Questions and Answers
Q. Why is there a problem with the Assessment of 360 State?
A. MEPT invested union retirement funds in New Haven to build 360 State Street based on estimates approved by the City Assessor, Tax Collector and Department of Economic Development that 360 State would be assessed at $70 per square foot. $70 per square foot is the same amount as other downtown apartment buildings with similar rents such as The Eli. These estimates were reconfirmed by the City in August 2010, after residents moved into the building. The City’s surprise quadrupling of the assessment in February 2011 was never justified and would require MEPT to pay $5.7 million instead of $1.4 million in taxes annually, resulting in a loss of more than $50 million in the value of MEPT’s investment.
Q. Shouldn’t the assessment reflect the cost to build the building? Why did the city provide an estimate of assessment of $70/psf from 2007 through 2010 when it was always clear to the City that the costs to develop the building were more than three times this amount?
A. “Cost basis” is the least reliable reflection of value, particularly for a project such as 360 State that is funded in part by grants and tax credits and includes affordable housing, a city-mandated public parking garage, environmental remediation and expensive green building features such as a fuel cell and experimental geothermal wells. Another good example of this is Rowe Apartments, a 104-unit project completed at the same time as 360 State which according to the Mayor’s press release cost $36 million to build, but is assessed at under $7.5 million. Cost basis is rarely used in densely developed urban areas.
Q. If “cost basis” is not a reliable indication of value, what about the “income basis”?
A. The income produced from an investment property is a much better indication of value. The City reviewed a detailed income and expense pro forma when it applied for state funding in 2007, and it reconfirmed the tax estimates in August 2010. Since the income from The Eli and other downtown apartment buildings is about the same per square foot as the projected and actual income per square foot for 360 State Street, it makes sense for the assessment per square foot to be the same – which is $70 per square foot.
Q. Can’t MEPT just do what other taxpayers do and ask the Board of Assessment Appeals for help, or failing that go to Court like 200 other taxpayers are doing?
A. MEPT did appear before the Board of Assessment Appeals, but the Board chose to take no action. MEPT subsequently filed in Tax Court, but this is an expensive multi-year process. Until the tax issue is resolved favorably for MEPT, investment in the City by MEPT and other pension funds and institutions will be put on hold. The City cannot afford to put the job creation that results from investment in New Haven on hold for years while this issue is addressed through the Courts. When the former Assessor was asked how long it takes to settle tax cases he responded: “If we don’t like you, we can drag it out for ten years.”
The Board of Aldermen's resolution of the 360 State Street tax matter is preferred by MEPT for various reasons. First, the Board of Aldermen is the only group authorized to fix an assessment or establish a PILOT. Also the Board of Aldermen can review the matter through an open transparent and public process, which will result in an outcome which is fair to both the City and to MEPT.
While it is common for property owners to sue the City over assessments, this process can take many years to resolve in court. A faster resolution to Court action is sometimes achieved through settlement negotiations with the Mayor's office and the Litigation Settlement Committee. But because this Committee is controlled by the Mayor, such settlements can be subject to political influence. In the past Jorge Perez has objected to lack of transparency with these secret settlements and the process by which political supporters of the Mayor can be favored and those that are not his supporters can be penalized.
Click here to read a New Haven Independent article about this -- "480k Tax Break Tabled" by Melissa Bailey.
Q. Owners of other properties, particularly folks in East Rock have assessments that are much higher than expected, why should 360 State Street be treated differently than these properties?
A. There are many reasons why the situation with 360 State is different from the situation facing homeowners with higher than expected assessments:
The magnitude of the problem is extreme, in that the assessment is four times higher than comparable buildings on a per square foot basis. We are not aware of any other assessment in the city that is four times higher than expected and certainly there are none that are $100 million higher.
Also, 360 State Street was developed through a public/private partnership in response to an invitation by the City. MEPT proceeded to invest in the project based on detailed estimates provided and approved by the City. Since the City initiated the project it has a responsibility to stand behind representations it made in order to induce MEPT to invest in the City so that others will have confidence to invest in the City.
· Predictability is important for attracting investment.
Q. Elizabeth Benton, spokeswoman for the city, said the cost of the building was the only information available to the city at the time of the assessment. She said the city is willing to use an income-based approach when it gets the necessary data from the MEPT.
A. Ms. Benton is incorrect. The full income and expense pro forma for the project, including tax projections, was submitted by the City to DECD as part of the City's application for State funding on August 14, 2007. (see attached pro forma) In responding in writing to DECD's questions about this submission, Tony Bialecki of the Department of Economic Development stated; "These estimated budget figures have been closely analyzed by the City's Tax Office, the City Assessor, and the Board of Aldermen and we agree that they are fair estimates of the property taxes at this point in time." Actual current income and expense figures have also been submitted which show net operating income lower that the 2007 income data the City had available when it approved and reconfirmed prior assessment estimates.
Q. Is a PILOT appropriate? Why not just fix the assessment until the next revaluation?
A. The development of 360 State was initiated by the City and carried out through a public private partnership. Many economic benefits, such an environmental remediation, creation of new public parking and parking for 175 cars to meet prior City obligations, and creation of 50 units of affordable housing were met through this effort. Further, there are only four school children that live at 360 State Street -- fewer than live in many single or two-family homes. Because large projects like 360 State, which are developed specifically to meet public priorities and city objectives, have uniquely positive economic benefits to cities it is customary for such projects to be granted long term PILOTs.
This is why the 9th Square Project has a $600,000, 20 year fixed PILOT payment, and Hartford 21 has a $500,000, 99 year PILOT agreement, with escalation at CPI after the 25th year.
Q. Why ask for a PILOT now? - Shouldn’t MEPT have asked for a PILOT when the project was originally proposed?
A. The initial RFP response submitted by Becker and Becker and MEPT did ask for a PILOT with no taxes for the first ten years and then a phase in from years 11 to 20. The City stated that this was untenable, and negotiated with the development team to persuade them to instead rely on a standard five year phase-in and underwrite the investment based on a good faith estimate of taxes prepared in conjunction with the City and reviewed and approved by the City.
The suggestion that MEPT should have known better than to trust the City is not a response that encourages future investment and job creation in New Haven nor is it fair to the union workers who in good faith had their their retirement funds invested in the project.
Q. Is there any reasonable explanation why the assessment for the largest development project in the City, which was underwritten so carefully over a three year period by the City, the State of Connecticut and MEPT was suddenly quadrupled without any advance notice or discussion?
A. Some people think the surprise hike in the assessment was politically motivated.
MEPT was never provided with a notice of the new assessment. It was only after residents had been living in 360 State for over 6 months, in February 2011, when the Mayor announced a 3% increase in the Grand List, that MEPT discovered 360 State’s assessment was put in the Grand List at a value $100 million higher than expected. Had the assessment reflected the City estimates which were confirmed and reconfirmed by the City from July 2007 through August 2010, the Grand List would have only grown by 1%. Since the 3% increase in the Grand List was cited as a major accomplishment by the Mayor during his re-election campaign, the quadrupling of the assessment in the Grand List, without any prior notice, may have been politically motivated. Representatives of the City’s appraisal consultant, Vision Appraisal Technology have acknowledged serious flaws with the assessment, including miscoding of property type, and no justification for the assessment has been provided, other than references to the total cost of the project cited in press releases.