Hartford Business Journal

www.HartfordBusiness.com • July 22, 2019 • Hartford Business Journal 17 SPECIAL REPORT: CITIES PROJECT velopment or a big investment," she said. Connecticut is not alone in allowing property-tax deals. Every state uses them, according to the Federal Re- serve Bank of Boston, and within New England, every state but New Hampshire has a stand-alone prop- erty tax abate- ment program. Are they worth it? Tax-incentive deals can be controversial because they do create an unlevel playing field, giv- ing one group of property owners or investors different and preferential tax treatment over others. They can also lead to accusations of political favorit- ism, especially if deals aren't done in a transparent manner. Meantime, there's not much agree- ment among academics about whether abatements and incentives are actually worthwhile long term. Over decades, critics have argued that such deals aren't likely to pro- duce enough benefit to justify their costs and can cause poaching between neighboring municipalities. While drawing a big investment or company from another state or municipality can help a city, vari- ous researchers (including from the Lincoln Institute of Land Policy and Wayne State University) have argued incentives are often not a key driver of business-location decisions, and even when they have an effect, tend not to produce enough economic benefits to justify the loss of government revenue. Incentives can also beget more incen- tives, Lincoln researchers wrote in 2012. "Offering tax breaks to one firm makes it more likely that other firms consid- ering locating or expanding in that jurisdiction will also lobby for incentives," their report said. "This self-perpetuating cycle means that tax incentives can move from being the exception to the norm, and will be expected by all firms rather than serve as a targeted tax break." A 2013 study by the Federal Reserve Bank of Boston concluded that local property-tax incentives nationwide total at least $5 billion to $10 billion per year. It also highlighted Connecticut's property-tax exemption for machinery and equipment, which reduced poten- tial local revenues by $57.3 million in 2009, while enterprise-zone property- tax abatements cost the state and its local governments $14.5 million that same year. The combined cost of those incen- tives could have paid the salaries for more than 1,000 Connecticut teachers, the report said. Nonetheless, economic-development experts in Connecticut, particularly from cities, say incentives are neces- sary to overcome exceedingly high property taxes and to promote growth at a time when Connecticut isn't seen as a destination for investment. Hendricson said any deals should be structured so they are based off performance, meaning developers must meet some type of job creation or investment threshold in order to qualify for a tax break. Hendricson cautions that munici- palities shouldn't lead with tax breaks; they should be a last resort. She says cities or towns shouldn't accept a proj- ect that wouldn't happen without a tax deal, though she admits not everyone agrees with that philosophy. "It should be the icing on an already great cake because it can put some development projects over the finish line," she said. Here's a look at how a few Connecti- cut municipalities use tax deals for economic-development purposes. Hartford tries to overcome a big tax burden Despite its oppressive property-tax rate — 74.29 mills, by far the highest in the state — Hartford has been the beneficiary of significant development in recent years, particularly downtown. But it hasn't happened without a helping hand. "Everything substantial that gets built in the city would not get built with- out a tax deal," said Hartford City As- sessor John Philip. "The tax deals have been getting more and more gener- ous over the years." Developers and property owners can access tax- incentive deals in Hartford through two avenues — city government and the Capital Region Develop- ment Author- ity, which is a quasi-public state agency that has helped finance about 1,500 new apartment units downtown since 2013. Those newly built apartments have been aided by city tax breaks and financing from CRDA, which has been widely viewed as a successful econom- ic-development entity. In fact, during the recent legislative session, state lawmakers created the Municipal Redevelopment Authority, a quasi-public agency modeled after CRDA that could help fund devel- opment efforts in other financially distressed municipalities. In addition to providing low-interest loans and/or equity investments, CRDA is also able to secure a special tax rate for developers seeking to convert old, run- down office buildings into apartments. Hartford is the only municipality in Connecticut with a bifurcated tax system that assesses residential prop- erties at a lower tax rate (35 percent of market value) than commercial properties (70 percent of value). In 2013, state lawmakers, at the urging of the city and then Gov. Dannel P. Mal- loy, passed a law that allows CRDA-fund- ed office-to-apartment building conver- sions to be assessed at the much lower residential assessment ratio, providing a major tax break. (It also helped put Hartford's proper- ty-tax rate in line with surrounding towns.) In turn, the lower taxes allow developers to obtain a bigger and shorter-term mortgage and in- crease their return on investment, which helps at- tract more private equity and reduc- es the amount of necessary public subsidy, said CRDA Executive Director Michael Freimuth. To date, CRDA has invested close to $100 million of bonded taxpayer funds to leverage redevelopment of 23 ex- commercial buildings into 1,546 housing units in Hartford with a total construc- tion value of $413 million. Those buildings are now generating north of $1 million in new tax revenue to the city, he said. The first eight downtown Hartford office-to-apartment conversions CRDA co-financed, Freimuth says, were valued at next to nothing and contributed just $220,000 a year in city property taxes. After conversion, the eight are now worth $20 million and return about $600,000 a year in property taxes, he said. Fairfield architect-landlord Bruce Becker has been the beneficiary of both CRDA and city tax breaks. He redevel- oped the 777 Main St., 26-story office tower into 285 apartments in 2015, an $85-million project that relied heav- ily on public financing and tax credits, including $17.7 million from CRDA. Continued on next page >> Courtney Hendricson, Vice President of Municipal Services, CERC Developer Bruce Becker has received tax deals in both Hartford and New Haven. PHOTO | HBJ FILE Tax-abatement impact The Capital Region Development Authority has provided subsidies and tax breaks to a number of office-to-apartment conversions in Hartford that have helped raise property values and increase city tax revenues. Here are eight projects that yielded dividends for Hartford: Annual property tax generation Annual property tax generation Apartment project Apt. units CRDA funding Pre-renovation value Post-renovation value pre-renovation post-renovation 777 Main St. 285 $17.7M $900,000 $2.44M $51,280 $201,375 Capewell Lofts 72 $5M $0 $6.9M $2,292 $113,843 179 Allyn 63 $6.5M $1.5M $3.9M $88,150 $83,611 Sonesta/Spectra 190 2.05M $1.6M $1.6M $27,228 $76,624 201 Ann/Grand 26 $4.5M $1.45M $3.1M $21,059 $66,720 390 Capitol 112 $7M $1.85M $1.7M $40,584 $65,401 36 Lewis 6 $300,000 $200,000 $319,564 $7,571 $10,909 38-42 Elm 6 $349,350 $128,600 $120,884 $3,077 $4,206 Total 760 NA $7,628,600 $20,142,120 $241,241 $622,688 Source: CRDA

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