Gov. Andrew Cuomo's much-ballyhooed "2 percent" tax cap rightly focused the public's attention on government spending.
It should also focus attention on the use of tax exemptions, a useful development tool that can also hurt taxpayers if used when they aren't needed.
All industrial, commercial and public service projects in New York are eligible for tax exemptions under section 485-b of the state Real Property Tax Law. The exemption starts at a 50 percent exemption in the first year and decreases 5 percent for the next 10 years - meaning the project is at its full taxable assessment starting in year 11. An accelerated exemption can start at 50 percent in the first three years, decreasing by 5 percent during the next seven years.
That 485-b exemption means the proposed Holiday Inn Express on West Oak Hill Road in Ellicott is eligible for a pretty good tax break without the county Industrial Development Agency lifting a finger.
When needed, the county IDA also has several tax breaks available, a real property tax abatement, an adaptive reuse abatement, a small alternate energy facility project and a tourism destination abatement - as is proposed for the Holiday Inn Express - and the ability to specifically craft a more generous tax break package if the IDA board deems it necessary. The tourism abatement being discussed for the Ellicott hotel means the project is fully tax exempt for the first five years, 75 percent tax exempt for years six through 10 and 50 percent tax exempt in years 11 through 15.
Under either scenario, the county, school and city, town or village receive a portion of the taxes they should receive. At issue is the amount of the payment each jurisdiction would receive and the amount of time it would take for the property to reach its full taxable assessment. If new development pays more taxes, surrounding taxpayers should pay less. In plain English - a 485-b exemption on a property takes less time to reach full tax payments than does a longer IDA PILOT agreement.
Over the last five years, the county has used 18 fewer 485-b exemptions and 25 more IDA PILOT agreements, with IDA PILOTs excluding the NRG power plant in Dunkirk totaling $18,503,270.
That's a lot of tax money to lose each year in the name of development - and one reason why there has been past criticism of the IDA by Dan George, former Southwestern Central School superintendent, and Mayor Sam Teresi. George, you might remember, criticized the IDA after the agency gave a 15-year PILOT agreement to the owner of the TJ Maxx and PetSmart plaza in Lakewood rather than a 10-year agreement. George said the agreement would cost the school district $1.3 million over the 15-year schedule.
Teresi, meanwhile, was critical of a PILOT agreement with Millennia Housing Management LTD when it purchased the Covenant Manor building. Teresi argued the property could have remained on the tax rolls while paying its full city, county and school taxes under an agreement similar to the one the city has with the Bradmar Village - a similar type of housing development.
The state tax cap and struggles of many areas in the county to build tax base mean the use of tax exemptions should be scrutinized just as much as government spending. Excessive use of tax breaks ends up hurting taxpayers who have to wait an additional five years for a project to reach its full taxable status.
Excessive tax breaks mitigate the benefits of large development to taxpayers at a time when taxpayers can afford it the least.
Taxpayers should expect that the 485-b exemption be enough for most developments and that further exemptions be approved only in cases when a development project would fall apart without the additional help or when the development is momentous enough to warrant the additional help - projects, perhaps, that would bring high-paying jobs, that establish a new sector in the Chautauqua County economy or that promise to draw enough tourists to regularly fill hotels.
A limited service hotel doesn't fit those criteria. The IDA should not extend any additional breaks to the Holiday Inn Express project.