August 9, 2018

Meanwhile Back in Albany (v20)

Nathaniel Brooks/NY Times photo
Got a vending machine? Get a tax break!  Wouldn't that make a great billboard along the highways leading into all of the cities, towns and villages in upstate New York, instead of those silly signs we have on the Thruway?

I talked about the fake condominium tax break that certain homeowners are able to take advantage of in the last MBIA post; if that wasn't enough, now we've got the 'three vending machines in a room'  plan, which apparently passes for 'commercial space' in converted buildings.

Folks who pay attention to how things are done in Albany, particularly when it comes to the budget, will recognize the 'three (somethings) in a room' concept; that's how our Sonofa Gov Andrew Cuomo, Senate Majority Leader John Flanagan, and Assembly Speaker Carl Heastie get together, hash out the budget, and make a plan to cram a bunch of legislative initiatives into the spending plan. In happier times, the three men in a room were The Three Amigos, according to Cuomo - except that two of them are now convicted felons. But I digress.

According to reporting by Tim Knauss of the Post-Standard and Syracuse.com, here's what vending machines have to do with anything.
Three vending machines at a Syracuse apartment building dispense candy, chips and soda. And they serve another purpose. They have helped the building owner avoid more than $3 million in property taxes. 
The vending machines are the only visible sign of commercial activity at Copper Beech Commons, a sprawling apartment complex for college students.
Here's why that matters: the property owner gets a lavish tax break that is available only to renovated buildings that have both commercial and residential space.  
Wait, wait -- vending machines count as commercial space?
State law created the tax break to help turn old and underused buildings into the kinds of places that filled downtowns in the old days. The idea was to restore the buildings with upper-floor apartments and street-level businesses - restaurants, offices and stores - to bring back the bustle of urban life. 
For Copper Beech Commons, vending machines did the trick. Without the tax break the owner would pay $560,000 a year in property taxes. With the vending machine incentive, the annual bill comes to less than $33,000.  
Nice deal if you can get it, right? And, believe me, they are getting it: there are 39 other buildings in Syracuse that are getting the same examption as Copper Beech Commons. The exemptions are worth millions to the developers.

It's important to note that many of the projects that are receiving it actually have legitimate commercial enterprises in them.The good guys have renovated buildings that are now home to restaurants, offices, community development agencies, and retail establishments. Many of them were the kind of buildings the law was intended to help: older structures that have sat empty, falling into disrepair, that are now great properties filling gaping holes in our neighborhoods.

A few of them, though, are brand new buildings, placed on lots where older structures were bulldozed, which is clearly (to anyone other than a lawyer or developer) not the type of projects the law was intended to help. There are others, in addition to Copper Beech Commons, that are student apartments, including the largest one, Theory Syracuse, which stands to save over $9 million over the 12 year term of the exemption.

As with the condo loophole, there is not enough guidance for assessors to follow, and so each makes their own decisions, including  whether or not to regularly determine if there's any actual commercial activity happening. 

Some say that this is the way things have to be done in order to get development, to increase the value of the properties in the city over all, and that this exemption, which is good for 12 years, is more than made up for by the price of the investments and the related activities that stem from the development. That's always easy to say, and frankly it's probably easy to prove - but it doesn't mean that we have to open our wallets every time someone finds a loophole in a law and takes advantage of it.

This is the kind of bill that needs to have some teeth added, which will hold developers - local ones like the guy who did Copper Beech Commons, as well as those from out of state - who are taking advantage of the poorly-crafted bills.

Options could include things like the ideas below::
  • Adding clarity to what constitutes a qualifying commercial use, such as hours open, number of employees actually working, annual payroll or payroll taxes, and so on.
  • Defining what a qualifying commercial space is, such as minimum square footage required, accessibility, etc.
  • Strengthening the guidance for local assessors to install consistency.
  • Limiting the length of time for which the exemption can be claimed, and reduce the amount of the exemption to a lesser percentage of the development's overall tax bill.
  • Collecting full taxes up front, and rebating the to the developers the amount of the eligible exemption only after ensuring that there's actually a commercial operation in the building on a full time basis.
  • And finally, limiting the sheer number of exemptions that a development can qualify for; surely all of these projects don't need the mortgage tax exemption, the sales tax exemption, the 485-a exemption, payments-in-lieu-of-taxes (PILOT) agreements, moving expenses, furniture allowances, and the like.
At some point, we need to draw a line in the sand and let these projects sink or swim on their own merits. And if you're building a student housing project where folks rent bedrooms for over a grand a month, maybe you don't need our tax dollars to help you be successful.