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Nov 19, 2019

Syracuse council considers closing tax loophole worth millions to some developers

SYRACUSE, N.Y. – Syracuse buildings worth more than $100 million that have avoided taxes by using a lucrative exemption would not have qualified for that tax break under new rules the city council is considering.

Mayor Ben Walsh’s administration today proposed an amendment to tighten up the so-called 485-a property tax exemption, which city officials say has been abused by some developers. The new rules, if adopted, won’t take the tax break away from existing recipients but will restrict who can claim it in the future.

The 485-a exemption, the most generous available, is a 12-year tax break available for existing commercial buildings that are renovated for a mix of commercial and residential use. Developers get a 100 percent exemption on their building improvements for eight years, after which the tax discount phases out over four years.

The city’s action comes after Syracuse.com reported that some big Syracuse projects have claimed the tax break after demolishing existing structures and building new ones. Other developers have included only token commercial space to qualify for the break, Syracuse.com found.

Syracuse officials are proposing an amendment requiring developers in the future to preserve at least 60 percent of an existing building to qualify for the tax break. Also, at least 15 percent of the resulting structure would have to be devoted to commercial use.

The 485-a exemption, the most generous available, is a 12-year tax break available for existing commercial buildings that are renovated for a mix of commercial and residential use. Developers get a 100 percent exemption on their building improvements for eight years, after which the tax discount phases out over four years.

The city’s action comes after Syracuse.com reported that some big Syracuse projects have claimed the tax break after demolishing existing structures and building new ones. Other developers have included only token commercial space to qualify for the break, Syracuse.com found.

Syracuse officials are proposing an amendment requiring developers in the future to preserve at least 60 percent of an existing building to qualify for the tax break. Also, at least 15 percent of the resulting structure would have to be devoted to commercial use.

The new law would not apply to more than 40 projects that have already been granted the exemption. David Clifford, the assessment commissioner, said he did not know off hand how many of the existing projects would have failed to meet the new requirements.

At least four of the biggest projects – with a total value of more than $100 million — would not have qualified. All four are luxury student apartment complexes in the University Hill area. Each was built on the site of structures that were demolished to make way for new construction:

— Theory Syracuse, at 919 E. Genesee St., saves an estimated $1.8 million a year in avoided taxes on $46.3 million of exempt property value.

— The 505 on Walnut, at 1200 E. Genesee St., saves more than $960,000 a year on $24.4 million of exempt property value.

— The Marshall, at 727 S. Crouse Ave., saves roughly $900,000 a year on $23.2 million of exempt property value.

— U Point Syracuse, at 404 University Ave., saves about $400,000 a year on $10.6 million of exempt property value.

During the decade it has been available, the 485-a exemption also has been used to renovate significant downtown landmarks, including the State Tower Building, the Pike Block and others. Syracuse officials said they support those types of projects enthusiastically.

The proposed amendment is intended to restrict the exemption to projects that put old buildings to new uses, Clifford said. The local law was proposed after state legislators failed to enact proposed amendments to the state law earlier this year.

“All this is doing is trying to make this law, in Syracuse anyway, comport with what we believe to be the spirit of the law, which is trying to take under-utilized buildings and convert them to mixed use,’’ Clifford said.

The 485-a exemption was created by state legislators but requires an opt-in by local municipalities. Syracuse and Onondaga County adopted the tax break a decade ago.

The earliest the council could vote on the amended local law is Dec. 2. At least two councilors, Tim Rudd and Joe Driscoll, voiced support for it today.

“I applaud this attempt to realign the letter of the law to the spirit,’’ Rudd said.

Projects that do not qualify for the 485-a exemption in the future would have other options for pursuing tax breaks, including asking the city for a payment in lieu of taxes. PILOT agreements and other exemptions are typically less generous than the 485-a, Clifford said.

Syracuse.com, Nov. 14, 2019

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