Paul Bass Photo
Workers building Audubon Square, symbol of the boom.
Thomas Breen photo
Steve Fontana, Clay Williams, Matthew Nemerson make the case.
The Harp administration pitched a plan to harness the city’s building boom to tackle its yawning structural deficit: Change the terms of tax deals offered to builders.
Skeptics questioned whether that would indeed boost tax coffers.
City economic development officials made that pitch Thursday night to members of the Board of Alders Finance Committee during an hour-and-a-half public hearing on the current state and future plans for the city’s tax assessment deferral program.
The alders held the hearing in the Aldermanic Chambers on the second floor of City Hall. It concerned the terms of the city’s current program offering some builders seven years to phase in paying full taxes in order to lure them here, a program that expires at the end of next year.
Throughout the hearing, alders questioned the wisdom of extending the current assessment deferral period, and called for proof that the tax assessment deferral program is worth having at all.
City economic development staff and a handful of developers who showed up for the hearing argued in turn that the deferral program attracts builders who are interested in working in New Haven but are wary of its high taxes.
The program currently lets builders phase in paying full taxes over five years on new construction. At the heart of the discussion is an academic question: Does the lure get the city more tax revenue in the long run by luring tax-generating construction that otherwise wouldn’t happen? Or does it let builders pay less in taxes than they otherwise would on projects they would have undertaken anyway?
City representatives said that lengthening the program’s tax deferral period from five years to ten years and accelerating the rate at which participating builders must pay their taxes will bring more tax revenue quicker into city coffers while still keeping New Haven attractive to the mixed-use developments that have been popping up all over town.
“Because we have the highest mill rate of any comparable city in the New York metro area,” Economic Development Administrator Matthew Nemerson said in defense of the deferral program in general, “these programs are things that make it possible to attract the investment capital that is actually being invested.”
How The Current Assessment Deferral Program Works
Williams and Nemerson.
The alders held the public hearing in response to an order submitted by East Rock Alder Anna Festa that called on the board to host a conversation with city officials and members of the public about the city’s tax assessment deferral program, which was created in 1975 and last amended in 1981.
The current program expires in December 2019, when alders must decide whether to renew the program for another five-year stint.
Nemerson, city Deputy Economic Development Director Steve Fontana, and Small Business Development Officer Clay Williams said that the current program benefits both city residents and developers, increasing property taxes and redeveloping unused properties for the former and providing a stable, predictable economic incentive package for the latter.
“It doesn’t freeze taxes,” Williams said. “Nor does any project not pay any taxes. Every project does pay taxes.”
Williams said that one of the key criteria for qualifying for the program is that a developer’s project must increase the pre-construction assessed value of a property by 35 percent or more.
If the city determines that an applicant’s project will indeed add that much value to a property post-construction, then the city will allow the developer to slowly work its way up to paying taxes based on the new, full assessed value of the property over the course of seven years.
The current program holds the property’s taxes at its pre-construction assessment for two years, then phases in the full tax burden over the course of five years, with 20 percent of the property’s new post-construction value added each year.
Williams said that the citywide tax deferral program is open to eligible developers and individual homeowners alike. (Click here to download an assessment deferral application form.)
He noted that the state runs a similar but slightly different enterprise zone assessment deferral program, which does not require a threshold amount of improvements over a current assessed value. That state program holds eligible properties’ taxes at their pre-construction assessed value for the first four years of the deal, and then phases in the full assessment over six years, with the first year of the phase-in adding 50 percent (as opposed to 20 percent) of the new value to the base assessment, which then increases by another 10 percent for each of the next five years.
The Alexion building at 100 College St., which benefits from the state’s enterprise zone tax assessment deferral program.
According to the economic development team’s presentation, 16 projects in New Haven currently benefit from the tax assessment deferral program. Builders of another five upcoming projects have already signed up.
Some of the developments slated to begin their post-construction assessment phase-ins soon include the Alexion building at 100 College St., which was in the state enterprise zone program and will see its property taxes jump from around $140,000 this fiscal year to just under $2.5 million next fiscal year; the Corsair at 1040 State St., which will see its taxes go from around $65,000 this year to around $244,000 next year; and the Winchester Lofts at 275 Winchester Ave., which will see its taxes for from around $350,000 to around $476,000 next year.
“The value of the program to city residents,” Williams said, “is increased ongoing property taxes through the development of underutilized property … Another benefit is increased building fees … And just increase in overall economic activity.”
Harp Administration’s Proposed Change
Spinnaker VP Frank Caico.
For the end of the city’s presentation, Fontana pitched alders on an adapted version of the assessment deferral program that the administration argues will bring more tax revenue more quickly into city coffers.
“We can accelerate and increase property tax revenue receipts,” Fontana told the alders, “and maintain or increase the attractiveness of investing in New Haven.”
The key changes, he said, would be to extend the post-construction property assessment phase-in from five years to ten years. That means that developers will have double the length of time as they currently do to work their way up to paying taxes based on the full, post-construction assessed value of a property.
However, he said, that deferral extension would come at a price. Under the new proposal, a participating property’s tax assessment will jump to 50 percent of the property’s post-construction assessed value after its initial two-year hold at the pre-construction base.
That assessment will then phase in to 60 percent in year two, 70 percent in year three, 80 percent in years four and five, 90 percent in years six and seven, 95 percent in years eight and nine, and 100 percent in year ten.
Fontana gave an example of a large, mixed-use project similar to the Novella or Corsair that hypothetically is assessed at around $7 million pre-construction and around $32 million post-construction. Under the new proposed tax assessment deferral model, that project would bring in around $650,000 more by year five of its deferral deal with the city than it would under the current program. He said the hypothetical development would also bring in over $108,000 more in property tax revenue in total over the course of the ten-year phase in than it would under the current five-year phase-in approach.
“The way we’ve structured it,” he said, “we’ve accelerated the payment, extended it out slightly, and overall increased the tax revenue. We believe that this hits the sweet spot.”
Williams said that, since the current tax deferral program expires at the end of 2019, the economic development team will be coming back before the alders with a similar presentation and update on the program sometime next fall.
In the meantime, he said, the alders could decide to give the city the authority to pilot the new model for the following year and then see if they want to adopt the new model for a five-year stint come 2020.
Frank Caico, the vice president of development for the Norwalk-based Spinnaker Real Estate Partners, which estimates that it has invested nearly $250 million in various mixed-use projects around town in recent years, spoke up during the public hearing portion of the meeting in defense of the city’s tax assessment deferral program in general.
“It’s been an invaluable tool,” he said. “It’s critical in helping us attract outside investors into these investment opportunities.”
He said that the deferral program allows developers like Spinnaker to not have to worry about paying the full tax burden on a property in the immediate aftermath of its construction, when only a small percentage of its units may be occupied.
“Having the stability, the predictability, and the as-of-right is also critical,” he said. “And I think taking that away could dampen the appetite for real estate development and investment in the city.”
What Do We Lose? What Do We Gain?
East Rock Alder Anna Festa.
Although alders on Thursday night were not voting on whether or not to continue or discontinue the tax assessment deferral program as a whole, several did push back on the economic development team’s assertions that a 10-year phase-in period is better than five years. They also questioned the efficacy of the program in general.
“Developers come and go,” East Rock Alder Festa said. “We have to consider our residents who do live here, who do provide economic growth every day living in this city. How many incentives are actually necessary to attract developers?”
Nemerson said that the city’s tax assessment deferral program is actually quite a moderate incentive program, since the city’s semi-regular grand list reevaluations are applied to properties even while they are participating In the program. Plus, he said, the current program is only five years long.
“The real question, alder, is not what we’re losing, but what we’re gaining,” he said. “The real question is: Are we getting more taxes?”
He said that the deferral program has succeeded on that front.
Unconvinced, Festa said she wants to see data proving that the city has gained more business than it has lost in deferred tax revenue through the program.
Newhallville/Prospect Hill Alder Steve Winter and Downtown Alder Abby Roth.
She and Newhallville/Prospect Hill Alder Steve Winter and Downtown Alder Abby Roth also all called on the economic development department to provide data on assessment deferral programs in other comparably sized cities like Stamford, Norwalk, Springfield, and Bridgeport.
Winter asked how the deferral program can be responsible for the recent bout of market-rate development in the city if the program has been around in its current form since the early 1980s, and the latest building boom is just a few years old.
Nemerson said that the deferral program is one key factor in a larger suite of economic decisions and circumstances that have made New Haven, in an era when people are returning to cities to live, work, learn, and play, such an ideal place to invest.
“We are doing orders of magnitude more investment than other [comparable] places,” he said.
Catherine Hall.
East Rock resident Catherine Hall said during the public testimony section of the hearing that New Haveners should not simply ask which configuration of the deferral program is best at attracting large, mixed-use developments. She said they should also be asking if that is the type of development that New Haven wants and needs.
“What kind of city do we really want?” she asked. She pointed to the difference between large, luxury apartment buildings and more modest three-family homes. “New York City is developers’ heaven,” she said, “and what is New York City looking like now? It used to be a vibrant city with every kind of store you could imagine. It’s becoming a sterile place.”
Gary Doyens.
Budget watchdog Gary Doyens agreed with Hall’s and the alders’ skepticism, though he praised the economic development team’s thorough and prepared presentation.
He said that developers are more interested in New Haven now than they were five years ago because of a complex array of macroeconomic changes, including full employment, federal tax cuts, less interest in suburban living and more interest in urban centers.
“What is the catalyst for them coming here?” he asked. “Is it that package of goodies that we give them? Or is it all of these other things like and economy and the desire of the consumer to live closer to the urban center
“The economy and the economics of finance,” he continued, “have much more to do with development whatever incentives the City of New Haven has.”
Click on the links below to read other stories about the city’s structural deficit and ideas for closing it.
• Hey, Buddy, Can You Spare $30 Million?
• If City’s Broke, Can MARB Fix It?
• Fixing the Budget: Fire Choices
• Can Building Boom Fill The Gap?
• Old Debt Plugs Old $10M Shortfall
• Police, Fire Chiefs: Overtime Budgets “Unrealistic”
• Record Bond Sale OK’d; Discipline Vowed
• Like Hartford, New Haven “Scoops & Tosses”
• S&P Downgrades City Credit Rating
• City Will Refinance Debt To Avoid Takeover
• Mayor Open To Idea Of Fewer Top Cops
• City Ends Policy As It Begins To Pay Off
The tax phase-in program is stupid. We as a City are just giving money away, with no real gain.
For example, the Corsair's property taxes should be $1,000,000/year. Instead the Corsair is paying only a quarter of that, as the property taxes slowly phase-in.
Do we really think that the $75 Million project wouldn't have happened without the total $2.5 Million or so we are giving away via the tax phase-in? If the project is essentially full, why shouldn't they be paying the same taxes the rest of us pay?
It's easy. Give an apartment developer a simple two-year freeze from the date a certificate of occupancy is issued. (Plenty enough time to get the project fully occupied.) Perhaps be a little more generous for an office tower. But end the long-term giveaways!