Amended Builder Tax Breaks Advance

A revamped version of the city’s tax assessment deferral program won a key aldermanic approval as city officials successfully argued for the economic necessity of subsidizing developers.

That sign off came Monday night during the Finance Committee’s regular monthly meeting in the Aldermanic Chambers on the second floor of City Hall.

The committee alders voted unanimously in support of providing a five-year extension for the city’s tax assessment deferral program. Under the program, the city phases in how much developers and other property owners have to pay in taxes over the course of several years in an attempt to encourage new rehabilitation and construction projects on derelict properties. The current program is set to expire at the end of this calendar year.

The committee also voted unanimously in support of adjusting the current deferral program, which was first implemented in 1975 and last amended in 1981, so as to bring in more money quicker, to prohibit investors from swapping deferral agreements amongst themselves, and to set aside a small amount of money brought in by each project toward the construction and preservation of affordable housing. 

Throughout their presentation, city Deputy Economic Development Director Steve Fontana and Small Business Development Officer Clay Williams convinced the alders present that the program is worth keeping in some format because it provides a consistent, predictable enticement for all builders, from a local landlord looking to gut-rehab a three-family home to out-of-town investors looking to build a $25 million apartment complex.

“In return for a significant amount of investment that people make,” Fontana said, ​“we give them a very small, temporary, and slight reduction in taxes that they pay.”

The proposed amended tax assessment deferral program now advances to the full Board of Alders for a first and second reading and a final vote.

Just as withe current program, Williams said, the new version would apply only to applicants who set out to increased the assessed value of their property by at least 35 percent. That kind of work could range from the gut-rehab of a small property to the construction of a 200-plus unit apartment complex atop a currently vacant lot.

The new program, Fontana said, makes some tweaks to the program to reflect the city’s and the alders’ priorities around maximizing tax revenue and constructing affordable housing.

Instead of freezing a property’s assessment at its pre-construction value for two years, Fontana said, the new citywide program would freeze that assessment for only one year. ​“That accelerates by one year when a property starts paying taxes” at a higher rate.

The new version would also not allow a property owner to transfer assessment deferral benefits to a new owner if they decide to sell while during the initially agreed upon deferral period. ​“Let’s make sure that if somebody comes to the city and asks for the benefit,” Fontana said, ​“in order to receive the benefit, they have to own it for the entire period.”

Williams said that two high-profile recent construction projects, the Novella and the Brandfon Hyundai dealership on Peat Meadow Road, were sold by their owners ​“for a premium” while still within window of the deferral program, thereby enriching the original owners in part thanks to city-granted tax breakers.

The new program also increases the phase-in rate by 5 percent each year, and dedicates that new money towards a prospective new city-operated affordable housing fund. That means that program participants will see their projects’ base assessments increase to 25 percent, then 45 percent, then 65 percent, then 85 percent, then 100 percent in the five years after the initial one-year freeze at pre-construction assessment levels. The current program phases in the full assessment at 20 percent, then 40 percent, then 60 percent, then 80 percent, then 100 percent.

Finally, this new program would apply only to projects containing over five residential units and to all commercial-residential developers. Any landlords with residences smaller than five units who want to take advantage of the tax assessment deferral program will be able to do so under the previous system’s more generous rules, Fontana said.

But Do We Really Need This?

“Do we really need this program given how attractive New Haven is to developers these days?” asked Westville Alder and Finance Committee Vice-Chair Adam Marchand.

Well, Williams said, that’s a bit of a chicken-and-egg question. ​“This is one of the things that makes New Haven so attractive for development, given our relatively high mill rate.” If the city didn’t have some kind of tax assessment deferral program, he said, developers would likely have to think twice before investing their money in building in New Haven.

“No other city or town in the state has a program like this,” he said. Other cities, like Bridgeport and Stamford and Hartford, rely on custom tax assessment-deferral deals for each prospective project.

“It’s the certainty,” he said. ​“Folks know what they’re getting. We fear that if we go too far out of whack, we’re going to lose opportunities for development.”

Williams added that, in the nine years he has worked on this tax assessment deferral program, he has seen an average of 10 to 15 participating projects every year.

“How do we actually fare in comparison to other municipalities in terms of how much we’re impacting developers?” East Rock Alder Charles Decker asked. Is New Haven subsidizing developers more, less, or on par with other Connecticut cities that have more ​“bespoke” models, as Fontana put it?

“Overall,” Fontana said, ​“in absolute terms, we are an attractive place to invest.” Other communities have to give much more away in terms of assessment deferrals in order to attract comparable levels of development, he said.

Williams said that Bridgeport requires a $1 million minimum assessment improvement for projects to be eligible for assessment deferral in their state-sanctioned Enterprise Zones. For projects elsewhere in the city, he said, Bridgeport requires a minimum $3 million improvement. Then, he added, the actual deferral amount is up to negotiation between the developer and the city, meaning that different developers could get different deals depending on their negotiating skills.

Hartford, meanwhile, has its own Capital Regional Development Program, he said, with the authority to bond for projects, thus relieving the city of the requirement to take on additional debt for new construction projects. Stamford did not respond to his calls to learn more about how they do tax assessment deferrals, and Norwalk asked him if New Haven could help them establish a tax assessment deferral program similar to the Elm City’s.

“Some communities with custom deals end up negotiating with themselves,” Fontana said. Meaning that, when deferrals are contingent upon negotiation, the next developer is always asking for a deal as good if not better than the one received by the developer who came before.

“Are developers interested in other areas?” East Rock Alder Anna Festa asked. ​“Or are they interested just in New Haven?”

“They are interested in other areas,” Fontana asserted. Prospective builders whom he and Williams talk to on a regular basis do talk about putting their money into projects in Hartford, Stamford, Bridgeport, New Britain, and Meriden, he said. ​“New Haven is one part of their portfoilo.” Thus the need to keep the city competitive with a clear and consistent deferral program.

Bradley Street resident and East Rock Community Management Team Vice-Chair Kevin McCarthy suggested during the public testimony section of the night that the alders consider adding a few more modifications to the proposed program.

In line with the city’s considered inclusionary zoning ordinance, he said, perhaps the tax assessment deferral program could be tailored to encourage greater levels of affordable housing construction.

Perhaps the program could also be tailored geographically, he said. ​“Downtown may not need these sorts of incentives,” but there are plenty of other neighborhoods that could benefit from a tax break-enticement to build.

Decker, in his final comments on the matter before encouraging his colleagues to vote in support of the proposed renewed and amended program, said that the board should consider adopting some of McCarthy’s recommendations before voting on a final version.

“We need to consider this program as part and parcel of the overall package of affordable housing that we’re going to take on as a board,” he said. ​“If we’re subsidizing development, then we need to have something on the books that subsidizes affordable development.”