Tax abatements stimulate local economic growth


**This article was originally published in the May 1-7, 2019 issue of Tompkins Weekly. **

One important way communities, including Ithaca and Tompkins County, help to grow their economies is to provide tax incentives for new building projects.

These can both be for new buildings or the expansion of an existing one. The goal of these incentives is to support projects that will have a positive impact on the local economy and community—such as job creation, new housing, and increasing the tax base. In New York state, these incentives, often referred to as abatements, are managed by Industrial Development Agencies (IDAs) and are a part of the county government.

In order to better understand how and why tax incentives are provided, it is first important to explain what IDAs are. According to Susan Katzoff, an attorney with Bousquet Holstein PLLC, “Industrial Development Agencies are created under the General Municipal Law of the State of New York and are empowered to provide certain financial assistance to qualifying projects including exemptions from state and local sales and use taxes, mortgage recording tax, and real property taxes.”

It is part of the mission of IDAs to benefit the public good by advancing the job opportunities, health, general prosperity, and the economic welfare of the people of New York. In addition, improving the recreation opportunities and the standard of living of the State’s residents are also vital components. IDAs utilize the granting of financial assistance to achieve these purposes.

Under New York State law, IDAs serve only within the jurisdiction of each county. This means the Tompkins County IDA (TCIDA) is controlled locally and comprised of individuals who are appointed by the Tompkins County Legislature. Tompkins County Area Development (TCAD) provides the day to day administrative support required to allow the IDA to function. In addition, the TCIDA has long been held up as the gold standard in New York State.

Heather McDaniel, President of TCAD, points out, “The Tompkins County IDA is a powerful local tool to incentivize projects that strengthen the tax base. The IDA supports industrial development that creates long-term quality job opportunities, community development projects that are revitalizing Downtown, and has led the way in New York State with one of the first policies to support community solar projects that provide consumer choice and reduce reliance on fossil fuels.”

The General Municipal Law of New York State also outlines the process that must be followed in order to receive tax incentives. The first step is for the developer to submit an application that outlines the project, the level of financial assistance being sought, its costs, and the community benefits it will provide. If the applicant is seeking more than $100,000 of financial assistance, a public hearing is required. Before any benefits can be given, the General Municipal Law requires a review under the State Environmental Quality Review Act (SEQRA). New York State SEQRA, “requires all state and local government agencies to consider environmental impacts equally with social and economic factors during discretionary decision making.”

Once this process is complete, an IDA is able to vote to partially or wholly approve a project’s application request, or deny it. A complete outline of TCIDA’s policies and the process can be found here,

There is one major confusion about how tax abatements work that regularly comes up at public hearings and is often used to criticize the process. As County Legislator Richard John, chair of the TCIDA, describes, “There are some basic misconceptions that you hear over and over again—and one is that we are giving away money. As a starting point, we don’t give developers money. We abate taxes in the future. We don’t abate present taxes. So they are not getting rid of any taxes that are paid on the property to start. It is only on future development—the increase in value—that for a period of time you reduce the taxes.”

It’s important to understand that no developer is paying zero taxes. For example, Travis-Hyde is paying taxes on the “Old Library” site for its Library Place senior housing project. This means the developer is paying taxes on the $1.15 million assessed value on the property, with no building on it. Once the new building is completed, the taxes on the new assessment will be phased in over the next 10 years. At the end of the 10 year period, this project will have paid over $1.7 million in new taxes. Starting year 11, Travis-Hyde will be paying taxes on the full assessment for the Library Place project. An additional economic benefit of this project is the fact the “Old Library” site has been off the tax rolls and not generating property taxes for decades as it was the location of the public library and owned by Tompkins County.

When fully understood, the economic benefits of these projects is clear. Tax abatements often make the difference in whether or not a project can be built at all. According to Frost Travis, president of Travis-Hyde Properties, “It’s important to note that tax incentives are really tax revenue enhancements over time, not abatements or ‘giveaways’ to developers. If the tax authority issuing incentives is willing to defer the time in which full taxation starts, it has created a new revenue stream for decades from a project that otherwise would have been financially infeasible.”

This is supported by Tompkins Chamber President Jennifer Tavares, “Tax abatements can render projects feasible when they likely would not be otherwise. The public process under which projects evolve can also help ensure a project has more of the attributes the community desires—like adjustments to the façade, energy efficiency, local suppliers or contractors, or more affordable rents. It’s a delicate balance.”

The other major measure of success is the financial impact these projects have. John reports, “In the last five years, there has been over $207 million in private capital invested in projects downtown. When completed that will provide about $100 million in new tax base. There were 40 active projects that paid $3.1 million in new property taxes in 2018. The active projects have created over 500 jobs.”

Travares elaborates on the importance of these projects. “Industrial Development Agency tax abatement programs exist for the purpose of stimulating investments in a local community which have a net positive impact on the local economy, create jobs, and generate net new tax revenue over the life of the tax abatement. With rare exception, Tompkins County IDA projects have a net positive economic impact on the community in the form of direct or indirect jobs, new tax revenue, alternative energy production, new housing units, or other quantifiable increases in economic activity.”

Finally, it is important to understand that TCIDA holds the developers of its projects accountable. In addition, all IDAs are carefully watched and audited by the state to ensure compliance with the law and that the projects are fulfilling their obligations. John explains, “We have the power to claw back. But we rarely do that because there’s a lot of variables a developer does not have control over. But if a developer really does not meet their promises we will seek claw back. An incentive was given to Emerson, for example, when they brought a new division into Tompkins County. And they ended up closing the plant and moving. They paid back the abatement. . . There is a project that has been underway for a while now and it is not clear the developer is going to meet their commitments and we’ve had some discussion about what we are going to do about that . . . New York state watches us very carefully and we get audited. And that question of are you properly policing all your abatement projects is asked and looked at very carefully. So, it is not just the community looking at us. It is New York state, too.”

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