Questions & Answers
1. Q. What is the problem with the Assessment of 360 State?
A. MEPT decided to invest in 360 State Street based on tax estimates approved by the Assessor, Tax Collector and Economic Development Administrator in 2007. These estimates were reconfirmed by the city in August 2010, after residents moved into the building. The assessment listed in February 2011 requires MEPT to pay four times the estimated $1.4 million in taxes annually and would devalue the workers' pension plans invested in the project by $50 million.
2. Q. Shouldn’t the assessment reflect the cost to build the building? Why did the city provide an estimated assessment of $70 per square foot from 2007 through 2010 when the cost to develop the building was known to be triple this amount?
A. “Cost basis” is the least reliable reflection of value, particularly for a project like 360 State which is funded by grants and tax credits and includes affordable housing, a city-mandated public parking garage, environmental remediation and green building features such as a fuel cell. Another example 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.
3. Q. If “cost basis” is not a reliable indication of value, what about the “income basis”?
A. The income from an investment property is a much better indication of value. Since the rental income from The Eli and other downtown apartment buildings is the about same per square foot as as 360 State Street, the assessment per square foot should be the same – which is why the Eli’s assessment of $70 per square foot is also appropriate for 360 State Street – not four times that amount.
4. 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. Complete income and expense numbers for the project, including tax projections, were submitted by the city to DECD as part of the city's application for State funds on August 14, 2007 (see pro forma). Responding to DECD's questions about this submission, Tony Bialecki of the Economic Development office wrote: "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 net operating income figures have subsequently been submitted and are lower than the 2007 projections used by the city in approving and reconfirming assessment estimates of $70 per square foot.
5. 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? Why does the Board of Aldermen need to take action?
A. MEPT appeared before the Board of Assessment Appeals, but the Board chose to take no action. MEPT then filed in tax court, but this is a multi-year process that is expensive for both MEPT and the city. Until the tax issue is resolved, the city will have difficulty attracting investment from pension funds and other institutions. New Haven residents cannot afford to put the job-creation resulting from investment on hold while this issue is handled by the courts.
While it is common for property owners to file lawsuits over assessments, this process can take years to resolve. Faster resolutions are possible through negotiations with the Mayor’s Litigation Settlement Committee, but in the words of the former assessor, “If we don’t like you we can drag it out for ten years” (see referenced article).
Action by the Board of Aldermen to resolve the 360 State Street tax issue is preferred for many reasons. First, the Board of Aldermen is the only group legally authorized to establish a PILOT – something that is needed to establish more predictable taxes. Also the Board of Aldermen can act more quickly than the courts, and they can resolve the matter through an open public process, in a way that is fair to both the city and to MEPT, inspiring confidence for other potential investors who are considering investing in New Haven and creating jobs for its residents.
6. Q. Owners of other properties, particularly those in East Rock, also have assessments that are much higher than expected - why should 360 State Street be treated differently?
A. 360 State’s situation is different for these reasons:
o The magnitude of the problem is much greater - the assessment is FOUR times higher than anticipated. And this arbitrary assessment affects thousands of New Haven residents who live, work, and shop at 360 State, who have their retirement funds invested in the building, and who invested in Elm City Market as member-owners.
o 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. Failure to do so will discourage other investors from investing and creating jobs in New Haven.
o Predictability of taxes is essential to attract and retain investment. Since 360 State Street is the largest single private investment in New Haven in the last two decades, the fair resolution of this tax issue will determine if other investors come to New Haven.
7. Q. Is a PILOT appropriate? Why not just fix the assessment until the next revaluation?
A. 360 State was initiated by the city and carried out through a public private partnership. Many economic benefits resulted, including creation of over 1,000 jobs, environmental clean-up of city property, new public parking, parking for 175 cars to meet city obligations, a downtown grocery store, and 50 units of affordable housing. Further, the impact of the project on the city budget is very low - there are only four school children that live at 360 State. Projects developed specifically to meet public priorities and city objectives, and which have unique economic benefits typically are granted long term PILOTs.
This is why the Aldermen granted 9th Square Project a $600,000, 20-year fixed PILOT payment, and why Hartford 21 has a $500,000, 99-year PILOT.
8. 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 the developer did ask for a PILOT with zero taxes for the first ten years and then a phase-in from years 11 to 20. The city stated that this was not possible, and negotiated with the developer to instead rely on a good faith estimate of taxes prepared in conjunction with the city and reviewed and approved by three city departments and the Board of Aldermen.
Responding that MEPT should have known better than to trust the city will discourage future investment and job creation in New Haven and is not fair to those who demonstrated good faith by investing.
9. Q. Does the Board of Aldermen have the authority to establish a PILOT for a project that has already been constructed? Would acting on the matter compromise the city’s interests in the pending court case?
A. The Board of Aldermen are fully authorized under the City and Town Development Act to adopt a PILOT for 360 State Street. MEPT has agreed that all discussions, hearings and any other evidence resulting from the Board of Aldermen’s consideration of this matter will be inadmissible and not affect the court case, which was suspended until November to give the Board of Aldermen time to act on the matter. (See attached letter for background.)
10. Q. Is there any reasonable explanation for how the assessment for the largest development project in the city was suddenly quadrupled without any advance notice or discussion?
A. No. MEPT was never given a notice or explanation of the new assessment. Six months after residents moved into 360 State - in February 2011 - a 3%, $149 million increase in the Grand List was reported which included an assessment of 360 Street that was $100 million higher than expected. The city’s appraisal consultant, Vision Appraisal, admitted flaws with the assessment, including miscoding of the property type, and no reasonable explanation of the assessment has been provided.
In 2010, widespread complaints prompted 11 aldermen to write a letter to Mayor DeStefano asking him to fire the assessor “so that the city government can make a fresh start in re-establishing a relationship of trust and credibility with taxpayers..."(see referenced article). The Board of Aldermen took action and succeeded in having him removed. Now they need to take the next step and repair the damage he created.