Questions & Answers
1. Q. What is the problem with the Assessment of 360 State?
A. MEPT decided to invest in 360 State Street after estimates approved by the Assessor, Tax Collector and Economic Development Administrator in 2007 projected an annual tax of $1.4 million. These estimates were reconfirmed by the city in August 2010, when the building was completed and residents had already moved in. Six months later, in February 2011, the City reported a 3%, $149 million increase in the Grand List -- which included an assessment of 360 Street that was $100 million higher than previously projected. This new assessment requires MEPT to pay four times the original 2007 tax estimate and would cut the value of the investment nearly in half. Learn more about how increasing taxes diminishes the value of a property.
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 costly green building features such as a fuel cell. For instance, Rowe Apartments, a 104-unit project completed at the same time as 360 State, cost $36 million to build (see the Mayor’s press release), 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, then what is?
A. The income from an investment property – its “income basis” -- is a much better indication of value. Since the rental income from The Eli and other downtown apartment buildings is about same per square foot as that of 360 State Street, the assessment per square foot should be the same as well – which is why the Eli’s assessment of $70 per square foot, and not four times that amount, is the right figure for 360 State Street.
4. Q. Elizabeth Benton, spokeswoman for the city, said that the cost of the building was the only information available to the city at the time of the assessment.
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, 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 subsequently submitted are lower than the 2007 projections used by the city in approving assessment estimates of $70 per square foot.
5. Q. Can’t MEPT ask the Board of Assessment Appeals for help, or go to court like other taxpayers? Why should the Board of Aldermen step in?
A. MEPT did appear before the Board of Assessment Appeals, but the Board took no action, and MEPT subsequently filed in tax court. This process can take years, however, and will prove expensive for both MEPT and the city. 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). Unfortunately, until the tax issue is resolved, the city will have a hard time attracting investors unnerved by the prospect of severe and seemingly arbitrary tax hikes. New Haven residents cannot afford to put job-creating investment on hold while this issue languishes in court. But the Board of Aldermen can fast-track a solution to the 360 State Street tax problem. The Board is the only group legally authorized to establish a fixed-schedule tax payment arrangement. It can act more quickly than the courts, and can do so through an open public process, finding a solution that is fair to both the city and to MEPT while reassuring future investors eager to spur growth and create jobs in New Haven.
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. Because 360 State’s situation is different. 360 State has had a meaningful impact on the New Haven community thereby affecting thousands of New Haven residents who live, work, and shop there, and who invested as member-owners in Elm City Market--its ground-floor food cooperative. Also, as the largest single private investment in New Haven in the last two decades, 360 State is a bellwether project, one whose fate will determine whether other investors come to New Haven. Predictability of taxes is essential to attract and retain investment. The city itself initiated the project, and now it has a responsibility to stand behind the representations it made in order to induce MEPT to invest. Failure to do so will discourage other investors from investing and creating jobs in New Haven.
7. Q. Is a multi-year fixed assessment 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 over 1,000 jobs, environmental clean-up of city property, new public parking, a downtown grocery store, and 50 units of affordable housing. Further, the impact of the project on the city budget is very low (e.g., only four school-aged children currently live at 360 State.) Projects which are developed specifically to meet public priorities and city objectives, and which confer unique economic benefits, typically are granted long term fixed assessment or fixed-payment tax arrangements. This is why the Board of Aldermen granted 9th Square Project a $600,000, 20-year fixed payment.
8. Q. Why ask for such an arrangement now? Shouldn’t MEPT have procured one when the project was originally proposed?
A. The initial RFP response submitted by the developer did ask for such an arrangement, with a 20-year tax phase-in. The city demurred, and instead negotiated with the developer on the basis of a good-faith estimate of taxes reviewed and approved by three city departments and the Board of Aldermen. Reneging on that good-faith estimate will discourage future investment and job creation in New Haven – and blaming MEPT for not having insisted on a fixed-payment arrangement will broadcast the harmful message that investors should know better than to trust the city.
9. Q. Does the Board of Aldermen have the authority to establish a fixed-payment arrangement 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 is fully authorized under the City and Town Development Act to adjust the tax arrangement for 360 State Street (see memo). As for litigation, 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 time to act on the matter (see letter for background.)
10. Q. Is there any reasonable explanation for how the assessment of the largest development project in the city was suddenly quadrupled without notice or discussion?
A. No – none, at any rate, that MEPT has been provided. The failure to explain the hike follows a pattern of assessment recklessness publicly acknowledged by many. The city’s appraisal consultant, Vision Appraisal, admitted flaws with 360 State Street’s assessment, including miscoding of the property type. In 2010, widespread complaints prompted 11 Aldermen to request – successfully -- that Mayor DeStefano 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 Aldermen took action and succeeded in having an errant assessor removed. Now they need to repair the damage he created.