Two members of the Riverhead Board of Education asked the Riverhead Industrial Development Agency to deny a request for tax breaks by the Hampton Jitney bus company during an IDA hearing Monday.
They said the loss of tax revenue is hurting the school district, which already made cuts and faces a state-imposed 2 percent tax cap in the future.
But Jitney president Geoff Lynch said the proposed terminal and maintenance building on Edwards Avenue in Calverton “is a big swallow” for the family-owned company financially, which is why they are asking for IDA assistance.
The Jitney, which is located in Southampton and has operated for 40 years, is seeking to expand its business with the Calverton facility, Mr. Lynch said. They plan to continue operating out of the Southampton site while expanding into a second site in Calverton. The proposed $7 million expansion on a vacant 14-acre parcel on the west side of Edwards Avenue, just south of TS Haulers, is not expected to result in big growth for the company for several years, he said.
“In the short term, this is going to be an extraordinary endeavor for us, which is why we’re submitting the application for tax abatements,” Mr. Lynch said.
The IDA can offer mortgage tax exemptions, exemptions from sales tax on construction materials, and a 50 percent property tax abatement on the improvements, so that the tax on the vacant land will remain. The 50 percent tax abatement is over 10 years, and declines five percent per year. The property tax abatement only applies to school, town, county and fire district taxes.
Why does Hampton Jitney need the abatements?
“We’ve approached two local banks, Capital One and Bridgehampton National Bank, and received assurances that financially, we’re in reasonable shape to take on this endeavor,” said David Mankoff, Jitney’s vice president for finance. “But from a business standpoint, we’re kind of like a grocery store, where you have to have a lot of volume to get very little on the bottom line. And that’s our problem as we move forward here. Generating enough cash on an ongoing basis, especially in the first five or seven years, is going to be a real task. So any abatements we can get on the mortgage tax, sales tax, etc., will help us significantly in meeting those cash flow needs. Especially in the first five to seven years, when it’s really going to be necessary.”
He said the company doesn’t expect to see tremendous growth in the first five to seven years, but is thinking long-range by the expansion.
Mr. Lynch said Jitney has about 300 employees and expects to move about 100 of them to the Calverton location immediately. Over time, he foresees as many as 300 employees at the Calverton site as well. The company currently has a payroll of about $8 million, he said.
“We have maxed out our Southampton faclity,” which was built in 1982, he said. Jitney also bought Sunrise Bus in 2006, and serves the North Fork.
In addition, he said the majority of the company’s drivers live in the Riverhead and Shirley areas, because they can’t afford to live in Southampton, so having the Calverton site will help recruit employees.
The pay rate for the company’s employees runs the “full scale,” he said, from janitors to technicians making up to $28 an hour to administrative staff making more than that.
But Riverhead Board of Education president Ann Cotten-DeGrasse and board member Amelia Lantz asked the IDA to deny the request for abatements.
School board members have asked the IDA to reject other such requests in the past, going back several years.
Ms. Cotten-DeGrasse said that while the school board supports the development of businesses in the community because it increases the tax base, she can’t support a proposal that will negatively affect the school district.
“If you grant this tax abatement, it will cost the school district tens of thousands of dollars that we will have to pass on to taxpayers,” she said.
Ms. Cotten-DeGrasse said she believes many of the businesses that have been given tax breaks would have come to Riverhead without them.
But IDA member Lou Kalogeras said that in many cases, the businesses wouldn’t have come to Riverhead without the tax breaks.
And IDA member Paul Thompson said that even if the town IDA rejects a request for tax breaks, the same applicant can apply to the Suffolk County IDA and receive the same tax abatements they sought from Riverhead.
“And we’d have no control of it,” he said.
“We understand your concern, but we’re looking at it from a long-term development perspective,” Mr. Kalogeras said. After 10 years, the applicant will pay full taxes, he said.
IDA members also pointed out that the abatement only applies to the tax on new construction, so the amount of taxes received never declines.
“We took a $2.5 million decrease in state aid and we’re going to have to cut more because of the tax cap,” Ms. Cotten-DeGrasse said.
She said a recent IDA application was from a company that only had about seven jobs.
“You are hurting the school district and pushing the burden onto taxpayers,” Ms. Cotten said.
Ms. Lantz said Jitney has been in business for 40 years and “they are clearly making a profit.”
She said Atlantis Marine World was here for 10 years with an IDA abatement on property taxes, and the IDA gave them 10 more years of the same abatement.
The Atlantis abatement is a 100 percent property tax abatement on school, town, county and fire taxes, which will extend 20 years.
Mr. Thompson said Atlantis had a “50-50 chance” of getting bank financing when they came before the IDA, and even though they were granted the abatement, they ended up not getting bank financing for the new Hyatt Place hotel they built on Main Street, and had to raise money elsewhere.
He said without IDA help, that project might not have happened.
“They could have failed, and if they fail, you would have lost a lot more,” Mr. Thompson said.
“But at what point does it stop?” Ms. Lantz asked.
“It’s a burden, but it’s a burden that’s necessary to attract companies to come to our town,” Mr. Kalogeras said.
After the hearing was over and the school officials left, IDA chair Kathy Wojciechowski said that skyrocketing contractual and health care costs are the root cause of the school district’s problems. She feels the school district is using the IDA exemptions as a way of deflecting attention from those issues. She said there are ways the district could get money, such as grants, that they don’t seek.