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Summer in the City – SIDA Makes Waves with New Tax Exemption Policies

The City of Syracuse Industrial Development Agency (SIDA) made waves earlier this summer when board members unanimously voted to end the long-standing practice of giving the Syracuse Common Council the ability to vote on all payment in lieu of taxes (PILOT) agreements. As of June 21, 2016, the Council’s PILOT oversight is limited to instances in which an agreement deviates from the Agency’s uniform tax exemption policy (UTEP). While some allege the move reduces government accountability by placing decision making authority in the hands of unelected political appointees, proponents of the change suggest it will enhance government efficiency by removing partisan politics and unnecessary red tape from the approval process. Lost in this debate and the subsequent headlines, however, is the fact that SIDA made a number of other policy changes at the same meeting that will have as much, if not more of an impact on future economic development projects in the city.

Like every other industrial development agency in New York State, SIDA is required to establish a UTEP to provide the framework by which the Agency grants certain tax exemptions and benefits to projects. In addition to establishing the rules of engagement, the UTEP also ensures projects supported by SIDA are aligned with the priorities of the City of Syracuse and the surrounding community. As part of the recent overhaul of the UTEP, SIDA established the following PILOT categories and corresponding exemption schedules*:

Year

Standard Historic Priority Industry Priority Commercial & Residential

1

100% 100% 100%

100%

2

100% 100% 100%

100%

3

100% 100% 100%

100%

4

100% 100% 100%

100%

5

100% 100% 100%

100%

6

100% 90% 100%

100%

7

100% 80% 100%

100%

8

75% 70% 100%

100%

9

50% 60% 100%

100%

10

25% 50% 100%

100%

11

40% 80%

80%

12

30% 60%

60%

13

20% 40%

40%

14

10% 20%

20%

15 0% 0%

0%

* The exemption is calculated as a percentage of the increase in assessed value attributable
to the improvements.

While the Standard, Historic, and Priority Industry categories are relatively straightforward and do not represent a significant departure from SIDA’s previous policy, the Priority Commercial & Residential category reflects a considerable shift in the Agency’s approach and warrants further explanation.

In order to be eligible for a Priority Commercial & Residential PILOT, mixed use and residential projects must either be located in a Neighborhood Revitalization Strategy Area (NRSA) or agree to reserve 20% of the project’s residential units to be rented at 65% of the Area Median Income (AMI) rent limits for the City of Syracuse. The NRSA boundaries can be viewed in the City of Syracuse’s Consolidated Plan 2015-2019, and the 2016 rent limits, which are set annually by the US Department of Housing and Urban Development (HUD), are as follows:

Efficiency

1 Bedroom 2 Bedroom 3 Bedroom 4 Bedroom 5 Bedroom 6 Bedroom
$836 $898 $1,079 $1,238 $1,361 $1,483

$1,606

In addition to some of the more stable neighborhoods on the periphery of the city, notably absent from the NRSA boundaries are the downtown, lakefront, and university hill neighborhoods, all of which have experienced unprecedented growth in mixed-use, market rate, and student housing development over the past decade. In light of recent reports highlighting Syracuse’s chronic concentrated poverty, this new policy is an attempt by SIDA to more equitably target investments throughout the city by incentivizing developers to: (1) incorporate affordable units into what would otherwise be market rate housing in stable and growing neighborhoods; (2) undertake new mixed use and residential projects in underserved neighborhoods; and (3) incorporate a mix of uses into what would otherwise be strictly residential developments.

Understanding not every developer will be willing or able to comply with the Priority Commercial & Residential PILOT requirements, it’s important to note that SIDA is not the only mechanism by which developers can seek property tax relief for mixed use projects. The 485-a New York State real property tax law (RPTL) exemption, for example, is available “by right” to any project in the city that involves the conversion of a commercial property into mixed use with residential. The 485-a provides a 100% exemption on the increase in assessment attributable to the improvements for the first eight years of the project and then phases up to full assessment over the last four years of the 12-year schedule. Again, the intent behind the Priority Commercial & Residential PILOT is to provide an incentive to developers by offering a more generous exemption schedule than the 485-a. It’s also worth noting that mixed use and residential projects located outside the NRSA can still receive mortgage recording and sales tax exemptions from SIDA without being subject to the aforementioned affordability restrictions as long as they are not requesting a PILOT.

In addition to the new categories and schedules, as previously noted SIDA made a number of other recent PILOT policy changes that will impact future projects. A few highlights of these changes, which were intended to both bring the Agency into compliance with new State law as well as provide greater certainty to all parties involved, are as follows:

  • The base (unimproved) assessment used in PILOT calculations will be the greater of: (i) the assessed value at time of application; or (ii) the purchase price of the site or facility. In recent years this value was typically determined on a case-by-case basis by SIDA and the City’s Commissioner of Assessment.
  • The maximum amount of the financial benefit for a project will be agreed upon at the time of Agency approval. The financial benefit was previously impacted by a number of variables including future tax rates, full (improved) assessments, and final construction costs, and therefore often could not be determined until years after approval.
  • PILOT agreements will take effect during the tax year immediately following the taxable status date (January 1) after SIDA acquires an interest in a project. The stage of a project at which the PILOT became effective sometimes varied in the past.

As the 2016 New York State Fair gets underway and summer draws to a close, developers and businesses will soon begin to shift their focus to next year’s projects. In doing so, they should be mindful of how these and other public policy changes may impact their plans.

 

TAGS: Municipal, Industrial Development Agency, Payment in lieu of Taxes, PILOT Agreements, Uniform Tax Exemption Policy, UTEP