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360 State Tax Break Proposed
by Melissa Bailey and Paul Bass | Aug 3, 2012 12:30 pm
Posted to: Business/ Economic Development
After a tax bill came in at four times the expected tab, downtown’s alderman has proposed a 20-year deal for the owner of the state’s largest residential tower. City Hall’s not signing on.
Downtown Alderman Douglas Hausladen this week submitted the proposal calling on the Board of Aldermen to approve a 20-year tax arrangement for Multi-Employer Property Trust (MEPT), the union-backed pension fund that owns 360 State, the 32-story tower between Chapel and Orange streets.
Under the proposal, MEPT would pay $1.4 million a year in taxes for 20 years, beginning in 2014. The first five years would be phased in by 20 percent each year.
The proposal would assess an additional 10 percent levy on the project’s cash flow above a 7 percent return.
Hausladen called the proposal a necessary way to restore faith among potential developers that they can come here and do business without getting huge tax surprises once they’ve completed their work.
His proposal came after the 360 State tower faced a tax assessment that was out of line with the developer’s expectations—and, developer Bruce Becker argued, out of line with what the city had led him to believe. Four times as high. Click here and here for past stories.
The assessment was “just not in line with comparable properties,” said Tilly Hatcher, a MEPT consultant who issued a letter to Board President Jorge Perez this week.
Mayoral spokeswoman Elizabeth Benton Thursday afternoon criticized the proposal for “circumventing” the legal process under which taxpayers appeal their assessments—in court.
“There are 230 property owners that have filed assessment appeals in court over the past two years. Only one, MEPT, is pursuing a legislative fix,” she said.
The owners of 360 State have four tax appeal cases pending in court; Hatcher said if the city agrees to a payment in lieu of taxes agreement with MEPT, the lawsuits would be immediately dropped. The DeStefano administration has taken a hard line against 360 State in the matter. (Click here to read about that.)
MEPT subsequently hired a politically influential attorney, former state Sen. and Democratic National Committeeman Anthony Avallone, to press its case with the city.
Hausladen said he introduced the new measure in the interest of finding a transparent solution to the controversy.
“We need to have an open-air discussion rather than a backroom deal to save us,” Hausladen said Thursday.
Hausladen said he worries about the signal sent to other developers. The 360 State’s developer agreed to build the 32-story tower based on one set of assumptions offered by the city, only to get socked later on with a much higher tax bill after it finished the project.
360 State ended up with a tax bill four times as high—or $4.3 million a year after a five-year phase-in—as the city originally told it to expect.
“When you ask a businessman what ‘business friendly means,’ it means knowing what to expect,” Hausladen said, “not ‘giving away the entire kitty.’”
“We don’t have many developers” left potentially ready to rebuild Church Street South, take on a transit-oriented plan at the train station, or build on the old Coliseum site, he said. That doesn’t mean the city should offer endless tax subsidies, he argued; it means that it needs to establish a track record of sticking to its word. That’s what he said his 360 State proposal aims at.
The DeStefano administration has taken a hard line against 360 State in the matter. (Click here to read about how the mayor played it during last fall’s campaign.)
On Thursday mayoral spokeswoman Benton maintained that line, but did say the city’s open to reconsidering the assessment based on more information from MEPT.
“This is a dispute about the value of the building. Disagreements about property assessments are not uncommon,” Benton said. “The proper venue to resolve disputes is court. Through this submission the MEPT is attempting to circumvent the legal process. And that is not fair to other taxpayers, particularly the homeowners who this year saw their taxes increase regardless of their ability to pay.”
Benton noted that the city based its assessment on the cost of building 360 State. Now that it’s up and running, the city can review that assessment based on how much income it takes in. She said the city has been waiting for complete information to make an informed appraisal. They very recently gave us some, but not all, of the information.”
Tags: 360 State, Doug Hausladen, MEPT
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Having sat in meeting with the mayor on numerous issues, it is obvious that he does not understand the concept of investing and running a business type entity. He is a life long politician who views everything and everyone in the city as either a source of votes or a source of tax revenue. Through that filter, the idea is to maximize taxes on businesses and East Rock homeowners and then give the money to donors (outside the city) who fund a campaign to buy enough votes (inside the city…I think) to win the next election.
The City will be moribund until a deal is reached. The corner property owned by MEPT will also sit vacant. Construction workers won’t be able to find work. DeStefano needs to back down and come to an understanding with this developer. Perez should use his CCNE bully pulpit and take the lead on this.
posted by: Jonathan Hopkins on August 2, 2012 7:33pm
“Under the proposal, MEPT would pay $1.4 million a year in taxes for 20 years, beginning in 2014. The first five years would be phased in by 20 percent each year.
The proposal would assess an additional 10 percent levy on the project’s cash flow above a 7 percent return.”
This sounds pretty reasonable, although I would suggest that the $1.4 Million assessment be adjusted for inflation each year.
(1.4 Million + 10% Tax on Revenue above 7% Rate of Return) x Rate of Inflation
I don’t envy the position Bruce Becker is in, trying to argue his $180 Million development is worth only $100 Million, or even less?
Fwiw, this $1.4 Million dollar figure that is being bandied about is complete hoo-ey. When Bruce came before the Downtown-Wooster Square Community Management Team, (before he broke ground but after the City sold him the lot for $1.00), I asked both him and Kelly Murphy if there was a tax deal as part of the project, and what the expected property tax revenues were.
Both Bruce and Kelly stated that there was no deal in place, outside of the standard five-year phase in for new construction, and that the tax revenues would be about $2.5 Million/year. (I took note that it came out to about $5000 per apartment.)
Anyway, is this idea of giving a tax abatement deal, after-the-fact, even legal? I could be wrong but outside of a few special circumstances, (true hardship, development deals), I don’t think city councils can vote on who pays what in property taxes. If so, who is next in line? Nyberg? The Fuscos? Winstanley?
The proper venue for this is indeed the courts, and the only real question is what is the development actually worth. Otherwise if Becker had wanted a tax deal, he should have negotiated one up front.
That Becker went forward with the building without locking up the claimed low tax promise via contract, before building, when he had the advantage, seems unbelievable, but is apparently true.
The City has the advantage now, and should proceed in its fight to tax in full, based on a fair current assessment.
Too late to negotiate or demand, now, Becker
@JH—What makes $1.4 Million/year “reasonable” to you? That would be assessing this development at roughly $35 Million, and putting its total worth at about $50 Million, (or $100,000 per luxury unit, with the parking and commercial spaces thrown in for free!)
Fwiw, property taxes aren’t some game whereby town councils are supposed to sit down and decide who pays what. (A very slippery slope!) Instead they’re ad valorem by statute, and we all have to pay according to our property’s actual worth.
However I would agree that the DeStefano administration seems to be throwing the proverbial book at Becker by valuing his property according to his costs to build it, (with expensive union labor). But maybe they are taking that position knowing that Becker would be taking his valuation to court regardless, and why not start off at a high number?
Finally in terms of Hausladen’s fear of deterring future developers, doesn’t everyone know that New Haven’s property taxes are high? But we’re also talking about a booming downtown that is somehow able to support one bedroom rents of $1800+/month! Five years ago, who would have thought that 360State could be so successful?
PS—as the bulk of 360State’s profit go to a union pension fund, it wil be interesting to see what, if anything, the union-controlled BoA actually does on this one.
posted by: Kevin on August 3, 2012 8:15am
Doug (my alderman as of next January) is a great guy. But his proposal is wrong on at least two levels. First, property taxes should be based on a property’s market value (and except for the 490 program, the law generally requires this). The city may well have over-valued 360 State, but that is for the courts to determine. Moving to a “let’s make a deal” approach to assessments would only benefit the well-connected, at the expense of other taxpayers. Second, under CT law, municipalities only have the powers granted to them by the state. While I am not a tax lawyer, I am reasonably familiar with Titles 7 and 12 of the statutes (municipal and tax law, respectively) and I do not believe there is any statutory authority to do what Doug is suggesting.
The City shouldn’t be in the position of “predicting” property values post construction. While there is some wiggle room in the assessment, both parties should be sensible enough to get an appraisal of their own and submit it to binding arbitration. It would quicker and more cost effective.
I don’t like the idea of a per centage of “profits”. That’s a “fudge-able” number. They shouldnt be that far apart on value at this juncture. Let the experts decide.
New York City’s method for new construction is to base the assessment upon construction cost.
OK How about my house!! Went from $80,000 to $136,000 I did not get any deal. If this goes thru will our taxes be higher next year to make up the short fall.
posted by: Jonathan Hopkins on August 3, 2012 1:17pm
“The city estimated the property would bring in $1,399,656 once the taxes are phased in, rising to $1,637,571 in another five years, according to responses Economic Development Administrator Kelly Murphy prepared to questions by aldermen and released to the public in July 2007.”
Taxes per Sq Ft Comparison (Hausladen, p.5)
Annual Taxes Comparison (Hausladen, p.6)
$2.5 Million per year is also within reason on comparable properties. The current assessment of nearly $6 Million does not seem reasonable or accurate. Perhaps this should be left up to the courts rather than an agreement of the sort being proposed. Either way, I think the city’s valuation is not going to hold up.
Ms Murphy’s use of existing projects as a comparable for illustrative purposes to the BOA is irrelevant and does not constitute a contractual promise on the part of the city. The entire opposite is true. Construction cost is commonly used to assess new properties and 360 state will now set the comparable for existing similar properties (whose lack of churn has artificially given them a tax break for far too long).
posted by: Jonathan Hopkins on August 3, 2012 6:13pm
What does churn mean in the context of that sentence?
I understand that the original estimate of $1.6 Million is not a contractual agreement, but I wouldn’t characterize it as irrelevant. There is a clear disparity between comparable property valuations that needs to be addressed.
Perhaps I am mistakenly operating under the false assumption that the values of properties like the Eli, the Liberty and Centerpointe are accurate. I hadn’t considered that it is these property values that are skewed, and not 360 State.
Two-thirds of the 3% grand list growth announced in February 2011 - a central plank of DeStefano’s re-election campaign - resulted from the manipulation of 360 State Street’s assessment. Had the administration stuck with figures Kelly Murphy confirmed with Assessor O’Brien and Alderman Dildine after the building was occupied in August 2010, DeStefano could have only claimed grand list growth of 1%.
This New Haven’s own LIBOR scandal. At the expense of innocent investors, insiders fudged numbers for their personal benefit.
Thank you Alderman Hausladen for bringing this to the attention of your colleagues and urging them to take swift action to restore trust in New Haven and bring economic justice to those impacted.
What I mean by churn is turnover. The Eli for instance last changed hands in 1997 so the valuations are really skewed to a decade ago ( pre-boom ). Last time I checked ( before this last reval ) houses in east rock were valued at roughly $100/ sf and the Eli at $70/sf; this is a renovated building with highest quality construction, essentially new apartments, elevator service and amenities. Frankly , I question why the construction cost of 360 wasn’t applied to Eli and other large scale residential towers this time around as THE comparable. The BOA should be asking this question because fair is fair. If your going to hit ER owners with egregious taxes based upon a theoretical value, then what’s good for the goose is good for the gander; downtown towers should pay also. How many millions is the city missing ( and homeowners bearing) by not basing other revals on 360?
Reading the comments sections of newspapers, even good ones like that of NHI, hardly ever changes my mind about issues, but Anderson Scooper’s post have convinced me. If Becker wanted a tax deal, he should have negotiated it up front.
That said, this is all regrettable. I imagine the stink over this is going to make other developers reluctant to invest in the city and make it likely that that corner property remains vacant for a while.
In appraisal cost is only one way to consider value, along with sales comparison, and income. The income approach is really the only technique a prospective buyer or lender would consider.
So please tell us the income employed by the assessor at the time, the expenses utilized, which is important because there can be debate as to what is considered an expenses based on whether you us direct capitalization or discounted cash flow—-say over 5 years to run with re-val cycle.
Which leads to the next question what where the results of each analysis. What is the city’s value using discounted cash flow? What is the value using a direct capitalization approach? We know the cost. If you had sales or sale comparison—-what sales did the assessor use.
Any MAI could give you this data, and I believe there is an MAI in the assessor office and two were in the office for re-val. This should be very easy for the reporter to request. Any experience in real estate appeals will and you will know I am right. Most importantly…The BoA should make no deal! This is now a court appeal case and the public has the right to know how the value was reached and if it truly reflect the “Fair Market Value”. There may be excellent proof that it is worth less right now, than what it cost. This is not unusual, especially in commercial markets. It might be a move to show GL growth, that will only be lost over the course of time. If that is the case, New Haven should not have to spend thousands more defending a value the city can’t support. Show all values from the assessor anaylses. The staff responsible for the re-val was paid hundreds of thousands of dollars during this re-val period, and citizens have a right to know this. Perez and Smart along with other alders should demand these analyses in an open and public arena. Independent why can’t you request this information?
I have a high regard for most of your posts but in this case you’re misleading. As I’ve already stated in this thread NYCs standard way to assess new construction is with construction cost. Becker has extensive experience with NYC construction and without a doubt is familiar with this concept. And in agreement with you and AS, if an agreement isn’t on signed paper, it doesn’t exist.
Thank robn, however this is not New York so your point is not relevant. I can talk about proposition 2.5 in MA when taxes rise in Areas of New Haven and spending is uncurbed, but that is MA., so 2.5 is not relevant, just as New York is not relevant in your discussion. In CT it “Fair Market Value” is defined as the most probable price seller will pay and a buyer will accept when neither is acting under duress. Thus “ad valorem” tax value must be based on the actions of the market. It am cost you $30,000 for an in-ground pool, but I can’t base the tax value at $30,000, because the market doesn’t recognize that as the “Fair Market Value” I believe we can find instances of New Haven assessments being increased with little understanding. Personal property bill value @ $5,000, for artists. Do you know what happened to the big increase on 250 Winchester Ave a few years ago. It was jacked up in value based on permit costs , yet we never heard about the reduction once appealed. Also following you reason every Yale renovated dorm should be valued for millions more than they are, because of costs. Also NY has different tax laws in various areas. The value may be higher than the cost too. So why is asking for the assessor office to reveal it’s value under various techniques not the right action. Especially when I know first hand the way the court will view this. I handled 100’s of appeals. Let’s see what the city has besides news paper articles about what it cost. Let’s see the MAI’s work. It was already paid for by taxpayers. Taxpayers will foot the bill for the appeal. That MUST be done before BoA is allowed to start making special deals
robn I just looked at your NY link and it clearly states income as an approach commonly used, read it and see. Cost, as it states is usually for special use properties like say police stations, day care centers (special little lavs & sinks), hospitals, libraries & fire houses for example. Income approach is used for income properties. CT also has Income and expenses reports, like NY and I am sure 360 State had to file those, so I still think we should see the results of the income approach, which will carry the most weight in court, before striking any deal. The MAI’s should have this at their fingertips and be able to share it in accordance with CGS regarding revaluation upon request. Important info to get before incurring costs well in excess of twenty grand to bring it to trial. Then if the court reduces the value New Haven is on the hook for all Beckers costs to bring the appeal. That part I am certain he knows, as I have discussed it with parties familiar with whats happening because I work in the field of valuation
Quoting the NYC Finance webpage:
“Estimating Market Value. Finance estimates your property’s value each year. We use one of three approaches to value your property: sales, cost , or income.
Cost: Finance estimates the land value and the cost of constructing, reproducing or replacing your building. We use this method for new construction and renovations, specialty properties and utilities.”
Quoting CT General Statutes:
PROPERTY TAX ASSESSMENT
Sec. 12-62. Revaluation of real estate. Regulations. Certain Indian lands exempt.
(b)(2) When conducting a revaluation, an assessor shall use generally accepted mass appraisal methods which may include, but need not be limited to, the market sales comparison approach to value, the cost approach to value and the income approach to value. Prior to the completion of each revaluation, the assessor shall conduct a field review.
There’s a lot of misinformation in these comments. For instance, the Aldermen ARE empowered to fix the tax under the CT City and Town Development Act—and to do so before or after construction (no timeframe limitation is stated). Also, cost basis isn’t a good means of assessing the value of a building funded partly by grants and credits, with expensive enviro features like the fuel cell. (Rowe Apartments cost, what?, $35 m to build, and is assessed at $7m). Income is a better basis.
But we’re missing the big picture. It’s outrageous that the city projected a $1.4 m tax in 2007 to get the deal on 360 State done, then turned around and QUADRUPLED it! It’s all there in the Independent’s articles and Hausladen’s letter. The city called the 2007 projection a “closely analyzed… fair estimate.” And now they quadruple it? Why should 360 State now suddenly have four times the sq ft assessment of the comparables used to derive the 2007 projection? That means $10,000 of taxes on every single apartment! It’s insane. And who’s going to pay for it? Remember, Becker is the developer, but the owner is a union pension fund. The tax hike comes from their pockets, not his.
Building the city’s grand list by putting a whomping increase on 360 State’s assessment is shortsighted. A short-term revenue benefit? Maybe. But longterm disaster. Anyone in his right mind who’s considering putting money into the city will see this and run the other way.
While to some extent I sympathize with those who say this should be settled in court, the problem is that 360 State is an exceptionally prominent project whose fate will determine a lot about New Haven’s prospects in the coming years. The assessment is egregious and needs to be changed, not to slog through the courts for months and maybe years while the whole city suffers the consequences. The Aldermen have used their power to fix taxes elsewhere (9th Square project, eg). They should do it here. We need to see the forest instead of the trees. The Mayor acted properly when he got rid of the city assessor who made this wild assessment. He’s not empowered to fix the error himself. He should help the Aldermen do it.
Bert, you hit the nail on the head. I agree with you 100%.
So here is my question. We know where the mayor stands, and we know where Hausladen stands. What does the rest of the BOA say?
One way or another this choice with have a considerable long term impact on our city. We can’t afford to scare away potential future tax payers if we are ever going to have lower rates for the rest of us.
This thread feels as if it is full of sock-puppets.
There are hundreds if not thousands of property tax appeals going through the court system. Please tell me what problem results if this question of a fair valuation is decided by a judge? (Remember, the LDA and development went forward on the basis of no abatement or property tax breaks.)
We scare away future developers by saying, “You too will have to pay your fair share”?
Anderson Scooper asks, “We scare away future developers by saying, ‘You too will have to pay your fair share?’”
No, we scare away developers by saying, “We will lure you in with one tax projection and then, when your building is done, we will quadruple it.” “We will estimate that you will pay $2500 in tax per apartment, then, when it’s built, inform you it’s actually $10K per.”
If that doesn’t put the kibosh on downtown investment, what will?
Why don’t some responders see that this is a recipe for disaster (in addition to being outrageous)? It’s true, as some have pointed out, that the original projection was not a contractural arrangement. But it was a good-faith agreement and one moreover that the city reiterated throughout the building process right to the very end. And without that agreement, the owners would never have built in the first place. So the whole arrangement looks like a bait-and-switch plus sucker punch (or something like that.)
I don’t know the ins and outs (I’m a former New Haven resident who keeps one eye on the city) but I am guessing that there is something political behind the assessor’s move to quadruple the tax. Whatever the reason, it’s a big mess and should be solved pronto. I agree with the Alderman who’s trying to do so.