City gives 10-year tax break to build condos: Luxury units to sell for up to $659,000
(Buffalo News, The (NY) (KRT) Via Thomson Dialog NewsEdge) May 13--The buyers are well-heeled, even affluent, and their new homes will be among the most expensive ever built in Buffalo -- luxury lakefront condominiums with price tags as high as $659,000.
And to help ensure the upscale condos sell, City Hall added an incentive -- a 10-year break on property taxes.
All at an average savings of about $100,000 for each home buyer.
"I've never heard of such a thing," said Michael J. Wasylenko, a professor of economics and an authority on taxation and development at the Maxwell School of Citizenship and Public Affairs at Syracuse University. "It's unusual, and it's pretty generous."
The benefits -- they include a seven-year, 100 percent break on taxes levied against the condos -- came about last year, well after developer Carl Paladino proposed the lakefront project.
Even before a developer was picked, the city encouraged the use of New York State's Empire Zone program and actually advertised the availability of property tax incentives at the lakefront site.
Common Council members followed suit in January 2006 by moving the city's Empire Zone boundaries to include the luxury condos.
"This is a marginal use of the program and will certainly raise a lot of eyebrows," said Assemblyman Robin Schimminger, a Kenmore Democrat who serves on the state board overseeing Empire Zones.
Waterfront Place project -- 15 red brick town houses and a 13- story, 48-unit condominium tower -- is already under way in one of the last remaining parcels of undeveloped land at Waterfront Village.
A year after their vote, Council leaders say they don't recall any debate or discussion about tax breaks going to Paladino or the buyers of luxury waterfront condos.
The inclusion of Paladino's project was, in fact, one of dozens of changes in a citywide Empire Zone plan approved by the Council in January of last year.
"I don't remember it being an issue," Council President David Franczyk said of the tax breaks. "But if it's available to him and he's entitled to it, I don't have a problem with it."
Did the Council members know what they were voting on?
And why did lawmakers and city development officials support the use of Empire Zone benefits in one of the hottest selling neighborhoods in the city?
"As long as you have Empire Zones, you're going to have these problems," said North Council Member Joseph Golombek, chairman of the Council's Community Development Committee.
Golombek, a frequent critic of Empire Zones, doesn't recall any debate about the Paladino project, but he can understand why the city would use them to get the deal done.
And why development officials would use them to get a shovel in the ground.
"For us, it's about getting developers the incentives they need to get these projects off the ground," said Timothy E. Wanamaker, Buffalo's strategic planning director.
Wanamaker makes no apologies for the use of tax breaks to complete Waterfront Village, one of the city's wealthiest neighborhoods.
He said Empire Zone benefits, and the city's ability to take them away, give Paladino a huge incentive to begin construction quickly.
"We're looking for projects that can use these benefits in a one-year time frame," said Wanamaker.
The city also offers an economic argument that suggests the ultimate result -- higher property values and higher tax assessments -- justify the use of tax abatements.
For 25 years, that valuable piece of city-owned real estate sat fallow, generating no taxes or investment.
Under Wanamaker's plan, the parcel will be developed and, in 10 years, produce a healthy stream of tax revenue for City Hall.
"This is found money," said Paladino. "The city is giving away tax revenue that doesn't exist today. Besides, don't we want wealthy people moving into the city?"
To hear Paladino talk, tax breaks are the difference between the project making money and losing money. He said the benefits help bridge the gap between the project's high construction costs and, by national standards, the city's low real estate values.
The majority of housing development at the waterfront occurred without similar tax breaks. One exception is Lakefront Commons, eight townhouses built by Paladino in Waterfront Village.
In a correspondence to Waterfront Village residents about his latest project, Paladino wrote, "It is important to recognize that these benefits will actually allow us to support a higher price for the units."
Critics wonder if the higher prices really mean more profit for Paladino.
"It looks like it's benefiting wealthy homeowners," Wasylenko, the Syracuse professor, said of the tax break. "But it's really benefiting the developer."
Schimminger agreed. "It's not the purchaser who's getting the benefits," he said. "It's Paladino who's getting the benefits."
The tax breaks allow for higher prices, but Paladino said the higher prices are needed for the project to finish in the black. Not everyone buys that.
Within Waterfront Village, a 25-year-old community just a stone's throw from downtown, neighbors have debated the pros and cons for weeks now.
In the end, the Waterfront Village Advisory Council, a coalition of neighboring homeowner associations, took no formal position on the project because its members couldn't agree on what to do.
"Nobody's happy about it," said one association president who asked not to be named, "but the feeling is we can't do much about it."
The concerns range from the fairness issue -- some people paying taxes while others don't -- to the project's impact on resale values at neighboring properties. One of the few to take a stance against the tax break was the homeowner association at Rivermist, a complex next door to Paladino's project.
"We don't see any reason why it's necessary to give tax abatements to prospective luxury homeowners," the group said in a statement, "but that's not our decision."
Still others see it as a good thing.
"The city's been trying to develop this property for 15 years plus, and nothing's happened," said Waterfront Council Chairman Len Chobot. "This should help."
Copyright (c) 2007, The Buffalo News, N.Y.
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