Tuesday, April 18, 2006

Peduto Does Downtown Development

One of ADB's nine most favoritest current councilpersons* has introduced an "alternative approach to aiding Downtown development". From the P-G:

Mr. Peduto wants the city to waive property taxes on new Downtown housing for 10 years and on new Downtown offices and hotels for five years...

It also calls for tax credits for redevelopment of historic property, for construction of environmentally friendly buildings, and funding for public art. It would plow an unspecified percentage of new city revenue from Downtown development into citywide property tax relief.
No further details have been forthcoming, as of yet but the 'Gazette promises more details tomorrow... or yesterday if you're reading this two days from now in the future.

Anyway, my interest has been piqued here as I've been conceptually in favor of using deferred tax income as incentives for development. Actually, the government does this all the time on a broader scale: deductions on mortgage interest, student loan interest, child credits; the government is saying "buy a house, go to college, and pop out children." Sort of a mixed message, if you asked me, but it sets a good precedent for the use of tax policy to influence both moral and economic choices.

That being said, here's my initial take on this concept:

I'll be the first to say that I don't know a damn about housing development, but I have some serious questions about the effacacy and implementation of this proposed idea.

(1) Taxes are a long term development expense; construction is an up front expense. In order to capture the full benefits of this tax waiver, developers must be able to either (a) receive the full value of the tax at the beginning or (b) be willing to be in it for the long haul.

(2) If "b", for-sale housing becomes particularly problematic as the full benefit of the tax waiver accrues not to the developer but to the end buyer.

(3) The Feds already has and the State has proposed (and, I believe, passed) historic tax credit programs. Both programs exchange a certain percentage of the value of the historic renovation for tax credits, which are then purchased by equity syndicators at a given rate. In my scant research, I'm seeing $.90 on the dollar as the going rate for Federal Tax Credits; I would assume that State Credits would be worth less (as there are less opportunities and places to apply them). Similarly, I can see City of Pittsburgh Historic Tax Credits being worth even less.

(4) Tax credits are a programatic nightmare to administrate, or so I've been told.

(5) The City is not fully in control of it's taxes; the County is the one actually applying the assessments (or lack thereof). It is also up to the County not to reassess properties that would be in these types of programs.

(6) It seems that the City already has a program called the Local Economic Revitalization Tax Abatement (LERTA), which is a tax credit on improvements to existing buildings and new construction that is available in selected areas of the City. In these select areas within the City of Pittsburgh an accelerated tax credit is available for the conversion of commercial buildings and land to residential use and hotels. I hate duplication of effort, so I'm assuming that the proposal is to expand the scope of this program.

(7) Are we talking City & School taxes or merely City taxes?

(8) This could create a perverse incentive for residents currently renting downtown to "upgrade" into new condominium spaces, if the cost of renting is greater than the cost of a monthly mortgage payment. The result would be merely a shift from one project to another.

(9) The environmental component is intriguing, but it sounds like a rehash of Bill's plan from last year.

(10) I'm nervous about the funding for Public Art. If we start funding that kind of thing, eventually we'll end up with a giant inflatable moose taking a dump. Won't somebody please think of the children!

(11) What happens at the end of the program(s)?

Anyway, I have some other thoughts on the matter as well... but I'll wait for the official story to come out before I go any further.

Otherwise, I'm just being reckless.

* Also voted "Councilperson Most Likely to Have Actually Read This Blog" two years running.

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