One issue that has come up over and over again is the need for a vision of Plainfield’s downtown. If we had a vision, if we had more clearly set policies tied to that vision, there would not be so many questions when it comes to making decisions. Plainfield’s leadership team needs to set a clear vision for economic development. We also must set policies surrounding the use of development incentives (such as tax abatements). I have had this discussion with many of my colleagues on the Council as well as the Mayor and her administration. I think most people agree with this. Like most great ideas, the hardest part is making it a reality. This is something I will visit again in another blog post.
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Now back to the Monarch…
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Below are a series of questions that I have shared with my colleagues on the Council and have asked the administration to address:
- Will a 5-year tax abatement ensure that the project will neither fail nor become rentals? This is a key concern I have. Do we need to put measures in place to guarantee that a tax abatement will lead to success? Can we evaluate the success of the project after 12 months and rescind the tax abatement if needed?
- What will happen if the project fails? What is the effect in 5 years? 10 years? How would a failed project affect other developer’s decisions to build here in the future? What impact would that have on our goal of TOD (transit-oriented development)? Again, I’m not sure how to quantify this. Some people are convinced that if this development fails, then banks will not see our downtown as a wise investment and deny future developers the loans to build there.
- What will happen if the building becomes a rental? What is the effect in 5 years? 10 years? Typically, although not always, rentals lower property value. The best municipalities strive for a housing stock that meets the affordability requirements of its residents so that people can own. The belief is that property ownership = pride in one’s property = well-maintained property = increased property value. Certainly we have enough rentals in the City already.
- What taxes were being assessed & collected on the property before being sold to the developer? My understanding is that no taxes ($0) have been collected on this property in recent years.
- If the full estimated tax amount of $400,000 is collected, what effect will that have on the total amount of taxes collected? I believe we would collect about 0.6% more taxes a year = $400,000 (full tax amount from Monarch)/ $70,000,000 (total 2008 taxes collected). Both my arithmetic and logic are open to questioning.
- Will a well-kept, owner-occupied condominium boost property values? If yes, by how much? Obviously the answer is yes. That’s a figure that is hard to quantify, but certainly would be meaningful.
- Why aren’t the many incentives already put in place for buyers enough? As pointed by other bloggers there are a number of incentives already in place for buyers – especially first-time buyers. My guess is that these incentives off-set national hesitance to purchase a home, but may not impact each municipality equally.
- Is granting an abatement short-sighted? Once the market turns around, will it even be necessary? Time may be the key factor here
(Thanks to Anonymous 8/1/09 11:59pm for posing some of these questions!)
If anyone has insight into this matter or feels as though I am not considering something, please contact me. I look forward to hearing more residents speak out about their concerns on this issue.
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15 comments:
Ms McWilliams
Could you clarify your point # 5, and how you come up with $400,000 tax estimate?
Sure.
Part of the information given to the Council at July's Agenda Fixing included a break down of the tax figures:
**Assume Purchase Price of: $279,259
Ad Valorem = Purchase Price x Ratio x Tax Rate
= $279,259 x 34.98% x 5.979 (per hundred)
= $5,840.47
When you take that amount multiplied by 63 units, you get $367,956.17. I rounded up to $400,000 to keep the numbers simple.
If you use the exact figure the result is less than .6%:
367,956.17/70,000,000 = 0.00525642 or .53%.
I hope I haven't made an error in my calculation.
Thanks,
Annie
I adjusted my wording for #5. Hopefully it is easier to understand now.
I a single word: NO!!
What part of NO do all you not understand????
NO! NO! NO!
Can you redo the numbers for the more likely purchase price of $169-190K? Thanks.
You must be reading my mind Anonymous @12:58am.
Given the market, the developer will likely need to lower the asking prices of the condos. I'm not sure what they will be adjusted to but we will use your range here:
**Assume Purchase Price of: $169,000
Ad Valorem = Purchase Price x Ratio x Tax Rate
= $169,000 x 34.98% x 5.979
= $3,534.56/unit
The projected total is $222,677.13 for all 63 units. Therefore, there would be a tax increase of 0.32% (222,677.13/70,000,000 = 0.0031811).
**Assume Purchase Price of: $190,000
Ad Valorem = Purchase Price x Ratio x Tax Rate
= $190,000 x 34.98% x 5.979
= $3,973.76/unit
The projected total is $250,347.07for all 63 units. Therefore, there would be a tax increase of 0.36% (250,347.07/70,000,000 = 0.00357639).
So if the purchase prices lowers to this range then we are looking at a 0.32% - 0.36% increase.
Again, I caution that my math might be wrong.
Thank you for these adjusted numbers. The developer will still make a good and reasonable profit (as opposed to a "killing") when he prices the condos again for their true market value. Those who qualify for mortgages at these prices will have to prove to the mortgage holder/bank that they can afford to pay the full taxes/PMI, etc., so no one who would buy these condos needs any abatement.
The language of the abatement ordinance shows that it is an agreement between the city and the developer. Has he paid taxes on the building as yet? I mean, he does own it. Even if a property is not occupied, the owner is still responsible for the taxes. Please let us know as it is impossible to get a straight answer from this administration.
My question is this -
If the developer received the property for $1.00 and pays no taxes on the property currently, why is he/she in a position to lose money?
It sounds to me that the developer just miscalculated the real estate market and the Plainfield market and wants to dump the project. Quite frankly, I think the developer should wait out the market.
And again, why Monarch? Why not the developer who has the 160 unit downtown contract (which has been put off until the market turns around), or will the citizens be hearing about tax abatements for that developer, too?
Do not make a decision of ifs, maybes and I believes.
How can anybody assume that the developer will still make a profit at lower sale prices without knowing his costs?
It's not unreasonable to assume that his profit projections, and his financing, were based on pre-collapse pricing. Given the reality that the condos would have to sell at something like a 33% discount from the original projections, does anyone really know how much profit is left, or are we all just talking without knowing?
To 11:25 am,
This developer greatly over-priced the units in the beginning to try to make a killing in the market--he will still make a sizable profit, as all the individual pieces of land he accumulated were worth a great deal of money, none of which he had to pay for. The likely price all along was in the very low $200,000s--still with a nice-sized profit margin. Of course, he will never let the public know his "true" costs, because then Plainfield taxpayers would know that all of this is just more smoke and mirrors by this administration. In nearly 4 years, have they given us ANYTHING BUT??
Let them become rentals. What does everyone have against renters anyway? Summit has mucho with no problem.
All the calculations in the world will not make a difference. You can ask all the questions you want. Until all the citizens get an abatement, this should not be allowed to go on.
The developer took a risk and he is politically connected. That is why he is getting the abatement. Plain and simple.
To 11:53 pm,
The developer will not get the abatement, for the reason you stated. It is not fair to the rest of the taxpayers. The councilors would never allow such a blatantly unethical thing to happen on our backs. Many of the Plainfield councilors own investment properties and are in real estate as well, like councilwoman McWilliams, so they know that there are risks, with the hope of profiting. There's nothing wrong with profiting if you also absorb the risk. You're right, all the calculating in the world at different price points won't change the fact that any abatement would only financially benefit the developer and not the city.
To 8:45pm - I would normally agree that rentals are not a problem, but look at Plainfield. The homeowners don't even take care of their property. Examples are below:
No landscaping, tree stumps not removed, vegetation in the streets, Christmas lights on all year, trash in front of their houses, abandoned cars in their yards, satellite dishes visible from the street - and I can go on and on. So, if the owners don't take care of their property, why would renters. And does the word Connelly mean anything to you?
So we give tax breaks so that the builder, who got the property for $1 and has paid no taxes on it, can make money?
If he can't make money under those circumstances, he should look for another profession.
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