In his State of the City address and at a Jan. 11 Planning and Economic Development meeting, Mayor Svante Myrick stated and restated his wish to reform the Community Investment Incentive Tax Abatement Program (CIITAP). The program, last revised in 2012, is presently in its third iteration and is designed to encourage development in the city center, where the cost of construction is much more expensive than elsewhere.
On Dec. 11 the board of directors of the Tompkins County Industrial Development Agency (IDA) voted 3-2 against a tax abatement package for a project at 130 E. Clinton St. At the public hearing on Dec. 3 several people spoke in opposition to the project, arguing that the building was not “green” and that the site was inappropriately steep. Some speakers openly expressed a dislike for the developer, Jason Fane.
Myrick, who is a member of the IDA board, did not attend the Dec. 11 meeting, but told the Ithaca Times that he would have voted against it because it was not a mixed-use building. County Legislator Martha Robertson, another member of the IDA board, did not attend the meeting for the vote. Members businessman Larry Baum and Jim Dennis, a county legislator and the chair of the IDA board, voted for the abatement package. County legislators Will Burbank and Nathan Shinagawa, and architect Grace Chiang voted against.
“This is not just the fallout of the 130 Clinton project,” said Gary Ferguson, the executive director of the Downtown Ithaca Alliance (DIA), of the announced intention to revise CIITAP, “but really it has been building up through the whole program. It’s really time to take a look at it.”
Agreeing wholeheartedly is Nathan Lyman, Fane’s attorney, whose practice has focused on real estate law for 25 years. In the wake of the IDA decision Lyman sat down and wrote a lengthy essay that summarizes the history of tax abatements in Ithaca, describes the process that the 130 E. Clinton St. went through with the city planning department and planning board, and then argues that politics had interfered with the decision. Lyman intends to send the document to Myrick later this month in the form of a letter.
Why Downtown Tax Abatements ?
The Community Investment Incentive Act (CIIP) was inaugurated in 2006 to attract development to downtown Ithaca. During the five years of its existence, only one proposed project, Cayuga Green, succeeded in getting through the approval process.
In his letter to Myrick, Lyman reminds the mayor that in 2012 on the same day that CIITAP was created to replace CIIP, the Common Council (of which Myrick was a member) consolidated the planning and building departments and made the decisions of the new department’s staff and boards
binding on all other agencies and boards in the city government. The intent and the review criteria of this law require the planning board to consider input from all of the various boards and committees that developers previously had to approach and satisfy individually. In this new process, “community benefits” were negotiated between the city and the developer as part of the site plan approval. The process was supposed to give certainty to a decision by the city, and make the planning board the authoritative voice for the city if there was disagreement between one or more of the many boards, committees, and departments that make up city government. It also required the planning board to consider input from the numerous citizen groups and individuals who actively participate in public hearings.
“Every [downtown] project needs some kind of help,” said the DIA director. “If not abatements, then tax credits or a payment plan to purchase property.” Ferguson said that since the end of the recession in 2011, the price of construction has risen dramatically. “In-fill projects are in difficult sites,” he said, nodding toward the east end of the Commons where the Marriott is being constructed on a small triangular parcel between the Aurora Street bridge, East Green Street, and the parking garage. “It is easier to build on a cornfield.”
“There are two types of abatements,” Ferguson continued, “and the popular press, even the New York Times, mixes them up. One is related to job creation, and the other is related to investment decisions. It’s important to distinguish between the two. A lot of the criticism has been aimed at the ones related to job creation.” He said that the recent decision of Mercedes-Benz to move from New Jersey to Georgia has some people worried because after the tax abatement period ends, the car maker can simply move again, taking its car making machinery and its jobs with it. Projects in downtown Ithaca, however, are long-term investments.
“Real estate,” Ferguson said of the downtown projects, “is not portable. These are not buildings that are going to be there for a few years. They’re built for 50 years or more, and if what’s there goes out of business, we’ll put something else in there.”
Jobs, he said, are not the pre-eminent reason for encouraging downtown development. “We want these developments in the core,” he said, “because by putting them there, you’re saving energy. I don’t get why this isn’t on the table.”
The DIA director was philosophical, if slightly frustrated, by the introduction of other issues into the public discussion about incentives to development. “If you build outside the core,” he said, “then there is no entry point to discuss labor, building materials, energy efficiency. But when you build downtown, as soon as you ask for help, then you subject the project to meeting other well-meaning demands.”
These demands include using local union labor, getting a living wage for jobs created by the new development, using “green” building materials, incorporating alternative energy technologies, and preserving the natural environment. As Lyman and others have pointed out, all of these demands increase the price of a project.
Well-Meaning Demands at 130 Clinton
Dennis, the chair of the IDA, voted in favor of the abatement package for Fane’s project at 130 E. Clinton St. He said, immediately after the vote and again more recently, that he felt that the majority had voted against Fane as a person. “If anyone else had proposed this project,” he said, “it would have gone through, just like the Carey Building project did immediately afterward at the same meeting.”
Dennis admitted to being somewhat mystified. “I have to live with these people,” he said of his fellow board members, “but I said I felt they were wrong. The people on that board had no history with Jason Fane. I dealt with him often in the 1970s and ‘80s when I was on the city council. I think if you looked it up you would find that he would be in the top five when it came to money spent on housing in this city, and he’d also be in the top five when it came to taxes paid.”
Lyman was frustrated that opponents of the 130 Clinton project seemed not to have looked at any of the work done by the city planning department or the planning board. In his letter he notes:
All input from public comments and other city boards/departments were considered, potential impacts were determined, and “the Planning Board, acting as Lead Agency, has required mitigation to all impacts as detailed in the FEAF, part 3.” Those potential impacts included environmental, aesthetics, slope failure, potential runoff, foundation failure, surface water control, and a host of others. Specific reference in the Planning Board findings was made to input from the Conservation Advisory Council, Shade Tree Advisory Committee, Transportation engineer, City engineer, County Planning Commissioner, County Environmental Management Council, and Planning Board. The developer was required to do a flora and fauna inventory study of the 1.78 acre site, visual impact study, slope stability assessment, archeological survey, numerous borings and storm water management plan.
According to Lyman, the initial estimate for the cost of the building in 2011 was $2.5 million. After the developer had agreed to changes proposed during the city site plan approval process the price had climbed to $3.2 million. Two changes—to restore the native plant community of the two-thirds of the parcel that run along Six Mile Creek and to convert the design from a gable to a flat-roofed building—added $320,000 to the cost of the project. When it was put out to bid, the low bid that came back was $4.3 million.
How the IDA Works
The IDA is administrated for the county by Tompkins County Area Development (TCAD). “We help the IDA consider state and federal policies,” said TCAD Executive Director Michael Stamm, “and we give the IDA the perspective of the private sector, tell them what they need to do to attract jobs, and tell them what other communities do.”
CIITAP is, however, different from all the other programs that TCAD deals with, said Stamm. “It is really about community development, not economic development,” he said. “It’s goal is to avoid sprawl, to attract employees to downtown, and to attract students.” While TCAD’s work is to help developers to find ways to close the funding gaps in their projects, the primary cause of a founding gap for a downtown project is how expensive it to build in the middle of a city, even a small one like Ithaca, compared to building along commercial strips and on agricultural land.
Jennifer Tavaras, the new president of the Ithaca/Tompkins County Chamber of Commerce, was previously the director of economic development for Commerce Chenango, a non-profit in Chenango County that does what TCAD does in this county. She has just been selected by TCAD to be a new business-community member of the IDA board. Outgoing member Larry Baum left after serving for several years. The county legislature’s personnel committee selects the other members, five of whom must by law be elected officials.
Tax abatement packages are uncommon outside of the city center in Tompkins County and Tavaras saw only one in Chenango County during her tenure there. “The city program here has specific goals to increase density,” she said. “They want to attract different types of projects, mixed-use and housing. I have my first meeting this afternoon,” she said last week. “It will help me understand better what I am looking at.”
What TCAD Does
One of the tasks of TCAD, according to Stamm, is to help applicants for tax incentives anticipate the kinds of questions they are going to get from the IDA. Stamm and TCAD Director of Economic Development Services Heather Filiberto also explain to the IDA board members where the applicant’s project fits in the context of the community’s economic development strategy.
By state law the IDA has the ability to grant relief from a portion of property taxes and a sales tax on the cost of construction materials (“furniture, fixtures, and equipment”) and the state share of the mortgage recording tax.
“In some communities the IDA might be the economic development agency that does a lot of other things,” said Stamm. “Seneca County’s like that. Broome County’s like that. In our community, TCAD is that organization. We work on infrastructure issues, including air service, sewer, water, and power. Heather manages a revolving loan program. And we meet with local customers and try to determine whether there is any federal, state, or local program that can help them with technical or financial assistance.”
Stamm said that when TCAD met with Fane they described the CIITAP policies and other projects that had gone through it. “We’ve done half a dozen of those projects,” the TCAD executive director said, “and we tried to anticipate what kind of questions the applicant would get from IDA members. Both staff and our attorney reminded the IDA members under what circumstances they could vote ‘yes,’ ‘no’ or abstain from voting on a project. [For example] you can’t vote against a project because a person might belong to a different political party from you. That actually happens in other counties.”
“Essentially you have to apply the policy guidelines that the IDA has set out in its tax exemption policy,” said Filiberto. “They’re on our website. All along we talked to IDA members about applying those guidelines, and they should be consistently applied to all projects.”
Filiberto noted that traditionally the IDA has granted tax incentives to industry, particularly ones that don’t compete with other local businesses. If you enhance those companies, she said, that drives the need for the local services. It creates wealth in a community, so you can invest in “quality of life things.”
“The downtown projects are a completely different animal,” she continued. “They are community development.”
“Most of our stakeholders agree that it’s important to have a strong downtown,” said Stamm. “That’s why we agreed to the city’s request that the IDA deliver incentives to a specific geographic area: downtown.”
How Tax Abatements Work
The way that the IDA delivers property tax incentives is through a “lease-lease back” agreement. The IDA itself becomes involved in the purchase and sale of the land and are listed as a lease-holding interest. The attorney’s fees for this kind of transaction are, as Stamm put it, “appropriately high.”
Therefore Filiberto uses a rule of thumb that any project that starts down to tax incentive road must be going to increase the assessment of the parcel by $500,000. She points out that this is not the same as the cost of the project. In fact, she recently saw a $3 million project that only increased the value of the property by $500,000.
The tax incentives only apply to that increase, not to the entire assessment. She offered the Carey Building project as an example. Travis/Hyde will continue to pay their full tax bill on the existing building. Only on the stories that they are adding above it will they get a tax break.
Stamm (and Ferguson) are at pains to point out that this means that tax abatement does not actually decrease the amount of property taxes that a community is collecting. Because the projects would not go forward at all with out the incentives—because of the high cost of building downtown—the municipalities and the school district would never receive any additional taxes at all.
The usual schedule for is for a property to pay only 10 percent of its taxes in the first year, and then increase that amount steadily until at the end of a seven, 10- or even 20-year period, they are paying the full amount. (Tavaras described another type of package occasionally offered in Chenango County in which a property would pay 50 percent of their taxes for an agreed-upon period.)
Fane was asking for a seven-year schedule through CIITAP. As Ferguson explained, the city program allows an applicant a 10-year period, if they agree to disclose more about their finances.
Politics and the IDA
When TCAD staff reminded the IDA board members about their own policies, they were referring to the five different types of projects that the board considers and the criteria listed for each. Number four reads, “Community Investment Incentive Tax Abatement Program (CIITAP) for City of Ithaca Downtown Projects – for application process and incentives to be delivered, please refer to the separate policy.”
As passed by Common Council in 2012, CIITAP required projects seeking tax incentives to meet three criteria. First, it should increase the assessment by $500,000 (Filiberto’s rule of thumb); second, the project should be three or more stories tall (to increase density) or be a restoration of an existing structure; and third, it should be in the city’s “density district.”
According to Lyman,
On July 31, 2014, Nels Bohn (a member of the City’s CIITAP review committee and Director of Community Development at Ithaca Urban Renewal League) wrote to Mayor Myrick stating that a 4th criteria should suddenly be added to CIITAP: “Municipal compliance – all property in the City of Ithaca owned by the Applicant must be in full compliance with all applicable local laws & regulations, orders of the Director of Code Enforcement and current on all local taxes, fees and penalties due.”
The 130 Clinton project had already begun the CIITAP process, when this criterion was added, but the city insisted that it be applied retroactively.
After the IDA voted on the project on Dec. 11, board member Shinagawa remarked (as quoted in the minutes) “[The Mayor is not inclined to support this project, as it seems to only meet the minimum standards. There is no plan for mixed use in the building, it is not a good use of resources, and no jobs are created.” None of these criteria are included anywhere in the CIITAP application and the IDA’s own policies instruct its members to refer to the CIITAP application.
“We should follow the rules we set up,” said Dennis, the IDA chair, of the vote against the Fane project. “The reasons given out loud were not part of the written criteria.” •