How tax breaks affect the bottom line in Utica, Rome

As the city’s budget process heads toward the finish line, Utica lawmakers are looking at a $72.5 million spending plan for the upcoming fiscal year.

If approved as proposed by Mayor Robert Palmieri, the budget contains a 1.9 percent property tax increase. Property tax accounts for $29.8 million, or 41 percent, of the budget’s revenue; there’s also $2.2 million in other real property tax items, including payment-in-lieu-of-taxes (PILOT) agreements.

Municipalities around New York rely on property tax revenue and other property tax items to make up about 44 percent of their budgets, according to a February 2018 tax exemption report from the state comptroller’s office.

Despite the necessity of property tax revenue to municipal budgets, about 30 percent of total property value across the state is tax-exempt. Those exemptions range from partial, such as recipients of the state’s School Tax Relief (STAR) program, to wholly-exempt properties like schools and churches.

Coupled with a state-mandated hard property tax cap of 2 percent or the rate of inflation, local municipalities can feel the pinch on their bottom lines. Taxpayers without exemptions feel the impact of cuts to services, said Katie Hodgdon, counsel for the Association of Towns of the State of New York.

“It’s really resulted in lots of cuts for nonessential programs,” Hodgdon said.

In Oneida County’s largest cities, the number of property tax exemptions has actually decreased over the past 10 years.

Value of local exemptions steady

The number of properties with exemptions in Utica and Rome has fallen since 2008, according to assessment roll data from the state Office of Real Property Tax Services. Utica had 4,929 exemptions from city property taxes in 2008, which declined to 4,852 in 2013 and 3,846 in 2018.

In Rome, the number of exemptions on city property taxes dropped from 3,886 in 2008 to 3,606 in 2013. The trend continued downward in 2018, with 3,189 city property tax exemptions in 2018.

In the same period, the equalized value of the property tax exemptions in Rome declined slightly, while it rose in Utica. Equalized value balances the gap between the assessed value of a municipality’s property and its total market value.

In 2008, the City of Rome’s tax exemptions had an equalized value of $897.7 million, or 45.5 percent of the city’s total property value, according to state assessment rolls. Ten years later, the equalized value of the exemptions was $894.5 million, 43.4 percent of the city’s property tax valuation.

The City of Utica’s local property tax exemptions went from $771.8 million in 2008 to $876.9 million in 2018. The percent of the city’s total property value actually remained flat, however, at 35 percent.

Types of exemptions

About 30 percent of properties in Rome and approximately 33 percent of the properties in Utica are tax exempt, according to officials from both cities.

“You have two-thirds of people in Rome that are paying the freight,” Rome Mayor Jacqueline Izzo said of the city’s tax base.

Izzo said the number of exempt properties in her city has remained approximately the same over the past several decades, dating back to the Griffiss Air Force Base days. The parcels are spread throughout Rome, including Griffiss Business and Technology Park.

As the seat of Oneida County, Utica houses exempt properties including state, federal and county buildings, two hospitals, two colleges, multiple churches and dozens of not-for-profit properties.

Around the state, residential properties make up the largest share of exemptions, at about 39 percent. Residential exemptions include STAR, which only pertains to property tax revenue for schools; the state reimburses the exempt amount.

Among the mandatory tax exemptions, which local municipalities have no say in, are most state and local government-owned properties. A few exceptions apply, such as the state sometimes paying school taxes on land with state prisons or NBT Bank Stadium in Syracuse, according to the 2018 comptroller report.

Most not-for-profits are also tax-exempt by statute, including religious institutions, hospitals and schools.

The impact of mandatory tax exemptions is illustrated by Lafayette Street in Utica, which marks the southern border for Mohawk Valley Health System’s developing downtown hospital. Of the 68 parcels on the street listed in the city’s property records, 36 are wholly exempt due to ownership by the City of Utica, MVHS, the state and St. Joseph and St. Patrick Catholic Church of Utica.

Optional exemptions for local government include those for economic development, such as PILOT agreements and renewable energy. In fiscal year 2016-17, 109 industrial development authorities around the state reported $1.4 billion in property tax exemptions, which was partially offset by $642 million in PILOT payments.

Business exemptions

Like other municipalities in the state, Rome offers a variety of tax incentives to businesses looking to move into the city, Izzo said.

“We have a toolbox, and we offer them what’s in that toolbox,” Izzo said.

Rome and Utica both have agreements in place with the Oneida County Industrial Development Agency for the organization to offer PILOT agreements to businesses looking to move into either city.

PILOT increment financing (PIF) is another option, which has a municipality take a lower tax rate in the first year of a PILOT agreement to help a business fund various site improvements — like tree removal or road improvements — that a municipality would have typically taken care of itself, Izzo said.

All three taxing jurisdictions — the municipality, county and school district — must separately agree to a PIF and OCIDA cannot offer it without consent.

Businesses can also receive a partial property tax exemption for new construction, alteration or improvements under section 485-b of the state’s real property tax law. The exemption in the initial year is generally 50 percent of the increased assessed value due to the improvement and decreases by 5 percent each year over the remainder of a 10-year term.

Economic incentives

Palmieri said there were 12 city-owned commercial properties in 2012. Those properties have all since returned to active use, whether receiving tax exemptions or not, with millions in investment, the mayor said.

A prime example is the former Security Building at 120 Bleecker St., which underwent a multimillion-dollar renovation. It now houses the Legal Aid Society of Mid-New York, after being six months from requiring demolition prior to redevelopment, Palmieri said.

A $2,027 payment from 120 Security LLC is included in the mayor’s proposed 2020-21 budget under other real property tax items. Property records list the building as wholly exempt from property taxes in 2019.

“Initiatives and incentives are crucial to salvage some of these buildings,” Palmieri said.

Many of the buildings the city acquires through its Urban Renewal Agency have faced 12 to 15 years of neglect, Palmieri said.

“When we receive these buildings, they’re in foreclosure,” the mayor said. “Which means that we’re not getting a pristine building.”

For many of the redevelopment properties, turning them into an asset instead of a city-owned liability outweighs immediate tax revenue, Palmieri said. Some of the properties are brownfield sites or have people accessing them because they are vacant, he said.

“You’ve got to set these businesses up for success and sales tax and putting them back on the taxes is vital,” Palmieri said.

Before offering an exemption from Rome’s “toolbox,” Izzo said she looks at how much equity and investment the company brings to the city. This is a necessity, she said.

“They’re making a commitment to your community,” she said. “That is paramount.”

It takes more than tax breaks to attract a business, as other cities can offer them something equal, Palmieri said. Downtown revitalization, a diverse population and other quality of life attractions can be selling points, he said.

“When we get developers in here, we drive around,” Palmieri said. “That speaks volumes for what they’re looking for and then you look at what their needs may be. And we try to work with the state, we try to work with other agencies, to fit that into an area that’s going to be beneficial to the city and also to the developer.”

Do exemptions work?

A sign that exemptions for businesses work may be seen in their declining usage.

Across the state, the value of business investment property exemptions declined from $2.5 billion to $938 million between 2006 and 2016, according to a 2018 report from the state Comptroller’s office.

When asked if he believes property tax exemptions and other economic incentives work, Palmieri pointed to the city’s rising sales tax revenue and dropping foreclosures. He said more people than ever are coming to downtown Utica, citing the at-capacity Utica Place parking garage.

Palmieri said other property owners invest in their parcels when nearby vacant properties are revitalized.

“It’s a chain reaction,” he said. “Positive things bring positive results. And that’s what we’re finding throughout the entire city.”

Citing what she believes to be high taxes in the state, Izzo said it is important to offer tax incentives to businesses looking to come to New York.

“That puts us at a disadvantage from day one,” she said about the state’s tax rate.

However, she is aware it is always a gamble.

“Business is a risk,” she said. “So is economic development. You’re going to have hits and misses. It’s the law of averages.”

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