Hartford Business Journal

www.HartfordBusiness.com • June 24, 2019 • Hartford Business Journal 17 SPECIAL REPORT: CITIES PROJECT And it's not just landlords stuck paying higher property taxes. Many commercial tenants have a "triple net lease," meaning they must pay a share of a building's property taxes. Businesses must also pay taxes on personal property like machinery and equipment and motor vehicles. That's how tax bills begin to add up for small and midsize merchants — like D'Aprile's D&D Market — that rent space in the city. McDermott said Hartford's mill rate is a major impediment to renaissance efforts taking place downtown. "It's a competitive environment," he said. "In today's world, clearly entre- preneurs have an opportunity to go anywhere they want to go. There are clearly advantages to being in the city, but also from an economic perspec- tive, the suburbs have a tax impact that is dramatically less. You can very easily go to Glastonbury or Rocky Hill where the tax burden is half or two- thirds of the city's." Urban draw Despite Hartford's tax burden, the city, particularly downtown, has seen noticeable development and invest- ment in recent years. Most of it, how- ever, has been subsidized by the state, or is the beneficiary of city tax breaks. Still, many employers find it necessary to have a Hartford presence, especially as Millennials and others desire urban settings where they can live, work and play. In fact, Hartford has seen some employers move from the suburbs to downtown in recent years to be closer to a wider talent pool and the various amenities the city offers. The vacancy rate for Class A office space downtown is currently 17.7 per- cent, down from 25.5 percent in the first quarter of 2011, according to com- mercial realty firm CBRE. The city's overall office vacancy rate fell from 26.1 percent to 16.5 percent over that same time period. The state's purchase of two major office towers and the conversion of va- cant office buildings into apartments have helped lower the vacancy rate. Meantime, the grand list, despite being well below historical highs, is up 23 percent since 2006. The city lately has also attracted out- of-state realty investment, including from New York landlord Shelbourne Global Solutions LLC. Shelbourne has invested more than $200 million since 2014 buying up some of downtown Hartford's most prized office towers, cementing it as one of the center-city's most prominent landlords. Most recently, it teamed up with Hartford parking giant Laz Parking to buy the city's iconic "Gold Building" skyscraper for $70.5 million. Shelbourne managing member Ben Schlossberg said his group finds the city attractive because it's walkable, uniquely located between New York and Boston, and has a strong corpo- rate and higher-education presence. However, he is also cognizant of Hartford's high tax rate. Shelbourne sued the city a few years ago after its appeal for lower property taxes on several of its recently revalued build- ings was denied. It eventually bro- kered a tax-break deal with the city to resolve the issue. Without that helping hand, some of Shelbourne's proper- ties would have gone into foreclosure, Schlossberg said, an issue familiar to downtown, especially in the wake of the 2008 financial crisis. "We are very excited about what is going on in Hartford," Schlossberg said. However, he added "the state needs to find a way to lower the mill rate, which is oppressive." Travelers Cos. is one employer that has made significant investment in Hartford. In recent years the property- and-casualty insurer spent about $55 million giving its famous Travelers Tower office high-rise and campus a facelift. It's currently spending millions more to spruce up its interior offices. were assessed at 70 percent of value while the single-family home assess- ment ratio was set at 45.8 percent. A year prior, all real estate — in- cluding single-family homes, apart- ments and commercial properties — were assessed at 65 percent of value. Hartford became the only Con- necticut municipality allowed to have a split assessment ratio. Overall, the policy shielded home- owners from major tax hikes, while shouldering commercial taxpayers with a higher tax rate, a move vehemently opposed by the business community. "Hartford was in a real mess," McDermott said. "It was a compound- ing, almost untenable situation. The differential plan softened the impact on the residential sector and allowed some time for government officials to gradually phase in their tax burden." The residential assessment ratio was gradually increased over the next few years until it reached 70 percent in 1986. However, that bifurcated system was readopted in 2006 after the city faced another near crisis from a revaluation. Today, commercial and apartment properties are assessed at 70 percent of value, while single-family homes are assessed at 35 percent. William "Billy" DiBella, who sat on the city council alongside Carbone during the late 1970s, said the stakes for the city back then were huge, and required a wholly creative response. "Had we not done that,'' said Di- Bella, a Wethersfield resident who chairs the regional water works, the Metropolitan District Commission, "we would have had a city without residential property in it, because nobody could afford to live there.'' In the late 1970s, McDermott said suburban lawmakers distrusted the city of Hartford, so convincing them to go along with the scheme wasn't easy. Some state lawmakers worried that a revaluation would simply give Hartford city officials an excuse to spend more money. So, a backroom deal — one pre- viously not made public — was hatched to get the legislation passed. Lawmakers agreed to approve the bifurcated tax structure, but only after city officials pledged not to raise spending the next year by more than $1.5 million. National perspective McDermott recalled Hartford's late 1970s property-tax troubles during a recent interview with the Hartford Business Journal. Today, he runs his own consulting firm, McDermott & Associates, whose clients include Connecticut property owners. McDermott first came to the city of Hartford in 1974. Prior to that, he was the assessor in Amherst, Mass., a state known for experimenting with different tax rates for different prop- erty classes. He said he drew on that knowledge base when he came up with Hart- ford's bifurcated tax structure. "There was a lot of work going on in classification schemes in Massa- chusetts and across the country at the time," McDermott said. McDermott stayed with the city until 1977 when he took a job at a national consulting firm. When he got the call from Carbone in 1978 he was working in Alabama, assisting in the resolution of that state's major property tax inequity problems. Ironically, McDermott, who has also consulted for the MetroHartford Alli- ance, said he's not proud of the bifur- cated tax structure because ideally all property classes should be assessed evenly. He said the original property- tax scheme was only meant to last for a few years while lawmakers discussed ways to increase funding to Hartford and other urban centers. He said the city should move away from its current classification scheme. Still, he doesn't regret the system he helped develop in the 1970s. "We were caught between a rock and a hard place, but honestly I don't think there was any other choice at the time," he said. Continued on next page >> Andy Bessette, Travelers Cos.' executive vice president and chief administrative officer, said he is bullish on Hartford, despite the city's challenges. Dunkin' Donuts Park has been a well-received amenity in downtown Hartford. PHOTO | HBJ FILE PHOTO | HBJ FILE

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