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?
“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
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.
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
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.
“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?
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.
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.
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.”
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.
posted by: AverageTaxpayer on September 14, 2018 8:17am
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!
posted by: 1644 on September 14, 2018 11:01am
“Because we have the highest mill rate of any comparable city in the New York metro area,” Economic Development Administrator Matthew Nemerson said ....”
I am not sure what Nemerson considers comparable, but Bridgeport’s mill rate is over 54.
Tax deferral programs are quite common and I think there is good evidence that they are one factor that contributes towards attracting commercial real estate investment. Property taxes can be unpredictable in New Haven: reevaluated of property values occurs every five years and the mill rate can be adjusted every year (though for political reasons the mill rate is unlikely to be adjusted on election years or more frequently than once every two years). That is an unpredictable investing environment. The seven year tax deferral program helps to make New Haven’s investment environment a little more predictable. Without having carefully reviewed this particular proposal, my initial feeling is that the City’s Economic Development staff are proposing a rational change to the existing tax deferral program that will continue to function as an incentive to attract development while increasing tax revenue for the City over the current program. While removing the tax deferral program altogether might generate the most tax revenue on paper, I would be cautious about doing that because it may discourage development.
I worry, however, that we are missing the bigger picture here. Imagine that New Haven is a climax, mature forest. Imagine that our forest is susceptible to wild fires, invasive species, and fungal infections, which are threatening the survival of the forest. I view this tax deferral program as one of many incentives meant to attract more loggers and harvesters to our forest. Sure, we benefit from some of the residual economic development activity generated by the logging, but shouldn’t we be focusing on the wild fires, the invasive species, and the fungal infections that are destroying the forest from within before we resort to clear cutting it? New Haven is on fire; let’s focus our attention on empowering existing residents to put out that fire and salvage what we can before we call in the loggers.
Does that analogy even make any sense? Have I lost my mind?
posted by: NHPLEB on September 14, 2018 3:52pm
Kill the gifties. If the project is so good; the developers can pay taxes in full. It is their problem to carry the building while they rent out the units. That’s what every little landlord has to do.
posted by: 1644 on September 14, 2018 4:12pm
NHPLEB: The article says that little landlords who increase the value of their property over 35% are also eligible for the tax phase-in. That’s a good incentive to help landlords bring their properties up to code so that they can charge more rent. The end result would be fewer poorer people in housing and more wealthier people, as well as more tax revenue after the phase-in ends. What’s not to like?
posted by: NHPLEB on September 14, 2018 4:42pm
1644- where does it say little landlords can get the abatement? I only see that for developers of big new projects.
posted by: 1644 on September 14, 2018 5:17pm
NHPLEB: “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.)”
I think the key is the 35% increase in assessed value, so either a good addition or a bathroom & kitchen renovation. My humble bathroom rebuild was $30K.
posted by: 1644 on September 14, 2018 5:34pm
PLEB: There are reasonable limits on who you can rent to (200% of median family income for the city, which might be a studio for single medical intern making $65K), but there seem to be no limits on owner-occupied buildings. So, provided I apply before construction starts, I would be eligible for the delay for the $1 million house I build on Prospect Hill or in Westville. Mr. Brewster would have been eligible for his house in Edgerton Park, had the program been around in 1906. https://www.flickr.com/photos/schummi/sets/72157604658465720/
posted by: 1644 on September 14, 2018 6:54pm
Catherine Hall’s concerns should be addressed through zoning. Downtown could be tall, large buildings, other areas three story/three unit multi-families, and, for me (but not Jon Hopkins) some areas could remain upscale single family, the type of place someone from “the investor class” might want to live (e.g., Westville, Edgehill, north Livingston).
posted by: Cove'd on September 14, 2018 10:29pm
My sense is that the tax deferral should be scaled back and evaluated for any dampening effects. Other things should also be done nonetheless that’ll boost economic development. For instance, zoning requirements that mandate that developers provide parking are nonsensical for an urban center especially one that already has abundant public parking. Required private parking essentially supplants what otherwise would be more housing units, more foot traffic (to support retail and economic activity), and more tax revenue to the city. Every floor of a private parking garage should instead be a floor of residential or commercial in the downtown —- allowing this would be more profitable to developers and land owners, and would further attract more development. Developers and residents would also then use more parking at city owned garages thus putting more needed revenue into the city. Some folks would also forego owning cars, putting money back in their pocket that they’d then be apt to spend locally, etc etc.
posted by: Gimp on September 14, 2018 11:49pm
There is justification in giving a developer a tax break after a development is completed as it fills with people receiving city services. In my opinion this should be two years at max.
1644, My reading of the current language in New Haven’s zoning ordinance is that it allows for one tenant in a boarding room as of right as an accessory use in every dwelling unit larger than one-bedroom. That’s applicable to maybe 40,000 dwelling units in the city? Presumably, this boarding room could have an on suite bathroom and an exterior entrance. The only thing I’ve advocated for is to also allow a kitchen, thereby turning the on suite boarding room with a private entrance into an accessory dwelling unit. That sounds pretty modest and reasonable to me. I am not in favor, nor do I support, an upzoning of single-family or two-family districts to multi-family districts. I support owner-occupancy and private property rights. I also acknowledge that there is a market demand and preference for “urban living”, so why not give homeowners the option to benefit from it without changing the underlying land use nor the character of residential neighborhood? Should out-of-town absentee speculative real estate investors be the only one’s who should be allowed to drive and benefit from urban change?
posted by: Kevin McCarthy on September 15, 2018 7:19pm
1644, re. your exchange with NHPLEB, the phase-in only applies to rehab projects if the building has a Building or Housing Code violation, according to the program application. So if you are simply updating your home, you’re not eligible. And the trigger for the program is the increase in assessed value. I suspect that you know from personal experience that the cost of home improvement projects is often not fully reflected in the home’s value.
One question I have posed to Steve Fontana (a friend and an attorney) is whether the city has statutory authority to limit the phase-in to developments with affordable housing. While I would favor this, I suspect the answer is no.
posted by: NHPLEB on September 16, 2018 6:06am
@ Kevin: thanks for the clarification. Of course, only the big landowners or real estate moguls can cash in after they let a property deteriorate. The little landlord just gets squeezed till they can no longer manage the property and lose it or sell it. This is corporate socialism—- urban areas are eating it up; and they care not about the price that the rest of us will pay.
posted by: 1644 on September 16, 2018 7:04am
Kevin (To be continued) : Prior to the start of construction or of rehabilitation the property MUST: • Be undeveloped or have building(s) which do(es) not comply with at least one of the following – o the State Building Code; or o the City of New Haven Housing Code; and The Completed Rehabilitation or Construction Project MUST : • Conform to Zoning Ordinance requirements • Increase the Value of the Property by 35% or more; • Correct All Code violations; and • Meet the Secretary of the Interior’s “Standards of Rehabilitation for Historic Structures,” if the building is a “Certified Historic Structure” within the meaning of 36 CFR 67 or if it is designated historically significant by the Historic District Commission.
posted by: 1644 on September 16, 2018 7:39am
Kevein (Con’t) My assumption is that most New Haven homes do not comply with the current codes. I, also, don’t know how the city interprets the requirement. In my bathroom renovation, the soil drain had numerous code violations, Also, the toilet was too close to the wall. Obviously, to get at that, the bathroom needed to be gutted. But would all the cost of the rehab count? The building permit people would want the cost of high end surfaces and fixtures included, but would they count toward the 35%? (The assessors I know tend to tag the entire cost of an addition onto the assessment, not the actual market value increase, even though the former is more than the latter.). If my home has knob & tube or bimex wire that was code when it was installed, can I use this program for re-wiring? What of adding a second story to a Morris Cove cape while modernized all the wiring? Yes, if your house is in basically good condition, the 35% is a big hurdle. If it’s like some of the Fair Haven foreclosures NHI has profiled, the tax-phase-in seems like a slam dunk IF the owner applies before the start of construction, and maybe for the Morris Cove guy, as well.
posted by: 1644 on September 16, 2018 9:07am
NHPLEB: Bolivar seems pretty little, and he would be eligible. https://www.newhavenindependent.org/index.php/archives/entry/gerda_bolivar_go_15/ So, would anyone building a new house on an empty lot or a tear-down situation. Like Bolivar, you need to be risk-preferred and not afraid of hard work, but this type of bottom fishing is available to people of moderate means, say, a police officer married to a teacher. I know a painter at Sikorsky who build a multi-million dollar real estate portfolio rehabilitating distressed properties, often bank or Fannie Mae owned, without the tax deferral program. For those renovating “historic” properties, there are also loan forgiveness programs.
posted by: Kevin McCarthy on September 17, 2018 6:50am
1644, the Building Code is generally prospective in nature. If your home met the code when it was built, it does not have to meet subsequent changes in wiring requirements, etc. So, noncompliance with the current code is not per se a violation. On the other hand, if you add onto a building or do substantial renovations, the affected part of the building does have to meet the current code.
With limited exceptions, assessments must be based on fair market value. Assessors have three options for assessment methodology to determine this value. Typically they use the comparable sales method for single family homes, income for existing commercial buildings, and cost for new construction. The assessors are not required to use these respective methods for each class of property, but they do have to be consistent.
posted by: 1644 on September 17, 2018 1:03pm
Kevin: I undertand. The policy I quoted about does not require a “violation”, just noncompliance with the code. I would think that when it says code, it means current code, not code in 1920. It also requires all violations to be corrected. I no expert in this field, but I would see noncompliance and violations as separate topics. In any case, I would think many house would contain violations of the housing or building code, such as rooted steps, flaking lead paint, etc. I would expect the big hurdle would not be finding a violation, if that’s what is required, but the 35% increase in value. Nonetheless, New Haven has a lot of blighted housing, and potential projects for someone with about $200K-$1 million in working capital, so well-off but not necessarily a multi-million, big boy/girl. Note: regarding “One question I have posed to Steve Fontana (a friend and an attorney) is whether the city has statutory authority to limit the phase-in to developments with affordable housing. While I would favor this, I suspect the answer is no.” Given that the current program does limit whom a landlord can rent to (200% average CITY household income), I would say yes, it could be. Any requirement however, may lessen the property’s value, and undercut the purpose of growing the Grand List to lessen the burden on existing taxpayers.
posted by: 1644 on September 18, 2018 6:56am
JH: Curious logging analogy. As you know, most of the land the “big boys” are developing was clear cut long, long ago, as surface parking is replaced by new development. Only recently are a few historic structures being lost to new development (Webster Bank, the Austin designed house on Crown, the historic structure on Q Ave in Fair Haven East). I know you liked The Jungle, but both social and physical ills permeated that complex. (As far as the analogy, most of CT was clear cut 150 years ago. Forests regrow naturally, unlike the many empty lots in New Haven, Bridgeport & Hartford.)
1644, Agreed. My analogy was hastily put together. I think I can work with it though. Like natural tree growth, urbanism requires progressive development through incremental improvements to building stock like what would be encouraged through robust accessory provisions in the zoning ordinance (sorry, I can’t resist bringing it back to ADUs). Whereas, in my opinion, the “big boys” are placing artificial plants that cannot be changed, adapted, and grown by their end users on the surface parking lots.
posted by: FacChec on September 18, 2018 1:04pm
“The real question, alder, is not what we’re losing, but what we’re gaining,” Nemerson 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.
Apparently Festa wants to see the data… however in this hearing there was no data presented only testimony about data..
To: Alder Festa:
How the tax deferal program is suppose to work but currently is not.
From the Charter Sec. 2½-24. - Tax assessment deferral, abatement and exemption reviews and reports required.
(c) When the city assessor annually certifies the grand list, he/she shall prepare a report for the controller’s review. This report shall: (1) Indicate the tax deferral(s), tax abatement(s) granted for the year for which the grand list is being certified, and the effect on the grand list; (2) Indicate the cumulative effect of such deferrals, abatements and exemptions on the grand list; and (3) Include a schedule, developed with the development administrator’s assistance, that calculates the increase resulting to each grand list from tax deferral programs, and annual payments in lieu of taxes for the budget year applicable to the grand list for that budget year for grand list certification, and nine (9) succeeding grand list years. After the controller reviews this report, the assessor shall submit it to the board of aldermen. OOps guess we forgot this little item. Taxpayers are carrying the weight for these free loading hand-outs to construction builders who do not build housing as affordable in accordance with the charter, however, many of them gain funding from state Economic Development, CHAFA and the state bond funding program, under the name of affordable.
Am I understanding you correctly that the intent of the tax deferral program is to aid affordable housing development? The deferral program was not intended for use by market rate or “luxury” housing development? When the first tax deferral program was first passed, it was probably unimaginable that tiny little market rate studio and one bedroom apartments would be in high demand today. Is it just a coincidence that rents at these new apartment buildings do not exceed 200% of what city area median income can afford to pay because of their tiny size? Assuming there was a market for “luxury” 2, 3, and 4 bedroom apartments today (which there isn’t), the rents for these apartments would likely exceed that 200% threshold (even though the price per square foot might be similar to today’s “luxury” studio apartments) and therefore not qualify for the tax deferral program. Does that sound correct to you?
Wait a second. If rents are not supposed to exceed 200% of area median income in the city ($29,604 for individuals and $35,950 for families), then apartment buildings with rents above $1,480 - $1,797.50 per month should not be eligible, correct? ($29,604 * 200% * 30% of income on housing / 12 months = $1,480). Do any of the new apartment buildings have units that rent for less than that? Am I missing something?
posted by: 1644 on September 19, 2018 8:27am
JH: There is no limit on rents, only to whom apartments can be rented. The following are ineligible:
“Any dwelling unit is rented to any person whose income exceeds 200% of the median family income of the City of New Haven; Any condominium unit is sold to any person whose income exceeds 200% of the median family income of the City of New Haven;”
While the “rule of thumb” is 1/3 income for affordability, lots of folks pay more than 1/3, the program has no requirement that rents meet that standard. Nor does the program mention household income, just that the renter, presumably the person’s whose name is on the lease, cannot have an income above 200% of the FAMILY income. For a two bedroom, someone making $70K could have a roommate help with the rent without violating the letter, if not the spirit, of the program. I also don’t know what the enforcement mechanism for the 200% limit is.
posted by: 1644 on September 19, 2018 9:24am
JH: Not sure where you are getting your data. US Census puts median income for New Haven CITY household at $38,126 for all households (I cannot find separate family breakout) in 2016. Even with the 1/3 rule, that would mean rents of $2118.
1644, Thanks for the clarification and I was using 2010 census data. Still, presumably the $6,200 per month rent for the penthouse apartment at the Union (205 Church Street) should make that building ineligible for the tax deferral program, right? Unless of course, the main tenant is making less than $76,000 and paying 98% of their annual income on their rent. https://www.newhavenindependent.org/index.php/archives/entry/uinon_trust_opening/
Is this an enforcement issue? Can it be enforced? Am I still missing something that would make these recent market rate apartment complexes eligible for the tax deferral program? According to Matthew Nemerson’s comment in the article about 205 Church Street, “the Union has received no special tax abatements or incentives of any kind other than “as of right” deferrals available to any new projects in the state.”
posted by: 1644 on September 19, 2018 10:50am
JH: MN seems to be speaking of a state program (enterprise zone?) not the city program spoken of in this article. I would agree that the Union would be ineligible for the city program, unless that apartment is not deferred while others are (?). BTW, from a Grand List enhancement viewpoint, the exclusive of manufacturing facilities from the deferral program is idiotic.