The city has worked with individuals in the past using an economic development tool called Tax Increment Financing. This tool is a means of collecting taxes to use on a specified purpose. Tax Increment is used to generate a project that couldn’t be realized without its assistance.
There are a few different types of Tax Increment Districts. An Economic Development District lasts for approximately 10 years and is generally used with vacant property. A Redevelopment District can last up to 25 years. With a Redevelopment District the property needs to have buildings and be substandard or blighted in some way to qualify. There are other types of districts but these are the most common.
So how does this work? The mechanism of Tax Increment Financing starts with a parcel of property. What happens is a developer wishes to do a project but the costs of doing the project exceeds what it takes to make it work. With a redevelopment project, as an example, it is easy to look at the cost of removing a building and replacing it, creating a higher cost than starting with vacant property. To address these added costs the city assists the developer with tax increments that writes down the costs. They do this by certifying the taxable value of a property prior to development and then capture the difference between old tax and the tax created by the new development. This is the increment. That increment is then kept separate from other taxes and used to pay for costs associated with the assistance to the development.
The process of doing this is somewhat involved. The city needs to develop a plan to meet state requirements. This plan talks about what is going to be accomplished, sets the budget and determines the increment that will be received. The developer then signs a development agreement which states what he is going to do to accomplish the development. When the development is completed it generates larger taxes then previously paid on the parcel generating the increment. Within the development agreement is typically an assessment agreement or other assurance in value to protect the holders of the financing mechanism that increments will be paid.
Recently we saw a large decline in tax value for properties held by Whitebirch, Inc. The Marina II was one property which was improved as a result of Tax Increment. The agreement with them had a clause not to challenge the taxable value of their property, if they did they defaulted on the agreement. This was done and a notice was sent demanding the default be cured. In the event it isn’t cured the city will pursue remedies provided for in the agreement.
Tax Increment has its place and is a useful tool but in this environment of changing property values its use comes into question. In this instance the city had developed a “pay as you go” approach which means we pay only according to the amount of increment received. By doing this we limit the risk taken. In this instance we change the landscape in terms of what was meant to happen.
Friday, March 25, 2011
Friday, March 11, 2011
Reduced Values
The issue of taxable valuation has come to the forefront in Breezy Point in a big way. As I’m sure you are aware the property tax system relies on setting the value of properties that is used, in part, to determine property taxes. In general the higher the value, the more property tax that is payable. The system has a few checks and balances. Each year the values are reviewed and perhaps adjusted to reflect market conditions. Each year cities and counties in the state hold a meeting called the Board of Appeal and Equalization. This meeting is where property owners have an opportunity to question their assessed value.
State law also provides that property owners can use the court system for a tax appeal. This appeal process is outside of the Board of Appeal and Equalization process. It can be undertaken at any time. It involves the filing with the courts an appeal to the value of the property. The subsequent process can get rather involved but the outcome includes a judge making a ruling about the property value under appeal.
In Breezy Point the appeal process has occurred with Whitebirch, Inc. and concluded for all of the properties on February 22, 2011. Whitebirch, Inc is the parent company of Breezy Point Resort. The outcome was a rather large reduction in overall value. The process used included the hiring of an independent appraiser. Appraisers use three factors to determine value when it comes to commercial properties. These include cost, market, and income. With non-commercial properties the income approach isn’t used. In the past a great deal of weigh was assigned to the cost of a property but the other factors were considered. Given the economy we’re presently experiencing the appraisers are now factoring income more heavily. Cost factors seem to be much less of a consideration.
The outcome we talked about resulted in the value of the resort dropping from approximately $22.8 million to $10 million. With the change in values, comes a reduction in taxes payable. With less taxes paid by one entity the burden of taxation then is shifted to other property owners.
A very large concern here is the change in approach towards valuation. The past focused on costs as the primary basis towards valuation. Now the focus is changing to income. This change could result in a tidal wave of taxation adjustments for all commercial properties. Given the already apparent adjustment in the housing market the trend seems to be going lower with a market adjustment in all areas. I would think at some point we’ll see the correction settle to a point of equilibrium but for now adjustments in value in all areas is the name of the game.
State law also provides that property owners can use the court system for a tax appeal. This appeal process is outside of the Board of Appeal and Equalization process. It can be undertaken at any time. It involves the filing with the courts an appeal to the value of the property. The subsequent process can get rather involved but the outcome includes a judge making a ruling about the property value under appeal.
In Breezy Point the appeal process has occurred with Whitebirch, Inc. and concluded for all of the properties on February 22, 2011. Whitebirch, Inc is the parent company of Breezy Point Resort. The outcome was a rather large reduction in overall value. The process used included the hiring of an independent appraiser. Appraisers use three factors to determine value when it comes to commercial properties. These include cost, market, and income. With non-commercial properties the income approach isn’t used. In the past a great deal of weigh was assigned to the cost of a property but the other factors were considered. Given the economy we’re presently experiencing the appraisers are now factoring income more heavily. Cost factors seem to be much less of a consideration.
The outcome we talked about resulted in the value of the resort dropping from approximately $22.8 million to $10 million. With the change in values, comes a reduction in taxes payable. With less taxes paid by one entity the burden of taxation then is shifted to other property owners.
A very large concern here is the change in approach towards valuation. The past focused on costs as the primary basis towards valuation. Now the focus is changing to income. This change could result in a tidal wave of taxation adjustments for all commercial properties. Given the already apparent adjustment in the housing market the trend seems to be going lower with a market adjustment in all areas. I would think at some point we’ll see the correction settle to a point of equilibrium but for now adjustments in value in all areas is the name of the game.
Wednesday, March 2, 2011
The Move Commences
This year the city had considered its space and building needs. It was decided some upgrades and refinishing were in order. A plan, with modest costs and in house labor was developed to address the needs at city hall. The building had seen some minor changes throughout its history but much of the carpet was original being in place since 1995. It had seen better days with wear and tear being apparent. When the Public Safety Building was established a few changes took place with shifting of office space.
The first phase of moving has started. The office space that housed the planner was converted to administrative functions with a new office being built within this area. All the walls have been painted and new carpeting laid. A work room was established for the copier, office supplies, and room to develop packets for council and committee meetings. Some left over cabinets from a previous minor change in the building were used in this room. All that was needed to be purchased was a countertop. The process of reassembly is occurring. With this we’ve been able to purge a great deal paperwork for recycling. The purging of files will continue with organization and a better approach to a central filing system will be established.
The next steps include the existing administrative offices being painted and new carpeting applied. A conference room will be established. In this space we’ll house planning, public works and sewer office space. Property files will be consolidated and a more efficient approach will be taken here to make these uses work together.
The final phase for interior work will include a recarpeting of the council chambers along with a removal of the dais and reorientation of the council table. Doing this improves the utility of the room by making a bit more space available. It also allows the AV equipment to stay where it is and be in the rear of the room rather than off to one side. The tiled area in this room was thoroughly stripped and scrubbed. This was no easy task as industrial stripper was used with a floor scrubber to clean up the years of accumulated grime. Once cleaned an industrial sealer was applied to help to keep it clean and maintain the tile.
This spring the last phase of rehabilitation will occur with the reshingling of the roof. The shingles have rapidly deteriorated in the past couple of years and a new roof is needed. The shingles that exist were on a recall so we’re hoping to get some relief towards the cost of replacement.
Changing the looks and efficiency of the building is a huge step but not the last as we work towards better operations. There is a great deal of work needed to better the organization. This all takes time but progress, even with small steps, moves us forward towards a better future.
The first phase of moving has started. The office space that housed the planner was converted to administrative functions with a new office being built within this area. All the walls have been painted and new carpeting laid. A work room was established for the copier, office supplies, and room to develop packets for council and committee meetings. Some left over cabinets from a previous minor change in the building were used in this room. All that was needed to be purchased was a countertop. The process of reassembly is occurring. With this we’ve been able to purge a great deal paperwork for recycling. The purging of files will continue with organization and a better approach to a central filing system will be established.
The next steps include the existing administrative offices being painted and new carpeting applied. A conference room will be established. In this space we’ll house planning, public works and sewer office space. Property files will be consolidated and a more efficient approach will be taken here to make these uses work together.
The final phase for interior work will include a recarpeting of the council chambers along with a removal of the dais and reorientation of the council table. Doing this improves the utility of the room by making a bit more space available. It also allows the AV equipment to stay where it is and be in the rear of the room rather than off to one side. The tiled area in this room was thoroughly stripped and scrubbed. This was no easy task as industrial stripper was used with a floor scrubber to clean up the years of accumulated grime. Once cleaned an industrial sealer was applied to help to keep it clean and maintain the tile.
This spring the last phase of rehabilitation will occur with the reshingling of the roof. The shingles have rapidly deteriorated in the past couple of years and a new roof is needed. The shingles that exist were on a recall so we’re hoping to get some relief towards the cost of replacement.
Changing the looks and efficiency of the building is a huge step but not the last as we work towards better operations. There is a great deal of work needed to better the organization. This all takes time but progress, even with small steps, moves us forward towards a better future.
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