. plans to establish 'park-and-ride' bus service into Pennsylvania, where the employees the company plans to place in its expanded Delaware offices and laboratories live, materialize. That was put at $149,400 for initial capital costs and first-year subsidy.

Blue Ball spending would be on top of $16.9 million in land acquisition and an estimated $5 million fiscal impact of an annual state tax credit matching the federal research tax credit. The state research credit was specifically enacted by the General Assembly as part of the Astra Zeneca arrangement although other 'qualified' companies could take advantage of it.

While state economic development officials and others can correctly assert that the company will not receive anywhere near the full $149 million Delaforum calculates is the total state commitment, it cal also be argued that the Blue Ball Project and the road building would not have occurred -- or would not have occurred anywhere near as soon -- had the company not been convinced to expand at the Zeneca site in Delaware rather than the Astra site near Wayne, Pa. State transportation secretary Nathan Hayward confirmed that in a talk before the Council of Civic Organizations of Brandywine Hundred.

Be that as it may, the $61 million package that convinced Boeing to choose Chicago over both Denver and Dallas as site for its headquarters, being moved from Seattle, consists of $41 million in state grants and tax breaks spread out over 15 years and city tax relief amounting to $20 million over 20 years. Legislative leaders in Springfield are calling for eliminating from the state package such things as paying some of the aerospace giant's moving expenses. By way of perspective, it should be noted that Boeing has promised to bring only about 500 jobs with it.

© 2001. All rights reserved.

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