Democratic mayoral candidate India Walton is softening her opposition to one of the city’s core economic development programs, saying she may no longer insist that the city drop out of the 485-a property tax break that developers covet but critics say is too generous.
But Walton said Tuesday she still wants to make sure that developers follow the guidelines set by the state, and ensure that their projects provide real benefit to the community.
The program's tax breaks – longer and more generous than property tax incentives available through local industrial development agencies – are aimed at encouraging the reuse of vacant or underused buildings in cities.
Developers say the bigger tax breaks are needed to make difficult projects financially viable. But critics say developers have taken advantage of the program – and its requirement that projects include a residential component – by including a single apartment, in some instances.
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"The reason why folks in my sphere of influence are critical of 485-a is because we’ve seen it used poorly," Walton told developers and other real estate professionals at a candidates' forum hosted by the Upstate New York Chapter of NAIOP: The Commercial Real Estate Development Association. "We’ve seen buildings go up with only one housing unit."
As she's learned more about it, though, "that changed my perspective," Walton said.
That may be a relief to many developers, who have counted on the tax incentive to help them cover financing gaps. However, Buffalo Mayor Byron W. Brown, who is running a write-in campaign against Walton, said that's precisely the problem with her candidacy.
"My opponent went before Rotary [Club] a few weeks ago and demonstrated she didn’t even understand what the 485 program was," he told the same developer group earlier. "When you are running for mayor of the City of Buffalo, you should be educated on what you’re talking about."
The program is a statewide property tax incentive that was created by the State Legislature in 2002 to encourage the reuse of vacant or underutilized commercial and industrial buildings in cities. It was supposed to provide an incentive for mixed-use projects that incorporate both residential and commercial tenants.
The tax break applies only on the increase in property value that results from redevelopment. That means the original assessment prior to redevelopment is not discounted, and taxes are still paid on that. The full amount of the increase in valuation is tax-exempt for the first eight years. Full taxation takes effect after the 12th year.
Cities can "opt in" or "opt out" of participation in the program, but they can't cherry-pick the projects or developers that would qualify. And the terms are set by state law, not the city.
The 485-a exemption has been used more in Buffalo than any other city in the state. Developers and city officials have said the incentive is needed to make projects financially viable in Buffalo, because property values and rents aren't high enough to support the projects otherwise.
According to a report by the Public Accountability Initiative, as of late 2019, developers in Buffalo had used the program for 96 properties, receiving benefits estimated at more than $67 million over the life of their term through 2030.
But it's also been widely panned because it's susceptible to abuse. In perhaps the most oft-cited example, Benderson Development Co. received the tax break on One Canalside, when it included a single apartment in its conversion of the six-story former Donovan State Office Building into the Courtyard by Marriott hotel, the headquarters for law firm Phillips Lytle and a Pizza Plant restaurant.
City officials and other developers say most mixed-use projects that used the program have included a much larger proportion of residential units.
"It’s not a fair criticism," Brown said. "Much of the development that we’ve seen in the City of Buffalo would not have occurred without that tool."
City officials, recognizing the faults in the law, also have advocated for changes to close loopholes.
"It's up to the State Legislature to do that," Brown said.
Walton had previously called for the city to "opt out" of the program, so it would no longer offer the incentive, calling it a taxpayer giveaway to rich developers.
Brown says that would be disastrous.
"Opting out would have created an environment where there was far less development in the City of Buffalo than we’ve seen," he said, citing more than $8 billion in development since 2006.
On Tuesday, Walton said she was "approached by a gentleman a couple of days ago," who told her he needed the incentive to support a smaller adaptive reuse project that resulted in retail space on the ground floor of a building and apartments upstairs. She's also heard similar stories from others. And that's the kind of project she wants to see, she explained.
"My opinion about that is beginning to change, but I also want the rules to be enforced," Walton said. "I know there are responsible developers, and I know there are other developers who just want to build buildings to make money. But if there are resources going into a building, it should serve a public good, should sustain development."
She suggested that the city's Planning Department and Division of Real Estate could also use their leverage to press developers to do better.
"I'm not going to say we’re going to unilaterally deny projects, but we can do a better job of making sure our projects benefit people as much as possible," Walton said.
