Property taxes for New Orleans homes have surged; now businesses could get a huge tax cut
By Anthony McAuley
Source: The Times-Picayune | The New Orleans Advocate
October 23, 2020
Over the past two years, thousands of homeowners across New Orleans have opened unwelcome letters from the Orleans Parish assessor’s office providing notice of big jumps in the assessed values of their properties and, with that, a sharp increase in their tax bills.
Now, some of the city’s biggest commercial property owners, many beaten down by months of business losses due to the coronavirus pandemic, are getting letters with much happier news: The assessor is awarding them what amounts to a huge, once-in-a-lifetime property tax cut.
Assessor Erroll Williams earlier this month finalized across-the-board cuts in 2021 assessments for hotels, retailers, restaurants, office towers and other commercial properties, in a push to alleviate the economic devastation inflicted by the pandemic.
Some of the biggest cuts will be for the largest hotels, including the Marriott on Canal Street, the Hilton Riverside and the Sheraton, as well as Harrah’s Casino New Orleans and its adjacent properties. Each could see its tax bill drop by $1.5 million to $2.5 million, based on current millages and estimates from data provided by the assessor.
The final property tax bills for 2021 will not be set until the City Council and other taxing authorities decide on their millages, but the valuation assessments for commercial property owners have already come through.
Hotels will get a cut of about 57% in their assessed property values. Event venues, restaurants and bars will see a drop of 45% to 46%. Smaller cuts will be given to retailers, office buildings, laundromats, funeral homes and banks. Even supermarkets and pharmacies will see a 5% reduction.
The result is that the assessed values of almost 10,000 commercial properties will drop by almost $300 million, or 25%, to slightly more than $916 million. At the same time, the assessed value for about 144,000 homes and other residential properties will rise by $193 million, or almost 8%, to $2.7 billion.
Overall, the changes will significantly shift who pays for police, fire, public schools and other government services. Commercial property owners, who account for slightly less than 25% of property tax revenue, will pay about $42 million less. Residential property owners, who account for more than half the property tax base, will pay about $30 million more, according to assessor’s office data.
If millages are held steady, City Hall and a number of other entities funded by property taxes will see a drop in revenue, with New Orleans’ total property taxes falling by a net $12 million, from $652 million to about $640 million, according to the assessor’s latest estimate.
Williams said he decided to make the unprecedented cuts because of the dire situation faced by New Orleans’ hospitality sector.
“Until tourism comes back to New Orleans, these hotels are going to struggle, and the restaurants, some of them are not coming back at all,” he said. “Rather than sit back and do nothing, we decided to study it and see what we could do, so they could sustain the period of being in the red.”
Property taxes make up about 45% of the combined budget for City Hall and about a dozen other parish-level entities, which include fire and police services, the Orleans Parish School Board, the Audubon Nature Institute and parks and recreation.
The rest of the revenue comes primarily from taxes on sales, motor vehicles and hotel room rentals, and fees for parking tickets, utilities and other items. Many of those, however, have seen substantial drops over the past year as the coronavirus shutdowns, aimed at slowing the virus’ spread, have resulted in empty hotels, postponed conferences and canceled events such as the New Orleans Jazz & Heritage Festival and the Essence Festival of Culture.
Mayor LaToya Cantrell and her administration are trying to plug a $40 million hole in the city’s 2020 budget, and few see on the horizon a big rebound in tourism that could boost sales tax receipts to pre-pandemic levels.
The mayor’s office would not comment directly on the cuts in commercial property valuations and any effect they might have. Said Cantrell spokesperson Beau Tidwell: “The Orleans Parish assessor’s office is an independent entity from the mayor’s office, and holds sole responsibility for determining property valuations.”
Williams said his decision to cut values for commercial properties, which in many cases more than reverses big increases made a year earlier, comes after a summer of deliberation and consultation with other municipalities in Louisiana and elsewhere in the United States, as well as with academic experts, an independent appraiser and industry representatives about how to respond to the crisis.
Robert Penick, director of the University of New Orleans’ Institute for Economic Development and Real Estate Research, conducted a study for the assessor and determined that home prices appeared to be holding up well, even though the number of houses sold had fallen considerably during the pandemic.
For commercial valuations, Penick said, there were too few transactions to determine market values of the properties, so he advised the assessor to look mostly at how the businesses on the properties were doing to come up with a valuation that would reflect sales, or how likely leases were to be renewed.
The hardest-hit area of the economy has been the downtown hospitality sector, where the bulk of the valuation cuts are concentrated.
According to data compiled by the Downtown Development District, almost one third of the total cut in commercial sector valuations, or about $90 million, is accounted for by 10 downtown properties, including the cluster at the foot of Canal Street owned by Harrah’s New Orleans Casino, a division of Caesars Entertainment of Las Vegas. Harrah’s valuations were more than halved to about $15.3 million, which could reduce its property tax bill by an estimated $2.4 million, according to the assessor’s office.
Similarly, the Marriott Hotel on Canal, the Sheraton, the Intercontinental, the Crowne Plaza, the Roosevelt and the Ritz-Carlton will see their property taxes halved. All are owned by national hotel management groups, suggesting that any tax savings will head to corporate coffers outside of the city.
Spokespersons for Harrah’s and the hotel groups either would not comment or did not respond to requests for comment.
Michael Sherman, a lawyer who was land-use adviser to Mayor Mitch Landrieu and whose current clients include 30 hotel owners, was among the industry representatives who consulted with Williams on the tax changes. Sherman pointed out that Williams had the authority to make the big cuts for commercial property owners because of a revision to a flood-damage law that came into effect after Hurricane Katrina. It required assessors to consider tax cuts after various types of disasters.
“This year, the state Tax Commission affirmed that assessors must look at factors such as properties being declared non-operational, like performance theaters, or economically obsolete, such as hotels that have little or no occupancy,” Sherman said. “The New Orleans assessor dove deep to understand the devastating impact of coronavirus on hotels, and as a result, fairly and accurately implemented the adjustments required by state law.”
Whatever the economic case, the shift in the property tax burden toward residential owners is likely to rekindle long-smoldering grievances about the assessor’s methods for influencing property taxes.
Last year, Williams’ office came in for widespread criticism after an 18% aggregate increase for residential sector valuations. That included “sticker shock” increases that more than doubled property tax bills for some owners.
Among the critics was the public policy watchdog Bureau of Governmental Research, which said Williams should not rely so heavily on the sales value of houses in a neighborhood to determine the assessment for all of the neighborhood’s homeowners.
Morgan Clevenger, president of the Fairgrounds Triangle Neighborhood Association, argues that the assessor’s methods can end up penalizing people who have spent years improving rundown and dangerous neighborhoods, only to end up with bigger tax bills because new arrivals are paying more for their houses.
Clevenger said she understood the need to consider the hardship of local businesses. Her parents’ Uptown restaurant, Upperline, has remained closed for months during the pandemic and could use the property tax break.
But she added, “If the assessor is proposing an across-the-board reduction in 2021 commercial assessments, especially a 57% decrease for hotels, many of which are owned by out-of-state entities with deep pockets, we should all be very concerned.”
Another concern is that the broad cuts for commercial property owners mean the benefit is not always delivered to the intended target.
Julie Posner manages the two Uptown locations of Surrey’s Cafe. Both properties are leased, and she said that during the pandemic they had to scramble to secure loans to keep current on bills, including paying rent to the two landlords.
So now, Posner said, the landlords who did not suffer any hardship from rent delays will also get the benefit of a property tax cut.
Meanwhile, the city’s tax collectors have been hounding Surrey’s for sales tax payments, including adding more than $4,000 in interest and penalties on a sales tax bill of almost $13,000 that was due in April.
“I can appreciate that the city is in dire straits, too, but who is really benefitting from this?” Posner asks. She said her restaurants have had to take extraordinary steps to keep going, and she doesn’t think city officials have thought through how their actions will hurt front-line businesses.
Other big changes to assessed property values include the 30% cut for fast-food outlets, which includes some mom-and-pop burger and chicken shops but also benefits dozens of outlets owned by the big national chains. In New Orleans, for example, the 17 McDonald’s outlets are mostly located on property owned by McDonald’s Corp. rather than by their local franchise owners.
McDonald’s, like most retail outlets, suffered a sharp sales downturn in the second quarter of this year but recovered strongly in the third quarter. Its share price is up 14% since the start of the year, and earlier this month it increased its dividend for shareholders. A McDonald’s Corp. spokesperson said the company was unaware of the New Orleans assessment cut and had no comment.
Williams said he recognizes the assessment breaks he is giving might be imperfect, but he says he had to act in order to help businesses while also minimizing the revenue drop for local government.
Indeed, he said, he understands that valuation increases for the residential sector do not take into account the fact that many individuals have lost their jobs or seen their incomes reduced because of the pandemic. He acknowledged that might become an issue next year when it comes to collecting taxes.
“The next challenge is going to be in January, February, when the city usually collects 85% to 90% of the property taxes,” Williams said. “I’m not the tax collector, but with so many people out of work I don’t see how everybody is going to be able to pay their taxes on time.”
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