ITHACA, NY – The fight over tax breaks for Ithaca developers can be loosely split into two camps:
1 — Those who say the tax breaks amount to a corporate hand-out that gives too much to the rich without ensuring a benefit to the community.
2 — Those who stress the importance of encouraging development in Ithaca to expand the tax base and bring in more money for the city.
On Thursday, a meeting of the Planning and Economic Development Committee became an impromptu class in the many layers and jargon surrounding the topics of development and tax abatement.
We here at the Ithaca Voice sat through the two-plus hour meeting so you didn’t have to, and now present what we hope is an easily digestible guide to understanding development and tax abatement in Ithaca.
1 – What exactly is a tax abatement?
2 – Why are tax abatements needed?
3 – Okay, but are tax abatements really needed?
4 – Why is development downtown so important?
5 – What are the problems with tax abatement?
6 – Does the new tax abatement plan meet its goals?
7 – Can abatement help with the housing crisis?
1 – What exactly is a tax abatement?
A tax abatement is basically a fancy way of saying “tax break.” In the context of development, a tax abatement means that a developer pays a reduced property tax rate on a property that they’ve developed.
A developer must apply for an abatement, and must meet certain requirements to qualify. If they meet the requirements, they get the benefit of the reduced tax rate for a set number of years. The amount of the reduction varies depending on the specific agreement, and declines each year.
The abatement only applies to the increased value created by the development – the developer always pays the base tax on the property.
2 – Why are tax abatements needed?
The goal of Ithaca’s tax abatement program, Community Investment Incentive Tax Abatement Program (CIITAP), is to encourage development in a specific area of downtown Ithaca.
Why does there need to be an incentive for developers? The short answer is that development in downtown is expensive. There are a number of logistical factors behind this.
Nels Bohn of the Ithaca Urban Renewal Agency (IURA) and Herman Sieverding of Integrated Acquisition and Development cited a few of these:
– Navigating construction vehicles and supply deliveries in dense urban areas is more difficult
– Profit margins downtown aren’t as high as in an area like Collegetown
– “legacy issues” such as building over an old gas station, require additional expenses
These issues are difficult to predict, making architects projections highly unreliable.
3 – Okay, but are tax abatements really needed?
Some argue that we don’t – and that’s not just including those who think that Ithaca doesn’t need development, period. Alderperson Cynthia Brock suggested that the lack of development seen before the revised CIITAP program kicked in could be attributed to the economic crash circa 2008.
Brock referred to CIITAP as a “blunt tool” and suggested that “just because we created this thing doesn’t mean we have to keep looking at it.”
Brock also felt that the program might have lost its way. “The original charge of the IDA was to secure job creation in the community. What we’ve done is redirected that focus away from job creation to look at development.”
She went on to say that the idea that development would itself create jobs had not panned out, in her opinion, with construction jobs not always going to local laborers, and many new business creating only part-time, non-benefited positions.
4 – Why is development downtown so important?
There are several reasons why high-density development in the downtown area is beneficial:
Heather McDaniel of Tompkins County Area Development made the case from a financial perspective, saying: “For downtown projects, the city has seen $2.5 million in new taxes since 2002 as a result of the projects that have been built. Since 2013, the five projects that have been approved and are not yet completed are projected to pay $4.6 million in new taxes to the city over a 10 year period, adding about 460,000 square feet of space.”
Alderperson Seph Murtagh pointed out that high density development makes sense given the housing crisis, contrasting it with the “big box” development around Route 13 that occurred during the nineties. Murtagh said that that type of low density development leads to a lot of wasted space, noting the swaths of mostly empty parking lots in the area.
Alderperson Brock also mentioned that the city had declared an interested fostering the “feeling of vitality” that comes with high density development.
5 – What are the problems with tax abatement?
Put simply: they give too much to developers without giving enough back to the community.
The reason for Thursday’s meeting was to evaluate the draft of a set of changes to the CIITAP program. According to Alderperson Ellen McCollister, who led the committee that produced the draft, these changes were aimed at finding the “sweet spot” between incentivizing development and providing benefits to the community.
The community benefits sought in the new agreement would require developers to meet at least one of the following requirements to receive an abatement:
– use of local labor, thus keeping money circulating within the community
– considerations of sustainability and environmentally-friendly design elements
– creation businesses that provide living wage jobs
– consideration for diversity among workers
6 – Does the new tax abatement plan meet its goals?
The reaction at Thursday’s meeting was not positive. Prior to the committee’s deliberations, eight members from the public, including several from working group that had formulated the draft, spoke out against it.
Stacey Black of the International Brotherhood of Electrical Workers, who was on the working group, felt that the new requirements had “no teeth” and were “too passive.” As the draft reads now, developers need meet only one of the “community benefit” requirements to qualify for the abatement.
Several others who spoke expressed concerns particularly about the requirements for using local labor not being stringent enough.
The use of local labor continues to be a focal point of the new abatement plan, with McCollister repeatedly lamenting the fact that there simply wasn’t enough data available on the subject. There were many questions of who should be counted as local, if the the percentage of local labor should be measured in people or in hours, and how to account for specialized labor that simply isn’t available in Tompkins county, among other concerns.
Irene Wiser, from the Coalition for Sustainable Economic Development (CSED) said that “the community is raising its voice against development.” She added that while economic development is important, it’s vital to ask who is truly benefiting.
Elon Shapiro, also of CSED, criticized the guidelines of the new CIITAP plan, saying they “weren’t decisive, they’re just small tweaks.”
It was later noted that CSED would like to see the CIITAP planned phased out entirely over the next five years.
7 – Can abatement help with the housing crisis?
Alderperson Graham Kerslick wondered how the new plan might dovetail with Ithaca’s ongoing housing crisis, worrying that keeping the CIITAP plan might just encourage more of the same sorts of development.
Nels Bohn of IURA said that while it was a possibility, there were many stipulations that would prevent CIITAP from being optimally used to help with the housing crisis. As examples, CIITAP applies only to limited areas in downtown, and could only be used for rental properties.
The committee ultimately voted to circulate the draft of the new CIITAP plan. This means that the document will be presented to a variety of other people in a variety of sectors who may be able to provide more feedback and possibly fresh ideas. The committee will return to the issue in January.