Changes Floated To Builder Tax Breaks

The city’s economic development department has proposed an extension to the local tax assessment deferral program that would include three key modifications designed to boost tax collections and bolster affordable housing development while still using tax breaks to entice builders to come to town.

That proposed resolution was submitted by city Acting Economic Development Administrator Michael Piscitelli to Board of Alders President Tyisha Walker-Myers and included as a communication in Monday night’s full Board of Alders agenda packet.

In the proposed resolution, an accompanying letter, and a six-page report co-authored by economic development and the Livable City Initiative (LCI), Piscitelli calls on the alders to grant a five-year extension to the assessment deferral program, which cuts developers tax breaks in exchange for building on and improving derelict properties.

The proposed new program, however, would reduce the amount of time at which participating developers can pay taxes based off of a parcel’s pre-development assessed value. It would also prohibit landlords from transferring assessment deferral benefits to one another through the sale of a participating property. And it would increase the speed at which a participating property’s full assessed value is phased in, and then allocate a portion of those funds towards a new city-management affordable housing development fund.

The current assessment deferral program is slated to expire at the end of this calendar year, and the updated proposed version would extend from Jan. 1, 2020 through Dec. 31, 2024.

“Approving the proposed Resolution would preserve a valuable development tool and business incentive to continue to improve the City’s housing and commercial building stock and support the growth of its Grand List,” Piscitelli wrote to Walker-Myers. ​“The Program is the primary business incentive that the City has available to attract new businesses and is of particular importance given that, by virtue of its being citywide, it extends into areas not covered by the similar Enterprise Zone assessment deferral program, which is limited only to certain parts of New Haven.”

Click here to download the proposed resolution, Piscitelli’s letter, and the accompanying report. The proposed resolution will now be assigned to an aldermanic subcommittee for a public hearing before the full Board of Alders takes its vote.

The current program, a version of which has been on the city books since 1975, is open to any developer who proposes to improve a property to such an extent that that parcel’s assessed value increases by 35 percent or more.

In exchange for such an investment, the city freezes that property’s assessment at its pre-rehabilitation or pre-construction value for up to two years, and then phases in the new assessment in increments of 20 percent over the next five years. That means that a developer can pay taxes on a property as if that property were still vacant or derelict for up to two years after cutting a deal with the city, and then only has to pay for 20 percent of the improvements in the first year after that construction period, 40 percent of the improvements in the second year, 60 percent in the third year, 80 percent in the fourth year, and 100 percent in the fifth year.

“Despite facing the most difficult economic climate in fifty years,” the report reads, ​“the City recently has experienced one of its largest building booms, with several million square feet of new construction completed or underway over the last several years, and the City-Wide program has been an important component to many of these current projects. While the City-Wide program has been used to attract development Downtown, it has also been true to its name – attracting development throughout the City, improving the city’s neighborhoods, with continued investment in home-ownership expansion in the Dixwell, Newhallville, and Hill neighborhoods.”

The economic development-LCI report states that 27 large developments (i.e. those with five or more residential units) have taken advantage of this program since 2014, accounting for a $189.2 million increase to the city’s grand list.

Those projects include the Winchester Lofts, the Alexion Building, the Crown & College CenterPlace apartments, and the Hotel Duncan. Landlords for five other large-scale projects, including 87 Union St. and 216 Congress Ave., have also submitted applications to participate.

During that same time period, the report notes, 13 smaller home owners have also taken advantage of the assessment deferral program.

In all, reads the report, developments that have participated in the assessment deferral program have boosted tax revenue collected by $6.6 million per year, according to the current mill rate of 42.98.

“We strongly believe that the building boom in New Haven over the past decade would not have been as robust were it not for this Program,” the report concludes.

The proposed changes to the program, Piscitelli wrote, are geared towards increasing the speed with which the full assessments are phased in, and putting aside a portion of the money from each deferral deal towards an affordable housing development fund.

Specifically, the proposed changes to the program include:

• Shortening the construction period from two years to one year for participating developments. Currently, the city freezes the assessed value of a participating property at its pre-improvement value for up to two years or until the issuance of a Certificate of Occupancy, whichever is sooner. After that initial freeze, the full assessment phase in takes place over the subsequent five years.

The updated program would reduce that pre-improvement value freeze to one year, rather than two, or the issuance of a Certificate of Occupancy, whichever is sooner, before starting the full phase-in. That means developers would start paying incrementally higher taxes one year sooner than they currently do.

• Eliminating the transfer of the deferral benefit to future owners of a property. So, if a participant sells a participating property before the phasing-in of the assessed value is complete, the new landlord would not get to inherit the perks of the deferral agreement, but would rather have to start paying taxes based on the full actual assessment immediately.

• Increasing the phase-in annual percentages by 5 percent up front in order to support affordable housing development. Instead of taxing participating developers at 20 percent of the improved value in the first year of the phase in, the city would instead tax them at 25 percent. That number would then increase to 45 percent in the second year (rather than the current second-year phase in of 40 percent), 65 percent in the third year (rather than the current 60 percent), 85 percent in the fourth year (rather than the current 80 percent), and 100 percent in the fifth year.

The additional amounts of tax revenue collected by that 5 percent speed-up would then be put into an Affordable Housing Fund operated by the city.

“These revised phase-in percentages will apply ONLY to residential/mixed-use properties that contain five (5) or more residential units and all eligible commercial/industrial projects,” the report reads. “[T]he current phase-in percentages will continue to apply to smaller, one-to-four family residential/mixed-use properties.”