In The News › Tax-incentive program criticized

Mar 13, 2007

Source: Times-Picayune

Tax-incentive program criticized

Tax-incentive program criticized
Review process called inadequate
Tuesday, March 13, 2007
By Greg Thomas
Real estate writer

A program that forgives or freezes property taxes for major private developments is under fire by the Bureau of Governmental Research for subsidizing giant corporations at the expense of small business.

In a report released Monday, the nonprofit watchdog group also criticized the way the applications are handled by the city’s Industrial Development Board. The report takes special aim at the breaks given to a Home Depot being built at Claiborne Avenue and Earhart Boulevard.

The report said that given New Orleans’ “diminished tax base, and its mounting debt, it is imperative that the city rebuild its tax base as it rebuilds itself. Now more than ever it must invest its resources carefully and avoid unnecessary subsidies to private enterprise.”

A payment in lieu of taxes, or PILOT, is an economic incentive for companies to build or relocate to New Orleans. Under a PILOT, if a company planning an $11 million development negotiates a 25 percent PILOT for 15 years, that company would pay $70,000 in property tax each year, rather than the regularly assessed $280,000. Over the 15-year period, the firm would pay about $1 million in taxes, about $3.8 million less than it would have paid without the PILOT.

BGR said the purpose of its report was not meant to “pass judgment on particular subsidies, but to examine IDB’s process of evaluating and awarding requests for this type of subsidy.”

Jimmie Thorns, president of the board, said the agency has a good system in place to process the applications, and that without the payments in lieu of taxes, many developments, such as the Saulet apartment complex, would have never been built.

Wade Ragas of Real Property Associates agreed. He said no matter how large the chain, each retail outlet must stand on its own markets and be financially successful. If the PILOT had not been granted, Home Depot may not be building a new store here, he speculated.

‘Lacks framework’

BGR says that “New Orleans currently lacks the institutional framework for the efficient, effective and equitable use of PILOT subsidies. The city clearly lacks an economic development plan and strategy to provide context for considering PILOT request and the IDB’s system for evaluating and awarding PILOT subsidies is inadequate.”

BGR calls for a cost-benefit and feasibility process for each PILOT by an independent third party. The BGR also recommends adopting PILOTS only for projects that conform to the city’s master land-use plan.

The Development Board was created in 1973 to issue tax-free revenue bonds for manufacturing and industrial development. It eventually evolved into issuing bonds for a variety of projects. Recently the PILOTs, used as leverage for a bond, have helped finance projects such as the Home Depot in Central City, a Lowe’s Home Improvement store on Elysian Fields, the 700-unit Saulet apartments in the Lower Garden District and the Wal-Mart on Tchoupitoulas.

Thorns said without PILOTs, those projects wouldn’t have happened.

He pointed to the Saulet, the largest apartment complex built in more than 50 years. The Saulet received a 15-year PILOT limiting its annual property taxes to $70,300. BGR estimates that over the course of the 15 years the city is giving up $702,438 in property taxes.

Thorns said the PILOT was necessary because it offset the costs of putting drainage pipes under the property to deal with a drainage problems caused by the Ernest N. Morial Convention Center. He said the Lowe’s on Elysian Fields has been a boon to eastern New Orleans and Gentilly residents.

The Home Depot at Claiborne and Earhart will be one of the biggest stores in the chain, employing hundreds and generating millions in sales taxes, he added.

Urban sites are expensive, Thorns said. For the Home Depot site, the company had to buy several pieces of land and conduct an environmental cleanup.

Steering development

Crescent Crown Distributing LLC, which developed an $18 million distribution facility in eastern New Orleans, received a PILOT.

Paul Fine, secretary and board member of Crescent, said when it began considering a move from Elmwood, it was wooed by many parishes. But the incentive of the PILOT convinced him and Chairman William Goldring to build in eastern New Orleans.

“It was the PILOT that brought 250 jobs back to New Orleans,” he said.

He added that the application was no pushover. “They did an extensive review and were very diligent of their work. They didn’t give us everything we asked for, and their review process asked the questions (many ask), ‘Why us? You have the money.’ “

Raley Alford, a local attorney and new member of the city’s Industrial Development Board, said he saw some said criticisms in the report that should be heard.

“I think the tone of the report was constructive. I, for one, appreciate the suggestions. Frankly, the report makes some good points and these are points our board are considering right now. We certainly welcome any help from BGR or any other observer.”

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Greg Thomas can be reached at gthomas@timespicayune.com or (504) 826-3399

Mar 13, 2007

Source: Times-Picayune

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