SALEM – The committee of the whole discussed the potential financial impacts of the proposed intergovernmental annexation agreement with Perry Township in its meeting Thursday.

Councilman Jim Harrington presented the committee with financial analyses he developed for both residential and commercial development under the proposed agreement which would see the city receive 70% of the income tax generated by an annexed property while the township receives 30%, while property tax would be split evenly between the two municipalities. Harrington said that he estimated the cost to the city of adding additional homes through annexation by dividing the city’s total anticipated expenses for the police and fire department in 2026 by the number of housing units in the city per census data of 5,704 to get an approximate average cost to the city per household of $994.

Harrington stressed that this was a “30,000-foot view” that he had calculated to give the members of the city council a mostly complete idea of the financial realities of the agreement.

“The reason I just used the police and fire is because they’re the city’s biggest expenditures and because it will get us most of the way there for what our costs will be,” said Harrington.

Harrington calculated that assuming they had the average property value and household income of the area, were the 33 properties with deed restrictions which mandate annexation if they ever become contiguous to the city annexed under the tax revenue split the city would lose approximately $13,000 per property. The model also projects that the water department would lose approximately $18,000 per property as the annexed properties stopped paying the 50% surcharge for non-city residents. In an optimistic case where the properties had double the average property value and household income, the city would generate approximately $6,716 in additional tax revenue per property, while the water department continued to lose approximately $18,000.

If these properties were not subject to the revenue split as in the case of a traditional annexation, in an average case the city would still be projected to lose $4,009, while it would gain $24,797 in an optimistic case, while the water department continues to lose approximately $18,000. The model also projects that in the case of newly constructed homes the city would lose approximately $4,000 for an average value home, while it would gain approximately $24,797 in an optimistic case.

“I know the water department is a separate entity that manages its own budget, but I added [it] because I wanted us to look at the whole thing, the whole system. You could very easily break out the general budget, which is what this council is concerned with, but we also have to consider that the system of Salem includes the water department,” said Harrington.

Harrington also presented a model for potential commercial development based on a plan to acquire and develop 50 acres to be shovel ready for industrial development at a projected total cost of approximately $2 million. Harrington stressed that this was likely an overestimation of the total cost, and that while the city would likely have to borrow money for the initial investment, he felt it would ultimately be beneficial. He also said that he had spoken with U.S. Rep. Michael Rulli and U.S. Sen. Jon Husted about directing business development to the city, and both told him that without a shovel ready site developers wouldn’t even consider building.

He projected that if the city retained 100% of the tax revenue from such a property it would need to attract five manufacturers and create 250 jobs before the projected annual tax revenue generated would begin to outpace the annual payments and interest of a potential bond. Were the tax revenue to be shared as outlined by the agreement, the property would instead need to attract eight developers and create 400 jobs to do so.

Councilman Evan Newman expressed concerns that in four of the six modelled scenarios for residential development that either the city or water department loses money and suggested that the inclusion of residential properties in the agreement may need to be reconsidered. However, Councilman Jeff Stockman argued that residential annexations are what will allow the more profitable commercial annexations by expanding what properties are contiguous to city limits. City Law Director Brooke Zellers echoed Stockman’s comments, arguing residential annexations should be considered a sort of “loss leader” or as the “cost of doing business” to facilitate commercial development.

The committee ultimately voted unanimously to send a resolution to begin the process of approving the annexation agreement to the city council for consideration in its next meeting on Dec. 2. If the resolution is approved, the agreement will still need to be publicly posted by both municipalities for thirty days and be adopted in a joint session of the city council and Perry Township Trustees preceded by a public hearing.