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Changes to restoration tax abatement being considered

Councilwoman Stacy Head wants to offer property tax breaks conservatively

by Stephen Maloney

New Orleans City Councilwoman Stacy Head wants to tweak a city program that gives property tax breaks to developers upgrading outdated properties, but a key development official says more significant changes are needed to make the incentive worthwhile.

While smaller projects are reaping the benefits of the Restoration Tax Abatement, Head said the program isn’t running as efficiently as it could, and there is no guidance as to whether large developments should take part in it.

The RTA incentive is designed to encourage the development of declining properties by freezing property tax rates for five years. Developers can apply for a five-year extension once the first five years lapse.

“Instead of buying a beautiful, pristine property in a great neighborhood, they have to buy a somewhat dilapidated property to use an RTA,” Head said.

If the property owner puts $500,000 in it and it becomes a $1 million property, the owner only has to pay what they originally bought it for.

“This pushes the development to particular types of properties in disinvested condition or to particular areas in need of development,” she said.

Head said her changes are aimed at strengthening the requirements to obtain an RTA, restricting the transfer of credits from owner to owner, clearly defining which districts qualify for credits and increasing the requirements to renew the incentive.

But Downtown Development District CEO Kurt Weigle said the program’s main weakness is that five years is usually not long enough for developers to benefit from of the tax break. An automatic renewal or longer benefit period is needed for such cases, he said.

“The DDD has not been involved in putting RTAs to strategic use on key projects,” Weigle said. “The program as it is constituted now is far from optimal as a tool for meeting gap financing needs of major redevelopment projects.”

Most large redevelopments need at least three years to turn a profit, Weigle said, making the confines of the five-year RTA unattractive to investors who work on that scale.

“One of the recommendations I would make is to make it a 10-year abatement program,” Weigle said. “The way it stands now with two five-year abatement periods, it’s much less bankable if it were one 10-year period.”

Banks and other financiers don’t know for certain that the developer is going to get a renewal after five years, Weigle said, raising questions about long-term financing.

To prevent the abuse of the RTA program that concerns Head, Weigle suggests strengthening its “but for” requirement in which the developer explains the need for the incentive to move a project forward.

While doubling the length of the incentive may help large developers, Head said RTAs are better deployed on smaller projects where the potential hit to the city’s tax collection is smaller and condensed over a shorter time period.

“I think it’s better to be a little more conservative in agreeing not to recover tax dollars,” she said. “You’re not really giving up anything that you were getting in the past. What you’re giving up is future tax dollars that arguably you wouldn’t have gotten had the incentive not been there in the first place.”

Bureau of Governmental Research President Janet Howard said she has been working with Head to finalize the proposed changes and tighten the overall language of the program.

Howard said she drafted a letter to the City Council after reading Head’s proposed changes suggesting a stricter set of guidelines to determine which properties qualify for RTAs as well as stronger “but for” qualifications.

“We want to make sure the program is really serving its purpose and that it is conducted in a really predictable way,” Howard said. “It still needs some tightening.”

Head said her ultimate goal is to make the program work in the most efficient and effective way possible.

“The wording of the last resolution was kind of difficult, and I don’t know that it gave the guidance to the committee that makes the recommendations on RTAs,” she said. “Hopefully these changes will give better guidance to that committee as to the ones they should recommend or reject. This is all very much still a work in progress.”•

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