Shaping the Skyline: Property Taxes and Urban Revitalization

1 year ago Alger Mag Editor 0

Condos_at_North_Bank (1)

While residential towers scale the Columbus skyline, they’re clamoring for the bottom in another respect.  Columbus maintains a generous property tax abatement on downtown condominiums and apartments, which reduces the taxes paid on property value for residents in targeted areas.  Designed to rejuvenate the downtown district, these tax breaks can save residents several thousand dollars annually over a 15-year term, creating a strong incentive to move to Main Street.

As housing markets recover, several notable residential projects are taking advantage of the abatement.  The Condominiums at North Bank Park, checking in at 20 stories and 100 units, benefited from the tax breaks, and they reached full capacity last fall.  Another large complex, 250 High, is currently leasing.

Columbus hardly lacks company.  Indeed, many cities maintain property tax abatements in some form to encourage new construction and neighborhood revitalization.  In the jungle of skyscraper apartments taking root around New York’s Central Park, discounts can top 90%[1].  The Wall Street Journal reported in July 2015 that tax breaks for a single high-rise – One57 – soared over $65 million[2].

Though these tax incentives stem from an urban optimism that is much needed, they have also burgeoned into a major public expense.  Property tax breaks should be accountable for meeting intended ends, and most come up short.

The challenge in evaluating such programs is the lack of a counterfactual.  It is impossible to tell where tax breaks changed construction calculus and where they simply reinforced set decisions.  True effectiveness should be measured by the former, which would reduce perceived payoffs.

Unfortunately, the tax breaks apply broadly, regardless of whether they make a difference on the margin.  Property tax savings might be pitched as an added benefit or deal sweetener to residents already determined to relocate.  This is especially true for the wealthier buyers drawn to luxury condos, where even modest abatements add into a major liability.

The Columbus Dispatch estimated that foregone revenue under the tax abatement amounted to $8.3 million in 2013[3], which represented 18% of property tax revenue collected by the city[4].  That’s enough to hire 172 new police officers and firefighters at standard starting salary[5].

At a time of cash-strapped local governments, such programs deserve to be scrutinized like other outlays.  Abatements are less thoroughly reviewed than general spending, and the benefits are easily overstated.  Nonetheless, they still represent a budgeting priority.  Some of the foregone revenue could never be collected, but taxes certainly could be captured where breaks didn’t alter the decision to build.

While the efficacy of property tax breaks is uncertain, there are more compelling drivers for downtown rebirth.  The New York Times reported in October 2014 that the number of college-educated young adults living near urban centers has increased 37% since 2000[6].  Millennials swarm in particular to the upward trending areas that revitalization programs often target.  This migration follows a clustering of well-paid jobs into urban innovative cores, along with a trend of delayed marriage that mutes the idyllic lure of the suburban cul de sac.  Columbus embodies these patterns, churning out thousands of college graduates into startup companies and finance industries.

Urban revitalization is inevitable under this new economy, so property tax abatements can’t be credited.  As a public budgeting priority, they deserve a fresh look.  By limiting abatements to areas where they do spur redevelopment, Columbus can direct limited financial resources to areas with higher social return, be that a broader tax reduction or a strategic investment in affordable housing to keep the city climbing.

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By: Sam Whipple

(Photo Credit: Authority Kid, Wikipedia)

[1] New York Times
[2] Wall Street Journal
[3] Columbus Dispatch
[4] The Columbus city budget reports $44.8 million in property tax revenue for 2013.  This does not include property taxes collected by Columbus Public Schools, which are budgeted separately.
[5] Based on starting salaries of $50,585.60 for Columbus police officers and $45,718.40 for Columbus firefighters.  The calculations assume 86 police officers and 86 firefighters.
[6] New York Times